How to Measure Product-Market Fit
A simple benchmark for tracking your way to breakthrough
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This is Startup Builder by Henrik Angelstig. Every week I consume countless hours of books and podcasts on entrepreneurship to learn why some startups succeed while others don’t. 📚
I then distill the most non-intuitive lessons into short essays. Bringing you the most useful insights that fewest founders know.
Today’s essay will cover product-market fit – and how to measure how close you are to achieving it.
How to Measure Product-Market Fit
A startup has only one goal: get to product-market fit.
A startup with product-market fit can have lousy employees, poor design, terrible processes, and still be a wild success.
Vice versa, do everything right except product-market fit, and your startup will be on the fast track to imminent death.
So how do you know if you have product-market fit?
Marc Andreessen, co-founder of Netscape and the VC firm a16z, gives the following description:
“You can always feel when product-market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of ‘blah’, the sales cycle takes too long, and lots of deals never close.
And you can always feel product-market fit when it’s happening. The customers are buying the product just as fast as you can make it—or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it.”
The problem with this description?
It only tells if you have reached product-market fit after the fact. There is no metric to show how close you are before you get there.
Founders are thus left wondering:
“How do I know if I am getting closer to product-market fit?”
The answer is to have at least 40% of your users be “very disappointed” if they could no longer use your product.
Get >40% of users “very disappointed” without your product
This 40% benchmark was developed by Sean Ellis, who ran early growth at Dropbox. After studying several startups, he found a predictive method to measure product-market fit. 1
The method was to ask your customers: “How would you feel if you could no longer use our product?”, where customers could answer:
I would be very disappointed.
I would be somewhat disappointed.
I would not be disappointed.
The startups that grew easily had at least 40% of their customers respond “very disappointed”. The startups that struggled to grow had less than 40% respond “very disappointed”.
If more than 40% of your customers would be “very disappointed" without your product, you have achieved product-market fit.
If you are in the 0-15% region, and you have tried your best to improve the product, you should pivot immediately. You either have the wrong product, the wrong customer, or both.
If you are in the 15-40% region, then you have a fair chance to iterate your way to the 40% mark.
Getting to >40%: The Segment-Build-Listen loop
How do you get to >40% of customers saying they would be “very disappointed if they can no longer use your product?
By using the Segment-Build-Listen loop.
1. Segment
The first step is to identify the exact customer segment who most desperately needs your product and would be very disappointed if they could no longer use it.
I believe this target segment shouldn’t be more than 10,000 individuals if you are B2C, or 100 businesses if you are B2B.
Why this limit?
Because you must start with your one best customer and their one biggest use case for your product to get your first foothold.
Go beyond 10,000 individuals or 100 businesses, and you risk building for different customers and different use cases.
If you can’t even get to 40% with your best customers, then why do you think you can get to 40% with more of your worst customers?
You are free to change the customers in this target segment as much as you want. But you are not allowed to build for more customers than this at any one time.
If you haven’t yet segmented your potential customers – age, tastes, geography, profession, company size, industry, etc – to get down to this number, then you are going too broad.
2. Build
Once you have identified a target segment of fewer than 10,000 individuals or 100 businesses, then – and only then – are you ready to build an MVP.
Remember that it’s called a minimum viable product.
You are building a duct-taped experience to test your hypothesis of whether customers actually have the problem you believe they do.
Anything beyond what will test that hypothesis is waste.
As Reid Hoffman, co-founder of LinkedIn, said:
“If you are not embarrassed by the first version of your first product, you have launched too late.”
3. Listen
Once customers have had a chance to try your product, the final step is to listen to what they have to say about the experience.
Based on this input, you then go back to:
Refine your segmentation (either narrow, expand, or switch),
Double down on what users love, and
Address what holds others back.
Each time you turn the Segment-Build-Listen loop, you get closer to the 40% “very disappointed” mark.
It’s a continuous process of refining:
Who the target customer is, and
Building a better product for that customer.
Both market and product must be refined before in order to fit.
Why Segment-Build-Listen?
This loop is a variation of the Build-Measure-Learn loop from the book The Lean Startup by Eric Ries. But I believe Segment-Build-Listen better captures the right steps a founder must go through.
Segment should come before you build
The reason “Segment” comes first is that founders often make one of two mistakes even before they start building the product:
Mistake 1: Build with no use case in mind.
