How do you know you have Product Market Fit?
How do you know you have Product Market Fit?
In Life and Startups
Photo by Mayur Galaon Unsplash
Since co-founding my company in 2006, we have had three pivots into three distinct industries. Of the three pivots two found product market fit and the other did not. “Product market fit is when a product satisfies a strong product market demand”, or in prosaic terms “making something that lots of people want” [a] The third pivot we re-named the company to Kabam, and began making games. We created over 55 games and 5 of them were hits. We had a 91% failure rate, or really a 9% hit rate, which is actually quite good for the gaming industry.These hits fueled the growth of a 1500-person company, triple digit growth for 8 years and into a billion dollar company. These are the things I can tell you about product market fit from the experience of a founder who found it several times with games and prior to that with building fan communities for TV shows and sports teams. [b]
Finding product market fit is a lot like finding love.
#1 Put yourself out there (aka Launch)
If you don’t put yourself out there it’s pretty hard to find the love of your life. And when it comes to startups, things don’t just happen without the founders doing something. Luck is required too but not sufficient, just like hard work. Consumers won’t look for you if you don’t at least have a storefront. So the first step in putting yourself out there and getting to product market fit is launching. Launch, no matter how imperfect it is.
We had planned to launch our first game ever on Facebook. We never have built a game before. We didn’t know the first thing about game making, but we knew about building on Facebook. We hired art interns and used an accessible non-copyrighted theme. By the time we were ready to launch funds were running low and we needed to get some feedback. So we invited our friends and family who you might think are too nice to give constructive feedback - well not our friends and family. We spent 2.5 hours watching them get frustrated and bored. They then went on to tell us how terrible they thought everything was and how the game was unappealing to them. One went on to say he would never play this game. (He later became an active leader in the game.) I would rather have stood in line at the DMV than do this user testing. We had never built a game before. We decided to launch because we didn’t have any other choice. And, the game was not finished, but we decided to fix what we could and then launch anyway. I am so glad we launched because we collected our first dollars within the first day. It would be the first dollars of what become our $350MM flagship franchise.
More often founders regret launching later than launching sooner.
You can make something that lots of people want unless you first make something and let people know you want it.
Qualitatively, these are ways founders may know they have product market fit. Much like falling in love, there is a large qualitative element to it:
#2 You just feel it.
This is probably the most used explanation for falling in love and product market fit. It is also the most unhelpful, and yet a very true explanation for both product market fit and falling in love.
You can always feel when product/market fit is not happening...You can always feel when product/market fit is happening. [c]
Our first idea for our company was building a corporate social network. We spent 8 months talking to users and launched three versions of our product. However, it felt slow and the numbers were not growing to show for it. It was pretty depressing coming into work or worse when you meet with friends and family just trying to be helpful asking if you have tried X,Y and Z; however, you have been thinking about it 24/7 so you’ve tried everything. It was like we were being dragged.
Conversely, when we pivoted into our fan communities for TV shows and sports teams on Facebook, everyday we came into work there was something new to deal with. We couldn’t keep up with all the new requests coming in. It was like we were getting pulled by our users.
Having product market fit feels like your customers are pulling you, not having product market fit feels like you are being dragged in.
If you don’t feel the pull effect nor the dragging effect, then you likely do not have product market fit.
#3 You tell other people about it.
Being in love is personal, but very rarely private. If you are in love, you will be public about it. If your consumers love you they will tell other people about it.
“Do any users love our product so much they spontaneously tell other people to use it?” [d]
As our fan communities were growing we would see that friends that we did not directly invite began to use the application, even Blake Ross, an early developer at Firefox was on our app! While we had product market fit we also used a lot of Facebook’s distribution channels in the early days that made it easy to tell others about our product.
#4 If you were to stop, will he/she/they be disappointed?
There is a quote about love: “If you love something, set it free. If it comes back, it is yours. If it doesn’t, it never was.”—Unknown
Many growth hackers apply this to whether or not you have product market fit. If your product went down would any of your customers care? If so how much? When it comes to a product this is created by a bug or unexpected outage. Usually the server goes down and the phone starts ringing.
When we were building our fan community apps for TV shows and sports teams on Facebook, the engineer ran a SQL without a WHERE clause and brought down our entire database. As we furiously rebuilt the table and re-ran the SQL we got many angry users sending us messages and comments about our app being down. By then we had over a million users and adding more… we knew at that point we were building something that people wanted.
Measurement
Just like love you cannot see product market fit, but you can feel and see its effects. Therefore, you can measure it.
Investors are looking for metrics of how much your product is loved. It’s partly because they are not the founder, so they discover love by looking at its effects and measuring its effects.
Pro-tip: When doing an investor deck, try to reduce love into numbers. Oftentimes founders will say, “ our users love us” and show a bunch of hard to read testimonials. Instead the more impactful story is: “Our users love us, we know this because we have a 85% retention rate after 30 days…” [e]
It’s like asking how do you know he/she/they love you? While you could point to all the things he/she/they say, it might be more impactful on his/her/their actions.
Investors are on the outside so all they can do is “measure” the effects, see trends across several companies. The measurements come in 5 different areas:
😳Engagement
The amount of time a user spends on your application or service. The thinking is if a user really loves your product, they will spend time there.
For our community apps we built a trivia game that was specific to each show and team. On average people spent so much time on there that within the first two weeks our servers were melting. People were spending hours, not minutes on the app. We knew by the amount of time that our app was engaging.
