5 signs that you are on the right track towards product-market adaptation

Do people need your offer? This is the most important question to ask yourself as a founder of an early stage startup. If the answer is no, long-term success is almost impossible. If the answer is yes, growing your business feels like swimming with the current.

Finding out if you’re on the right track to product-market fit is where you should focus your efforts early stages of your startup project – the validation phase.

Of course, understanding whether you have PMF or not is harder than it looks. You often receive mixed signals from the market, which means that being able to distinguish between the right signals and noise and even properly weighing the importance of the different signals is a crucial skill.

In this article we give you a number of tips on how to do that:

1. Growing customer base

Of course, the biggest indicator that you’re delivering something of value to customers is traction: growing your customer base. If your current customers bring in new customers (this is called a high net promoter score – NPS), this is a very strong indicator that you are very close to PMF.

If your customers aren’t bringing in new customers, it can be a bad sign, but it can also be expected for your offering or industry. Some products and services are much more conducive to high NPS compared to others, so in many cases you need to invest in active promotion and sales efforts to see a growing customer base.

2. Low Customer Acquisition Cost (CAC)

When investing in promotional campaigns, it is essential to evaluate how much effort and resources it takes you to bring in new customers. Unless your barrier to entry is naturally high, having PMF in addition to competitive advantages over other similar offerings should help you bring in new customers for a lower price compared to the industry standard.

3. High customer retention and repeat business

Keep in mind that it may be possible to brute force a growing customer base – either through large marketing spend or great sales skills. Moreover, if you offer something innovative, you may be able to bring in new customers because people are willing to try your innovation at least once. This is why the growth metric can be deceiving by itself. You have to combine it with retention.

Do the customers you bring in stay? If so, this is a good sign, it means they are getting value from your product. If not, this is one of the strongest signals indicating a lack of PMF.

If this is the case, make sure you interview your departing customers to get an in-depth and detailed understanding of their reasons for leaving. This feedback would be invaluable for making the most critical changes to iterate on your offering and get closer to PMF.

4. Growing revenue

Of course, you need to find strong signals that people are willing to pay money for your offering. It is possible to give people something they want, but not be able to provide it at a price they are willing to pay.

While you can survive this problem by burning investor funds, this is a situation you need to resolve as soon as possible. If your offering is not economically viable, your project would not be able to become a self-sustaining business.

5. Positive customer feedback

We already mentioned the importance of customer feedback in relation to customer retention, but it’s worth bearing in mind in other contexts as well. Direct customer feedback is crucial in the early stages, as quantitative statistics can indicate with a high degree of certainty whether there is a problem, but they don’t give you a good idea of ​​what needs to be done to improve the situation. Talking to your clients is the best way to get a realistic idea of ​​what you need to do to get closer to PMF.