Why don’t marketing agencies focus on service-market fit?
In addition to being a marketing agency mentor, I’m active in the tech startup sector as both an angel investor and a mentor to tech start-ups. Understandably, the tech sector gets a lot of media coverage these days. Amongst other things, there is a vast amount written about start-up tech businesses and their pursuit of what people call product-market fit. Which got me thinking. Why don’t you hear anything about service-market fit and why don’t marketing agencies and other service businesses focus on it?
What is product-market fit?
The term product-market fit was coined by Marc Lowell Andreessen the co-founder of Netscape. He described it as “being in a good market with a product that can satisfy that market.”
Over the years the term has had different interpretations and emphasis. I notice that people often now use it to denote when a start-up starts to gain traction i.e. customer numbers and sales start to increase. I don’t think this is wrong, but I find more use for the term in more of a strategic context.
For me, product-market fit is when a business has identified a specific market, defined a problem/need in that market and developed a concept for a product that will solve or satisfy these issues.
The building blocks of product-market fit
In order for a product company to achieve product-market fit, a number of core elements need to be in place:
a) A sizeable and commercially attractive, but nevertheless, very SPECIFIC market(s) has been defined.
b) The business has a clear understanding of their target market, their behaviours, their motivations and their mindset as people (not just as customers)
c) There is a problem, an underdeveloped opportunity and/or underserved needs within the market. N.B. Customers might not necessarily be aware of this, but the business has validated it. When UBER started in San Francisco, few of their first customers had really been crying out for their concept, however the market and the underserved need was there.
d) The business has or can create, a product that will deliver value by solving the issues above.
e) The product is so effective at solving the problems that customers are willing to PAY to access it. This is simple, but overlook it at your – commercial – peril.
f) The product outperforms competitive offerings or alternatives (if indeed any exist).
Whilst product development is an iterative process, and product-market fit should lead to market traction, the sooner the criteria for the fit can be established the better.
Product-market fit should not just be seen as a signal of success, more a vital component and a building block of it.
Which comes first, the product or the market?
When people refer to product-market fit, all too often the focus is placed on the latter part of the term (a product that can satisfy the market) and not the former (in a good market). Importantly, Andreessen emphasised that the market matters most.
When a great product meets a bad market, the market wins. When a bad product meets a great market, the market wins. When a great product meets a great market, both win.
Conventional wisdom leads us to believe that most products are created before they are sold. Inventions and historic discoveries have of course resulted in millions of commercial products. And some products have also been created by accident (the Post It note is one of the most famous examples). Nevertheless, today’s product development is primarily about innovation, not invention. That said, even the wheel was created to solve a problem!
Today you have to identify a market problem/need first. Only then should you “sell” the idea to your selected market to ensure it is truly required and commercially viable. If the feedback is positive you can then build the product out properly. This is the essence of the MVP (minimum viable product) approach.
Time spent building a business around a product is pointless. Building a business around solving a problem and/or satisfying a need in a market is the key. The product is the vehicle, the means to the end.
Find a market, identify a need and then develop a product.
Customer First
There is a danger in making the product development process sound incredibly simple. It is obviously not. In modern society, access to information, products and services is fast and easy. Finding a product-market fit for a new product or idea is difficult. Finding a large enough market, that has a need that is EITHER underserved by others OR is a need that the market itself has not truly come to appreciate can be a real challenge.
The ability to find a great product-market fit, whether the solution uses tech or not, can make the difference between your company being a success or failure.
Tech start-up founders are looking to solve problems for a specific group of people by building scalable tech products. However, it is customers, not start-up founders, that decide whether a product meets their needs or solves their problems or enhances their lives. That’s why smart tech founders spend so much time defining and refining their target market(s). They analyse not just their customers’ problems, but their behaviours, attitudes and how they approach the rest of their lives.
Achieving absolute clarity on who the target customer is, allows product teams to build and tweak their products with a clear understanding of who will be using it, what they will be using it for, how they will be using it and, crucially, why they will be using it.
The target market is often segmented and profiled using audience personas or persona archetypes (we used to call them “pen portraits” back in my advertising days). Whatever you call these things, they achieve the same objective. They provide a profile of the customers not just by the traditional methods of demographics, but by looking at how they think and behave using psychographics.
