For most startups and early-stage investors, Product-Market Fit is the holy grail. Many will claim to have it or be near, but in reality, it can't even really be expressed by a metric or qualitative measurement. In essence, you will be able to know when you have PMF once you no longer have to proactively push your product on the market, and instead, the market actively pulls your product to it.
The number one problem I’ve seen for startups, is they don’t actually have product/market fit, when they think they do. Alex Schultz, Facebook CMO.
This quote from Marc Andreessen, who also famously coined the phrase, sums it up quite nicely:
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. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it.
Sounds pretty great doesn't it? But like most things, it's extraordinarily difficult to achieve in practice and most people would put the process down to serendipity and chance over strategic planning & execution.
The first step in evaluating product/market fit (PMF) can be a difficult proposition for start-ups, especially at the early stages. At the idea stage, the dichotomy of whether to build vs discover is a tough one - if you build without validation, you run the risk and opportunity cost of building something few people want, whereas if you take too long in your discovery of what to build, you may fall behind other competitors in the space.
Various schools of thought will say different things on what product-market-fit looks like... on that basis assessing whether or not you have found it is tricky. In this article, we take a look at how to assess whether or not you have product/market fit and lean on various founders experiences as to what the best practices are to go about achieving product/market fit.
In recent times, the best-known method to begin searching for product/market fit is probably by following the lean startup methodology; Find, Execute, and Validate.
This is the process whereby you would typically start with no product or a very minimum viable product (MVP) and explore the market and end-user pain points. From here you can begin to execute and build, whilst always speaking to users in order to never let your assumptions run away. Keep iterating and building on the product with user feedback front of mind, as after all this product isn't being built for you.
A key way to understand how well your products resonate with users is through conducting customer feedback sessions. Getting to know your customers one-to-one is probably the most useful way to understand how they feel and interact with your product.
We spoke with Axel Thomson, CEO of Ribbon, a tool to help product teams quickly talk one-to-one with their customers, to understand his thoughts around the best way to assess for product-market fit at an early stage:
Pre-product/market fit, you’re constantly trying to understand three things. First, what opportunities exist within your space (what’s the general market)? Secondly, how important are each of these opportunities to potential customers (how big is the opportunity within that market)? Finally, if the opportunity is big enough, how well does your solution addresses that opportunity (product-market fit)?
At the start, you’ll likely have various beliefs about what problems people experience, how painful these problems are to them, and why different solutions might work. As you start talking to potential users about these beliefs, you’ll begin to notice if people generally care or don’t care about both the problem and your solution. Do they go out of their way to trial your solution? If they do, that’s a great signal. If they don’t, their answers and objections can help you understand which of your beliefs are misinformed and then adjust either what problem you’re trying to solve or how your solution solves that problem.
Repeat this process continuously, and your product-market fit grows over time as you learn more about what potential users care about and how to best address their needs."
There is very often a mismatch between what founding/product teams perceive users want, and what they actually desire. The misquoted adage 'build it and they will come' is definitely the opposite approach to that outlined above.
Understanding how vital your product is to your customers is vital, and measuring this can act as a leading indicator for PMF.
A simple question (coined by Sean Ellis, but since used famously by Superhuman founder Rahul Vohra) is a great step to evaluating product-market-fit. Ask your users "How would you feel if you could no longer use [insert startup or product name here]?"
If a group sample of your group larger than 40% answers ‘very disappointed’, as opposed to 'disappointed' or somewhat disappointed', then you most likely are on your way to product-market-fit.
Another way many start-ups evaluate product/market fit is through the traditional NPS scoring system. Do your Customers Recommend you to Friends?
Net Promoter Score (NPS) is a simple survey, asking customers to rate from 1–10, “How likely are you to recommend _____ to a friend or colleague?” Here’s a basic explanation of the Net Promoter score Metric, and how it is calculated.
Figuring out how to assess product-market fit is the first step in knowing the route to attaining pmf. After all, you can't improve what you don't measure, and this will be different for each product or company. In Andrew Chens Zero to Product-Market Fit essay, he details that this metric typically revolves around retention.
Most importantly, you need to meet with and speak to as many of your customers as possible. Using product such as Ribbon or Typeform to conduct user interviews is an effective way to glean insights, refine features and add value.
There are many different approaches people have uses to achieve product-market fit, but most famously the founder of Superhuman, Rahul Vohra, outlined a step by step process candidly detailing how he set out to achieve and optimise for product/market fit for his startup.
Vohra states, "The goal of segmenting was to find pockets in which Superhuman might have better product/market fit, those areas I may have overlooked or didn't think to scope down to."
Asking users that loved their product the most and were willing to share it with others - “What type of people do you think would most benefit from Superhuman?” proved to be a very powerful question, as happy users will almost always describe themselves, not other people, using the words that matter most to them. This lets you know who the product is working for and the language that resonates with them (providing valuable kernels of insight for your marketing copy as well).
Asking those on the fences of loving the product - What is the main benefit you receive from our product? and How can we improve our product for you? was the next logical step in understanding where product development resources needed to go. This was telling for Superhuman at the time as they realised most users wanted a mobile app. (see word cloud below)
Interestingly, Vohra decided that they were going to disregard all users that did not truly care about their product and were "somewhat disappointed" as he did not feel their insight was valuable to understanding what their target users liked and disliked about the product.
To stack-rank amongst the potential ways in which Superhuman could've gone and built, they used a very simple cost-impact analysis by labelling each potential project as low/medium/high cost, and similarly low/medium/high impact. For the second half of the roadmap, addressing what held people back, the impact was clear from the number of requests any given improvement had. For the first half of the roadmap, doubling down on what people love, we had to intuit the impact. This is where "product instinct" comes in, and that's a function of experience and deeply empathising with users.
With this plan, simply starting with the lowest hanging fruit of low cost, high impact work delivered the most optimal outcome and use of time.
Different types of businesses will have different types of metrics to evaluate.
Consumer: You want to see DAU/MAU at >25%. A world-class leading DAU/MAU would be over 50%. There’s a certain minimum for organic acquisition. You want to see hundreds if not thousands of signups per day, and a D1 retention of at least 30%. >70% would be world-class there and inevitably some scale is required to show it works – probably 100,000 DAU.
SaaS: You want to see 5% conversion or higher from free to paid, 3X CAC/LTV ratio, < 2% monthly churn rate and a clear path to £100k MRR. For a SaaS product, focusing more on metrics around monetisation as opposed to retention may make more sense. Although some products can be evaluated using both sets of metrics**.**