Product-Market Fit in 5 Steps: Building a Solid Framework

Bootstrapping your startup to gain and maintain traction won’t get you far if you never reach product-market fit (PMF). If you’re just building a product for the sake of building a product, you’re going nowhere because there’s just no feasible business model behind that.

A vacant spot in the market, a problem that is yet to be solved, a customer pain that has not been remedied – that’s how you get the audience hooked on your idea and vision. Once you get them hooked, you will need to reel them in.

That’s where a PMF framework and strategy come into play. Read on to find out more about how to achieve and maintain product-market fit.

What is product-market fit (PMF)?

Product-market fit is a turning point in a startup’s development when you transition from a struggle for every new customer and for any kind of traction dignified of the investor’s attention, to a point where you struggle to keep up with the demand for your product.

Speaking from a technical standpoint, Jason Cohen , a four-time entrepreneur and angel investor with 23 years of experience and two unicorns to his belt, spells PMF out as follows:

1. Easy growth. You don’t have to pull through anymore. You start growing much faster and the higher growth rate sustains itself, without much effort on your side.
2. High retention. The churn rate should be no more than 3% in B2B and 5% in B2C. Higher churn means customers are leaving so fast, that there’s no way to sustain growth, therefore, there is no product-market fit.
3. Critical mass. A month-over-month growth of $20,000 or more in revenue or 200 monthly WAU growth. The rapid growth of active users is crucial because satisfying a wealth of customers proves you are conquering the whole market and not just a group or a select few users.

It’s often said that if you’re still guessing whether you’ve found PMF or not, it means you haven’t.

It's like an ‘Aha!’ moment, you’ll just know: when a never-ending flow of new subscriptions overwhelms your IT resources, being featured in every media outlet, people lining up to become your brand ambassadors…

How do you measure PMF?

Sean Ellis, a well-known growth marketer and entrepreneur, coined “the 40% rule” in measuring product-market fit, and it's the most cited benchmark out there.

The golden 40% stands for the amount of surveyed customers that would be “very disappointed” if your product went off the market. According to the rule, if the amount is less than 40%, then you have not yet reached PMF.

This is quite a good metric when you need to track actual progress toward your PMF goals and show it off to investors. It works well if you have the means to conduct PMF surveys and launch market research campaigns.

Among other PMF indicators which are a bit easier to track are:

• LTV:CAC ratio (customer lifetime value vs customer acquisition cost).
• Retention rate (measures how successful you are at keeping customers).
• Net Promoter Score (NPS) (how many users recommend your product).

There are many ways to go about this and you can define your own benchmarks giving you a better perspective of where you are at and where you are headed. As long as you listen to the voice of the customer and the mannerisms of the market.

The PMF growth curve

All startups that eventually reach a successful exit follow a similar growth trajectory: several years of painstakingly slow linear growth, and then comes a certain moment when the rate increases:

The new growth curve, just as before the turning point, has a steady regular pace, but it is much steeper (the startup is growing much faster).

That moment, the turning point, or the moment you transition from the state of

Getting new customers is an everyday struggle

to

Keeping up with demand is an everyday struggle

That’s the moment you reach product-market fit. An important thing is not to squander it, and figure out a way to maintain this growth.

One brilliant way to reach PMF

Nathan Barry , the founder of ConvertKit, one of the strongest competitors of MailChimp, is not one to be afraid of getting hands dirty when it comes to scraping for each new customer.

Here’s the story of how his company made it to product-market fit that can be used as a blueprint for others ...

Read the full article here ??