Finding Product/Market (P/M) Fit
“If you have to ask whether you have Product Market Fit, the answer is simple: you don’t.”
- Eric Reis, author of The Lean Startup
I am sure most successful entrepreneurs could look back and point out when they reached product/market fit, but hindsight is 20/20. And even if you have a guide to tell you what metrics to hit, it’s tough to know whether you are on the right path when early on in the business you have very few metrics to rely on.
Conventional Guidelines
A lot has been written on product market fit: why you need to focus on it, what it looks like when you have it, and when you don’t have it. Conventional guidelines on P/M fit currently look like this:
B2B products
- 5% conversion rate from free to paid
- 3x CPA to LTV ratio
- <2% monthly churn
- Clear path to $100k MRR
- 10 customers using the product if it’s priced in the 10k — 100k ARR range
- Customers are successfully on-boarded
- Net negative churn
- Usage at least flat or increasing
- Customers are willing to get on the phone with an investor to talk about problem/solution
- Customers all have a similar use case and that market segment should be a decent sized business (>$50m in ARR from that segment)
- If you have a marketplace, you need to prove the product works for both sides of the marketplace
B2C products
- Usage 3 out of 7 days
- Organic growth of 100s signups/day
- 30% of users are active the day after signing up
- Clear path to 100k users
Sources: Andrew Chen’s zero to traction it’s really hard and David Skok’s the most important startup question.
Early Indicators
Before you are able achieve these numbers, the following indicators will help guide you to P/M fit. Most of the following is more applicable to B2B businesses.
- You have found a few early adopters in your customer segment and they are using the product regularly and happily giving you feedback, despite the bugs, average design, and limited features.
- You have identified (by talking to the customers) the one key feature that keeps bringing back your early adopters.
- Your early adopters are starting to talk to others about the product, internally or externally.
- Your early adopters are willing to pay something for the product or sign up to a contract, most likely with favourable early adopter terms.
- You feel like some of your users are more excited than you are about the product.
- People from the industry you are targeting are showing early signs of their interest to invest or work with you.
So, what do you do if you are not seeing any of these indicators?
First (and take this as a general start-up rule), talk to your customers! Find out who they are and understand your customer segments. Are your customer segment assumptions valid or do you need to change your assumptions? Do you understand what problem you are trying to solve and is this one of your customer’s top concerns? Do not spend time and money signing up the wrong customer. It will only delay P/M fit!
Second, if you have the right users and you are solving one of their key problems, is there something preventing them from using the product? Watch your customers use your product. Are there key issues the user has with on-boarding, understanding the product features, or using the features? Spending time with your users is the only way you will actually understand any issues they may have.
Third, do you understand your customer’s organization well in terms of who is going to use the product and who will buy it? Are both of those stakeholders on board? If not, who isn’t and why? You may have a situation where the buyer is on board but the user doesn’t understand the benefit or how to use it. Make sure the benefits to each of the stakeholders is clear and they both understand and agree with those benefits.
Final Thoughts
If you take anything away from this blog I hope it’s the following. (1) Track your metrics from the start. Even if you have very few metrics early on it’s important to track them so you can see your progress over time. And, I would argue that if you don’t know the metrics of your business, you don’t know your business. (2) Make assumptions, validate, move on or re-visit the assumptions. Never think that you have all the answers when you start your business; rather, you have assumptions that need to be tested. (3) Spend (alot of) time with your customers. There is only one way to be confident that you are solving the right problems and your customers are satisfied with the product, and that is by spending time with your customers.
Those are my thoughts on P/M fit. I would love to hear what other’s think about getting to P/M fit.
Additional books on P/M fit:
The Startup Owner’s Manual by Steve Blank
The Lean Startup by Eric Ries
Lean Analytics by Alistair Croll and Benjamin Yoskovitz