Mistake 2: Build with too many use cases in mind
Why do founders make these mistakes? I believe it’s because we want to build a product we feel is “cool”. Either it’s “tech cool” of being ground-breakingly new, but no one can figure out what to use it for. Or it’s “vision cool” of being all things to all people, but no one feels that it’s for them.
Guess what? Your customers don’t give a sh*t if your product is cool to you. They want something that is useful to them.
This is why “Segment” must come before “Build".
Only when you have narrowed down to 10,000 individuals or 100 businesses are you focused enough to:
Identify 1 specific need you can fulfill, and
Avoid any grandiose plans of fulfilling more than that 1 need.
Listen > Measure
The word “Measure” tells founders to gather user data. But user data has a big drawback: it doesn’t tell you why your users behave as they do.
Take Instagram for example.
When the app first launched, it was not obvious that filters was such an important feature. It was only when Instagram’s founder, Kevin Systrom, talked with his wife that he learned she didn’t feel comfortable using Instagram.
She was embarrassed that her photos didn’t look “good enough”.
Adding filters that enabled anyone to take beautiful photos turned out to be the killer feature that led Instagram to scale. 2
It is those small details that matter most. But you can’t gain that insight from user data.
Only by listening to individual customers can you discover those small details that end up having a significant impact.
You should absolutely search for insights in user data too. The reason I use the word “Listen” instead of “Measure” is that user data rarely tells you why customers do as they do. But 1-1 conversations and user tests are much better tools for that.
That is why listening well is the most crucial step in the Segment-Build-Listen loop. This step is therefore worth diving into specifically.
How to listen to your customers
A) Talk to and watch your customers use your product 1-1
This point is so important it needs to be repeated. The most valuable insights will come from talking to and watching your customers use your product 1-1.
This is where you discover what features customers truly care about, what they found confusing or irritating, and what additional features they want.
B) Ask your customers these 4 questions
Once you have a small base of users who have used your product for 2-3 weeks, you want to start having 1-1 conversations.
Rahul Vohra, founder of the lightning-fast email service Superhuman, recommends that you ask these 4 questions in particular: 3
“How would you feel if you could no longer use our product?”
I would be very disappointed
I would be somewhat disappointed
I would not be disappointed
“What type of people do you think would most benefit from our product?”
“What is the main benefit that you get from our product?”
“How can we improve our product for you?”
The 1st question gives you a sense of how close you currently are to product-market fit.
On the 2nd question, you want customers to describe themselves. If they only talk about other people they believe would like the product, then either you have the wrong product, the wrong customer, or both.
The 3rd and 4th questions generate your product road map. They inform you about what #1 thing customers really like about your product – and what is currently holding them back. This tells you what to double down on, and what points of friction you must remove.
In addition to the above 4 questions, you also want to ask additional ones to get more granularity about the customer experience, such as:
“What made you try the product?”
“How are you actually using the product?”
“What things do you find confusing or troublesome about the product?”
“What if I introduced feature X or feature Y? Would that help?”
The key principle in customer feedback is this:
Don’t just ask customers for feedback on the product you have built.
Ask them to describe the product of their dreams – and help them dream.
C) Talk to customers who are not using your product
As the Instagram story illustrates, people who are currently not using your product, or just using it very little, can sometimes provide the most valuable feedback.
There might very well be a small detail that is holding back a large group of users who would otherwise love your product.
Talking to those people who seem like a good fit for your product – but are not using it – can be a great way to uncover hidden roadblocks.
D) Try new things – even when customers don’t want them
Facebook is a great lesson in trying new things – even when customers say they don’t want those new changes.
Remember how Facebook started as a private network only for Harvard students? Well, the Harvard students did not want other colleges to join “their” network.
But when Facebook launched at Yale, the Harvard students began spending even more time on Facebook.
At every point along the way, the existing colleges said they didn’t want more colleges to join. And yet, for every college that joined, people liked the product more.4
People are very poor at predicting their own reactions to new things. But the more we get exposed to the new, the more we tend to like it.
It’s the founder’s job to keep exposing their customers to new things.
E) Listen to what customers do – not what they say
Another Facebook story we can learn from is the introduction of the news feed.
When the news feed was launched, Facebook users got so angry that they assembled in large protests outside of the Facebook office building – demanding the news feed to be removed.
But Mark Zuckerberg didn’t listen to what users said. He listened to what users did.
And the user data showed that people were spending more time on Facebook than ever before. He therefore knew that he could ignore what the users were saying.
