Quantitative Tests For Product-Market Fit

by Josh Sandberg

Is the product-market fit concept useful for entrepreneurs and managers? How can you know in the moment (rather than in retrospect) that you’ve achieved PMF?

Knowing when you’ve achieved Product-Market Fit (PMF) is vital for those following the lean startup methodology: it tells you when to stop pivoting and start scaling. In a influential early post advocating the importance of PMF, Marc Andreessen claims that “You can always feel when product/market fit is [or isn't] happening”. However, several of the startups we’ve analyzed so far this semester have shown that reaching PMF is not always the lightning-bolt moment Andreessen claims: they’ve spent time stuck in a gray area where they’re having some success, but not as much as they’d hoped for. Do they continue to pivot in search of that magical state of PMF where ‘everything just works’, or accept that they’ve found a market that is ‘good enough’?

I believe that two slightly more specific concepts are core to what it means to achieve PMF: first, that you solve a significant pain point for users; second, that you create passion for your company and your solution. The first is key to demonstrating and capturing the value of what you have created; the second is key to spreading the word about your service and generating growth. Each of these can be tested quantitatively to help indicate PMF.

To test for user’s pain, my favorite question comes from Sean Ellis: “How would you feel if you could no longer use [my product]”? Based on his experience, achieving product/market fit requires at least 40% of users say they would be “very disappointed”. While the exact threshold is debatable, the underlying validity of the metric is not: it’s a great way of testing whether or not you are solving a significant pain point. If you are, fantastic! But if a significant proportion of your users are not seeing demonstrated value to the point where their lives would be worse without your product around, it’s fairly clear you do not have PMF – you’re going to struggle to sell, retain, and monetize customers. A useful further analysis is to identify the commonalities among those “very disappointed” users: this is your current core demographic. If you capture a reasonable share of this segment, is it a big enough market? If not, it may be time for a pivot.

To test for customer passion, my favorite question is the Net Promoter Score: “How likely is it that you would recommend [Company X] to a friend or colleague”? There’s a significant amount of research linking high NPS scores (driven by lots of strong promoters and few detractors) to higher repeat purchase rates and long-term growth. Intuitively, the concept seems even more valid for high-tech firms hoping to leverage user referrals and viral distribution. Your customers may love you because of your economic value delivered, your customer service, your elegant design, your quirky copy, or any combination thereof – at the end of the day, what matters is that they care. Eric Reis commented in class that “the opposite of loving a product is usually not hating it… it’s indifference”. Indifference is dangerous: it means you’re going to be doing all the hard lifting, so throw all those viral growth models out the window and get ready to deal with a high customer acquisition cost. On the other hand, being able to create passionate users is a powerful indicator of PMF.

Neither of these two metrics provides a precise measure of when PMF has been achieved, but I believe that taken together they incorporate many of the core concepts of PMF, and can help provide some quantitative guidance as to whether your team should keep pivoting or hit the accelerator.