CROs, CMOs, and CEOs — all charged with growth — must determine product-market fit. Product-Market Fit (or PMF) is found when your product or service is essential to your customers. And no matter where you are in the growth process, you have to continuously test the value hypothesis before you test the growth hypothesis. Otherwise, you might waste time and resources — something you don’t want to be doing, especially in 2020.
While the concept of PMF comes from the lean startup movement, it remains essential for even the most mature brands (1). While you may generate new customers without having PMF, it will be hard to retain them. Growth relies on both acquisition and retention. And if you don’t have PMF then you won’t have the organic word of mouth needed for exponential growth. You’ll get into a never-ending spending-optimization-churn cycle chasing vanity metrics.
So, how do you find your PMF?
Just ask your customer: What would you do if you weren’t able to use this product (or service)?
This is a question all companies need to ask. And though traditionally the answer to this question was used for product development, it can also inform marketing. At Room 214 we use this PMF question during our Jobs to Be Done-style customer interviews (also traditionally used for product development). Because the only way you can truly find your marketing niche is by talking to your customers. These interviews help refine your target audience and target channels, so you can be more efficient with your $$$.We know there are other ways to measure PMF, like: Net Promoter Score (2), Customer Satisfaction Score (3), Customer Effort Score (4), Retention Curve (5), Product Usage Interval (6), Growth Rate (7), Customer Lifetime Value, etc. (8) But nothing is quite like the level of insight you can get from an open-ended conversation. The good news for the CMO, CRO, etc. is that sitting down with a few of your customers might reveal more than your fancy [read: expensive] martech stack combined.
The Nuances of Product-Market Fit
If your customers would be distraught without you, then your PMF is clear. Consider these people who have already validated your value hypothesis, aka your ‘desperates,’ as your core customer. Narrow your marketing efforts on finding and retaining more of them. Make your target ridiculously small and spend your marketing resources wisely, because you can’t go after everyone. Your ‘desperates’ will become brand ambassadors and organically propel you toward new growth segments. You will reduce your risk with messages and branding that motivate and inspire your core.
SC Moatti, founder of Products that Count, also speaks about the “myth” of product-market fit. The reality is PMF is not static. PMF is constantly being lost and found. So you have to continuously rediscover and reinforce your fit. This means that you have to stay in conversation with your customers.
If your customers respond that they would just switch to your competitor, then maybe you’ve got a differentiation problem. When your customers don’t feel connected to your company, marketing can feel manipulative, which doesn’t feel good for the company or customer. What makes you different?
But more often than not, customers’ responses are more nuanced. Ev Williams, CEO of Medium and co-founder of Twitter, captures this dynamic:
“Though the difference between no product/market fit and some product/market fit is night and day, having ‘fit’ is not exactly a binary thing. It’s multi-dimensional. You can have strong fit with a segment of your market and weaker fit with another. You can have strong fit for one particular use case and no fit for another. The more superior your product is for more jobs-to-be-done for more people, the stronger your ‘fit.’”
After asking your customers the PMF question, you’ll find that innovation doesn’t always have to be about the ‘what’: the product and its features, but about the ‘how.’
By getting closer to your core customer, you can focus on what is most useful to and beloved by your customers, not necessarily new bells and whistles. You will gain greater return on investment and return on energy. With your team in alignment with your core customers and their needs, your business will grow.
(1) Product-Market Fit was first coined by Andy Rachleff (co-founder of Wealthfront & Benchmark Capital), who was inspired by Sequoia Venture Capital founder Don Valentine. And the concept of testing the value hypothesis before the growth hypothesis was popularized by Steve Blank and Eric Ries of the lean startup movement. (2) NPS indirectly measures loyalty by asking: “How likely are you to recommend our company to a friend or colleague?”(3) CSAT directly measures customer satisfaction by asking “How would you rate your overall satisfaction with the service you received?” (4) CES measures the efforts customers make to interact with your product / service by asking: “How easy was it to use this?”(5) Retention Curve is calculated by dividing your active users that continue their subscriptions by the total number of active users in a time period (6) The product usage interval is the frequency (daily, weekly, monthly, etc.) with which you expect people to naturally use your product (7) Growth rate may be calculated as follow: 1. Percent Change = 100 × (Present or Future Value — Past or Present Value) / Past or Present Value; 2. Percent Growth Rate = Percent Change / Number of Years (8) According to our partners at HubSpot, “To calculate customer lifetime value you need to calculate average purchase value, and then multiply that number by the average purchase frequency rate to determine customer value. Then, once you calculate average customer lifespan, you can multiply that by customer value to determine customer lifetime value.”
This blog was also published on Medium.