5 steps to find product-market fit in an unstable world

In the last 5 years, the once-popular homework help leader Chegg lost almost 99% of its market value. During the same period, the amount of questions asked on Stack Overflow dropped to as it was after the platform launched in 2009.

Some say it happened because of ChatGPT. Both companies had their troubles even before OpenAI released the world’s fastest-growing app, but the fact that ChatGPT effectively replaced, and even improved upon, those platforms’ core functionalities definitely didn’t help. 

When OpenAI releases new features, entire categories of AI startups can vanish overnight. Dozens of companies building PDF processing tools were effectively eliminated when ChatGPT Plus added native PDF support. These startups learned a harsh lesson about product-market fit.

This is more than just an AI story. It demonstrates a fundamental truth that the key to market fit lies in a deep understanding of your customers' needs and acknowledging that those needs can shift dramatically. 42% of startups fail specifically because they don't achieve product-market fit, making it the single most common cause of failure.

But what is product-market fit when it comes to digital products? How do you find the product-market fit that thrives even in times of rapid change?

What product-market fit really is

The term "product-market fit" was coined by Andy Rachleff, co-founder of Benchmark Capital and founder of Wealthfront, building on concepts from Sequoia Capital founder Don Valentine. 

But it was Marc Andreessen, founder of Netscape, Opsware, and Andreessen Horowitz, who popularized the concept in his famous 2007 essay, titled simply, “The only thing that matters”. He captured the essence of product-market fit perfectly:

"You can always feel when product/market fit isn't happening. The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of "blah", the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it's happening. The customers are buying the product just as fast as you can make it—or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can."

In today's fast-moving markets, where a single feature release from AI leaders can wipe out entire categories of competitors, this feeling matters more than ever. 

Product-market fit happens when the market's needs match the capabilities your product delivers. But nowadays it’s even more difficult. Even when you do achieve PMF, you have to keep innovating and improving just in case there’s a competitor out there working on something that might make your product obsolete. 

Think of companies like Chegg and Stack Overflow before and after ChatGPT. They were a perfect fit one day, but they stagnated and their users became increasingly dissatisfied. When a new product appeared that offered the same functionalities, users were primed to make the jump.

New opportunities for digital products

Market disruptions happen fast. You might have an app that's been successful for years, then suddenly a new technology, competitor, or shift in user behavior forces you to completely rethink your product-market fit. Or you're just starting out, and the landscape shifts before you even launch. You're not alone.

What you need to do is return to the basics and question your initial assumptions. Imagine you're starting your business again from scratch. What impact have recent changes had on your users? How will these shifts influence their behavior and needs over the long term?

Consider Salesforce, one of the world's leading CRM companies. In 2024, they made a dramatic pivot to embrace AI agents, moving from their traditional per-seat pricing model to charging $2 per conversation with their AI assistants. 

This wasn’t just a new feature, but a rethinking of their product-market fit as AI+SaaS products increasingly perform work rather than merely support it. When even established giants like Salesforce must reinvent their business model, it's clear that product-market fit is never truly "done."

Adaptation to new market realities is as challenging as building a product from scratch. I believe the following 5 steps can help you both find and redefine the product-market fit for your solution.

5 steps to determine product-market fit

1. Determine your target customer and their needs

"People don't know what they want until you show it to them."

That is an insightful quote by Steve Jobs, one of the most brilliant technology innovators in history. He knew what the market wanted before customers could articulate it, which is a rare gift. 

Sadly, Steve Jobs is long gone, and Apple has been struggling to capture consumers’ hearts as well as they did in the past. Their latest attempt at revolutionizing the tech world, Vision Pro, was a spectacular flub.

Why am I mentioning this? Because it shows that attempting to revolutionize a market without having a deep understanding of your target customers is doomed to fail even when Apple does it.

To create a successful product, you need to first determine if there is a market for it. And if there is, find out what it really needs. Successful startup teams conduct five or more customer interviews every single week, and best practice suggests talking to at least 20 users before writing a single line of code.

