Growth Factorials

I recently met co-founders of an AI-focused startup who wanted to discuss a GTM problem they were trying to solve. The question was about finding a cost-effective and productive sales channel for reaching out to the target customer segment. As I probed more, I realised that the customer segment they were targeting didn’t have the problem they were trying to solve. A mutual friend nicely summarised it when discussing this case- they have an (AI) hammer and they think this customer segment is the nail. Unfortunately, that segment has no interest in this AI-based solution. My advice to them was to find a pressing problem and then work backwards. Thankfully, they were open-minded about it and are thinking about making a pivot.

As an entrepreneur, before you think about GTM or growth, you need to be sure that you have a good Product-Market Fit (PMF). PMF is that elusive state where your product seamlessly meets the needs and desires of your target market, and your customers are ready to pay for your product to solve their pain points. The question arises how do you know you have a PMF? While numerous frameworks and methodologies exist to gauge PMF, one of the most renowned is the “Sean Ellis Test”. You can read here about a Master Class by Sean Ellis I attended and the lessons I learned. Anyway, let’s see what this test is all about.

The Sean Ellis Test

The Sean Ellis Test provides a structured approach to evaluate PMF. Here’s a simplified version of the framework:

The test involves a simple survey asking customers: “How would you feel if you could no longer use [product]?” with options “Very disappointed,” “Somewhat disappointed,” “Not disappointed,” or “I no longer use this product.”

If 40% or more of respondents say they would be “Very disappointed,” it suggests the product has a good PMF and has strong growth potential. This threshold was established based on the analysis of numerous startups, showing that those meeting or exceeding 40% typically achieve sustainable, scalable growth, whereas those below this mark often struggle.

Ellis advises targeting customers who have extensively used the product, specifically:

1. Those who have experienced the core of the product.
2. Those who have used it at least twice.
3. Those who have used it in the past two weeks.

Additionally, it is beneficial to analyze results both collectively and by individual customer segments, as some products may require multiple interactions to fully demonstrate their value. Improving initial demonstrations of the product’s value can enhance early user engagement and satisfaction.

This approach helps product teams identify crucial improvements and strategize for growth, based on direct customer feedback.

Beyond the Sean Ellis Test: Additional Indicators of PMF

While the Sean Ellis Test provides a structured approach, other metrics and indicators can offer valuable insights into PMF:

• Conversion: High sales conversion rates indicate strong PMF
• Usage: High usage by your customers indicates good product market fit.
• Net Promoter Score (NPS): Higher scores correlate with stronger PMF.
• Churn Rate: Lower churn rates signify better product-market fit.
• Growth Rate: Rapid organic growth indicates alignment with market demands.
• Retention: Higher retention rates reflect customer satisfaction.
• Customer Referrals: Increased referrals denote positive PMF indicators.

Achieving PMF is a continuous journey rather than a destination. While the Sean Ellis Test offers a structured approach, supplementing it with customer research and monitoring other PMF-related metrics will enhance your understanding of your PMF. By iteratively refining your offering based on user feedback and aligning with market needs, you can steadily progress towards the coveted state of product-market fit.