Lately, I’ve become obsessed with re-collecting nostalgia from my childhood.
Just the other day, I spent 3+ hours adding my old Nintendo games to wishlist on LukieGames.com. I’ve already committed mentally to spending a lot of money with this site, and I couldn’t be happier.
I’m sharing this with you for 3 reasons:
- It’s extremely rare I spend 3 hours dedicated to a hobby.
- Before the other day, I had never even heard of LukieGames.
- Because I’m in the ecommerce marketing space, I am extremely critical of buying from sites I’ve never encountered before.
However, the reason I’m excited to start my new customer relationship with LukieGames is because they seem to understand a critical component that plenty of ecommerce founders don’t: Product/Market Fit.
What is Product/Market Fit?
The term, originally coined by Marc Andreesen, in an article called “The Pmarca Guide To Startups, part 4: The only thing that matters” is about what happens when a product satisfies a need and finds its way into a market that says the need exists.
In Marc’s article, he says:
“Product/market fit means being in a good market with a product that can satisfy that market.
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 the piece, he also suggests that “lots of startups fail before product/market fit ever happens.”
In the context of ecommerce, “Product” doesn’t just refer to inventory, but also to the overall shopping experience of the store and the team that runs it.
The most common pitfalls I see are:
- Founders entering the market with little to no plan on how to penetrate.
- Little to no defining brand attributes.
- And an unwillingness to make adjustments or incorporate feedback provided by the market.
This ultimately does not make for a good overall product.
For example, if a market expects a risk-free return policy and that’s not something you can offer, inventory might not move as well as a competitor who does and no amount of marketing in the world can make that better. A 2012 report by UPS that found improving reverse logistics can increase revenue up to 5% of total sales.
Marc suggests that when you are pre-product/market fit, you should do whatever is required to get to product/market fit.
“Including changing out people, rewriting your product, moving into a different market, telling customers no when you don't want to, telling customers yes when you don't want to, raising that fourth round of highly dilutive venture capital -- whatever is required.”
Yes, this will force you to ask the hard questions. Yes, this may mean abandoning your original vision. Yes, this means you have to be prepared to listen to brutally honest feedback. And yes, you may get your feelings hurt.
But, the end goal is do what Paul Graham of YCombinator puts so simply, “make things people want.”
So How Do You Find Product/Market Fit?
Customer Development, in a completely distilled, you-should-totally-spend-the-next-5-hours-reading Steve’s-blog-when-you’re-done-with-this-article kind of way, is about incorporating customers within your target market into the early product and business development conversations.
The idea is that by working with the market early on, you’re developing a product and business model that the market not only wants, but gets excited about and happily pays for.
The folks over at The Lean Startup Machine created a process called the validation board that builds on this process, and helps you to design a controlled set of experiments to quickly (and cheaply) validate whether your product idea and market are a fit for each other.
The concept is fairly straight forward:
- Write down who you think your customer is.
- What you think their problem is.
- And how you propose to fix it.
Then write down all of your assumptions about the market and pick the riskiest. Decide how you’re going to test that assumption, and determine how many people saying “Yes, I have this problem” is necessary in order for your assumptions about the market to be valid.
Once you have that, find a couple of people within your market and start asking questions.
Trevor Owens, the founder of The Lean Startup Machine and Javelin shares how he used this process to find the right market and positioning to rent & sell scooters.
If you want to get a comprehensive example of how the validation board method works, you need to watch this video.
Customer development and validation itself isn’t quite achieving product market fit, however continued use of this process throughout the growth of your business - using customer feedback to iterate - will help you to get there a lot faster.
Ben Horowitz, Marc Andreesen’s partner says in this post:
“Some companies achieve primary product market fit in one big bang. Most don’t, instead getting there through partial fits, a few false alarms, and a big dollop of perseverance.”
Why Do You Need Product/Market Fit
The concept is simple enough, but the question is, “Why.”
At a very basic level, these processes are designed to have some safeguards to ensure you won’t sink of time and money into building a store that nobody wants.
But beyond that, it’s to make sure you’re building a solid foundation on which to grow profitably and sustainability.
In Sean Ellis’s article titled “The Startup Pyramid” he emphasizes that product/market fit should be achieved before switching gears to growth.
Given that product/market fit is a fairly abstract concept, he also provides a metric to help gauge whether you’ve achieved it.
“In my experience, achieving product/market fit requires at least 40% of users saying they would be “very disappointed” without your product.”
