Watch any Hollywood interview, award ceremony, or acceptance speech, and you’ll probably hear artists, writers, or directors talk about the process. The magic stems from the right creative process, they say.

Product development—especially digital product development—isn’t so different. Developing a product that fits the marketplace and sustains profitable growth, indeed, is all about process.

In this guide, we’ll explore the concept of the agile process, articulate what it means to digital product development, and offer you what you need to know on relevant topics, including product-market fit, customer feedback, and testing and experimentation.

What we’ll cover will most likely be of maximum benefit to startups focused on digital product development. And while several of the concepts we’ll discuss certainly can apply to physical product development, the principles we’ll focus on are most effective in a digital context.

To help build the type of products that can change consumer behavior, we’ll explain the basics of:

1. Understanding product-market fit
2. Making sense of common methodologies
3. Picking an agile approach
4. Testing the market
5. Getting customer feedback
6. Applying 5 successful tips
7. Resources we love‍
   

Startups begin with an idea. They build out that idea, try to attract investor interest, and release a product to the market. Sadly, many find the idea simply doesn’t garner market interest. Funding dries up, they close their doors, and their big idea dies.

The term “product-market fit” refers to the degree to which a product satisfies the demands of a good market. That means enough customers are buying, using, and telling others about a product to sustain that product’s growth and profitability.

We’ve observed time and again that a highly-functioning process can foster stronger product-market fit. Conversely, a muddled product-dev process—that is, a process that doesn’t account for market change, customer input, or team communication—often results in a product with poor market fit. At worst, poor processes lead to startup failure.

The key to product-market fit is process—specifically, an agile methodology.

Why? Because an agile approach incorporates marketplace changes, customer feedback, and team communication, thus reducing common points of startup failure.

Check out this Superhuman story about their journey to introduce the agile methodology and improve their product.

Defining jargon

Most conversations about product development will quickly take a turn toward process. To make sure we’re speaking the same language, let’s first define the most common terms you’ll hear batted around when discussing processes.

Process: a defined set of steps, activities, or events followed to complete a task or produce a result.

It focuses on consistency, repeatability, and efficiency. Because it’s repeatable, it can be improved, optimized, and automated.

Methodology: a well-defined set of rules, methods, test activities, deliverables, and processes for doing or making something.

Higher level than a single process, a methodology represents a repeatable approach to solving a specific problem.

Framework: provides context, support structures, or guidelines for an operation, way of doing something, or, in our case, developing a product.

It’s flexible and can be customized or adapted to changing conditions. A framework is the context, or series of principles, by which methodologies and processes function.

While there are several product development methodologies that businesses use, the two most common—and most contrasting—are waterfall and agile.

The waterfall methodology

This method breaks down project activities into linear, sequential phases, in which each phase depends on the deliverables of the previous phase and corresponds to a certain specialization. For example, graphic designers, interface designers, copywriters, and other creatives typically do their work within the design phase, whereas engineers and developers complete their deliverables in the development phase—just after designers have completed all their deliverables.

Originating in manufacturing, this approach was typical in engineering design and software development when versions were fixed in advance and released in physical format, like CDs. It’s less iterative and flexible, as progress toward the ultimate deliverable flows unilaterally down.

It moves sequentially—like a waterfall—through the various phases of conception, analysis, design, development, testing, deployment, and maintenance. The problem many modern businesses face with waterfall is that its sequential nature simply doesn’t allow for iterative improvement, the kind of improvement that nudges a product closer to market fit.

Following the waterfall methodology encourages businesses to define the product completely, hand off their requirements for analysis; design, build, test; and then deploy. At launch, they hope the product fits the market.The challenge with waterfall for most businesses is they simply can’t know at the beginning of the project what product-market fit will ultimately look like. Why? Because understanding fit is really an iterative process of listening to the market and refining the product.Enter the concept of agility.

Agile methodology

This method, sometimes considered a framework, is an iterative product development approach in which demands and solutions evolve through the collaborative effort of self-organizing and cross-functional teams with their customers.

