One of the most important jobs of a founder is to build and iterate on the product until the company reaches product / market fit. Despite this being critical to the company’s success, most founders have no idea of how to prioritize product investments. This is often due to the fact that many founders were previously individual contributors rather than product owners and they have never had this scope of responsibilities before. Should they ramp the user base or figure out the business model? Should they focus on usage or should they invest in new customer acquisitions channels? Should they build another feature or work on their infrastructure so they scale? What founders need in this situation is a simple framework they can use to manage their product priorities.
A critical first step for any software company is building out the data capture & analysis systems that will help the founders measure the impact of their various investments (I will write a post on this at a later date). The second step (which of course happens in parallel to the first step) is building out the minimum viable product (mvp). With their MVP built and analytics system in place founders can apply my simple “Usage, Users, & Monetization” framework to iterate their way to product market fit. Here is how it works.
Launch - It’s all about “Usage”
Upon launching your MVP you want to focus on acquiring customers at a rate that allows you to iterate and learn from users, but no faster. There is no point in getting lots of customers when you first launch because your product probably sucks, and your job right now is to figure out why it sucks. You should do this by measuring retention for each weekly cohort and by measuring usage of key features. Get on the phone and talk to user to get qualitative feedback. Send out net promoter score surveys to each cohort. Simply put, obsess about delighting your customers and you are in this phase until you have proof that a meaningful portion have been delighted. At a later date I am going to write an entire post on a framework to use to work through this phase, but for now let’s assume we have created something that customers love.
Scale - It’s all about “Users”
So you have built something that customers want and you know it because they engage with it and have strong retention numbers. It is now time to figure out how to scale up the user base. You need to search for scalable and renewable customer acquisition channels. The key here is that you need these channels to scale and not be one time acquisition vehicles (e.g. - PR). A good example of a scalable & renewable acquisition channel is search (hey, there is a reason Google is worth a couple hundred billion dollars!). Search can be both free (SEO) and paid (SEM) and like all customer acquisition channels each requires specific tactics to be successful.
Some companies need to start working on monetization in this phase. How do you know if your company needs to focus on monetization here? It is simple, run through the following thought exercise: Is it simple to see how your company will make money at scale with meaningful engagement, then don’t focus on monetization until you get to massive scale with meaningful engagement. If it isn’t obvious how you will make money at scale with engagement, then you should start monetization work during this phase as well.
Product / Market Fit - It’s all about “Monetization”!
I like to define product / market fit as the point where your product is solving the problem(s) of customers (proven by usage or other appropriate metrics) and that you can acquire users at scale. When you hit this point it is now time to explore how to monetize your user base. A great recent example of this is how Twitter focused on getting to product / market fit first and later figured out their monetization model since it was pretty obvious that if they could get an engaged user base to scale there would be plenty of monetization opportunities. Some companies might want to wait until meaningful scale (like twitter did) before pushing on the business model while others should start right after they find their dominant distribution channel.
Summary:
One framework that founders can utilize for their product priorities is the “Usage, User, Monetization” framework. Founders should first focus on driving usage of their offering, then driving user growth and then layering in monetization investments based on the scale / engagement thought exercise outlined above.