For an ecommerce store, this would mean 4/10 paying customers saying they’d be very disappointed if your store did not exist.
He says you should be measuring this as early as possible, because it will significantly impact how you operate your business, and that until you reach this number pretty regularly, that it is critical you operate at a slow burn and focus on improving the percentage of customers who say they need you.
Sean also cautions against bringing in VP’s of Marketing & Sales to try and solve the problem, because ultimately they’re just going to cost you more money, and like I said earlier, even the best marketing in the world won’t help a sell a product nobody wants.
“Instead, you (the founders) should engage existing and target users to learn how to make your product a “must have.”
Sometimes it is as simple as highlighting a more compelling attribute of your product – but often it requires significant product revisions or possibly even hitting the restart button on your vision.”
This means talking to and collecting feedback from people as much as possible during different points the customer experience.
Ott Nigglus has written an excellent post on ConversionXL titled “How To Create Customer Feedback Loops at Scale” that you should read, in addition to Peep Laja’s “How to Use Qualitative Research to Drive Conversions.”
The Case for the Minimum Viable Product and Minimum Viable Distribution Channel
Let’s take a step back.
Another common challenge I see are when ecommerce founders have invested in having a ton of stock and warehouse space and other areas of their infrastructure, but no plan to move any of it.
In The Lean Startup, one of the core principles is to develop a minimum viable product based on validated market feedback, and sell in a way where you can get the maximum amount of learning with a minimal time investment.
Within the context of ecommerce, this could be as simple as selling samples or minimum order quantities through eBay, Craigslist or other marketplaces. This could also mean developing a presence within Facebook’s Buy/Sell groups, or spending time within relevant subreddits.
But what this also means is using these platforms to conduct customer development with real paying customers, and learn about what they want, what makes them fearful, and what would keep them coming back.
Knowing these things not only helps you to refine your approach, but also acts as a channel for building a pre-launch list of existing customers when you’re ready to scale your operation up.
In other words, do this until you’ve reached product/market fit with the minimal viable product, only then should you look at scaling up your operation. Grow because you have to.
Reverse Engineering LukieGames.com
So let’s take this back to where it all began. I am in the market to buy old video games.
Looking at the search trends for retro video games, I can see that the overall market pretty healthy and over the past few years, has been rising.
While this is a good starting point for a company like Lukies, a healthy market does not guarantee success.
For me, it wasn’t that Lukie simply had games, but rather that they gave me confidence in buying from them. Most of those trust elements were found right in the site’s header.
- 90 Day Return Policy.
- Accessible Customer Service.
- Low Threshold for Free Shipping.
- Secured Checkout.
- Wish List To Share With Family & Friends.
Having a comprehensive return policy and easy access to customer service are two things that are less certain on Ebay or Amazon, the typical “go-to” places for finding merchandise that is, at minimum, 20 years old.
Also, because this site saves me the hassle of hunting down each of these products on eBay or Amazon, I’m willing to buy from them repeatedly, even if their products are a couple dollars more.
What I find interesting about Lukie though, is that right on their about page it states that they started by selling NES games on Ebay, and are now the #1 seller of classic games in the world. They’ve become so successful, they have a 12,000 sq ft warehouse full of merchandise and are selling their products on a website (and asset) that they control.
Digging a little deeper, I learned the reason they stopped selling on Ebay was because they decided that having their own ecommerce store would be better for their margins:
“Amazon was definitely a good resource for us, and Ebay was a great jumping off point, but things really came to a head for the company when the Ebay fees started reaching between $20-30,000 a month. Amazon contributed another $8k of monthly expenses. You can build repeat business with both brands, but you always have to pay the fees. It was clear we needed to strike out on our own."
They grew because they had to.
But, here’s the other thing, their site isn’t perfect by any means. The marketer and optimizer side of me cries a little at how underwhelming their product pages are.
Nothing here builds on the sense of nostalgia. The product copy is as basic as it gets, and many of the images are only of the cartridge and/or box.
While normally I (and many of my colleagues) would tout these as cardinal sins, the reality is, LukieGames has met my minimum basic requirements to feel comfortable buying - and they will be earning my business.
Ultimately, that’s the most important thing, everything else is icing on the cake.
So now, the question you have to ask yourself is, are you meeting the basic minimum requirements to sell in your market?
Because if not, that’s the real reason people aren’t buying from you.
About The Author
Tommy Walker is a Conversion Rate Optimization enthusiast and Content Strategist at Shopify. Get more from Tommy on Twitter.