🏅 Achieve Product-Market Fit

Hi there 👋 Thanks for reading Scalable, where you get practical know-how and actionable insights every week.

Today’s edition doubles down on one of my favorite subjects: Product market fit and a quick way to achieve it.

80% of startups fail because of not being able to achieve PMF.

Point of the game is to keep playing.

Your startup shouldn’t be aim to be successful once - the goal should be to keep being successful.

That’s why the guide I’m sharing this week is a key that you can utilize.

Here’s a snapshot of what’s on the menu today:

☝️ Scaled this past week: SiFi

The startup ecosystem in the GCC region gets more exciting every week.

Having raised $10M this week - SiFi is the scale of the week!

SiFi helps organizations manage all their spending, including vendor and bill payments.

After receiving the Electronic Money Institution (EMI) license from the Saudi Central Bank (SAMA) last year, the company plans to expand its operations by offering a suite of services, including e-wallets and smart corporate cards.

🧠 Deep-Dive: To Fit or Not To Fit

PMF: Being in a good market with a product that can satisfy that market.

Before exploring any product-market fit framework, it's crucial to recognize the key elements that contribute to achieving this state:

• Understanding the target market and pinpointing their needs

• Crafting a unique value proposition that differentiates the product

• Assessing market demand and analyzing the competition

Here are some questions to ask yourself while establishing this equilibrium:

• Are there any emerging trends or shifts in consumer behavior that indicate a need for your solution?

• How does your product compare to the existing solutions in the market?

• Is your target market large enough to support your business goals?

• How do you solve your customers' problems better than any other solution in the market?

PMF is often formed in a continuous cycle and you do not achieve it by doing one big change or a hack or a trick. It doesn’t happen overnight. Getting into a fit product into a market is a campaign, it’s weekly, daily, hourly process that you continuously need to stay on top of.

Which, in this case, means that you should continuously seek answers to these questions until your concerns become not acquiring but rather, retaining.

Achieving product market-fit is one thing, maintaining it is another. Remember, again, point of the game is to keep playing, not just getting to the field. Your goal should not be just getting users, it should be keeping users as well.

But how do you know for which target audience you are fit (or not so fit yet)?

👉 Well, here is a way you can do that if you have any growth chart.

For example:

• If 50% of users are still using your product on Day 30, that means your 30-Day retention is 50%.

• If 50% of users are still using your product after Year 1, and then your retention curve seems to have flatten out at 50% - it means you have product/market fit with some subset of users.

Sounds complicated? I came across this gem of a video during my research:

This can look in the form of a simple Google Analytics tag in your website and see how the session performance goes.

What is absolutely vital (or fatal) here is to ensure you put the right metrics in place and track them over time. In my experience one specific metric has been detrimental to a lot of startups’ success or failure: number of downloads.

👉 Number of downloads is the ultimate vanity metric there is. This is often a metric that look and sound impressive and you follow as a company, but do not get you closer to PMF.

Let’s say your number of downloads goes to 10,000 from a 1,000 in a single month. That doesn’t mean that people are using your product, or it’s any good. The merit there could be a successful marketing campaign or an influencer activity or any other white-swan event.

Having achieved PMF - the main indicator here is you asking yourself questions about retention KPIs (like monthly active users - MAU), instead of static numbers that count as “feel good” achievements.

🗺️ Method: The Hook Model - 4 Steps to Achieve PMF

Here is a model that you can implement to your product development cycle. today.

The easiest way to achieve it is by building habit forming products

The Hook Model comes in handy here:

1. Trigger

   a. External trigger - a trigger such as an advertisement or app notification

   b. Internal trigger - a deep desire, through conditioning e.g. to take a photo of your meal and upload it to Instagram

2. Action - the trigger is useless without action. An action needs to be simple - e.g. signing in via Facebook or sharing via Twitter

3. Variable reward - a reward that is unpredictable and changes every time. Your Instagram or Facebook feed is addictive because it’s variable. Like gambling on a slot machine.

4. Investment - the more invested your users are in your product, the more hooked they’ll become. Investing time and energy into Facebook makes you more likely to return to it.

There is an entire book about this methodology by Nir Eyal called HOOKED. Honestly, I haven’t read it yet but definitely put on my list:

Alternatively, from a pure product standpoint, same 4 steps to form your cycle:

1. Find the right problem for the right audience

   Make sure you are not selling tomatoes to potato buyers.

2. Find a way to start building

   Low-code/no-code tools can get you up to speed pretty fast.

3. Define metrics for success

   Decide what makes your users successful while using your solution and what you should track to deem yourself fit or not? CAC, MAU, funnel conversion %, etc.?

4. Build a tight feedback loop

   Iterate with continuous feedback to make sure you fit to the market.

Keep in mind: Step 4 is also followed by Step 1 - and there are no parallel universes - at least none that VCs invest, yet.

💡 Spotlight: PostHog

Achieving PMF goes through rigorous analysis of what works and what doesn’t in the eyes of your users - quite literally.

Watching their experience first-hand and deciding on UI elements can go a long way in terms of retention and offering a fulfilling experience in your platform.

Well, PostHog does just that.

It’s an interesting tool that I’d like to spotlight within the context of tracking user activity in your solution.

Their "Session Replay” feature helps diagnose issues and understand user behavior in your product or website.

In my experience - it works exceptionally well in web apps. Check them out.

⚾️ Catch: Recent Startup Trends & 2024 Wayforward

Generative AI still dominates the narrative but this could be bearish news.

There might be some trouble in the AI paradise.

VC funding for generative AI startups has been climbing over the last 3 years.

Many are predicting a slowdown in generative AI funding sometime in 2024 despite the current inflow of cash.

One reason for this is the severe shortage of high-powered chips, which has led to the emergence of black markets.

Additionally, generative AI startups may face challenges due to uncertain consumer interest.

Check the full article here - it’s actually a pretty good read:

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