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How Do You Know You Achieved a Product-Market Fit?
from a perspective of really smart people
Oliver Stafurik
August 08, 2024 • Estimated Reading Time: 7 minutes
In partnership with
Happy Thursday everyone!
Each founder’s greatest desire is achieving a product-market fit (PMF) as quickly as possible. However, when you ask a founder about definition of their PMF and how they got there - you get many different stories.
“The only thing that matters is getting to product-market fit.”
This creates an aura of uncertainty surrounding PMF. Many founders are not sure what to look for and how to determine whether they achieved PMF. We change that.
Today at glance:
Tool → Vanta
System → Achieving a pre-product PMF
System → Achieving a post-product PMF
Links → Guides for finding product-market fit
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What to look for in a pre-product stage
1. People are willing to pay for it now
Nothing will be a better signal of interest and PMF if you can get people to put down money before you have a product
2. Building an engaged community
We take most of the money that we could have spent on paid advertising and instead put it back into the customer experience. Then we let the customers be our marketing.
A satisfied customer is the best business strategy of all.
What to look for in a post-product stage
1. Retention
If you can't retain your users, you're building a leaky bucket. You can pour more water into the bucket, but if it's leaky, you're not solving the right problem.
Retention is the core of your growth model and the core of a company's value.
Monitor retention cohorts to see where users are dropping off. Watch key metrics like monthly churn rates, track uninstalls, and examine your win-back campaigns.
Do a cohort analysis. Look at a group of people that tried your product in a period of time (e.g. during one month). Then look at how many of those people continue to use your product later (e.g. 12 months later). You will have a fairly deep drop-off on the first month, that’s OK. What you want to know is, does it flatten somewhere? If it flattens, that means there is a group of customers that are finding value in your product, which means you have PMF, at least for those customers. The ability to acquire users at less than the amount of money you make from that curve represents your true product/market fit.
2. Achieving Compounding Growth
I think the right initial metric is ‘do any users love our product so much they spontaneously tell other people to use it?
If you’re a SaaS company and you have major brands finding and using you organically, and paying for your product, that’s a sign of PMF.
Organic growth is the key indicator of product/market fit. People love to seem smart and cool. They want to recommend something great to their friends. They don’t need a share button to do it. If they love your product, they will tell people about it. Ideally more than 50% of your new accounts come from direct or organic traffic.
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