The Product / Market Fit Scorecard: Stop Wondering, Start Measuring
A recent client of mine asked me to help them assess whether a B2B SaaS product of theirs had achieved product / market fit. Answering this question would go a long way to helping them decide whether the state of their product justified a transition from a phase of heavy experimentation towards investing their time and resources on scaling for growth.
When it comes to product / market fit, most companies I’ve worked with are happy to ‘just feel it’, and there are plenty of thought leaders who argue that’s fine, but this client was intent on gathering as much objective evidence as they could to inform their decision.
Up to the challenge, I set out to see how far I could take them towards a truly objective assessment of product / market fit. What I discovered has changed my perspective on the importance of aggressively monitoring fit.
Scaling is a Choice, Growth isn’t
To be clear, my client wasn’t trying to decide ‘whether or not to grow at all’, but rather whether the timing was right to invest in scaling measures that will allow them to grow smoothly and ride the wave of demand when it comes.
That kind of organic exponential demand can be unleashed when teams experiment with their product enough to stumble upon an optimal configuration of functionality, price, channel and segment in a large enough market.
If it catches you completely flat-footed, your growing pains might just drive away more customers than you gain. That’s a big reason Geoffrey Moore’s Chasm is so hard to cross.
It might seem like B2B companies could just throttle customer growth by choosing to pursue new accounts, or not. But in practice, enterprise customers have procurement windows that open only every few quarters or even years. A company hoping to gain traction with a new enterprise product simply can’t walk away from these opportunities when they surface.
Scaling is the result of a startup’s growth. Too often, however, scaling is intended to drive a startup’s growth. That’s where we have a problem. — Neil Patel
That’s the catch with product / market fit; you won’t know when it will happen, but when it does, it will drive exponential demand and force your hand. Accurately recognizing when it’s happening is critical to making well-timed scaling investments.
Timing is the Difference Between Life and Death
To their credit, my client’s instinct to monitor their journey to product / market fit was a good one because the stakes are so high. There’s no competitor offering the same value proposition, nothing proximate they can copy. They’re in uncharted territory, aware that their next product experiment could suddenly unlock market fit and a spike in demand. This is a perilous situation.
Steve Blank, godfather of modern entrepreneurship, regularly warns startups about the dangers of premature scaling, but he’s certainly not the only industry voice with words of caution.
It turns out Premature Scaling is the leading cause of hemorrhaging cash in a startup — and death. — Steve Blank
In their report on premature scaling, which was based on their landmark 2011 research of over 3000 startups, Startup Genome researchers from UC Berkeley and Stanford reached several ominous conclusions about the implications of premature scaling, including:
So if you achieve product / market fit, you need to scale to avoid a slow death from customer attrition to fast follower competitors, but if you scale prematurely, your bloated organization will quickly kill your efficiency. What is a pre-chasm product team to do?
How to Not Die: Don’t Rush It
Realistic expectations about the time it should take to reach fit can help teams avoid premature scaling. Researchers for the Startup Genome report found that, in general, founders underestimate the time it should take to achieve fit.
Startups need 2–3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely. — Startup Genome
Given the longer sales cycles and lower volume of feedback, B2B product teams should allow relatively more time than their consumer counterparts for their journey to fit.
And if product teams need any more reason to be patient and avoid rushing to conclude that they have achieved product / market fit, Peter Reinhardt offers this sobering thought:
80% of SaaS companies never make product market fit.
— Peter Reinhardt
How to Not Die: Measure It
There’s certainly no shortage of opinions on how teams can avoid premature scaling while they wait for fit to happen. Suggestions range from hiring for culture, to Paul Grahm of Y Combinator’s suggestion to focus on things that are designed to distract teams from thoughts of scaling, such as delighting individual early adopters.
People from larger companies bring the bigger company process, procedure, and culture with them. This leads to premature scaling of the business. — Stephen Forte
The thing is, I feel like the vast majority of the suggestions are too indirect and removed from what early stage product teams should really be doing to prepare for scaling — actively measuring indicators of product / market fit.
But What Should You Monitor Exactly?
