Product Market Fit

Question 1

Product Market Fit (PMF)

Answer 1

Being in a good market with a product that can satisfy that market

Question 2

Finding PMF Loop

Answer 2

1. Define, define the initial PMF narrative
2. Validate, validate the riskiest assumptions of the PMF narrative
3. Measure, quantitatively measure PMF and decide next steps
4. Traction

Question 3

Finding PMF Loop - PMF Narrative

Answer 3

A dynamic document that encapsulates our product strategy hypotheses along six dimensions
1. Problem to solve
2. Target audience
3. Value proposition
4. Competitive advantage
5. Growth strategy
6. Business model

Question 4

Finding PMF Loop - PMF Narrative - Initial Insight

Answer 4

We need good initial insight to seed PMF narrative

Signals of a good initial insight
1. Earned, justified by in depth, authentic experiences and observations
2. Unique, should be underappreciated, not an obvious truth
3. Grounded, grounded in at least one dimension of the PMF narrative, usually value proposition

When building a new product in an existing org, it’s PMF expansion. At least one dimension should align with existing product strategy

Question 5

Finding PMF Loop - PMF Narrative - Problem to Solve

Answer 5

Frame gaps as problems, not rephrased solutions
1 What is the customer trying to achieve?
2 Why does the customer want that outcome?
3 Why can’t they do this today? => problem to solve

Question 6

Finding PMF Loop - PMF Narrative - Target Audience

Answer 6

Start small and expand to adjacent market
1 Target audience attributes
1.1 Demographic (Age, gender, location, income, education, and family size. most relevant for B2C)
1.2 Psychographic (Beliefs and values of customers)
1.3 Position (For BB, organizations, industries, company size. For B2C, budget and family role)
2 Customer segments, combining attributes to create as many customer segments as possible
3 Now or future
3.1 Now: Most acute problem to solve, strongest resonance with value prop, strongest competitive advantage, greatest ease of reach, and strongest willingness to pay

Question 7

Finding PMF Loop - PMF Narrative - Value Proposition

Answer 7

Focus on customer benefits not features
1 Ideal homepage
1.1 Product tagline/value proposition, communicates the overall value promise to prospective customers
1.2 3-5 Sub-benefits, communicate how the product solves key customer challenges

Question 8

Finding PMF Loop - PMF Narrative - Competitive Advantage

Answer 8

Don’t overlook the long-term advantage
1 7 powers for Long-term success
1.1 Scale economic, per-unit costs decline as production volume increases
1.2 Value realized by customers increases as the installed base increases
1.3 Counter-positioning, implementing a new, superior business model discourages competitors from mimicking due to anticipated damage to existing business
1.4 Switching costs, customers would have incurred a value loss from switching to an alternate supplier
1.5 Branding, enjoys a higher perceived value to an objectively identical offering that arises from historical information about the seller.
1.6 Corner resource, has preferential access at attractive terms to a coveted asset that can independently enhance value.
1.7 Process power, embedded company organization and activity sets which enable lower costs and/or superior product and which can be matched only by an extended commitment
2 Short-term success
2.1 Competitive Landscape Map
2.1.1 Direct competitors, Most obvious; closest prop to ours
2.1.2 Indirect competitors, Companies seen as a viable alternative
2.1.3 Adjacent market, Potential future competitors
2.1.4 Identify customer segments
2.1.4.1 List out identified competitors
2.1.4.2 Think through the customer segments they best serve
2.1.4.3 Scan the list to consider the segments underserved by competitors

Question 9

Finding PMF Loop - PMF Narrative - Growth Strategy

Answer 9

Short-term traction channels normally are different from long-term growth channels
So focus on both.

Question 10

Finding PMF Loop - PMF Narrative - Business Model

Answer 10

Business Equation, set of levers or controllable inputs, that we can pull to optimize the profitability of our business.

Business equation lever types
1 Revenue streams, source of revenue (e.g. subscriptions, transactions, ads, take rate)
2 Pricing (Willingness to pay and payment model)
3 Lifetime value (Average revenue generated by a customer over their lifetime)
4 Cost structure (fixed vs variable costs)

Question 11

Risk Validation Techniques

Answer 11

1. Broad Validation. Identify and prioritize the riskest dimensions of our PMF narrative
   1.1 Market research & expert advice
   1.2 PMF interviews
2. Targeted Validation Techniques. Tools that enable us to address and de-risk the identified riskiest dimensions of our PMF narrative