First coined in the Agile Manifesto, agile methodology was created in response to the inadequacies and frustrations of traditional development methods like waterfall. The linear, sequential approach of waterfall simply didn’t provide an environment for the kind of constant improvement, collaboration, and innovation needed for software to remain competitive.

Agile introduced new and highly relevant concepts to software development:

• Face-to-face collaboration of specialists rather than working in specialized silos
• Iterative product improvement instead of pursuing a fully-baked product
• Constant customer contact throughout the process instead of seeking feedback when the product is ready
• Accommodating change rather than following a rigid plan

Agile is most suited for today’s competitive, ever-disrupted, and ever-changing landscape.Are you agile? Often startups think they’re using agile methodology when they’re just using a staggered waterfall approach. The difference? Customer feedback and iterative improvement.

The most common point of confusion I run into when talking process with digital startups is understanding the difference between agile and the lean development process. They’re basically the same, right? Yes and no.

Lean production, also known as lean manufacturing, is a more conceptual, business framework that targets an outcome based on efficiency, customer value, and feedback.

Concepted in manufacturing, lean follows five principles:

1. Customer value: Determine the value of the product to the customer.
2. Product value stream: Identify the steps necessary to produce a product, removing all waste.
3. Continuous product flow: Keep the product flowing continuously through the value stream.
4. Pull: Pull product through all necessary steps, reducing anything that slows its progress down or causes friction.
5. Product perfection: Always manage toward product perfection.

Compared to lean, agile is really an execution strategy with evolving targets based on short development cycles, called sprints, and test-and-learn improvement.

Although it doesn’t address the concept of waste minimization directly, it does aim for a product-market fit based on constant release and testing/feedback.

Four characteristics define the agile methodology:

• Iteration: Constantly improve the product, aiming for product-market fit.
• Communication: Ensure open, direct communication within the project team and with the customer.
• Short Cycles: Work in short cycles to enable iterative build and improvement.
• Quality: Stay focused on quality, reducing failure points.

As you can see, agile and lean have quite a few similarities. Think of lean as the higher-level, more conceptual framework—the theory—and agile as more tactical and practice-based.

Two agile approaches to look out for:

Kanban is an agile or just-in-time methodology that functions within the lean methodology and focuses on executing small projects that fit together to form a whole.

In manufacturing, it focuses on just-in-time inventory, that is, keeping just the inventory you need to complete a project or cycle. For digital product development, it often refers to executing a list of projects one by one (usually moving Post-its from “backlog” to “in progress” to “completed”).

Scrum is a process within the agile framework that emphasizes short sprints or sprint cycles, bringing together a team of SMEs working collaboratively toward a shared sprint goal.

Maybe it’s a product feature, an interface improvement, or even vetting an idea. The key here is a team of specialists working collaboratively with each other and the customer on a shared goal.

We recommend startups apply a lean framework while using an agile execution, all while targeting product-market fit. That is, use lean thinking while executing an agile process to minimize waste and reach a minimal viable product (MVP). That approach should bring you closer to product- market fit with every agile sprint.

When startup leaders hear “testing,” they may think of quality testing, usability testing, or even user acceptance testing. While each of these tests is quite important, we’re focused on another kind of testing that’s, frankly, as important to product-market fit as any of those testing strategies are to a functional product.We’re talking about product testing.

Product testing in the broadest sense measures a product's performance, safety, quality, and compliance with established standards. For our purposes, we’ll focus on testing the product’s performance in the market or with the target users of that product.

In fact, an integral feature of agile methodology is testing and experimentation.

‍With every sprint, the project team validates not just the quality and function of the product or feature they’re developing, but they should be validating the product against the customer’s or user’s needs and desires.

What that means in practical terms is continuous testing and learning. Every sprint is an opportunity to test or experiment on a concept, feature, or function and learn what’s working, what’s not, and what ideas could be infused into the project roadmap, or a high-level summary of the product vision.

