How to turn a medium-sized business into a big fish - examples of product-market fit done right

From zero to hero - a common fallacy that big brands want us to believe

There is something in between being an ok-performing business and a company that makes its competition envious. That something is product-market fit, a process that relies on learning from experience and users’ feedback and adjusting your business model accordingly. Let us tell you about a brand that did it right and what you can learn from them.

Netflix - still the same, but always different

At its core, Netflix has always offered the same product: the enjoyment of watching your favorite movies and TV shows in the comfort of your own home. But the way they went about providing their service has changed not once, but twice over the years - and for good reason.

Back in 1997, Reed Hastings and Marc Randolph had an idea - to start an online DVD-renting service. It was a bold move, considering that at the time DVDs (as well as the Internet) were a novelty, with only 2% of US households owning one. The home theater rental market was dominated by Blockbuster, which was offering much more popular VHS tapes - which at the time 95% of US households could play.

After a year, Netflix noticed that customers didn’t like to pay an additional fee every time they kept a rented DVD too long. This is when Reed and Marc came up with a subscription-based system: customers would pay a monthly fee, and DVDs would be mailed to their homes. There was a limit on how many DVDs could be rented at the same time, but no limits on how long they could be kept. Netflix’s idea worked brilliantly, and with the growing popularity of DVDs, their business started to grow.

Years went by, and DVDs were becoming less and less popular. This is why in 2007 Netflix made another bold move - adding streaming services to their offer, starting in Canada, as a free addition to their rental service. After three years, Netflix officially announced that it would become primarily a streaming platform and entered the US market with what we know today.

Fun fact: Netflix’s DVD (and Blu-ray) rental service runs to this day!

Breaking down the success of product-market fit

There are two key elements of product-market fit that Netflix has proven to be really good at: observing trends and listening to its customers. Netflix noticed a growing trend in the DVD market, as well as its demise. When customers were unhappy with paying late fees, Netflix listened - and became one of the pioneers of the subscription-based model. They tested their streaming service on a single market, and when their customers showed their appreciation - Netflix had a clear signal to go all in. A simple approach of testing whether their service answered customers’ needs is what made them the streaming giant that we know today.

Product-market fit success at Netflix - a conclusion

In the world of digital development, product-market fit is when a working digital product (e.g. a mobile app or a website) is tested with live users. The results of that test are then analyzed and applied to the digital product. The final product might differ from what was initially built, but take on a shape that has a shot at becoming the next big thing - which is what every company dreams of.

Netflix has been using the product-market fit approach all along, with new versions of their features being tested in single countries, before being rolled out more widely. The media says that Netflix has been in financial trouble for the past few quarters, but if their innovative mindset is still there, there is no doubt that they can come out on top.