Question 12

Risk Validation Techniques - Market Research & Expert Advice

Answer 12

1. Market Research. Pressure test product strategy and identify risks.
   1.1 Identify analogs and antilogs along each dimension of the PMF narrative. It is about the quality, not the quantity of analogs and antilogs.
2. Expert Advice. Obtain insights from experts in the field.
   2.1 Identify experts, using analogs and antilogs from the last step
   2.2 Drive conversation
   2.2.1 What do you believe are the biggest risks to us in XYZ dimensions ?
   2.2.2 What are some products you can think of that have found success in XYZ dimension?
3. Synthesize Finding. Determine the riskest dimensions from combined research and update PMF narrative
   3.1 High conviction vs low conviction
   3.2 The dimension with the highest domino effect is the one that impacts the most other dimentions

Question 13

Risk Validation Techniques - PMF Interviews

Answer 13

Targeted customer interviews that strengthen our PMF narrative by validating all dimensions

1. Prepare, identify and source the target audience
2. Conduct, ask the right questions in a repeatable way
3. Debrief, effectively synthesize key insights

Question 14

Risk Validation Techniques - PMF Interviews - Prepare

Answer 14

2 main aspects
1. Recruiting, identifying the right people to talk to and soliciting their involvement
1.1 Test all of the hypothesized customer segments, including future and adjacent users.
1.2 Avoid late-stage pivots
2. Logistics, who will conduct, in what setting, and what means of compensation and consent.

Steps
1. Plan, determine the types of participants to talk to and how many participants the research needs, at least 3-5 participants per segment
2. Source, find possible participants through our own network, short-term traction channels and long-term growth channels
3. Contact, reach out to participants to solicit involvement
3.1 Brevity, Keep the ask clear and easily comprehensible
3.2 Problem-led messaging, the message should center around the hypothesized problem
3.3 Emphasis on conversation, talk about experiences; don’t sell
4. Screen, ensure participants are relevant to the research in case they don’t end up being relevant participants

Question 15

Risk Validation Techniques - PMF Interviews - Conduct

Answer 15

Conduct Structure
60 - 90 mins
Rapport (5mins)
Build (10 mins) (Good for target audience validation)
Peak (40 - 70 mins) (Other dimensions)
Wrap up (< 5 mins)

Ensuring Depth: Unaided questions -> aided questions -> stack ranking
What are the biggest problems you are facing in accomplishing XYZ? Can you stack rank them?
We have identified some problems too. Can you tell us if they affect you?
Can you rank the problems from most to least severe from both?

Ensuring Breadth: Repeat the process across all six dimensions

It’s critical to repeat what they just said
Pay attention to non-verbal signals

Question 16

Risk Validation Techniques - PMF Interviews - Debrief

Answer 16

Insightful: pattern match across interviews, consider trends in totality
First-order insights -> Second-order insights
Iterative: Consider both interviews just finished and what is to come. Be open to iterating the interview script
Unbiased: Take time to ensure correct interpretation, keep confirmation bias in check
Confirmation Bias: the tendency to interpret new evidence as confirmation of one’s existing beliefs or theories.

Question 17

Risk Validation Techniques - PMF Interviews - When to stop

Answer 17

Are we hearing consistent themes in the interviews?

Have we interviewed enough people per segment (about 3 - 5)?

Question 18

Risk Validation Techniques - Targeted Validation

Answer 18

Menu of Techniques
Surveys, Gathering asynchronous feedback from potential users (problem to solve, target audience, value proposition, and business model)
Smoke tests, Tracking clickthrough rates on nonfunctional pages to gauge user interest (problem to solve, target audience, value proposition)
Prototypes, building lo-fi model of the product (value proposition, competitive advantage)
Pre-sales, pitching and advance selling the product to gauge interest (problem to solve, value proposition, competitive advantage and business model)
Product tests, building and testing the product (value proposition, competitive advantage and business model)
Growth tests, measuring growth channels against one another (Growth strategy)

Question 19

Risk Validation Techniques - Targeted Validation - Surveys

Answer 19

Speed: Medium
Cost: Low
Applicability: A good first targeted validation technique following PMF interviews. Especially at established orgs.

Surveys are often followed by other targeted validation techniques

Use early when we can easily access users to validate PMF interviews

Question 20

Risk Validation Techniques - Targeted Validation - Smoke tests

Answer 20

Serve the market product concept on a webpage that encourages potential customers to click something to learn more. The click-through rate then can be tracked.

Fake Door Test: less detailed invitation to new product or feature; often used in PMF expansion cases.

