Product Market fit? It’s the Engagement, Stupid.
I hear more and more people joke about the mantra of “build good product and the customers will come”, mocking the illusion of some founders that customers appear at your doorstep without any efforts into sales & marketing.
However, the notion I get from people saying it is not “you also need to invest efforts into sales & marketing”, but rather a twisted mantra stating “build a good sales & marketing machine and customers will come”.
This approach gives you a nice initial trajectory with new paying customers, you will be able to claim “product market fit” based on reaching your acquisition targets and more than that, you are already pacing towards your first million in ARR. Great.
The big issue is that finding paying customers for something does not by itself prove anything about your product. It just proves that your sales and marketing machine is working nicely and that the idea of what you want to solve in the market is an actual problem that needs solving. It doesn't, however, prove that you are actually solving that problem with your product.
This is not a discussion about “product” or “sales”-first organizations. Both can produce incredible products. This is a discussion on product market fit having nothing to do with your ability to acquire customers. It is about keeping them.
In today’s subscription economy, your product market fit will be proven once you hit renewal season with your customers. That’s when sales & marketing driven CEOs wake up.
Bad retention is obviously the very last signal you can collect throughout the lifetime of your customer to measure your product market fit. Instead focus on the following two metrics early on:
DAU/MAU or WAU/MAU
The ratio between weekly or daily active users with monthly active users. This is a growth robust metric, meaning additional customers won’t make the numbers look prettier. Pick DAU or WAU depending on the cadence you want your users to be in your product.
This metric shows you how sticky you are. Or from a customer’s perspective how much value they are deriving from you reflected in how often they use your product.
As a reference, Facebook and Slack are in the 50–60% of DAU/MAU.
NPS
It is getting a bit old by now and the number of critics is increasing, but at the end of the day, this metric is quantifiable feedback you get directly from your customer. It’s not perfect, but after usage data this is the best you can get.
What this metric wants to tell you in an ideal scenario, is how people think about you. Will they mention you in conversations with peers and recommend you, or will they alert peers not to do business with you?
Put simply, this “promotion” angle comes from a happy customer. A great score is above 50, but 20 and above is also good already.
If both of these metrics look good, you will have decent retention numbers. And, most importantly, that means you will have a proven product market fit.
Most start-ups don’t have the luxury to tinker around with my definition of product market fit before asking customers for money. Which is how the world simply works. Instead, it is important to separate “traction” and “growth” from “product market fit”. The former is ARR, the latter is Engagement.
Confusing them will be costly.
