Product-market fit research: How to do market size analysis

| August 13, 2021

How do you determine product-market fit for a product that doesn’t exist yet?

This is a problem that investors, sellers/resellers, innovative enterprises, and investment banks face on a regular basis. Yet solutions for estimating market size are limited and often yield inaccurate estimates.

At NewtonX, we specialize in product-market fit research in the B2B space, including gaining market entry insights. We have helped our clients with this challenge hundreds of times. To achieve the best results we have developed a three-pronged approach for conducting product-market fit research. Our team uses B2B surveys, professional interviews, and a qual-quant-qual approach (the Q3 Formula) to quantify market opportunity for products—before they hit the market.

What is product-market fit research?

Marc Andreessen, most well-known as the co-founder of Andreessen Horowitz, was the first to use the phrase “product-market fit” in a 2007 blog post. He defined it as “being in a good market with a product that can satisfy that market.” Product-market fit research doesn’t just help B2B companies determine how well their product can satisfy a market’s needs. It also estimates the potential size of that market.

There are three problems to be solved while doing product-market fit research:

Who do you ask?

How do you ask?

How do you calculate market size based on their answers?

Product-market fit research: Who do you ask?

There are three groups of people who can give data to inform a market size analysis, each of which has a distinct viewpoint. These three groups are:

Buyers/Users

Your target buyer/user, audiences who buy similar products, or who are likely to buy the product based on interest, demographic, and price point.

Data Collection Strategy: B2B Survey to 1,000 users/buyers

Comparables

Products currently on the market that fulfill a similar need to your own product in a partial or incomplete way. Say you were to launch the first ever voice-operated concierge, then a comparable would be high-end human concierge services such as the ones from hotels or credit cards.

Data Collection Strategy: B2B Expert interviews with former employees and leaders at the comparables.

Future Market Leaders

Potential market leaders who could break into the space. In a if you were launching the first ever voice-operated concierge, you would look at Microsoft, Apple, and Google. Ask how these tech giants would enter the market and what strategies they would employ.

Data Collection Strategy: Qual-Quant-Qual (Q3 Formula) Read our NewtonX – Microsoft case study to see Q3 applied.

Each of these groups can give data and insights that, together, can be used as variables to calculate overall market size and product-market fit. This next section will outline how to employ different data collection strategies for each cohort. The following section will detail how to calculate the results into an accurate market size estimate.

Product-market fit research: How do you ask?

This is sometimes a tricky question. Each cohort has different data points to offer, and should therefore be approached differently in terms of data collection.

Buyers/Users

First, data from potential customers should be issued in a survey format to a large population sample (500+ if B2B, 2,000+ if B2C). Sample questions should address the size of the pain point your product would solve (e.g. how much time do you waste on this problem, and how much money do you make per hour/minute).

Comparables

Next, data from comparables can be collected through either a small scale survey or through expert phone interviews (2-5) with former executives. The data should reveal the market size of the comparable (e.g. $Xb).

Future Market Leaders

Finally, the best way to collect this data is to take a qual-quant-qual approach, using the Q3 Formula wherein you:

  • issue interview several (3-10) future market leaders to gain a broad understanding of the space and scope of their market (qual),
  • then issue a survey based on the qualitative interviews to several hundred future market leaders (quant),
  • and finally identify outlier or interesting responses and conduct interviews with these respondents to understand the anomaly (quant).

Product-market fit research: Calculating market size

Buyers/Users

You can quantify and aggregate the monetary value of a product by:

  • multiplying hours of time saved by a user’s effective hourly rate and
  • aggregating the savings across an organization’s total users.

Comparables

You calculate your market size as a function of its scale in relation to the market size of the comparable. For example, if the comparable is a $5B market, and the product you’re investigating would be more mass market than the comparable, roughly 5x the size of the comparable, then the product you’re investigating would have a market size of $25B.

Future Market Leaders

Future market leaders can give hard data on more elusive factors that affect market size, like monetization, changes in market size over time, competition, and investment.

In following this structure, you will end up with three numbers:

  • value per user for the product,
  • market size of comparables and extrapolated market size of your product of interest,
  • market competition and investment from future market leaders.

Additionally, this approach gives qualitative data on market entry strategies, monetization strategies, and future projections. This qualitative information can inform investment decisions, stocking/ordering, and market entry strategies.

B2B research best practices on data sourcing and collection

NewtonX uses a Knowledge Graph—proprietary, AI-driven search that uncovers sources of niche knowledge—to conduct custom product-market fit research. We leverage this complex search algorithm to find the best possible expert for specific client needs.

The identification process works equally well both for extremely niche needs where there might be only a handful of people in the world who would qualify, and for broader needs, such as large-scale executive B2B surveys. By using a combination of AI search, custom recruiting, and 100% verified respondents, NewtonX can deliver the highest quality professionals across 140 industries—anywhere in the world.

Additionally, NewtonX offers custom reporting and survey design to ensure that clients get the highest quality data possible. Clients that currently use this service include three of the top five management consulting firms, three of the big four tech companies, and eight of 10 global market research firms.

To learn more about how NewtonX can help you do a market size analysis for a market that doesn’t yet exist, visit https://www.newtonx.com/get-started/.

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