Finding product-market fit (PMF) is the Holy Grail for startup founders. Figuring out if sustainable demand for your product exists is something you want to do as early as possible so you can change course or make the necessary adjustments. However, many startups only realize they don’t have PMF well after going to market.
This article will look at how you can identify and achieve PMF, even if things aren’t quite going as expected.
 |
| Image by creativeart on Freepik |
What is the 40% Rule?
Sean Ellis is well-known in the software development space. In a legendary 2010 blog post, he coined the term “growth hacking,” which revolutionized how founders think about product marketing. As if that were not enough, he also popularised the Sean Ellis Rule, also known as the 40% Rule.
The 40% Rule is very straightforward. All it requires is asking your users one simple question:
"How would you feel if you could no longer use our product?"
The respondents then have a choice of one of the following answers:
Very disappointed
Somewhat disappointed
Not disappointed
Why the 40% Rule predicts product-market fit
Sean Ellis worked with a lot of startups over the years. He came up with the question listed above, and when he observed the results from over 100 startups, something interesting emerged:
If 40% or more respondents said they were “very disappointed” that they could no longer use a product, it typically correlated with success or high growth.
If fewer than 40% of respondents said they were “very disappointed,” the product typically struggled with sustainable growth.
And thus, the 40% Rule was born.
Why the 40% rule matters
Realizing that your product does not pass the 40% rule isn’t good news, but it is crucial information.
There are two consequences of learning that there is insufficient demand for your product.
You stop investing time and money into a project that is unlikely to work.
You realize that you need to make changes to your product so that it does pass the 40% rule.
In other words, you can quit, or you can do something about it.
Steps to hit product-market fit
So, let’s say that you’ve realized that your product doesn’t pass the 40% Rule. Depending on how well you’ve scored and the quality of your idea, you can turn the ship around with some minor tweaks, or you might need major reconstruction.
Here is what you can do when you need to go back to the drawing board.
#1. Define your value proposition
As the Swiss writer Alexander Osterwalder once said, "A value proposition is the reason customers turn to one company over another. It solves a customer problem or satisfies a customer need."
So, go back to basics and use a guide like Peter J Thomson’s Value Proposition Canvas.
Source: https://www.peterjthomson.com/2013/11/value-proposition-canvas/
Let’s break down the diagram above.
Product
Features: What your product can do.
Benefits: How it helps solve pain points and bring value for users.
Experience: How features and benefits combine to create a feeling when using your product.
Customer
Wants: The emotional drivers of your target audience.
Needs: The rational motivators and essential requirements of customers,
Fears: Customer concerns and pain points.
While it’s not included in Thomson's original model, you should also think about the specific tasks or jobs that your user wants to accomplish.
Finally, remember that this framework can (and should) change as your product evolves. This is just a foundation to build upon that will help you get closer to PMF.
#2. Market validation
"Don't find customers for your product. Find products for your customers." - Seth Godin
This classic quote from the famous author and dotcom business executive gets to the heart of validating whether there is a market for your product. One of the best ways to do this is by conducting market research. Here’s how:
Understand your target market by building personas that take in their demographics, needs, pain points, purchasing behavior, and more.
Analyze competitors to understand their strengths and weaknesses. This process can help you identify gaps in the market.
Keep on top of the trends within your niche or sector to ensure your product aligns with emerging demands.
#3. Engage with users
The 40% Rule is fantastic for telling you that you’ve got a product-market fit problem. But it won’t tell you why you have that problem. The only way you’ll get that information is by engaging with your users.
Some of your best options here include:
Surveys: Whether they’re long and broad or short and punchy, surveys are a great way to get information about how your users think and feel about your product. So, when you want qualitative data, use a mix of surveys and metrics like NPS, CSAT, and CES.
Customer interviews: If you want to go even further down the qualitative path, you can conduct customer interviews. By being specific and using follow-up questions, you can find valuable answers to questions about your product. Exit interviews with users who have left your product are also essential. As Bill Gates famously said, “Your most unhappy customers are your greatest source of learning."
Focus groups: Finally, focus groups are a good way to get closer to your target audience. This process helps you get fresh eyes on your product and test your hypothesis about how crucial your solution is to specific markets.
#4. Synthesizing your learning
Whether you’re in the process of launching or rebooting a product that hasn’t quite achieved PMF, this step is where you combine what you’ve learned and make the necessary adjustments. So, that could mean that you make an MVP or a retooled version of your product.
Once again, user feedback is vital here. How you do it and what questions you ask will depend on why your product wasn’t initially connected with a user base. Sometimes, the fixes are straightforward enough, and you can improve product activation and adoption with good onboarding flows. Other times, it’s harder and involves an overhaul of your solution so that it solves user problems satisfactorily.
Collect all the data you can on your user journey and see how your changes have played out. Make adjustments where necessary, even if it goes against your pre-existing theories about what your product should be or what your users need.
How Usetiful helps with PMF and the 40% Rule
The 40% Rule and any surveys or research finding the underlying causes that affect PMF are about uncovering how your users really feel about your product. Getting hold of that information is key. Here’s how Usetiful can help.
#1. Microsurveys
The power of the 40% Rule lies in its simplicity. Like the Net Promoter Score (NPS), the 40% Rule asks one simple yet powerful question.
Usetiful allows you to build custom in-app surveys to gather the data you need about your product, including questions like the 40% Rule.
#2. Customer journey surveys
You can use Usetiful’s surveys at different points in the customer journey. They could be part of user onboarding, during product tours, after you launch a new feature, or via an in-app prompt—effectively, during any critical step in your relationship with the user.
Best of all, you can feed this data to your analytics tools or Customer Relationship Management (CRM) tools, so you have a detailed picture of user satisfaction and the ability to track the impact of changes to your product or service.
#3. Onboarding flows
Usetiful also allows you to track individual onboarding flows and product tours to see where users drop off or lose interest. This information is a goldmine. When you dig deep, you can identify the problem. Is it a fundamental issue with your product? Is your onboarding content not instructive enough? Is there a misalignment between what problems your users want to solve and what your product lets them do?
Additionally, you can use data generated from your onboarding flow to understand the conversion rates of different flows. Again, crunching these numbers will tell you a lot about whether you’re targeting the right people or if your product is fit for purpose.
#4. Segmentation
Usetiful comes with powerful user segmentation options, which allow you to see which cohorts complete product activation steps and, just as importantly, which ones don’t.
When you have this data, you can see how well you understand your target audience and which types of people are more responsive to your product. Some of the ways you can segment users with Usetiful include:
Tags for language, subscription plan, user role, order status, and more.
URL segmentation to understand user types, feature use, and content preferences.
Element-based segmentation helps you understand user behavior within your app based on the elements a user engages with.
Final thoughts
Failure to find a PMF is one of the biggest reasons why startups don’t succeed. However, it takes time, research, and adjusting to feedback to reach your goals and objectives.
Remember, your users are a precious resource, so mine them for information about how you can solve their problems. Sure, they might not be ready to pay for your solution as it is right now, but if you figure out what would move the needle for them, then that could change overnight.