Defining, Measuring, and Improving the Product-Market Fit (PMF)

The key update for today’s newsletter is the 3-hour long session I did on product-market fit (PMF) yesterday.

Apart putting the video in the newsletter, there are two important things I want to call out from the session that you should not miss while going through it.

A Conversation

The first takeaway you shouldn’t miss is illustrated by a conversation I had with a founder recently. It shows how the nuances of defining, measuring, and improving PMF changes with the context. Here is the transcript of that, edited for clarity.

Founder: How do we know that we have gotten the PMF? We are tracking retention because we are b2c and expect people to use our app weekly.

Me: Yes, that makes sense. Retention is a good metric because it means customers are preferring you over others on a regular basis.

I like to add potential monetisation avenues to the PMF discussions as well. In my experience, keeping monetisation in mind while making the initial product choices, makes things easier down the road.

Founder: Yes, we haven't thought about monetisation yet. Let me think about it.

To understand PMF better, we have benchmarked retention with other similar products. We are at 40% of the best apps in the category in terms of weekly retention (W4)

Me: That's a good thing. As long as the retention curve flattens, it's a sign of PMF.

Founder: Makes sense. But how do we improve that number?

Me: I am sure you have studied Superhuman's blog around how they improved their PMF. They tried to identify what sort of people are loving the product, and then focussed on those.

Founder: Yes, we have. We can use that.

Me: Yes, but one issue with that approach is - it works well when you have a set of users who pay for your product.

When people pay, they are willing to take a longer survey like Superhuman. When it's free, like your b2c product, you might have a sampling bias in survey, where more engaged users take the survey and provide you a different picture than actual.

Founder: So how do we tackle that? Would doing interviews be better?

Me: Yes, it would be better. But even there, people who have used your product sparingly (dropped without getting value) won't be willing to speak to you. So you have to be careful - make sure that you have all the key personas listed before you start calling the users. That way, you can put more effort in segments where you haven't talked to enough users.

Founder: Makes sense! So we identify the segments for whom the product is working, and then target them?

Me: Yes, with couple of more things to keep in mind. First, make sure these segments are large enough for you. If not, you might have to work on making additional segments to love your product.

Second, make sure you understand why your product is working for them. Use that in your landing pages, ad copy, etc. and you might be able to attract them quite easily.

Founder: Sounds good! People say you should start amping up marketing spend after PMF. When do we do that?

Me: It's hard to answer this question when you aren't monetising. Get your investors' opinion. If you were monetising, I would have looked at the gross profit.

My takeaway from multiple conversations I have had around PMF is that a simple concept on paper can become much more nuanced in application. This conversation would have looked quite different for a different product - like enterprise or marketplace.

A Quote

When I ask people whether they have worked on a PMF problem, or are working on a PMF problem, they usually say ‘Yes’ if the product is in nascent stage, and ‘No’ if the product is in growth and maturity stage.

One of the most important quotes around PMF comes from Ben Horowitz, partner at a16z.

“Product/market fit isn’t a one-time, discrete point in time that announces itself with trumpet fanfares. Competitors arrive, markets segment and evolve, and stuff happens—all of which often make it hard to know you’re headed in the right direction before jamming down on the accelerator.” — Ben Horowitz

The quote summarises the second takeaway — because your product and market is continuously changing, PMF is a moving target.

Changes in your product changes PMF, and changes in your market (user preferences, competition, regulations, etc.) also changes PMF.

A Video

With those two takeaways, you can go through the session video and let me know how you find it :)

This would be all for now.

Thanks for reading,

Deepak