How to take a first step toward product-market fit over a single live stream
On April 5th we organized an online live stream where our experts talked about product-market fit: what it is, how to measure it and what our favorite tools to achieve it are. Read on to learn what knowledge our experts were sharing this time, as well as how they answered our audience’s most intriguing questions.
Table of contents
The live stream began in Amsterdam, where Matt Hallman - with his typical cheerful attitude - welcomed our viewers. He then introduced our two speakers: product strategist Karla Sutil and product designer Kataryna Kaida.
How to tell if your digital product made it?
The talk was called Product-Market Fit 101 and it took the format of an interview where Matt, acting as if a complete newbie in the world of digital development (which he isn’t), asked Karla and Kataryna questions about the basic tools and definitions of this phase, starting with questions about product-market fit (PMF) itself. Here’s how the interview went:
What is PMF and how do you know if you have it or not?
Kateryna: PMF is achieved when you are in a market with a product that will satisfy that market. Some people say they “feel” that they have it, but Sean Elisse’s survey suggests measuring it by asking users, “How would you feel if you could no longer use this product”. If the answer is 40% or higher saying “not very good” then you are in PMF (source).
What is an example of a company that has achieved it?
Karla: One example is Tinder that achieved it immediately. Netflix also did so, but for them it took two years.
Kateryna: My favorite one would be Instagram. This app used to be a check-in application, not a photo-sharing app. It even had a different name - Burbn. It wasn’t popular back then as it had around 100 users. Founders dug into the data and noticed that the photo-sharing aspect was highly used - so that’s what they doubled down on.
So if you don’t have that many users, you should be digging more into the data, right?
Kateryna: At this stage, it makes sense to look closely at users that keep using your product and use that data to find out why. And if you understand who those users are from that moment on, you can optimize and optimize.
Karla: Yes, these are the early adopters. They’re really important and always, when looking at the metrics, we are looking at cohorts to try to understand if they are growing in numbers or not.
How to lead your growth with something other than sales
The conversation then gravitated toward a different topic: product-led growth. It’s a model that was presented by Karla during the Berlin meetup. Again, Matt impersonated a person not familiar with digital product development asked about the basics:
What does product-led growth actually mean?
Karla: The simplest definition would be that it’s a business methodology in which all of those important product-market fit metrics, like retention, acquisition, expansion, conversion, are all driven by the product. And by the product I mean the user experience, the features, the engagement. So it’s all product-driven. Also, it doesn’t mean that we don’t have salespeople on our team.
For example, the product is the main place where users can just understand what’s going on there and then we can expand on that. It’s really beneficial because right now it’s really hard to acquire users and it’s good to just show and don’t tell. Just try to get them to try out your product. This is the simplest definition.
Kateryna: This strategy is popular among software as a service type products, but it also might relate to B2B and B2C products. But the mixture that you can get of product-led growth and sales-led growth might actually depend on your product strategy and also on how complex your product is. But the SaaS products are probably the most applicable in this case.
Why is product-led growth so important and what are the benefits?
Karla: First I would start with the rising cost of customer acquisition. It’s getting higher and in the case of product-led growth, you can acquire more customers and you can have contact with more customers.
And for us, the user experience is the most important area as you can have an impact on many, many different PMF metrics, like acquisition, retention, engagement, all of that. I would say that in this competitive environment, that’s why it’s really important.
Are there any companies that are good examples of product-led growth?
Kateryna: Slack, is an example of a B2B product that leads growth - that’s unusual. It targets employees, not CEOs.
Karla: Notion, they are both B2C and B2B, and they have used a product-led approach.
How can a company using a sales-led model switch to product-led?
Karla: It’s easier to start as a product-led business and expand on that. It’s possible but it requires the right mindset for that and faith in the product teams. It’s hard, but possible.
Everything starts with building a great, smooth product. The sooner users see the value of your product the better. It’s also important to work on the high-level inspiration, idea, and vision of the product.
For all these things we need to measure how the product is doing, so my next question is what are pirate metrics?
Kateryna: Pirate metrics is a framework defining five elements that businesses should keep their eyes on: acquisition, activation, retention, referral and revenue. You need to think about the priorities of your business - is acquisition your key stage, or is it retention? For each stage, it’s good to have a single element to focus on.
How do you implement (or use) these metrics?
Kateryna: For each of those stages, it actually would be great to have one metric. I would say those five elements that I just listed are not metrics, but categories under which there can be multiple metrics to choose from. You can choose the one that matches your business model.
So for example, for acquisition, it actually depends on whether you are using organic or inorganic channels. If you are using advertisements then click-through rate and cost per click might be good metrics to use.
Speaking about activation, it actually depends on how your product team defines the activation moment - basically, that should be the moment when the user for the first time actually managed to use the core value of your application or at least approached doing so.
So it may be very different. For example, sign-up might be an activation point, but I would argue with that because the sign-up itself is not one from which we experience a value. Probably that’s a moment after the user has already signed up and started to use the application. So that’s also something to measure.
It’s tricky because for different products the metrics might be very different. Activation should first be defined and after that, we can elaborate with a metric.
Let’s say I just started out, how do I start with all these metrics?
Karla: Since you’re pre-PMF, retention would be your most important metric and I would focus on that.
Kateryna: Some products actually employ the one metric that matters framework. They just strategically pick what is the most important thing for them to measure right now. But it doesn’t mean that they don’t have to look at the pirate metrics, because there is a risk that if you pick the wrong metric to measure or the wrong north star metric, it will negatively influence all the other aspects of your product.
What I mean is that by increasing one metric and concentrating all your attention on it, you can risk decreasing or deteriorating in relation to all the other metrics. So as a health check, it’s good to just keep a track of other metrics as well.
There is this concept of an opportunity solution tree - can you explain it to me?
Kateryna: It’s a discovery tool. The discovery process is quite messy as it is, and the opportunity solution tree can help you keep it tidy. We get to talk about prioritizing opportunities, not solutions. Prioritization works well with the ICE method - impact, confidence, and effort.
So what steps do you take when you see an opportunity?
It’s a continuous discovery framework, and Teresa Torres suggests brainstorming, picking three different ideas, and then testing three assumptions. Not ideas, or assumptions. Why? Because testing assumptions is faster.
Questions from the audience
At this point, Matt turned to the audience and asked if there was anything they would like to ask our experts. There were a few questions in the chat box already, and Karla and Kataryna made sure to answer all of them. :
When you have PMF in one market and you’re expanding to another market, what do you then do?
Karla: You need to repeat your work: new market research, market analysis etc. Achieving PMF in one market does not mean that PMF in other markets is a sure thing.
How can I check if a new feature brings me profit?
Karla: Before implementing the feature you need to understand what you want to achieve. Start early, before implementing the feature. So let’s say that we activate ten users a day and with this feature we’d like to go up or earn more money by X. So we need to understand what our starting point is. We need to understand what’s our goal here.
And then, we need to bring analytics in and try to understand if it’s going well. You can use different tools to understand what the events are in the funnel that we want to look at and try to understand if it’s going in the right direction.
What is your favorite PMF metric?
Karla: Retention - it’s very important, exciting. You can acquire more investment with it.
Kateryna: The Sean Ellis Test, because it’s actionable.
As the Q&A session wrapped up, Matt had one final surprise announcement to make. Boldare was launching Loop, a knowledge platform dedicated to all things digital product development, filled with relevant content and information. Matt shared an exclusive early bird invitation during the chat session, giving lucky attendees the chance to be among the first to explore Loop.
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