Notes on PMF

Finding the product-market fit is not a deterministic process. Most of the time, one iteration is required. It requires constant adjustment. My mental model is that it’s really just a turn-based game with an unknown number of steps and sometimes either the clock or the money or both runs out before you can finish the game. It’s a bit like a game of chess. - Mike Vernal*

TL;DR

• The search for PMF is not so different from a treasure hunt — you’re pretty sure there’s gold somewhere out there, you find vague clues along the way, and you have to keep your crew from mutinying before you discover it.

• Most of the time, it’s not a binary, big-bang, event — you simply get clearer about what the market wants, build it for them, and hope that it has lasting, differentiated, value. Remember the Yo app? or CryptoKitties? Lots of initial traction, and then a quick fade.

Product-Market Fit (PMF)

PMF can rise and fall as the product and market change and grow. It’s not this static thing that once you get it, you always have it.

Keep the cycle going to sustain product market fit - Stay in touch with your users, identify which ones are in your target market, double down on your strengths, continue to remove reasons for users to not love you.

Product is both an art and a science. Viable Fit takes care of the science so you can focus on the art. Viable Fit helps surface problems and areas to focus on. How you tackle those problems are totally up to you and that’s where the art of product management comes in.

Summary:

• Product-market fit is a spectrum, as opposed to something you definitely have or don’t

• Every business is unique, and metrics frameworks apply differently. Focus on the metrics that matter for your product, and make sure they’re clearly defined

• Benchmark: Users scream for the product so you can screw everything up still win (for a period of time)

• Prove a value hypothesis and only once you’ve proven the value hypothesis should you test a growth hypothesis. PMF is when you have proven the value hypothesis.

Andy Rachleff on PMF

Don used to say, “I’m looking to invest in companies that can screw everything up and still succeed because the customer pulls the product out of their hands.” I’m paraphrasing. I’m not sure I got that exactly right. He felt that way because the startup will screw everything up. I want a company that has such demand from the market that they can literally screw everything up and still succeed. - Andy Rachleff

(Actual viral behavior)

How to test it? If you give someone your product for free for 30 days, and then abruptly take it away from them:

• ==“If the customer doesn’t scream, you don’t have product-market fit because if they’re not going to buy it at the end of 30 days, they’re not desperate, and if they’re not desperate, you don’t have product-market fit.”==

• ==“Never iterate on your product to cater to a potential customer’s beliefs”==

On B2C Side

Exponential and organic growth

“The only way you know if you have product-market fit is if you get word of mouth”

(and the best test of word of mouth is exponential, organic growth)

On B2B Side

Every enterprise company should run a 30-day proof of concept trial. To make these trials productive, company’s usually require the customer to agree to buy the product after 30 days if it meets expectations. But… pull the trial after 30 days (no matter what). Then:

“If the customer doesn’t scream, you don’t have product-market fit because if they’re not going to buy it at the end of 30 days, they’re not desperate, and if they’re not desperate, you don’t have product-market fit.”

“The second biggest mistake I see entrepreneurs make, especially in enterprise, is when they pitch a potential customer on an idea, and when the customer doesn’t like the idea, they try to iterate on the product to build something the customer would want.” “That’s the absolutely wrong thing to do, even though it feels right. You want to find people who love what you’re doing, not try to convince the ‘no’s’ and turn them into ‘yes’s.‘”

“By the way, this is analogous to attracting a VC. If a VC doesn’t immediately say, ‘When can I meet you again?’ you haven’t found product-market fit”‘

That said: “You should iterate on the who and how, the business model”

(Like how Netflix switched from a DVD rental-based model to a subscription model)

Sales yield

You measure where exactly a company is in their sales life by calculating their sales yield (the contribution margin of a sales team divided by the total cost to field that sales team)

“When a company gets to a sales yield >1, that’s how you know you’ve hit product-market fit”

Not Everyone Needs to Like Your Product

Entrepreneurship/investing can be described with a 2×2 matrix: On one dimension, you can be right or wrong; on the other dimension, you can be consensus or non-consensus

If you’re wrong, you don’t make money. But, and most don’t realize this, if you’re right and consensus, you also don’t make money (the returns get arbitraged away).

