I was on a walk today with my wife and our friend who is just getting a new company off the ground. He said that he had a year or two to find product market fit. She turned to him and asked "how will you know?" which we both thought was just such a great question. I have had founders ask me in the past "How did you know to pivot from your first startup to Ada?" and my answer is basically "we loved the company, but we didn't have PMF". So, we walked some more and talked about our experiences and frameworks we've read by others and it all sort of boiled down to the following:
Test 1: Are people willing to pay for your thing?
Product market fit is a function of demand. If you are a SaaS business, are people signing up with a credit card and not cancelling after the trial? Are they staying around for months and years? Are they willing to commit to an annual contract? If you are further along, is your average contract value increasing? If your thing is free and ad-supported, I suppose your real customers will eventually be advertisers. Are they excited to advertise on your platform? Enough to commit? Asking people to exchange money for something you have made is the best way that I know to measure whether they value it.
How to measure this:
- Monthly or annual recurring revenue
- Average contract value
- Gross revenue / user retention
Test 2: Do people care about your thing?
After people are paying for your product, are they talking about it? With their friends, on social media, or at least with you? I think it's a great signal for PMF because people spontaneously talk about things they love. And if people really care about your thing, they will tell their friends about it. They will talk about it on social media. They will write about it on their blogs. And, especially in SaaS, they will ask you to build more features. Sometimes these features will be blind alleys, but ideally there's some commonality in feature requests that start to emerge.
How to measure this:
- Monthly user growth (MAU)
- Virality coefficient (k-factor)
- Monthly NPS (or it's cousin "how upset would you be if you could no longer use this product?")
In my first startup, we were always scrambling for growth. Word of mouth wasn't bad, but it wasn't enough to sustain and would have meant raising more money at increasingly worse terms. Our metrics weren't bad either, but they weren't obviously great. Retention was always just a smidge under best-in-class. Shamefully, I admit writing a Reddit bot that spammed people who subscribed to r/programmers and r/entrepreneurship to acquire growth.
At Ada, we never once had to do things like this. After five customers, we had more feature requests than we could possibly handle and a longer list of customers in contracting or waiting to on-board who had been easily introduced to us by our existing customers and investors. We got to this in just 4 or 5 months of experimentation and compared to our first startup, our metrics were ridiculously high for years.
So PMF feels like consistently being ripped down a river by a current. It's exhilirating and very hard to keep up with. I remember not being able to take vacation for a while because I didn't know how to set up our servers to autoscale and it had to be done at least a couple of times a month. I once had to SSH into our servers from a beach from an iPhone and drove home early from the same vacation to stop our servers from melting. Lack of PMF feels like trying to swim upstream in a river of molasses. It's exhausting and demoralising.
When to Quit
I've been asked this a lot as a founder who has quit a startup and pivoted. There is a temporal element ("right time") to startups that I think should answer this. So, my answer is, give yourself a time constraint that is enough time to know if your timing was good enough. I think 2 years ought to be enough time to build and test out a few iterations of something and to have some revenue to show for it if your timing was right. Determination is required to be successful at anything, but even the most determined people will be worn down psychologically by years of lack of traction. I think that after 2 years, one needs to be getting back just a little more energy than one is putting in for something to be sustainable.