Tech start-ups have a very high failure rate, but one pitfall is easily avoided. Many founders become obsessed with the product, not the customer. Constantly improving or tweaking the product, adding more features and enhancing the user experience is a sure-fire way to burn cash without achieving any traction in the market.
Customer-first thinking and an obsessive focus on the value proposition is a way that most start-ups can avoid the pitfalls of too much expensive product development and not enough actual sales.
Sell futures not features
My friend and business associate, Mike Killen, has a modern take on the old marketing adage, sell the sizzle, not the sausage. Sell futures not features. In other words, it is what the product can do for the customer that is important, the results it creates and the problem it solves, not the features it has.
The “value” a product delivers is what people will pay for. This value is captured in a value proposition which should form the basis of all marketing and sales activities.
The value proposition sits on the front line at the interface with the target market. If the value proposition of a product can effectively capture who the product is for, what they need it for, how they will use and why it exists and is better than a comparable alternative the battle for sales and market share is half won.
What is service-market fit?
So what has this got to do with marketing agencies and where does service-market fit come in?
Whilst product-market fit is a frequently used term, you rarely hear it applied to service businesses. Indeed, if you do an exact match phrase Google search for “product-market fit”, you get nearly a million results. Doing the same search for “service-market fit”, delivers only just over 3,000. All terms are not created equal it would seem, or are we all obsessed with products and not services?
Most tech products are – at their core – actually service providers. The very nature of most SaaS products and companies is that it is technology delivers an experience or service. The fact that such businesses don’t rely on people to deliver the service though means that they are more repeatable and scalable business models.
Regardless of what industry you are in, or what business model you are operating, service-market fit follows the same principles as product-market fit but, of course, applies it to service-based offerings.
There is a school of thought that service-market fit should be analysed BEFORE product-market fit for SaaS businesses. In other words, you should find a target market, identify a need and/or problem and then analyse whether people would buy a service to solve it. Do this BEFORE you then build a product to automate/deliver the service using tech and you will save yourself a great deal of time and money.
What this means for agencies.
The majority of marketing agencies use people, not products, to deliver their services to their clients. All of them use technology to support the delivery of these services in some way of course, but their clients buy the time and skill of the people in the agency.
Nothing wrong or surprising in this. What does continually mystify me is why agencies seemingly give so little credence to forming or re-shaping their businesses using the service-market fit model.
As I have explained above, the first stage to achieving product/service market fit is define the target market. Agencies spend a vast amount of their time looking at target markets and segmenting their clients’ audiences, but almost no time at all segmenting or defining their own.
Most agencies are extremely reluctant to target a particular client sector. For a long time, my own agency had a market focus. Not a particularly tight one I admit, but we were retail specialists. Looking back I often reflect on the knowledge and power this gave us. I don’t think I fully appreciated it at the time. The ability to target prospects at their own industry conferences, the opportunity to become subject matter experts, the ease with which we could converse with and onboard new clients were just some of the many advantages this had.
Crucially though, by having a target market we had a head start in identifying what problems our clients had. What was keeping them awake at night? What opportunities did they want to exploit? What industry-specific needs did they display?
Having this knowledge not only enabled us to target a particular audience, it enabled us to construct, develop and review the services we provided around those clients and the needs they had.
So many agencies describe their businesses in terms of the services they have to offer. Many still cling to that coveted badge of honour that is full service. “We do everything for everybody” they shout from the rooftops!
Describing your agency with a list of services is like a product company listing out the features of their product(s). It is features, not benefits. The sausage, not the sizzle.
Having a more focussed market (client segments) with a more focussed product offer (services) gives you power. It gives you deeper expertise and more control of your business.
You can start to measure your results better and you can start to set your prices for delivering the services. You don’t have to accept the “costs” dictated to you by the market norms of what is adjudged to be acceptable hourly rates etc. You can also develop your agency by adding the services (talent) that will really benefit your clients and enhance their experience, rather than adding people to simply satisfy workload or capacity issues.
In summary…
If, as an agency owner, you embrace service-market fit thinking when building your business, you will identify what types of clients will benefit most from working with you. What issues or underdeveloped needs do they have?
How can the services you offer (or maybe some that you currently don’t) BENEFIT those clients? How can you improve their user experience?
How are you BETTER than other alternatives they may have (N.B. awards and having an office dog don’t really cut it)?
How can you bring these elements together in a compelling value proposition that communicates how your agency fits with your target market
What do you need to do to change your agency with service-market fit thinking?