For example, let’s say a team is working on a digital interface. Part of or an entire sprint may be dedicated to crafting an interface and vetting it out with customers.

Customer feedback is a critical component of product-market fit. And knowing when and how to collect it is the trick.

Although the customer should play a role in the initial product concept, there are three important checkpoints of just about every digital project that create an opportunity to collect meaningful and measured customer feedback.

The pre-launch phase presents the first opportunity to collect measurable customer feedback through the use of focus groups or simple targeted customer feedback loops. Product-market fit is, in fact, a data measure itself that becomes more predictable—and even obvious—as customers are engaged. More on this below.

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‍The private beta phase gives you an opportunity for a second round of customer feedback measurement. By necessity, private betas usually involve a limited audience, which makes it difficult to source detailed feedback that’s also statistically significant. Here’s a good hack: Simply ask your beta users how they would feel if this product didn’t exist on a scale of 0 to 5, with 0 meaning “neutral to positive” and 5 meaning “devastated.” If over 40% of users give it a 5 for “devastated,” that validates a strong level of product market fit.

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The public launch provides a third opportunity for a true feedback measurement. At this point, the product is actively in the market, so you can get a true measurement of product-market fit.

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Prominent investor Marc Andreessen describes product-market fit like this: “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 other words, true product-market fit is obvious.

As you’re evaluating public-launch user feedback, look specifically at these metrics:

• ‍Engagement of existing users: The usage patterns of existing users demonstrate that they rely on this product and use it regularly to meet a particular need.
• ‍Evangelism of existing users to new users: This is referral behavior of your active audience, measured via the organic growth in product sales through customer referrals and word of mouth.Keep these things in mind, though, as you collect and review customer feedback:
• ‍Themes: Note recurring themes in feedback and/or user misconceptions you can correct. Finding your audience: A key component of product fit is finding or creating the test group to provide the feedback you want. Who has the problem? Who’s the person who would benefit from the problem? Understand who the customer is and where they are.

The early adopter trap

Although early adopters are a strong indicator for determining product-market fit, remember that their unique behavior may not be fully representative of the engagement you might see in the wider market. Use them to build the best product but not as to define engagement expectations in your model as you expand to a wider audience.

Remember that early adopters don’t necessarily reflect the behaviors of the mass market. Your adoption rates might fall significantly when your product launches more broadly.

In thinking about product development and methodologies like agile, let me offer five observations common to successful startups.

1. Know the problem

Make sure you’re actually solving the right problem or producing the right product. Too often small companies assume they know the problem they’re solving. Maybe they received some customer complaints, noted an issue during QA testing, or received feedback internally. So they go about solving what they think the problem is only to find they still have problems.

Avoid solving the wrong problem by listening to your customers. Go find the root cause of that customer issue. Then work on solving that problem with laser focus.

2. Fake it ‘til you make it

You don’t have to build a completely functioning product to identify a product that will actually work. A simple product framework, or even just a manual process, can go a long way toward helping you learn what really resonates with your target customers. Prove out your concept before you invest real money.

3. Recognize proper product-market fit

Measure the right things; look at the right data set. Always keep the question, “Do we have the right product- market fit?” top of mind. Focus on what the data tell you, not on vanity (i.e. not on what people anecdotally tell you about your product).

4. MVP and continuous improvement

Once you’ve validated the solution, then you get into continuous improvement to get closer to the full solution with full customer feedback to get to product-market fit. Build your MVP first, then iterate. You start investing money once you know you have a viable concept on your hands.

5. Batten down the hatches

Focus on the core product, specifically on finding and then perfecting product-market fit. Once you’ve hit on the right fit, define it precisely and then double down on refining what you’ve got. Avoid product creep at all costs. It’s tempting to iterate more and more, adding more features, etc., in the pursuit of even more perfection. But there’s a very real chance you can overcomplicate the product. You can find product-market fit and then lose it!

