How to Validate PMF for Your SAAS for Scale? Aha, Magic, Habit & 21 KPIs to Measure PMF (Scorecard included)

The Context

In the movie -The Social Network, Remember the crazy response Mark Zuckerberg got?when he launched the first iteration of “Hot or Not” called Facemash.?

The Servers crashed and he had to work his socks off to keep up!?This is the Classic illustration of Product-Market Fit!

Read on to find out how you can validate PMF for yor SAAS….

All the outlier multi-decacorns like Facebook, Slack, Netflix etc. had amazing Product- Market Fit?which enabled them to achieve explosive month-on-month and year-on-year growth rates.

So, Product-Market-Fit is the holy grail of startups & a VERY Important indicator for growth. One cannot even think about scaling until the PMF is validated.

Once you achieve this, you will feel you are getting above average reward for your efforts. You will face problems in meeting the demand and keeping up with the pace.

PMF?is especially important for SaaS companies because of the subscription nature and recurring revenue model.?In order to sustain this revenue stream, SaaS companies must consistently deliver value to their customers.?

It allows the company to generate predictable revenue streams, attract and retain customers, and secure funding from investors.Things start rolling positively after that and if you have help of experienced team along the way,?growing and scaling feels like a breeze.

But the real Questions are;

• How do you Know if you have a PMF or not? Are you headed there??
• What story are your numbers telling?
• How are the product variables and Marketing KPIs behaving?

For our funnel of AARR i.e., Attention, Activation, Retention, Revenue,

Our Philosophy is to EXPERIMENT, MEASURE & ANALYZE!

So, we design and run small tests, lean experiments and our main objective is to get them to AHA- The Magic Moment! and based on their results, we gauge the PMF

Experiments

As PMF is the holy grail for startups, so is Experiments to finding PMF!?

You need to look at your startup as a series of experiments. This helps you validate your product hypothesis. Imagine Dexter in the lab, kinda like a mad scientist measuring every step of the way.

So, what we propose is to design Minimum Viable & Lean Experiments,?which can rapidly be implemented without many strings attached and give us results for informed decision making. We must;

• Aim for 3-5 experiments per week
• Get users to the Magic AHA moment

Measurement

Experiments would be of no use if you can't measure them. As they say, whatever gets Measured, Gets Managed.True Story!

We can't go ahead with the experiments and down the funnel unless we measure the results. Once you have lots of experiments running, it becomes difficult to keep track of so many KPIs & metrics.?So, we need to put a strong measurement system in place.

Try different measurement systems till you find the one you love. Some use Mixpanel, some use DataBox, we like ChartMogul, a new one is being invented every day,?so whatever works for you is fine. You can read my detailed article on >>Measurement Systems by clicking here and open in new tab<<

Whatever system you are using, you need to measure certain variables to understand the direction you are heading. We have listed down all the major variables in the form of a PMF Scorecard. You can use it to assess your current PMF status

PMF Scorecard

Analysis

As they say, Data is the New Oil! but it definitely needs to be refined, and "Analysis" is the refinery. So, once you have filled out the scorecard and have plethora of tracked data from the measurement system, then your team needs to sit down and make sense of it. Analyse!

The point of analysis is to figure out why a certain user behavior happened.?Once you figure out the intrinsic motivation behind the certain action, The ‘why’

Why users did something, these insights will give you compounded & exponential benefits in scaling. Whatever measurement system you are using, you need to get three things out of your tracking;

1 - Funnel analysis;?showing where new users drop and retain through your stages of activating a new user.

2 - Cohort Analysis breakdowns of your users by week so that you can see their engagement (logins fine at this stage though actions crucial later) and correlate that with their retention.

3 - Lead attribution so that you can understand your referrals.?For example, if a parent of a student in Joe’s class shares their class video on Facebook, when their friends click it, you know where they came from.

Post-Analysis Engineering & To-Dos

We are aiming for A grades or above 80% score for Magic & Habit so that it eventually converts into Revenue. My caution is that jumping to growth before establishing magic and habit is almost always a huge waste of time and money.??

So, after each experiment sprint, we have to sit down and make sense of all the data. Some of the interpretation may include;

• Deep Dive & Breakdown the analysis, read between the lines and decode patterns?
• Out of the 5 or so experiments, only 1 or 2 will move the needle , rest will be a miss
• Double down on the winners
• Drop the ones that are incremental improvements
• Continue the ones that need more time (more data or if something isn’t feeling right)

Keep on Rinsing & Repeating the whole process till you have the Magic!

And once you experience magic, you will know it! Happy New Year!

????To Discuss How we can Help Grow Your SaaS, Book a Free Strategy Call! ????

Or find the link in the first comment