“Unless you’re non-consensus, you don’t have a chance to serve the desperate (because they wouldn’t be desperate unless they were already served)”

“The only way to make outsized returns as an investor or entrepreneur is to be right and non-consensus”

“If you ask 5 people on the street about your idea, and it might be a killer idea, at least 4 out 5 of them should say they don’t like it because they haven’t been conditioned to like it” If you asked people about Uber 10 years ago, 90% of them would have thought it was a dumb idea

“You want people not to like your idea. If everyone likes the idea, it means they’ve already been conditioned, so you’re just trying to do a better job than someone else – that’s not a recipe for success in tech” – Andy Rachleff

Stages of Adoption

“The fundamental idea expressed in Crossing the Chasm is that there’s a natural rate of adoption of every product. This hasn’t changed. It was true 100 years ago, and it’ll be true in another 100 years.”

Another point discussed in the book: Certain people are willing to adopt at different rates:

❍ A product is adopted by “early adopters”

❍ These people tend to have a problem they need solved and want to buy a product to do just that

❍ Next, come the “pragmatists”. They want something revolutionary, not evolutionary (they’re not trying to get ahead in their jobs, they’re trying not to get fired). These people tend only to buy if 5 other people tell them they should buy (they need social proof)

❍ The next group, “the conservatives” or “late majority” only buy the product once it becomes the standard

Pragmatists make up the largest market segment, but it’s a mistake to go after them first, Why? – They need references.

On Pivots

“The vast majority of successful tech companies pivoted from their original proposed market in their business plan”

“You have to be willing to fail, but don’t pivot on the product. If you fix the market but pivot the product, then you have no advantage because your original insight is gone. What insight do you have over anyone else? You’re now in the “right and consensus” quadrant.” – Andy Rachleff

Thus: Keep your proprietary insight and find the right customer for that insight, rather than abandoning the insight.

Frameworks for heading towards PMF

When talking to potential customers early on, here are the three things I’d look for to build confidence that you are heading towards PMF:

1. Passion: How excited do people get when you describe your idea? You want to see people get visibly excited. You want them to ask you how soon this thing will exist. You want to hear them offer you money for it. This will be hard to miss. If you can’t find a handful of people that act this way, you either don’t have PMF, you aren’t pitching it well, or you haven’t talked to the right people. Adjust one or two of these things and see if you can get there. Try to find at least five people who are very excited. As Paul Graham famously said, “It’s better to have 100 people that love you than a million people that just sort of like you.”

2. Skin in the game: Are people willing to pay you for this product? Ask them this directly. Even try to get them to pay you now (i.e.. literally send them an invoice) to get early access to the product. Nothing will be a better signal of interest and PMF if you can do this successfully. Try this even if it’s a consumer app that you won’t charge for — it’ll show you how much value you’re creating in people’s lives.

3. A clear why: As you talk with these potential users, keep asking “why.” Why are they excited about your product? What specifically is it going to do for them? Why is this problem a big deal? Why aren’t they using something else instead? This will both help you make sure you’re understanding what they are saying, and help you get to the core of their pain point.

Concrete questions I’d ask in your interviews after you describe your idea:

1. How are you currently solving this problem?

2. What annoys you about your current approach?

3. If you had a magic wand, what would you wish for to solve this problem?

4. How much would you pay for this if it existed?

5. Why is this a problem for you? [Listen for answer] Why is that? [Listen for answer] Why is that? [Listen for answer] Why is that?

Final tip: Pick the people you talk to carefully. Figuring out the target audience for your product is very much part of this search, so be careful getting discouraged by talking to the wrong group of people.