Product/market fit (PMF) is the #1 topic on most startup people’s minds, particularly in the early days.
What is PMF?
Product-market fit outlines a scenario in which a company’s target customers are buying, using, and telling others about the company’s product in numbers large enough to sustain that product’s maturity/growth and profitability.
Usual Benchmarks to Measure PMF
Word of mouth and referrals :
a)Quantitatively via retention
b) Qualitatively via surveys.
In the earliest days of a product, word of mouth is the key indicator of product-market fit.
Do your Customers Recommend you to Friends?
How Many Customers Leave and How Soon?
Why? Because, if after people experience your product, they inform others about it (positively) it means that they found it valuable enough to share. You have fit with those people. To use word of mouth as a PMF signal it has to be a result of people recommending a product without being prompted to do it.
Repeat Usage and Engagement: Others validate PMF based on repeat usage which can easily be defined as the number of times a customer uses your product over a given period.
These PMF definitions and measurements, though lucid and compelling, are lagging indicators. These are great to validate that you have PMF, but not so much as to guide you through the mazes as you go about establishing PMF.
PMF rarely happens holistically or by accident. Companies constantly tweak their products, their target markets, and their sales and marketing tactics to hone in on the perfect combination of needs, demands, and how to satisfy them. As a product leader, this eventually is informed — if not driven — by your knowledge, research, and efforts.
Like most things, it’s also an ever-evolving journey to uncover new demands, modify the market you’re targeting, and adjust the messaging and communication tactics your company uses to reach new buyers.
Finally, as LinkedIn founder Reid Hoffman notes: “Product-market fit requires you to figure out the earliest tells.” Using an analogy to poker is appropriate since the process of finding PMF is an art rather than a science. PMF emerges from experiments conducted by the entrepreneurs. Through a series of build-measure-learn iterations, it is discovered and developed during a process rather than a single Eureka moment. A-ha moments of inspiration do happen, but PMF is not created that way.