And sure enough, the protests eventually died down, and now most users would never want to go back to a time before the news feed. 5
F) Ignore the minority in favor of the majority
Some customers will give feedback that will make your product more appealing to their specific niche, but less appealing to the majority. In those cases, you should ignore the minority.
In the early days of LinkedIn, there were some users who called themselves LIONs (LinkedIn Open Networkers) who wanted every user to be able to connect with and message anyone.
But although loud and passionate, they were actually a niche segment of customers. Most people don’t want anyone to message them. Especially not senior professionals or public figures.6
Founders must therefore discern which customer feedback is worth listening to. The key question to ask is:
“Will this particular feedback steer me towards – or away from – an even bigger opportunity?”
G) Look to user data to find surprising patterns
A final reason why only 1-1 listening isn’t enough is that it won’t help you find surprising patterns.
Take the TikTok predecessor Musical.ly as an example.
When the app launched in 2014, it was a general short-video platform. Users could shoot and share video clips 15-60 seconds long, and select different songs to add as soundtracks. But the app wasn’t taking off.
Then the team discovered that, for some reason, the app always got a huge spike in downloads on Thursday nights.
It turned out that Thursday nights was when the popular TV show Lip Sync Battle aired.
After the show, teenagers would search App Store for lip-sync apps. And “lip-sync” was one of the keywords the Musical.ly team had stuffed into their app description.
With this insight in hand, the Musical.ly team decided to pivot specifically to lip-syncing videos. And the app soon began swooping up users by the hundreds of thousands. 7
Shorten the loop
The speed at which you can get to product-market fit is dependent on just one factor: how fast you can ship, and get feedback on, new features.
Three ways you can shorten the loop are:
1. Use mockups instead of code
When the founders of DropBox wanted to test if there was a market for their product, they didn’t even build an MVP. They created a 3-min video showing how their product would work and posted it on digg.com – a social news and upvoting site for tech enthusiasts. Within 24 hours, the video had 10,000 diggs, and Dropbox’s waiting list went from 5,000 to 75,000, giving the team the confidence to build the product. 8
2. Ship features one at a time. Never ship in bulk
Shipping features in bulk means that it takes longer to get feedback on each feature. It’s also impossible to measure the impact on any one feature.
Did the 10% increase in engagement come 5% from feature A, and 5% from feature B? Or +30% from A, and -20% from B?
3. Give customers your personal phone number
You want to limit the friction for customers to give you feedback as much as possible. Giving them your personal phone number gives them a direct line to reach you.
Summary
Getting product-market fit is not an important thing to a startup.
It’s the only thing.
And the best way to measure product-market fit is what percentage of your customers would be “very disappointed” without your product.
If you are above 40%, you have product-market fit.
If you are below 15%, you need to pivot.
If you are in 15-40% range, you have a fair chance at iterating your way to the magical 40% mark.
Getting there, however, requires that you spin the Segment-Build-Listen loop as fast as possible.
“Segment” should always be done before you build. You need one best customer with one specific use case.
You should therefore target no more than 10,000 individuals or 100 businesses at any point in time. Go beyond this number, and you risk building for different customers and different use cases, which is like chasing three 40% rabbits and catching no one.
There is one exception to this rule.
If you have a strong hunch that there is something interesting in your space, but you don’t yet know what the killer use case will be, then – and only then – can you build for a greater segment.
The Musical.ly team didn’t know that lip-sync would be the killer use case for their app. They had to build a general product first and then discover what caught on. But once you find that #1 use case, zero in on it.
Lastly, your most insightful breakthroughs will come from listening to your customers 1-1. Listening is an art in itself, because it’s so full of contradictions. You must:
Ask customers not just for feedback on your current product, but to describe the product of their dreams.
Try new things, even when customers say they don’t want them.
Listen to the loud minority, but ignore them in favor of the silent majority.
Listen to what customers say, but act on what customers do.
If there’s one common theme in all these principles, it’s this:
You must kill the present to birth the future.
Sometimes your customers will pull you, and sometimes you must pull your customers.
But it’s the founder who must discern what is present and what is future – and then boldly lead not just their customers, but also their team, investors, and the rest of the world, with them.
Thanks for reading,
Henrik Angelstig
Facebook: The Inside Story – by Steven Levy
Attention Factory: The Story of TikTok and China's ByteDance – by Matthew Brennan
The Lean Startup – by Eric Ries,