Qualitative Indicators of Product/Market Fit
Product/market fit (PMF) is finding a problem that your customers are desperate to solve (market) and creating a solution that perfectly meets their needs (product). It may take many product iterations before you reach PMF, but once you do, everything seems to click. You can split the life of your startup into before PMF and after PMF. Though it can be difficult to pinpoint the exact moment you’ve achieved PMF, there are some qualitative indicators that you are on the right track.
Marc Andreessen’s blog post on PMF provides a great list of subjective signs that PMF is happening:
- “Customers are buying the product just as fast as you can make it”
- “Usage is growing just as fast as you can add more servers”
- “Money from customers is piling up in your company checking account.”
- “You’re hiring sales and customer support staff as fast as you can”
- “Reporters are calling because they’ve heard about your hot new thing”
- “Investment bankers are staking out your house”
He also lists signs that PMF isn’t happening:
- “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’”
- “Lots of deals never close”
According to Tomasz Tunguz, Partner at Redpoint Ventures, another indicator of PMF is shortening sales cycles or very short sales cycles. “Fast sales cycles correspond to execution sales, when account executives don’t need to educate the market, rather they just need to finalize the contracts.”
When you first began selling your product, you had to educate your prospects on what your product was and how it solved their problem. As your company grew, the market began to recognize the problem and established your product as the solution.
Quantitative Indicators of PMF
If Andreessen’s list sounds like what your company is currently going through (maybe not the money piling up), congratulations! There’s a strong possibility that you have achieved, or will soon achieve, PMF. The next step is a quantitative assessment.
David Skok wrote an exceptional blog post on how to assess PMF based on your LTV (Customer Lifetime Value) and CAC (Customer Acquisition Cost). This method is valuable because it uses easy to calculate metrics to examine your company’s profitability and cashflow. We will also cover this assessment in our next blog post.
Of course your company, like many other startups, may not be profitable yet. That’s completely fine. This indicator looks at your ability to eventually make a profit, not whether you are currently profitable. If you haven’t turned a profit because you’re reinvesting every cent into growth more power to you.
HireKeep’s latest ebook,“Signs It’s Time to Scale Your Sales Team,” will teach you how to:
- Recognize qualitative indicators of product/market fit
- Determine if you have achieved product/market fit based on the Lifetime Value of a customer and your Customer Acquisition Cost
- Redesign your product based on customer feedback to reach product/market fit
- Analyze each step in your sales process, create an accurate model, and use it to simulate potential changes to your process
- Inspect your sales pipeline to calculate whether it can support more sales reps
- Inspect your sales pipeline to calculate whether it can support more sales reps
- Conduct a break-even analysis on the 3-year return on investment of additional sales people (free Excel spreadsheet included)