Vichaara written by: Anjan Babu.S
Vichaara edited by: Sanjana Sudarshan
Product Market Fit (PMF) is touted as the most important aspect to achieve to be a successful startup. Investors love investing in startups that have figured out PMFs. But, how do you know whether you have achieved PMF?
This OnlyCFO Newsletter collates some of the best indicators the achieve PMF
Source : Product-Market Fit Never Rests - OnlyCFO's Newsletter
“Lots of smart folks have commented on what PMF looks like. Some of my favorite quotes are below:
- Product-Market fit is when you have the right solution to a problem that’s worth solving. —Ash Maurya
- Do any users love our product so much they spontaneously tell other people to use it? —Sam Altman
- Product-Market fit is when your customers become your salespeople. —Michael Porter
- When the customers want your products so badly that you can screw everything up and still succeed. — Don Valentine
- Product/market fit isn’t a one-time, discrete point in time that announces itself with trumpet fanfares. Competitors arrive, markets segment and evolve, and stuff happens—all of which often make it hard to know you’re headed in the right direction before jamming down on the accelerator. — Ben Horowitz
- You can always feel when product/market fit is not happening. The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of ‘blah,’ the sales cycle takes too long, and lots of deals never close. — Marc Andreessen
There are certain metrics you can look at to quantify PMF, but they are mostly lagging indicators.
- High retention. If you have annual contracts then you have to wait a long time to really assess this.
- High organic growth rates. A lot of companies can get high growth through high spending but word-of-mouth growth means you have something special.
- Highly efficient. Related to the above point. When PMF is strong, it is easier to grow because customers are begging for your product and users are telling their friends. Some metrics to measure this include:
- -Burn Multiple defined as cash burn / net new ARR
- -Customer acquisition cost (CAC) defined as prior period sales & marketing / New ARR
The 40% rule created by Sean Ellis — if at least 40% percent of surveyed users indicate that they would be “very disappointed” if they no longer have access to your product.”