Founder insight

A number of years ago, I advised a company that built an MVP that was wildly successful among customers. The company invested in it heavily. Thinking they could broaden the product appeal to an even greater swath of customers, they began adding features they thought customers wanted. However, in doing so, they complicated the product to the point that they lost their product-market fit—and, with it, their second round of funding. They had pivoted too far away from what made them special, the product ultimately failed, and the company could not survive.

The problem? They didn’t effectively communicate with users to understand what really excited them. All those bells and whistles obscured the product’s core appeal to users.

Many resources and tools are readily available—and economical—to help you and your team manage an agile product development process. For starters, take a look at these recommended reads and technologies.

Must-reads

Creating the Lean Startup [Inc.com]

I’m a true fan of articles that share real-world learnings which have evolved into market norms that we practice every day in the workplace. In 2011, Eric Ries wrote a book that transformed the way in which people thought about product development. “The Lean Startup” introduced the modern—and now best in practice—approach toward product development, inspired by the ability to iterate and evolve at hyper speed in the online services economy.

Prior to the release of this book, however, Eric was a successful CTO, having built IMVU, a disruptive messaging app founded in 2004 that boasted millions of users and over $50 million in revenue in 2011. This Inc. Magazine article, which was written following the release of Eric’s industry-changing book, recounts the product challenges and experiences he faced that allowed him to develop the lean methodology. The article demonstrates the moment of realization of how things could be done better—and sets the field for modern product practices.

A Quick 5-Step Guide to Lean Product Development [Dozuki]

There’s nothing like a step-by-step guide to business excellence; I’m a big fan of lean methodology in the process of building products and taking them to market. However, there is often confusion related to two main questions around this approach:

1. Is this for software/services only, or can it be applied to a wider set of product offerings?
2. How is this different from a traditional approach, and how do I know which one I am executing?

Dozuki provides enterprise-level workflow software to drive more efficiency in teams. This blog article is a great encapsulation of lean methodology that is not industry-specific and clearly illustrates the different choices being made between lean and traditional methods.

As true evangelists of the lean approach, Dozuki provides a great guide on the decision criteria and processes to be undertaken to optimize the product development process in this easy-to-follow summary.

‍How Superhuman Built an Engine to Find Product-Market Fit [First Round Review]

‍I always really enjoy reading stories by entrepreneurs about their growth and learnings as they face challenges and introduce unique approaches in their areas of expertise.

Rahul Vohra is CEO and founder of Superhuman, an email management platform that has established a tremendous following even while in stealth mode. Even though they’ve been onboarding tens of thousands of users already, they boast a waitlist of over 250,000 applications to use their service. Superhuman is a true example of product-market fit and a poster child for lean product development and mastery.

Superhuman faced a meaningful challenge in trying to practice agile development while limiting their access to public market feedback. They mastered the art of solving for product-market fit by asking their limited number of test users one simple question:How would you feel if you could no longer use Superhuman?‍

‍A) Very disappointedB) Somewhat disappointedC) Not disappointed

‍The theories behind metrics they collected and what those meant are detailed and well-defined in this article. I believe this is a very repeatable practice for other firms in their early stages of product development.

Process management tools

• Clubhouse.io is the issue-tracking tool M13 recommends first for smaller teams and startups. Like its competitor tool JIRA, it accommodates defect tracking and agile project management. As your team ramps up in size, JIRA may provide a more robust solution for your evolving needs. SamePage, WorkOtter, and ProjectManager are also good issue-tracking tools for early-stage startups.
• Basecamp is a web-based project management tool that offers to-do lists, milestone management, forum-like messaging, file sharing, and time tracking. It’s perfect for deliverable management and archiving— especially creative deliverables. Interested in a couple of alternatives? Check out Trello, Asana, or Monday.

Communication tools

Keep remote product teams connected and collaborating seamlessly with these communication tools: Slack, Zoom, Chanty, or RocketChat.

Moving toward product-market fit takes an agile methodology, a commitment to customers, and a willingness to test and learn nonstop.