Oct 21, 2022
Sean Ellis is probably the most famous for coining the term “Growth Hacker”, but he earned his reputation as a growth whisperer by scaling incredibly valuable companies like DropBox, Eventbrite, and LogMeIn. By being a part of so many successful companies, he developed a method to quantify Product Market Fit. We’ll discuss Sean’s key lessons in this article.
CHRIS: What factors go into Product Market Fit?
SEAN ELLIS: First, you have to understand my mindset when I approach the PMF problem:
Now let’s look at what factors I look at when evaluating Product Market Fit.
It all starts with need. Specifically you have to understand:
In other words, even if you’ve built the best product in the world, it doesn’t matter if customers don’t care about the problem you’re solving, don’t encounter the problem frequently, or have other solutions that solve the problem relatively easily.
Next you have to examine the solution. Specifically you have to understand:
I don’t think of Pricing as a factor in PMF. Buyers are either price sensitive or they’re not. A commoditized product will have less pricing power, but a unique product solving an important problem could have massive pricing power.
The result of everything above leads to value delivered to customers. And from this moment forward, everyone at the company should be obsessed with increasing value delivered.
CHRIS: Who should own Product Market Fit?
SEAN: Most companies are very siloed with their division of responsibilities. For example, Marketing warms up leads and then “hands them off” to Sales and relinquishes responsibility for those leads. That’s not how the best performing companies work.
PMF must have shared ownership between Sales, Customer Success, Marketing, and Product to maximize growth at a company with initial PMF.
Ultimately, all super valuable companies have the ability to align cross functionally around PMF, build test-learn processes to get more customers experiencing more value, unlock more word of mouth, and tap into the channels for reaching the right people for your product.
Later I’ll talk about how the CEO can use PMF to easily create alignment across each of these teams.
“Product Market Fit isn’t a milestone. It’s an iterative process that companies of all sizes continually work on.”
CHRIS: How do you measure Product Market Fit?
SEAN: There are two options that most companies use:
Option 1: ANALYTICS. In this option, you use product usage data to infer whether or not you’ve reached PMF. If customers use your product (the right way) and keep using it, you probably have good PMF. The challenge with this method is that you have to figure out who is using the product so you can acquire more people like them. If your company has already set up retention cohorts, you can use that data to figure out what changes to messaging, onboarding, new features, pricing, sales pitch, etc. lead to the best product adoption metrics.
Option 2: FEEDBACK. In this option, you use customer feedback to determine if you have reached PMF. The question I introduced many years ago was:
How would you feel if you could no longer use our product?
Very disappointed - Somewhat disappointed - Not disappointed
If a customer answers “very disappointed” then there’s a good chance you’ve reached PMF with that customer. In fact, if the ratio of the answer “very disappointed” is more than 40%, then well-done to you; that means you have overall Product Market Fit.
Note: I was originally going to ask a “Satisfaction” question like CSAT, but realized that question is too selfish. I needed better questions that were personal and would evoke more visceral responses. Also before asking any questions, I always tell customers that their feedback will improve the product and that we read every piece of feedback.
“When Customer Success doesn’t take on the role of measuring value delivered, other teams pick up the slack for them.”
CHRIS: OK, now that we have PMF, what’s next?
SEAN: Well, for starters you can call me to help you scale!
CHRIS: I should have mentioned at the beginning that Sean is a speaker, consultant, and interim Growth Leader for fast-growing startups or large businesses that are expanding into new markets. I’ve known Sean for almost 10 years and he’s helped countless companies hyper scale – he makes something so difficult look easy.
SEAN: I’ve been lucky to join companies with great initial PMF, and I think the most important thing for a company is to start to measure the aggregate units of Product Market Fit delivered to customers. As your measurement of value delivered improves, you’ll eventually come up with a single north star metric for the business.
That’s critical because this metric allows you to create shared goals and alignment across teams. Now the company makes most decisions based on value delivery, and the natural silos that appear start to become great collaborative environments.
There's nothing more exciting than growing a product that has really strong Product Market Fit. But simply having PMF is not enough. To succeed, organizations must tighten their execution around 1) which customers get the most value and 2) how they work collaboratively across the entire team to better serve those customer needs.