03: Creating Your Product
Product Market Fit
Three years into building TeaSquares I realized I made the product too complicated and it was holding back our success. The product tasted good, and was designed to solve a large problem in the world, but not in a way that customers wanted that problem solved. You see, I didn’t truly understand what problem I was solving, for whom, and what they wanted. I didn’t have product market fit.
Whether you’re crafting a new snack, developing a beverage, or whipping up a new sauce, you need to have product market fit.
What is Product Market Fit?
For Food and Beverage brands, product market fit is when you create a product that aligns with a strong consumer demand, driving to increased velocity and strong repeat sales.
Some products quickly find PMF, and others never fully achieve it. One of my favorite examples of this is Rx Bar. We all know the success story of how Peter Rehal built the company and eventually sold to Kellogg for $600 million, but his real success is finding strong PMF early and staying laser focused.
Peter and his business partner were avid Crossfit fans, and designed a clean protein bar they could eat before and after a workout. This was a perfect market ready for the right product. If you look at people who do Crossfit, they are early adopters, avid repeat users, and are vocal about sharing with others. RX Bar created a product specifically designed for this viral audience and it took off.
According to Andy Rachleff, there is a two step process to figuring out product market fit, Value Hypothesis, and Growth Hypothesis.
First you need to define and test your Value Hypothesis, which is defined as the who, what, and the how. Identify who in the market you’re serving, what benefit your product provides, and how customers want to purchase from you. Then, only once proven do you move on to what’s known as a Growth Hypothesis. This is defined as how you expand to bring in more and more customers.
Note that he uses the word “hypothesis”, because as a founder, you don’t know if you have product market fit until you test it in the real world selling your product to paying customers.
Until you prove your value hypothesis, you waste money trying to acquire customers. You see this all the time in our industry, with brands expanding to 1,000 stores, but falling short of the minimum weekly sales targets in each because they haven’t achieved product market fit.
Value Hypothesis
Start With an Existing Consumer Problem.
If you’re like most founders, myself included, you may be starting a business to solve a problem for yourself, a family member, or someone else you care about. While that may be a fine place to start, you quickly have to move to testing the product in the larger market to align the what, who and how.
Beware the common founder as consumer fallacy:
“This product solves a problem for me, therefore it’ll solve the problem for everyone else.”
I started TeaSquares because of a personal problem (need more focus) and came up with a solution that would fit my personal needs – a crunchy, lightly sweet snack made with matcha. But what I didn’t have was a wider sense of how many other people had this problem and how they wanted it solved.
Let’s break down my Value Hypothesis for TeaSquares:
Who: People looking to stay alert and focused, without the jitters and crash from coffee.
What: A crunchy sweet snack made with matcha.
How: Online and in grocery stores.
After getting TeaSquares into people’s hands, we found that people primarily enjoyed the taste + texture, but associated “energy and focus” benefits in beverages, not snacks.
I thought we were solving a problem around “focus”, but the customers who loved TeaSquares thought of our product as a tasty snack that would replace popcorn or a candy bar instead.
So, instead of just creating TeaSquares and hoping people would buy it, I should’ve started by researching whether or not people actually wanted them in the first place!
Testing Your Value Hypothesis?
Write down your who, what, and how for your product idea.
You need to ensure that you have a customer base that will be willing to repeatedly purchase your product because it’s solving a problem for them.
If you don’t know who your customer is, how will you ever reach them? And if you can’t reach them, what good is it making something they might want?
You can do this through surveys or even just asking friends and family who would be interested in buying such a product if it existed (and why).
Sometimes your personal problem will align with a ready and willing to buy market, but does your product align as well? Here’s how to find out.
Start by talking to people about their problems and needs.
- What do they want?
- What do they need?
- Do they have any big problems?
- Where are those problems coming from?
- Is there anything that can solve those problems?
Darcy Ogdon-Nolan, Owner of The Bircher Bar, also suggests “riding the wave of an emerging trend” to cope with the massive competition in the industry.
Nolan says,
“The food-and-beverage game can be insanely competitive at times–and if you’re just starting out, it can be nearly impossible to compete with more prominent players that have nearly unlimited marketing budgets and resources.
I believe the best approach for anyone looking to launch a new food or beverage brand is to ride the wave of an emerging trend. It can take bigger players a while to move into newer categories – so this allows you to get in early and establish yourself before the competition swarms.”
Growth Hypothesis
Once you’ve tested and validated your Value Hypothesis, it’s time to move on to the Growth Hypothesis. This is where you determine how to scale your business and continuously attract more customers. While the Value Hypothesis focuses on proving that your product meets a specific need for a defined market, the Growth Hypothesis is about expanding your reach and growing your customer base sustainably.
According to Rachleff, the Growth Hypothesis involves identifying the most cost-effective ways to acquire customers and scale the business. He stresses that without a solid Value Hypothesis, efforts to grow the customer base can lead to premature scaling, which can be detrimental to a startup’s success (Andreessen Horowitz) (Blake Robbins).
Rachleff highlights that growth is about finding scalable, repeatable processes for acquiring and retaining customers. He advises startups to focus on sustainable growth by continuously testing and optimizing their strategies, ensuring they are not just attracting customers but also retaining them effectively (CFA Institute) (25iq).
Define Your Growth Channels
Identifying the right growth channels is crucial. Growth channels are the pathways through which you reach and acquire new customers. There are various channels to consider, including:
- Online Advertising: Leveraging platforms like Facebook, Instagram, Google Ads, and TikTok to reach a broader audience.
- Social Media: Building an organic presence and engaging with potential customers on social platforms.
- Influencer Marketing: Partnering with influencers who can introduce your product to their followers.
- Retail Partnerships: Expanding into new retail stores or increasing your presence in existing ones.
- Direct-to-Consumer (DTC): Enhancing your online store experience to attract more direct sales.
Testing and Optimizing
Just like the Value Hypothesis, the Growth Hypothesis requires testing and iteration. Begin with small, controlled experiments to identify which channels work best for your product. Track key metrics such as customer acquisition cost (CAC), lifetime value (LTV), and return on ad spend (ROAS). These metrics will help you understand the effectiveness of your growth strategies.
Remember, achieving product-market fit is just the beginning. Scaling your business is an ongoing process that requires strategic planning, adaptability, and a relentless focus on delivering value to your customers.
Product Market Fit Calculator
Finding Product Market Fit should be your #1 focus as a new brand, as it’s the #1 reason companies succeed. Below you’ll find a concrete way to define, measure, and achieve product market fit for CPG companies.
Here’s a link to our calculator for how to measure PMF for your business.