Every early stage startup is on a quest for one thing: product market fit.
But product market fit is elusive.
As Eric Reis has said “if you have to ask if you’ve found it, you haven’t.”
So how do you know when you have product market fit? David Cancel (Drift CEO) and Hiten Shah (Quick Sprout Co-Founder) sat down at SaaStr Annual 2016 to address the question head on, based on their experience building software companies dating back nearly 20 years.
Here are five of David and Hiten’s key lessons on product market fit and tips to help you navigate the maze.
Illusion And Reality In Product Market Fit [SaaStr Annual 2016]
It’s all about revenue. Some people say you find product market fit when churn is less than five percent. Some find it by surveying existing customers. For David, it’s always been about finding repeatable revenue, especially in the B2B space. But he said the actual dollar amount does not matter, what matters is the commitment: “the difference between getting someone from free to just a $10 per month commitment is significant.”
With free, look for other indicators. While David said product market fit is all about getting a financial commitment from customers, Hiten — who is a huge advocate for freemium in SaaS, pointed out that there are some key indicators to look for with free too, and they might be right in front of your nose: “willingness to pay is great, but what do you do if you’re like me and you like free products? The thing I look for is inbound interest, emails and tweets that reflect the fact that we are solving the right problem.”
Default to being wrong. Most of the things you are going to build will be wrong, and that’s exactly the point. The goal in the early days of any new idea should be to get out and validate those things as quick as possible.
Optimize for learning. Even as you grow, the key is to optimize everthing you do around around learning. From talking to early customers, listening to every sales call and running frequent tests around messsaging, the most important thing you can do before product market fit is to get learnings any way you can.
Be careful of relying on friends and family. Many SaaS business grow in the early days thanks to in large part to signups from friends and family, but Hiten cautions against that approach: “there can be a lot of bias in friends. I don’t mind having a friend use our product, but having them pay for it because we’re friends is a problem.