I worked as a digital marketer and community manager at a Web3 African startup for a while, and as the team, we frequently asked ourselves, "How do we know we are truly meeting our users' needs?"

We conducted a series of surveys and Indepth interviews to learn how much our product was useful to our community and users.

The tricky part of the process was that the majority of our users said nice things about our products; there were a few complaints here and there, but they were fine with it overall, but we soon discovered that this did not translate into how they used our product.

We were not so surprised because we knew how people or users are notorious for being misleading about what they truly want. Most product management experts recommend that product managers follow user behavior rather than what users say they want.

Recently, Bloccelerate, a venture capital firm, released the results of its Web3 startup survey. With all the talk of reduced funding for blockchain and Web3, one of the surprises is that startups don’t consider funding to be the biggest threat. Instead, their biggest hurdle is achieving a product that perfectly matches what the market wants, known as product-market fit.

In this article, we will explain what achieving product-market fit means, especially for African Web3 startups and projects.

So, what is product market fit?

Marc Anderssen defines product market fit as; "Being in a good market with a product that can meet that market's needs"

According to his definition, product-market fit is an unmistakable milestone—once achieved, a startup will be overwhelmed by the volume of new customers and will be unable to keep up with demand.

However, Sean Ellis, who wrote "Hacking Growth," added his own perspective. He felt that Andreessen saw product-market fit as an end goal rather than a continuous process. According to Ellis, he had to keep improving and refining the product to better match what the market wanted.

To put it simply, product market fit describes a situation in which a company's target customers buy, use, and tell others about the company's product in sufficient numbers to sustain the product's growth and profitability. For Web3 startups, this involves aligning decentralized technologies with the specific needs of users.

The importance of Product-Market fit for Web3 African startups

The importance of product-market fit for Web3 startups in Africa cannot be overstated. Africa's diverse terrain demands a keen understanding of local conditions to tailor products effectively. When a product aligns perfectly with the market, it's evident that customers are willing to pay for and advocate for it through word-of-mouth.

In the Web3 ecosystem, some projects or startups have missed achieving product-market by making the mistake of believing that "build it, they will come." But that's not always true, especially during market downturns.

So, product market fit is important because it validates your business model, attracts investors, and enables sustainable growth.

You can have an amazing product or service that does the most amazing things. But if nobody wants it, you’ll probably have to put it back in your pocket.

Challenges and Obstacles in Finding Product-Market Fit

Now, while many people are excited about the innovative technology behind Web3, such as blockchain, and its potential, very few Web3 projects or startups have actually become widely successful by achieving PMF.

This is because the principles of PMF are more complex to attain in a decentralized and community-owned environment like Web 3. Factors such as community governance, decentralized decision-making, and understanding user needs within these frameworks make it challenging to achieve broad success.

Another reason is that Web3’s propensity for explosive network effects could be considered both a blessing and a curse. On one hand, it can allow projects to grow very quickly. On the other hand, it can obscure a project’s true utility. This is a problem because utility is traditionally a yardstick used to gauge product-market fit.

How can early-stage Web3 African startups find a product-market fit?

Discovering product-market fit in Web3 isn’t as straightforward as it is in Web2. For one, Web3 is decentralized and often anonymous. This makes it difficult to rely on traditional product analytics tools such as Google Analytics, Mixpanel, or Amplitude.

However, founders in the Web3 space require quantifiable metrics to gauge product-market fit. These metrics may include user feedback scores, total volume locked (TVL), transaction numbers, daily active users, monthly active users, unique wallet counts, and floor prices for NFTs. The relevance of these metrics varies based on the type of Web3 product under consideration.

For example,Xend Finance , a Nigerian DeFi platform, successfully identified its product-market fit by responding to the specific economic conditions in Nigeria and other African countries like Kenya. In countries where the native currency faces constant devaluation and inflation, Xend Finance utilized metrics such as user feedback, TVL, and transaction numbers during its testnet from December 2020 to January 2021.

With participation from over 1,500 individuals across 75 countries, the platform confirmed its product-market fit. The subsequent launch of its mainnet beta in March saw an impressive reception, with over $500,000 in deposits. This case exemplifies how understanding local market conditions and utilizing relevant metrics can lead to a successful product-market fit for Web3 startups in Africa.

How do you measure product-market fit in Web3?

There are some metrics in Web3 that show how well certain strategies work and can tell us if a product is meeting market needs. In her article called "Go-to-Market in Web3: New Mindsets, Tactics, and Metrics," Maggie Hsu from a16z suggests specific metrics to look at for different types of Web3 businesses.

1. Defi Projects: For Defi projects, some metrics to track are ;

Number and quality of exchange listings
Number of unique token holders
Number of integrations
Total Value locked (TVL)

2. Saas companies: Some metrics to track for web3 saas products are

Tracking leads and retention through the sales cycle
Customer acquisition cost and channel rate
Customer churn rate

3. Social DAOs : Some metrics to track social DAOs are;

Community member retention
Community member engagement

Another effective approach is to directly ask users. The ‘ Sean Ellis test’, which involves posing multiple-choice survey questions like,

How would you feel if you could no longer use {product}?

Very disappointed
Somewhat disappointed
Not disappointed
N/A

According to Ellis, If 40% of your users respond with "Very disappointed", it shows a strong indicator that your product has achieved product-market fit.

In summary, finding the right fit between products and the market for Web3 startups in Africa is a bit of a complex journey that must be evaluated on a continuous basis. It means really understanding how things work locally and what users want. The fact that Web3 is decentralized and community-owned makes it a bit tricky. Founders have to deal with challenges related to community governance, decentralized decision-making and truly understanding what users nee within these frameworks.

If you're interested in more insights on Web3 and startups, feel free to connect with me on LinkedIn.