I have a lot of conversations where teams toss around the concept of Product Market Fit (PMF) like it\u2019s a vibe. We all pretend to get the gestalt of it, but usually, we\u2019re just guessing. Here are explanations my teams have used over the years:<\/p>\n\n\n\n
Is your Hair on Fire?<\/strong>You have PMF when the customers are buying the product as fast as you can make it\u2014or usage is growing as fast as you can add more servers.<\/p>\n\n\n\n How would you feel if you could no longer use this product?<\/strong>If at least 40% of them answer “very disappointed,” you have reached the threshold. Anything less means you are building a toy, not a necessity.<\/p>\n\n\n\n Since I got involved in angel investing, I learned the cold truth from my fellow investors: PMF is MATH! <\/strong><\/p>\n\n\n\n\n\n\n\n Here are a couple of calculations that tell you whether you have found PMF.<\/p>\n\n\n\n A critical metric is Cohort Retention Curve. Some argued that everything else is friction. When you look at your telemetry, look for a specific mathematical shape. If you plot your users over time and that line keeps sinking toward the X-axis, your ship is sinking.<\/p>\n\n\n\n A healthy product is defined by an asymptote. You need a percentage of users who never leave\u2014the line must flatten out. If that line hits zero, your product is a hallucination. It doesn’t matter if you have a million sign-ups today if your churn rate burns through your user base by next month. I see teams obsessing over top-of-funnel growth while their retention curve is a vertical drop. That is a leaky bucket. You are burning capital to acquire people who hate your implementation enough to leave forever. If that curve doesn’t stabilize, stop coding. Your current solution is a delusion.<\/p>\n\n\n\n NOTE – you only have one chance to make a first impression. A decade ago I used Siri and decided it sucked. I haven\u2019t tried it again but will still tell everyone that it sucks.<\/p>\n\n\n\n If your unit economics requires a miracle to break even, you better start praying. The math of a viable business is a law of physics. A good rule of thumb is that customer LifeTimeValue (LTV) should be greater than 3 times the Customer Acquisition Cost (CAC).<\/p>\n\n\n\n LTV > 3 * CAC<\/p>\n\n\n\n LTV < CAC ; you\u2019re losing money<\/p>\n\n\n\n LTV ~ 2 * CAC ; you\u2019ve on thin ice. Low margins means few funds to drive change and growth<\/p>\n\n\n\n If you are paying more to get a customer than you will ever earn from them, you are running a charity subsidized by investors. Scale only magnifies a broken model. If you can\u2019t earn back the cost of acquisition in under a year, you don\u2019t have a Plausible Theory of Success.<\/p>\n\n\n\n Some founders are just paying for attention. If your Virality Coefficient is less than one, you are pushing a boulder up a hill. You spend a dollar to get a user, and that user dies alone in your database.<\/p>\n\n\n\n K = number of invitations sent * conversion rate<\/p>\n\n\n\n When K > 1, the market is pulling the product out of your hands. It is the mathematical difference between a linear slog and a pandemic. If your product doesn’t naturally compel a user to bring in more than one other person, your value proposition is missing a fundamental hook. You are trying to manufacture growth because you failed to ship a necessity.<\/p>\n\n\n\n This is where you have to be honest about your Welcome To The Room<\/a> moment. In that blog, I point out that you must always monitor your Plausible Theory of Success. Tracking these PMF metrics isn’t a “nice to have” activity; it is the primary way you determine whether your theory is actually plausible or just a fairy tale you\u2019re telling yourself. Scale only magnifies a broken model. If you can\u2019t earn back the cost of acquisition in under a year, you don\u2019t have a Plausible Theory of Success.<\/p>\n\n\n\n So do the math. I have a lot of conversations where teams toss around the concept of Product Market Fit (PMF) like it\u2019s a vibe. We all pretend to get the gestalt of it, but usually, we\u2019re just guessing. Here are explanations my teams … Continue reading Cohort Retention Curve<\/strong><\/h1>\n\n\n\n
Business vs Charity<\/strong><\/h1>\n\n\n\n
Why?<\/p>\n\n\n\nVirality Coefficient<\/strong><\/h1>\n\n\n\n
Respect reality.
If the math doesn\u2019t pencil out, you are failing.
You no longer have a plausible theory of success.
Stop.
Focus on getting a new plausible theory of success.<\/p>\n","protected":false},"excerpt":{"rendered":"