How to get to Product Market Fit: what it is, step by step guide and success cases like Notion, Canva and Stripe.
Debunking the myth of PMF
Welcome back again to Product Market Fit! Please if you find valuable what you read don’t forget to share and subscribe 👍
This is a longer post than usual so I would recommend, some music to energize first!
Let’s go.
So it’s been a couple of interesting and busy weeks, and I’ve just got a little of time to regather my thoughts.
On this newsletter I’m going to talk about:
What is Product Market Fit and how to recognize it
How to get to Product Market Fit
Showcase of successful startups achieving Product Market Fit
Now let’s get into it!
1st. What is Product Market Fit and how to recognize it
If we go to basics the definition is simple: selling a product that the market wants/needs.
This is simple but still important. Bear with me. Just because the market needs/wants a product it doesn’t mean that having PMF will make your company grow exponentially without you having to do anything else.
So, for example, let’s talk about a commodity like water. Everyone drinks and needs water, so, if you start a water company you get to PMF right away. However, to sell it you’ll still have to find a distribution channel, invest a lot in marketing to try to differentiate yourself and then start getting some customers. Because the market is so mature it will be hard to grow a water company and to make money out of it. You can have product market fit but you then have to sell your product.
So, what is the point of getting to product market fit? Well, if you are a startup you are likely selling a product for which there is no clear need for. You are solving a problem in a way nobody has before, so you have to get to the point where your product is as wanted/needed as water can be. Once you get there, then it’s time to invest in market it. If the product is a market maker then it will have the potential to grow way faster than you can grow a water company.
There is a lot of literature about how to recognize product market fit but I found Tristan Kromer’s definition accurate.
“Product/Market Fit is sufficient demand in a defined marketplace to allow the efficient expenditure of capital (human or financial) to scale company processes such as marketing.
There are three key components to product market fit – value proposition, customer segment and pricing. Once product market fit has been established none of these three areas requires any further iteration. They will need to be reviewed from time to time but are set for at least the first phase of the company's growth.”
2. How to get to Product Market Fit
1st. Find a niche
Identify a problem that a set of homogeneous companies share. Identify that set of companies and define your ideal company profile, by industry, geography, revenues, employee count, key challenges and tech stack. You can then move on to set your Buyer Persona and your user persona.
2nd. Make the sure the problem is so big that they are desperate to solve it
3rd. Build a solution that does a good job solving that problem - start customer experience first and think about the huge benefits you are bringing to your customers
4th. Set a pricing and validate it
You can read all about pricing on this classic Hubspot Blog.
5th. Iterate product
If you don’t know about agile read this.
6th. Measure
Follow the Pirate Metric Framework coined by Dave Mclure
1. Acquisition – how well are you getting customers to your site or app?
Segment your audience - make sure you are targeting the people who get value from your product.
Figure out what’s unique about the users that stick around and those that churn
Find the critical actions they take and milestones they reach that unlock the value of the product.
Bake those actions into the experience and push as many users as possible to take those actions or hit those milestones – this will drive up activation, conversion and retention.
2. Activation – are your customers having a great ‘first run’ experience?
3. Retention – how often are your customers coming back?
Survey users to understand how they feel about your product
Use Sean Ellis’ test for product-market fit – if 40% or more of your users say they would be very disappointed if your product was taken away that is a good indicator of product-market fit.
Measure retention rates and look for a stabilizing retention rate over time. What’s a good retention rate? Depends on model and vertical.
4. Referral – are they telling others about your product?
Measure Net Promoter Score (NPS) – if it’s a 9 or a 10 you’re in good shape
5. Revenue – are they paying for your service? Are you able to monetize your customers?
8th. Iterate & do it all again
3. Business case of successful startups achieving Product Market Fit
Now, let’s look at the data. How fast do companies really get to PMF and how do they keep growing?
Well, best in class startups reach $1M ARR in just 1 year and $10M ARR in just 3 years. However, as you can imagine there are many aspects that affect this.
As it shows on Lenny’s Newsletter, it took longer than most would expect for these well known startups to find product market fit, or did it?
Let’s look about some of the following startups:
1. Stripe
2010
Stripe their first 20 customers from people they knew at Y Combinator and gathered essential feedback before building out their first real, no illusions, Payments product.
As they got new customers using Stripe and demonstrated the simplicity of their API , these developers in turn told their friends.