🤤Retention
If a user loves your product or service they will return. How many times they return is measured in the form of retention. If consumers are not coming back at frequent enough intervals then this may not be a good enough problem.
Pro-tip: Measure users as cohorts, this way you can track which set of users come back 30-60-90 or days after they joined.
✋Churn
The complement to retention is churn, which is the number of users who leave over a period of time. If you haven’t earned their time and money they will leave (churn). If you earn it, they will stay (retention).
You can try to do surveys to measure churn. Growth hackers have come out with a magical 40%. If you get to 40% of users who report are extremely dissatisfied if you went down you will have product market fit. However, not all businesses can use surveys to measure churn. The reason why is in most B2C companies surveys are useless because people can say anything.
People will say anything, but what they do is most important.
That is the same relationship advice I give, someone can tell you anything even “I love you”, but how do they show it? Time and again we’d have user testing from early plausible users to early users and the data would show differently. We’d have the best professional focus group testers and market strategists, but none of them had a 100% hit rate of being able to call a product that something people wanted before launch.
📢Virality
Virality is the number of people that join after one user joins. In order for that number to be greater than one, you need two things. (1) It’s easy to share. Dropbox made it easy to share. (2) You want it to be so good that people will just tell others about it. Instagram made it easy to create and consume.
You can see the virality of a product via growth rate of users. If it grows as fast as COVID, then you have something viral. When we launched our fan communities on Facebook, our R0 (which is called the k-factor) was greater than one. [f] This meant that on average we had every user inviting more than one friend on our application. We had baked into our product an invite flow that easily enabled friends to invite other friends who would like the app. The impact on our product was exponential. Our fan communities took 1.5 months to get to its first million. It took less than 3 months to get to 10 million users. We were growing at a 20% growth week over week, which was exceptional. And the results were reaching 10 million users in 5 months. [g]
If the product is viral, the user count growth will grow. If you looked at COVID earlier in the crisis, the US only had double digit cases and now 5 months later we are over 3 million cases. That is the power and impact of virality on the growth count. If your user growth is growing but there is no virality, you should make sure there isn't a bug, a cyberattack or how much you are spending on paid acquisition per customer. [h]
💰Monetization
In VC-backed businesses they are trying to make something that lots of people will pay money for. This means that if customers don't pay for the product or services you provide, you likely have a hobby or charity on your hands. Eventually you will be able to become more sophisticated even measuring the lifetime value of your customers (LTV). And ultimately if you can predict the LTV, you will know your customers so well you have a relationship with them. But before then, a rudimentary metric is looking at revenue growth as a proxy if people want what you built.
When we launched our first game on Facebook, Kingdoms of Camelot, we made over $3,000 in one day within the first month of launching. This was more revenue than we had ever seen from monetizing ads. Within 3 months we were making 10x that a day, and two months after that we were averaging $100k a day. We had product market fit. We knew we made something valuable enough that people would spend time and money for the experience and service.
Product market fit means you made something that lots of people want. Product market fit is a factor of both quantity and level of desire. Therefore, if you have tremendous growth in active users (virality) and/ or revenue (monetization), then it proves both the quantity and desire for product market fit. The other metrics: retention/churn or engagement are required, but not sufficient as they only prove a level of desire, but not quantity. Thus if you have tremendous growth in retention or engagement does not guarantee that lots of people want it. It proves that some people want it.
Creating Product Market Fit
Can you create product market fit? I don’t think you can create product market fit, but you can put yourself in its path. Like falling in love, you put yourself out there. You allow quality moments with another person, you are vulnerable and authentic. It’s much better to have a few meaningful moments with a person than lots of mediocre moments with them. When building towards product market fit, there are many paths:
You can do a lot of pre-surveys like Superhuman did.
You can focus on 7% weekly growth of booking revenue by deeply connecting and staying with Airbnb hosts.[g]
You can offer phenomenal service to your first customers by personally styling each one like Stitch Fix did on a personal credit card.
Whatever you do, you get to product market fit by first launching. Then you listen to your users, and launch again. Keep doing that until you find 100 users that love you. [i] Then grow. In order to get the users to care, they need to first know that you care. That alone doesn't guarantee success but sitting back and doing nothing will guarantee failure.
If you haven’t launched, launch.
If you have launched, grow.
If you aren’t growing, iterate, and re-launch.
💰And, just like you can’t buy me love, you can’t buy me product market fit.❤️ [j]
***NOTES***
[a] Product Market Fit - Wikipedia and Startup = Growth [b] I’m sad to note that almost all of the references here are by men, and most of them who have not built billion dollar companies. Though, they all have been phenomenal investors. I think a founder needs to be careful on who they listen to for advice. There is value in listening to people who can observe across many companies (VCs and investors), but know first hand knowledge usually may not be there. This article is an attempt to get more first hand knowledge from women into the startup world. [c] Guide to Startups [d]Before Growth[e]What does good retention look like [f] Why R0 is Problematic for Predicting COVID-19 Spread [g] Startup=Growth [h] It’s not great to spend money on acquisition if you are not monetizing the users directly as a business model. It makes no sense and is not sustainable. [i] Paul Bucheit, creator of Gmail famously told founders it was better to get 100 users that love you than 1,000 users that kind of like you. [j] The fall of Quibi: how did a starry $1.75bn Netflix rival crash so fast?
🙏Special thanks to Jen Liao, Karen Hong, Maria Alegre, Kathy Pham and Tanya Soman for reading drafts of this.
✍️Sign up for this newsletter if you have not had the chance, I promise to be kind to your inbox 😊
📣Share this post with a friend