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Today’s insights:

• How to measure product-market fit

• Ruthless prioritization

• New additions to the library

Let’s get after it.

How to measure product-market fit

Insights from Failory

Understanding and measuring Product-Market Fit (PMF) is crucial for startups. PMF occurs when a product strongly resonates with its target market, often signaled by a distinct market pull. This article outlines the signs, metrics, and frameworks to identify and measure PMF.

Key Signs of Achieving PMF:

1. Sudden and Significant Market Pull: A notable surge in demand, driven largely by word of mouth rather than marketing efforts. Example: Netflix's subscription model success.

2. Gradual but Compounding Market Pull: Steady increase in demand over time, leading to significant market pull. Example: Instacart's growth through expanding retail partnerships.

3. Hitting a Milestone: Tangible proof of product adoption, like notable client acquisition or visible public usage. Examples: Airbnb and Canva recognizing their milestones.

Metrics to Measure PMF:

1. Surveys: Product-market fit and net promoter score surveys help gauge customer satisfaction and likelihood of recommending the product.

2. Usage Data and Retention Curve: Evaluating active user data over time, looking for a retention curve that stabilizes, indicating good user retention.

3. LTV:CAC Ratio: The ratio of Lifetime Value to Customer Acquisition Cost. A ratio of 3:1 or higher suggests successful growth and possible PMF.

4. 4Exponential Organic Growth: Natural growth driven by word-of-mouth referrals, indicating product demand.

Frameworks for PMF Assessment:

1. The Trifecta (Balfour): Considers non-trivial growth, high user retention, and meaningful usage.

2. Superhuman’s PMF Survey (Vohra): Utilizes segmented user feedback to refine the product for specific user groups.

3. Y Combinator’s Measurement (Alströmer): Focuses on identifying and measuring a key value metric over time.

Ineffective Metrics for PMF:

• Registered Users: A vanity metric that doesn't reflect actual product use or retention.

• Conversion Rate: This doesn't necessarily correlate with long-term product use or value.

• Free Usage: High free usage with low paid conversion doesn't indicate PMF.

Ruthless prioritization

Insights from Black Box of PM

Highly effective teams excel in prioritization, a practice that must be both rigorous and ruthless. Brandon Chu, in his article "The Black Box of Product Management," emphasizes the importance of prioritization in product management, which involves consistently focusing on customer value.

Key Framework for Prioritization:

1. Between Projects: Focus on what to invest in next. This involves estimating each project's return on investment (ROI) by assessing potential customer value and time required. Apply constraints like dependencies, timelines, and team composition to sequence projects based on ROI.

2. Within a Project: Prioritize essential tasks by developing a mindset to quickly determine what’s necessary amidst the chaotic nature of product development.

Detailed Steps for Effective Prioritization:

• Estimate ROI: Evaluate the customer value and time required for each project. Comparatively, this method aids in establishing project priorities.

• Apply Constraints: Consider dependencies (other teams’ work affecting your project), reverse dependencies (your work affecting others), timelines (urgent deadlines), and team composition (skill level and experience of the team).

• Building Prioritization Systems: Develop systems for quick decision-making, especially in bug fixing, to maintain focus on high-value tasks.

• Quality vs. Speed Trade-offs: Base decisions on product assumptions about customer problems and solutions. Adjust the balance between speed and quality according to the confidence level in these assumptions.

• Time Value of Shipping: Recognize the importance of delivering to customers quickly. Sometimes, shipping to a majority while delaying for some is more beneficial overall.

New additions to the library

• Understanding Product-Market Fit: A Comprehensive Guide (link)

• Insights into Product Analytics: Enhancing Business Strategy (link)

• Case Study: DoorDash's Strategic Use of Data Science (link)

• Exploring Product Strategy through Case Studies (link)

If you have any feedback, I’d love to read it. Just hit reply!

Thanks for reading!

- Rick Jarrell