If you’re asking this question of how to achieve Product Market Fit, you’ve probably launched your beta product, you’ve probably hit a critical mass of users that are using your product/service, and you’re wondering how to start scaling, and acquiring users rapidly. Good work, you’ve crossed the first stage of entering the market!
But before you start spending time and money in acquiring users rapidly to prove product-market fit, you should check for PMF.
This is also the question investors will ask you. I was stumped the first time I got this question, because in my mind my product was growing steadily, but there was no conclusive way to establish Product Market Fit.
Investors are keen to invest in companies with PMF, because once you’ve crossed that hurdle, customer acquisition becomes more viable
There are many definitions of Product Market Fit, from the vaguely defined hockey stick growth, to your LTV/CAC > 3, to your user retention/repeat or referral coefficient being > 1.
The problem with most of these is that they’re lagging metrics, and they don’t help you diagnose where the problem lies.
Truism: “You can’t improve, what you don’t know”
What we need is a leading metric, one that can objectively help us judge PMF, diagnose the problem, and improve the product-market fit.
The PMF definition that I’ve found most useful is by Sean Ellis (link below), which basically asks your core user: How would you feel if you could no longer use the product/service?
Very disappointed
Somewhat disappointed
Not disappointed
When at least 40% of your core users who would be ‘very disappointed’ to no longer use your product/service, there is a good chance that your product is getting to Product Market Fit
As you built the product, there is a core benefit that your product provides. Core users are those users who use your product for this core benefit, at least twice or more.
If you haven’t hit the 40% mark, it just means that you have some more iterating to do.
Talk to your users, understand the ‘money problem’ specially for those who are not ‘somewhat disappointed’. These are users on the edge, and try to understand, what’s keeping them from loving your product- likely its small tweaks, features.
For those who are ‘not disappointed’, clearly your product made little impact to this user set. You can take their feedback, but de-prioritize it compared to the previous set of users.
Understand that all products, serve only a certain set of customers.
For your product, try to understand those user profiles better. Start with those who were ‘very disappointed’ and try to establish a clearly defined customer set, like new moms, dentist clinics, etc, with a clearly defined ‘money problem’ that matches the core benefit your product is trying to offer.
If you identify this target consumer correctly, you will find that your product is going to start seeing faster traction, and that improves with your iterations. Knowing the consumer segment to target is a big win.
But before you go all out to capture this market, you need to check if this customer set large enough for you to grow?
You may find that while your product was targeting new moms, the target segment is ‘new moms over the age of 40’. The question is- is this a large enough market?
Market is defined by TAM [total addressable market] x ARPU [Average Annual Revenue/User]
To have a sizable market, if you’re targeting a small set of users, then you should have a high ARPU. With a large target base of consumers, you get more leeway in ARPU.
If the answer is ‘no’, go back and look deeper into your consumer data, maybe a slightly different cut of data, that will help with better targeting.
Once you’re done with the previous exercise- the good news is that you’ve potentially got a target consumer. Now, discard all those consumer profiles that were outside of this set, and check if you hit the 40% mark.
If you have hit the >40% mark, congratulations, do a victory lap, and get back to work. Seriously.
“Well begun is half done”, Aristotle
Hitting the >40% mark indicates that a significant portion of your users like your product. Achieving product-market-fit is a significant milestone in the journey of building your company. Once you hit this mark, then the next step is to launch stage 3, which is your go-to-market (acquiring users fast).
Reference: Sean Ellis Product Market Fit