That depends on who you ask. There is active debate about what constitutes the ideal indicator of product / market fit. But the good news is that a scan of the literature shows that opinions tend to cluster into roughly six discrete but complementary themes: Acquisition, Revenue & Customers, Retention & Reinvestment, Referrals, Separation Anxiety, and Intuition.
Developing KPIs that allow you to monitor product performance across these six clusters will paint a pretty robust picture of where you stand in regard to product / market fit.
The Product / Market Fit Scorecard
This is essentially the approach we settled on for my client: we used the six opinion clusters to build a scorecard of measurable indicators of fit. It looks a little bit like this:
To account for the distinction between decision makers and users, which is critical for B2B products, we split retention into separate criteria. Otherwise the scorecard is structured along the original six themes from the literature.
Selecting the actual KPIs to measure for each criteria is the real art of the process. KPI options for my client were constrained by the fact that they sell to a small universe of large enterprises through a largely manual sales process. This meant fewer and more subjective data points than a consumer product would generate.
For example, for the Sales and Acquisition criterion, we looked at trends in lead qualification scores from the sales team’s post-meeting notes. Win rate and funnel duration would be more objective acquisition KPIs. If you have deployed sales automation tools, you should have plenty more to draw from.
Splitting the criteria into ‘objective’ and ‘subjective’ clusters gives the scorecard a two-part structure based on what customers actually do (buy, use) versus what people think and express (like, value).
For the latter, we used surveys to gauge customer opinion. Aware of its critics, we nevertheless elected to use a NPS-style survey, which we coupled with a set of questions from Sean Ellis’s P/MF survey. We considered these to be a ‘best effort’ while acknowledging that the small sample size issue also plays a large role in muddying survey result inference.
Blending Measurement and Intuition
With these kind of ‘accommodations’, this product / market fit scorecard doesn’t allow a team to put their scaling investment decisions on autopilot, but that was never our ambition. Instead, we look at the scorecard as the foundation of a team exercise that both prompts information gathering and facilitates structured discussion.
Within the scorecard, we included opportunities for the team to complement the data with their own intuition and expertise. The ‘caveats’ column invites discussion about reasons each criteria measurement should be further scrutinized. In our case, the small sample size was a caveat we frequently cited.
Two additional aspects of the scorecard invite further team discussion. The ‘do we feel it?’ criterion is entirely a function of the team’s ‘gut feeling’ about product market fit. Each criteria gets a score of weak, unclear, or strong which are then rolled up into a final assessment which a team of stakeholders discuss to reach consensus upon.
Building and Using Your Own Product / Market Fit Scorecard
The version of the scorecard I built with my client was optimized for their product and market context. While I believe it’s a pretty good fit for enterprise B2B software products, anyone who uses it should expect to adjust it to suit their context.
With the scorecard tailored to your context, putting it into practice means gathering the data and having regular discussions with stakeholders. Specifically, teams should:
1. Level Set on Strategy
Make sure the team and stakeholders understand why you’re even interested in looking at product market fit, namely how it relates to making scaling investment decisions. Also discuss the role of fit and scaling in the context of any OKRs — set objectives and results that encourage pursuit and measurement of fit without incentivizing premature scaling.
2. Build Consensus on the Approach
Get ahead of any critiques about methodology that could sabotage you later by involving your stakeholders in shaping the criteria, measurements and success thresholds in the scorecard from the outset.
3. Actually Measure Stuff
Odds are you’re already gathering data on acquisition and retention, but most teams will need to introduce a longitudinal measurement regimen (surveys, interviews, etc) for the subjective criteria. Look at the gaps in your data and put a plan in place to gather the missing metrics regularly for 18–24 months.
4. Radiate Real Time Status
No product team should ever be surprised about how their product is performing at any given point. Set up a real-time dashboard that tracks your scorecard KPI progress towards your self-identified success thresholds and display it on a screen in your team space.
5. Review Status with Stakeholders
Given that your journey to fit could last a year or more, you’ll want intermittent touch points with stakeholders to keep everybody aligned on your progress towards this important milestone. And whenever your real time dashboard seems to indicate fit (you’ll probably have some false positives), call an ad hoc meeting with the agenda focused on answering the question: ‘have we achieved product / market fit?’.
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