Landing Page Test: More detailed; sometimes include early screenshots of product, explainer video or product pricing

Speed: High
Cost: Medium
Applicability: Great alternative to surveys when there is no existing audience (zero-to-one startups) Commonly leveraged as an earlier technique.

Question 21

Risk Validation Techniques - Targeted Validation - Prototypes

Answer 21

Experience Prototypes; Low fidelity; test user experience, user flow, and high-level value prop.

Technical prototypes; are used to validate the feasibility of the required particular technical solution.

Speed: Medium
Cost: Medium
Applicability: Especially well-suited for validating the product’s ability to deliver on the value prop.

Use when our riskiest hypothesis is solution feasibility

Question 22

Risk Validation Techniques - Targeted Validation - Pre-sales

Answer 22

Pre-sell the product before it’s available, primarily testing the business model through the sales pitch.

Speed: Medium
Cost: Medium
Applicability: well-suited for validating business model, especially the willingness to pay or pricing viability.

Question 23

Risk Validation Techniques - Targeted Validation - Product tests

Answer 23

No-code MVP, building an initial product using no-code tools to simulate the experience
Wizard of Oz test, little coding; automatic on frontend and manual on backend
MVP, enough coding to create a product with bare essential functionality
Phased delivery, Extensive coding to build high-quality, highly polished product

Speed: Low
Cost: High
Applicability: Often used as one of the last targeted techniques after fast and more cost-effective ones. Best way to measure actual user behavior

Sometimes the only way to validate especially for novel social experiences.

Question 24

Risk Validation Techniques - Targeted Validation - Growth Tests

Answer 24

Directly test growth channels before scaling efforts

Dependent on the channels
Speed: Medium
Cost: Medium
Applicability: Only targeted validation technique that can validate the growth strategy dimension

Question 25

Measure PMF

Answer 25

We should not only focus on one measurement.

We need to focus on growth and retention

Being in a good market with a product that can satisfy that market

Growth: in a good market
Retention: satisfy that market

Because the delay effect from retention. 6 times of the nature product frequency and at least a few hundred users to get representative data. So we can use engagement as the leading indicator of retention. Engagement is defined as how often users perform a core action.

Measure growth, retention and engagement as the leading indicator

Question 26

Measure PMF - Measuring Growth

Answer 26

Volume of users; adding new users monthly

Sustainability of growth; adding new users profitably. Depending on the growth loops.

Question 27

Measure PMF - Measuring Growth - Volume

Answer 27

Volume of users; adding new users monthly, graph each customer segment separately, for persistent trends, and measuring at least 6 time periods.

Question 28

Measure PMF - Measuring Growth - Sustainability

Answer 28

Sustainability of growth; adding new users profitably. Depending on the growth loops.

Incentivized Viral
How is it done?
Users invite other users in exchange for rewards
Is it sustainable?
Must pass payback period test within 6-18 months

Payback period = Customer acquisition cost / monthly revenue * margin percentage
B2C is close to the 6 months end
Small to medium B2B is around mid
Enterprise is towards the 18 months

Company-Generated Content
How is it done?
Company invests resources to create content
Is it sustainable?
Must pass payback period test within 6-18 months

Ad and Integration
How is it done?
Invest new user revenue in ads/integrations to fuel more signups
Is it sustainable?
Must pass payback period test within 6-18 months

Inbound and Outbound Sales
How is it done?
Sales reps convert leads into customers; more reps hired
Is it sustainable?
Must pass sales efficiency test
Sales Efficiency = Total sales revenue in a give period / total cost of sales team in the same period.

Question 29

Measure PMF - Measuring Growth - Growth linear but no Sustainability

Answer 29

1. Reduce CAC, reduce overall cost or increase the number of users acquired
2. Increase customer value, increase customer retention, customer monetization, and or customer contribution margin.

Question 30

Measure PMF - Measuring Retention

Answer 30

Low-frequency products will struggle to measure retention in a short enough window. Instead should focus on engagement.