Then, on September 29th, 2011….Stripe launched to the public.
Following this launch, they put a lot more energy into acquisition and started creating a community of devs around the product. Here are a few key things they did that bolstered their word of mouth engine.
They hosted monthly Capture The Flag hackathons at their offices. This eventually became so popular they took it online.
They started hosting general meet-ups for developers and hackers across the country — basically wherever Patrick and John travelled to.
They started running ads on Stack Overflow . For the first year, that was the only channel they used for paid marketing.
They spent a lot of time building dev tools like clear and detailed documentation. For developer-focused products, well written documentation is one of the most important assets that creates a great experience, saves devs' time, and earns appreciation — which all further fuel word of mouth growth.
In late 2011, they launched Stripe Connect, their second core payments product that opened them up to two massive use cases.
Stripe got the unicorn status in 2014.
You can read more about the story at How they grow and Product Growth
Stripe raised multiple funding rounds
2. Notion
Launch
Ivan Zhao started Notion to solve a problem he had encounter while working with fashion designers, artists and creators: they kept asking him to create 1-page portfolio websites for them.
He then decided to quit his job and build the first version of Notion back then called Concept. The idea as top empower people with a tool to create any generic web app that you can use and customize without learning how to code.
Struggle
However, this product didn’t get so much traction.
“We focused too much on what we wanted to bring to the world. We needed to pay attention to what the world wanted from us.”, Ivan said. And people were just not interested in a no-code programming application.
For two-ish years, they worked away — and now we’re back in 2015, where like I said — they almost joined the startup graveyard.
A key issue was that they had built their app on a suboptimal tech stack, and it was crashing constantly. Their seed cash was burning with no revenue to replenish it, and they arrived at a hard choice many founders find themselves facing — start over, or run out of cash. “If you looked at the burn rate, we all would’ve died together,” Ivan says. “It wasn’t much of a choice.”
Several months later, in 2016 — they released version 1.0 of the app. In 2018, they released version 2.0 — and that’s were things started getting serious.
Growth
They hit 1 million users with just their seed round of funding and only 18 people on the team, they delayed taking on VC money while Silicon Valley was knocking and their user base and devoted community exploded, they grew rapidly to their current $10 billion valuation, and through their domino approach to breaking into large companies — are now selling enterprise software through TikTok. Yup, TikTok.
The “Template” growth loop
The Template growth loop is one of Notion’s better growth levers.
It took Notion a while to scale but it had a huge ramp up in 2023.
You can read more about Notion’s story here.
3. Slack
This does looks exactly like product market fit👇
Slack’s team first try was to make a web-based massively multiplayer game. However after a while it didn’t work.
They had been building a tool for internal communications since 2012, and when the multiplayer game didn’t work, they decided to try selling that tool, and by 2013 they started to market what is now Slack.
What made Slack grow so fast?
Massive Active Listening to its Core Competency
You can read more about Slack’s path to PMF here
4. Canva
It all started in Perth, at the University of Western Australia.
It was 2006, and Melanie Perkins was working her side hustle of teaching other students basic design on programs like InDesign and Photoshop. Being hands-on with students regularly, she soon identified a pattern. People who had no interest in being designers by trade found the platforms available hard and unnecessarily infuriating to learn. And like most founding stories go… she felt there must be a better way.
Canva Pitch Deck
Leveraging communities for feedback and distribution.
Canva started out in a private beta and used waitlists to control onboarding and build up demand. And before releasing publicly, they had over 50K people waiting to get access.
How?
The main thing they did was generate buzz within the design community and adjacent groups needing design help. Melanie and Cliff chased press, and reached out to blogs, podcasts, and conferences to offer “early access” to their audiences.
And anyone on the waitlist who tweeted about Canva usually onboarded immediately. This pushed Canva’s name further and drummed up more hype.
Scaling with PLG and SLG
Product-led growth (PLG)
Later adding on a sales-led motion to move upstream (SLG)
Using content and winning SEO via backlinks
Localizing and partnering to expand geographically
The struggle to fundraise
Canva really struggled to raise their seed round and almost died. On of the VCs that trusted in them were Blackbird VC and some VCs like Sandy Kory from Horizon VC.
You can read more about it here.
Well, this is it! I hope it brought some value! Let me know any doubt you have or what interests you for me to dig deeper in next day!
See you!!