You have a variety of tools to gather opinions and needs. Even more so, you can build a prototype with AI coding tools or traditional no-code platforms, validate your idea with users, and only then commit to professional software development in order to scale it.

Questions to answer at this stage:

• Who is your customer and what are they trying to do?

• What do they need?

• How can you help them?

• What problem are you solving?

• How exactly does your product solve this problem?

2. Specify the value proposition

You found a market for your product. That means you most likely have competitors.

That's why you need to establish a unique value proposition, the answer to “what makes your solution special?” Understanding and betting on your competitive advantages is how you outrun your competitors. Your value proposition is the promise you communicate to your customers, and it should solve real-life problems.

Differentiation matters more than ever. Research shows that startups with unique propositions are more likely to succeed, and early adopters of differentiated approaches can capture up to 60% of high-value market segments.

It can be a challenge when you're planning to approach multiple target groups. In such cases, you'll likely need to develop a few value propositions, one for each audience.

Whatever you do, don't make this common mistake: assuming your idea is worthless if somebody already created something similar. Facebook was not the first social platform, Slack was not the first chat solution, and Tinder was not the first dating app. They all simply did things better than their competitors. And if they could, so can you.

Questions to answer at this stage:

• Who is your competitor?

• What are the key features of the product?

• What distinguishes you from your competitors?

• What do you offer that no one else does?

3. Specify a minimum viable product (MVP) feature set

An MVP is a minimal form of your product that's tested on the market. It allows you to quickly build something that provides value while minimizing costs.

Today’s market is hyper-competitive, and speed is critical for launching successful products. A great MVP can validate demand overnight. 

Start by choosing features your product must have. No extra functions or nice-to-haves. Later, based on the features you've defined, create a basic version of it.

Don't try to make your product perfect just yet. Time for that will come after testing.

Questions to answer at this stage:

• Which features are the most essential for the existence of your product?

• Are these functions directly related to solving the original goal?

• Does the implementation of these features require a lot of effort?

4. Test

Once you've built your MVP, it's time to refine it through testing. Testing is the key to success, as it allows you to adjust the product to your customers' needs.

Conduct A/B tests, gather both qualitative and quantitative data, and constantly improve your solution.

The best source of insights? Customer feedback. But don't ask your family and friends for opinions. Get insights from your actual customers and people who understand the business. 

If users love the product, it's ready to enter the market. But if they report deficiencies, go back to the previous steps and adjust features to your customers' satisfaction.

Questions to answer at this stage:

• What is the main goal for using this product?

• How was the first experience with the product?

• Were user expectations met, unmet, or exceeded?

• What services or features are missing, if any?

• Why did users choose to use your product over other options?

5. Measure

Measurement is critical for understanding whether you've achieved product-market fit.

The most reliable indicator is the 40% rule, developed by Sean Ellis, who worked on the growth of Dropbox, LogMeIn, and Eventbrite. The idea is simple: ask your existing customers how they would feel if your product suddenly disappeared. 

After benchmarking nearly a hundred startups, Ellis found that companies with strong traction almost always had 40% or more users respond "very disappointed," while companies that struggled to find growth fell below that threshold.

How to conduct such a survey? In the easiest possible way - use Google Forms, Survey Monkey, or any other simple app.

You can also identify your total addressable market (TAM), which is the total number of people who can benefit from your product. TAM is calculated by multiplying your average revenue per user (ARPU) by the total potential customers in the market. What percent of your TAM are your current customers?

Of course, this is one of many methods to verify if your product-market strategy is accurate. There are plenty of others, like NPS or LTV.

Question to answer at this stage:

• What is the one metric that matters most?

Finding and maintaining product-market fit in an unstable world

Product-market fit is not constant. If you ever have any doubt it's an ongoing process rather than a stable status, just remember Chegg and Stack Overflow, disrupted overnight by ChatGPT, or Salesforce fundamentally rethinking its business model in 2024. The product, market, and most importantly, the target audience keep changing over time.

Fast-moving markets are an opportunity for those who know how to analyze and adapt to market needs. And if you’re looking for a proven product development partner to help you on your journey, Monterail is here to help.