(2023-11-26) Cohen Productmarket Fit Experience Data

Jason Cohen on Product/Market Fit: Experience & Data. Companies that achieve Product/Market Fit – both self-funded and VC-funded – exhibit the same prototypical metrics curves and subjective experiences.

It’s best to start with the subjective experience, because there is no doubt when you have it. (If you’re not sure whether you have Product/Market Fit, you don’t.)

If every day it’s a struggle to get customers, it’s not working yet. If every day it’s a struggle to keep up with demand, it’s working.

It is a momentum change from “push” to “pull”

It’s not all good. The avalanche of customer complaints outstrip your ability to deliver bug fixes and simple enhancements. You feel behind in every department simultaneousl

it does matter, because it determines whether the company is sustainable, and fundamentally changes how you operate each day, how you plan for the future, whether and who you need to hire, and what you need to build, and whether you’re going to start tackling scale

What does Product/Market Fit look like numerically?

I define Product/Market Fit as all of the following:

Easy growth (Pull, not push): Growth rate suddenly spikes up, and sustains at the new rate. You often don’t know why

High retention: Cancellation at or under 3%/mo (for B2B) or 5%/mo (for B2C), because if customers are leaving in droves, you are not a “fit.”

Critical mass: At least $20,000/mo in revenue or increasing WAU’s by at least 200/mo

The characteristic growth curve of “Product/Market Fit”

Bootstrapped products

Successful startups often have a growth curve like Pallyy’s: Revenue growing linearly, slowly, often for about two years, then in a moment—Product/Market fit—when it suddenly turns upward, and continues growing at that new trajectory.

The new growth is still linear, but dramatically faster. In particular, it is not exponential growth, though that’s the word people frequently use (this universal fallacy is explained here).

ConvertKit was similar, bumping along for two years before growing quickly but linearly, just like Pallyy

VC-funded products

My company WP Engine started 13 years ago self-funded but two years later became VC-funded, eventually raising more than $300M, experiencing hyper-growth3 for a decade, yet it exhibits the same two-year slow-growth preamble to high-growth, and both linear

You can’t tell from the chart when we first raised money (it wasn’t January of 2012)

I distinctly remember when we flipped to “Product/Market Fit.” Only five of us, completely sustainable, and suddenly everything changed.

This isn’t a new phenomenon, nor a “SaaS” phenomenon. Peldi Guilizzoni famously shared his (one-time!) revenue for Balsamiq Mockups back in 2008

Second products

Early on, you can see the linear behavior, fairly consistent even through the 2008 recession

Sometimes there’s another shift in the slope of the line, when the company adds a second successful product, expands to a lucrative new market, or changes its business model

All of the previous examples were of B2B companies without “viral” or “network” effects, which are often associated with so-called “exponential growth.” However, even classic “viral growth” examples like Slack.com did not grow exponentially.

You can also see it in AirBnB with a bend in late 2010, coinciding with the realization that professional photography was the key to “fitting” with customer expectations:

High cancellation means there’s no fit

Founders often think cancellation of 5% or 7% per month is OK so long as they’re getting lots of new customers. But they are mistaken.

High cancellation puts a ceiling on growth

there’s no way to keep increasing new-customer acquisition to outpace churn, for the simple reason that “5%/mo” definitionally grows in lock-step with your total size, but marketing and sales does not continue to automatically grow just because your company is bigger.

You can see a similar effect at SparkToro.

point is that customers don’t want to stay. That means it’s not a fit

Easy inbound growth is indeed a sign of fit, but if customers leave in droves, it means the promise was right, the price was right, but the product didn’t deliver, or the customer’s need was too brief to sustain a recurring-revenue business.

If your company is growing slowly, that doesn’t mean you failed. It just means you haven’t hit that success curve yet, and haven’t found Product/Market Fit.

Maybe you never will, but you’ll grind out a profitable company anyway. Maybe you never will, and growth is so slow, it’s best to face facts, stop, figure out why it was too hard, and try something else. Or maybe your growth spurt will start today. No one knows; that’s life. But now you know what it looks like, when it’s truly a fit.