1.Frequency, Determine product’s natural frequency of use
2. Core action, Determine primary use case and user action
3. Segment users, Segment users by categorizing which customers fall into now or future segments
4. Create a retention cohort chart
5. Cohort chart to line chart

1,2,3 define retention metric
4,5 visualising data

Question 31

Measure PMF - Next Steps for Retention

Answer 31

1. Trend to Zero
   1.1 Additional validation to find riskiest hypothesis
   1.2 NPS surveys for scaled feedback
2. Gradual Decline
   2.1 NPS surveys for scaled feedback
3. Flat
   3.1 Improve retention in other customer segments
4. Smile
   4.1 Improve retention in other customer segments

Question 32

Measure Engagement

Answer 32

Start measuring engagement when the product launches, only need 2 times of periods

Track the same core action as retention

Early view into retention

Aggregate line graphs can hide existing users churning

Life cycle bar chart with segments, measures changes of core actions over time
1. New, core actions from new users in the given time period
2. Retained, core actions from users who maintained their usage
3. Expansion, core actions from users increased their usage
4. Resurrected, core actions from users who previously churned, and now returned
5. Contraction, core actions lost from users who’ve decreased their usage
6. Churned, core actions lost from users who have completely churned

Healthy engagement trends
1. Portion of new turning into retained
2. Growing expansion actions
3. Minimal churned and contraction

Unhealthy engagement trends
1. Contraction and churned growing with new users
2. Considerable resurrected count

Quick ratio = Gains in core actions in a period (sum of new, expansion and resurrected) / loss of core actions (Sum of contraction and churned) in same period
Anything lower than 1.5 is considered to be bad

Question 33

Leveraging NPS Surveys

Answer 33

Net Promoter Score (NPS) surveys can only be used to validate post-product launch

How likely are you to recommend our product to another person? 1-10 rating quantitative

Why did you score our product the way you did? open-ended qualitative

How to interpret their qualitative responses?
1. Segment feedback, discover insights among responses
1.1 Segment by customers, engagement (L, M and H) and NPS (score 1- 6 detractors, 7 and 8 passives and 9 and 10 promoters)
2. Categorize responses, create themes and sort responses, category should not be too broad.
3. Summarize data, count the frequency of each theme
4. Brainstorm and execute, solutions for top-ranked themes

Question 34

Traction

Answer 34

The initial demand that gets customers to start using the product.

Early on PMF, we can leverage linear tactics. Later on, we should leverage more on growth loops.

Traction development needs to happen in parallel with product development

Question 35

Traction Development Loop

Answer 35

1. Define traction goals, based on status in the PMF journey
2. Evaluate the potential channels, identify the channels that align with our traction goal
3. Test our prioritized channels, home in one the best 1-2 channels

Question 36

Traction Development Loop - Define traction goals

Answer 36

Desired amount of users who have accomplished a goal

By product development phases
1. Pre-product: Leveraging validation techniques, except product tests
Traction Goal: Recuit enough potential users for the validation technique
2. Post-product: Employing product tests, building the MVP
Traction Goal: A manageable set of users to gather feedback from
3. Retention: Monitoring retention, part of deliberate PMF measurement
Traction Goal: Enough users to measure PMF retention growth, engagement
4. Short-term growth: Growing an initial critical mass of users, also part of PMF measurement
Traction Goal: Attract a critical mass of users while also ensuring engagement and retention

Question 37

Traction Development Loop - Evaluate the Potential Channels

Answer 37

Channel Reach: Number of potential users who fall into our prioritized Now customer segments that could attract, L (tens), M (Hundreds) and H (Thousands)

1. Leveraging personal networks (L - M)
2. Tapping into existing communities (M - L)
3. Building an audience with content (L)
4. Getting press (L)
5. Targeting influencers e.g. youtubers (M - L)

Question 38

Traction Development Loop - Test our prioritized channels

Answer 38

1. Which 2 channels to test
2. Tactics
   2.1 For leveraging personal networks, reach out to a small randomized subset, and determine the response rate
   2.2 For tapping into existing communities, pick the top one, participate first by commenting, then post about our product to determine a response rate
   2.3 For building an audience, try different content ideas, review engagement rates and types of content and topics that resonate
   2.4 For getting press. Was the media coverage we received worth the investment?
   2.5 For targeting influencers, identify and prioritize influencers, test one influencer at a time, build a relationship & partner on a single post, measure signups from this first collaboration and determine effectiveness.

Question 39

Building Our First Growth Loop

Answer 39

1. Model channel fit, business model will enable or disable certain growth loops or channels. Assess growth loop options using ARPU/CAC spectrum. Business Model vs Growth Strategy
2. Product channel fit, product must be built to fit certain growth loops; growth loops are fixed. Home in on the right 1 or 2 loops for our product using evaluation questions. Value Props vs Growth Strategy
3. Synthesis, two outcomes, converge (double down on the loop) or diverge (adjust the PMF narrative)

ARPU/CAC Spectrum
Low -> High
Word of mouth viral, Organic Viral, Vasual contact viral and User-gen content -> Incentived viral -> Company-gen content-> Danger Zone -> Integration -> Ads -> Inbound Sales -> Outbound Sales