Product Market Fit is often used in a hand-wavy way to convey that people really like what you’ve built. It’s difficult to concisely define or definitively quantify.
In fact, when asked to define PMF, Marc Andreessen famously said:
“You’ll know it when you have it. Everything will be flying off the shelves”
-Marc Andreeson, famous investor with cute, but possibly unhelpful, definition
As a metrics wonk, I’ve tried many times to put some numbers to it.
The best way to measure PMF, in my opinion, is by customer retention cohorts. How long do your customers stick around for?
The goal in the chart below is to get to flat as fast as possible, and then keep it there.
The blue line shows how active users eventually plateau at a healthy, sustainable level with only a slight decline over time.
Here’s a tale of two companies. Pay attention to the miserably small X axis labels and how many months each chart runs to the right.
Netflix retains 70 percent of new users after one year, and 30 percent for seven years. The lines slope downward very slowly and extends on the X axis from month 1 to month 82. EIGHTY-TWO!
Blue Apron has, on the other hand, a leaky bucket. Their paid retention cohort chart shows a weaker product-market fit, retaining only 50 percent of users in the first month and only 10 percent for two years. The lines drop precipitously (I think I spelt that right) and die out completely by month 22. TWENTY-TWO!
Other metrics to gauge Product Market Fit include (but are not limited to):
Revenue Growth: Can you triple, triple, triple, double, double?
Net Dollar Retention: Do your customers who stick around expand over time?
Burn Multiple: How efficient is each unit of growth?
LTV / CAC: What’s the ratio of customer value to cost?
But at the end of the day, as much as I hate to admit it, Andreessen was right. PMF is a feeling. So here are ten videos to give you all the PMF feels so you’ll be able to identify it when you’ve got it.
Disclaimer: Not investment advice. Opinions are mine only.
1. Customers freak out when you threaten to take your product away.
2. Your sales team has no idea what it’s doing and people still want to buy your product.
3. You do almost everything wrong and still somehow win.
4. The established players in your industry want to associate with you.
5. You anticipate the market coming towards you, and call your shot.
6. Customers realize your product works even better than expected.
7. You have to cut some corners just to keep up with demand.
8. You’re knocking out heavy-weight incumbents at POC.
9. You can brute force your way through a competitive field.
10. Your customers become a contributing community.
Smart Stuff I Read at 2AM (Sources):
How to know if you've got product-market fit - Lenny’s Newsletter
What is product market fit - Built With
Blue Apron vs Netflix Cohorts - Segment
Quote I’ve Been Pondering:
“There are a million ways to say no, but only one way to say yes - write a check.”
-Felix Dennis, Author, Poet, Media Magnate
Thought this was one of the best articles yet! A great combination of some metrics and charts that are easy to understand at first glance and convey a really powerful concept. Short and too the point without leaving the reader with any big additional questions. But, best of all, the ten points at the end could honestly each be timeless lessons in their own right. The videos on top were just amazing haha
Well done, as always : )