Finding & Scaling PMF

Salonie Ganju
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Salonie: Hi and welcome to Matrix Moments. This is Salonie and i am here with Avnish Bajaj, Founder and Managing Director of Matrix Partners india. This episode is about finding and scaling your PMF and knowing what metrics to track at each stage.

Avnish, how would you categorize metrics stage wise as well as sector wise? And would say that there is a different set of metrics to track pre and post achieving PMF?

Avnish: Hi, Salonie. Thank you for having me back. What in your mind is PMF?

Salonie: When you hit the right fit with the market.

Avnish: So product market fit, but what does it really mean?

Salonie: PMF is basically when consumers accept your product, it’s basically getting consumer love

Avnish: Correct. And we could go down this path and say, what is your favorite brand and therefore how many times do you buy it. But, it translates into a lot of those things. So, net-net, PMF is obviously product market fit. But it essentially says your product has a market. We did the CODS podcast some time ago about customer obsession, delight, satisfaction. i believe ultimately the net takeaway when you reach this stage is if my product has a market that means it has customers.

i have always believed, and we have spoken about in that podcast that 10 delighted people is better than a 100 happy people, especially in the early stages. To your question about the stage, if i have to look at a seed stage startup, i am going to say if i am the entrepreneur, i want to measure one thing: are people happy or delighted. Not satisfied Are people happy or delighted with my product?

And if i had to pick - and we will come to prioritization of metrics, i would say i want to see net promoter score and i want to see CSAT. And we have discussed this before that one is virality and one is about satisfaction. And it gets you repeat business. So basically, what i would focus on is are people happy with my product and therefore will i get word of mouth.

And we will talk about how different businesses - but for example even B2B businesses, SaaS businesses, every business by definition has customers. There is no difference - there may be nuances on how one measures in each case, but here is no difference in NPS and CSAT. it is what it is. Are my customers happy or delighted?

After that when i have reached that where i feel, okay, i have a set of people and i am going to get word of mouth, tongue in cheek i am going to say now, are people going to put their money where their mouth is. You can give things away for free and people will be delighted. The next phase which is post the series A phase give or take is with this objective: are people going to put their money where there is mouth is?

Now how do you measure that? There are multiple ways. So, one of the core metrics which we have discussed before also is cohorts. But cohorts at this stage one needs to look beyond just usage cohorts and also look at spending cohorts. if i have really hit delight with some customers, not only should they be buying repeatedly with me but hopefully over a period of time they are buying more and more. in the first month, they may buy once. Second month, they will buy twice. And they are spending more and more money. That is one of the earliest foundations.

And again, similar metrics apply in B2B and SaaS. So one of our company is MoEngage, i think they are some of the best SaaS i have seen, and it is called the negative revenue churn where if they do nothing, their existing customers keep spending more and more, and the business keeps groing. So these metrics are not just for consumer businesses, they apply everywhere. And i would call the second phase more of spending cohorts.

Third phase is: i have some customers that are delighted and giving me word of mouth. They are putting their money where their mouth is. Do i have a business model with which i can make money doing that? And in the third phase you start looking at unit economics, how much does it cost you to acquire a customer, how much is their lifetime value.

At the second phase, we would think about some level of margin even though when we were looking at spending, we would have said what is the gross margin of the product? What is the basic cost? if you are selling below your cost, it’s a problem.

At the third stage, since you have to look at it more as a business, you have to start looking at contribution margin one, contribution margin two. And if all these things start firing, you will see it becomes a profitable, scalable business. i think that’s really the core of how one should think about it at different phases. And we will address some of the other points about prioritization within the next question.

Salonie: Sure. So, as a founder, it’s always easier to spread yourself wide and try tracking all that you think is relevant for your business. But, should you set a limit? And then, prioritize the number of metrics to track? And within this are there specific metrics that are indicators of your company’s health like indicators for performance, growth, product improvisation something on these lines?

Avnish: Yes. That’s a great question. i would say this - if used incorrectly this science can hurt you as much as it can help you. And the reason is, and i will give you one example, i was buying on a ecommerce site. it is a company we were evaluating. And on the last page after the payment, i think, it asked me a NPS question: “How likely are you to recommend this to others?” i have not received my product yet. So, what are they measuring? That’s A. B That is not the place to ask NPS. That’s the place to ask a CSAT question to say how was your website experience. it’s an ecommerce site. i haven’t received my product.

By the way, it doesn’t let me ignore that question. So now whatever i clicked and submitted is noise not signal. And people may be taking actions on that. So, it extremely critical to understand which metric is relevant where. To your question on prioritization, absolutely. i would say give or take i can think of maybe five metrics or six metrics that can define any company: NPS, CSAT, gross margin, contribution margin, and ultimately it will come down to EBiTDA. Now there is return on capital.

So yes, less is more. Think very, very carefully about if i could measure only one thing it may be too little, but two or three things that are most important. That’s number one. Number two, how and where you measure, example we just discussed this, it’s almost more important than what you measure because you may end up otherwise making wrong decisions.

Number three, people can tend to get buried - again to your question on measuring too many things, measuring them at various deep stages. Thinking of it top down to say what is the architecture of my business. if i am an ecommerce site, this is the architecture. if i am a SaaS site, this is the architecture of my business. And in each piece of that architecture at the top line level, at the midline level, at the bottom line level, can i pick one or two metrics? And, at the operating metrics level which gave me a sense of the health of the business.

Finally, very important, i think most companies that measure statistics themselves likely err on the side of being more positive than the reality. And so, i am a big believer and i often advised founders that always have third parties. Do outside in surveys, mystery shopping, and even NPS scores. For example, i have seen gaps of 20 points between what a company reports and then if a third-party diligence is done or a third-party survey is carried out on what is reported.

Where you are measuring, who you are measuring with. if you are measuring with your own customers, how do you know who has lapsed out because they weren’t happy and how are you measuring, then the real satisfaction which is why companies own surveys tend to be always overstated because the people who are really unhappy and who went away are no longer in the measurements by definition. So, i think that’s critical.

Like i said, the best thing to do measure fewer things, make sure you are measuring them at the right place and at the right time. And third, triangulate with a lot outside in data.

Salonie: Got it. Thanks Avnish.

Salonie: Thank you for tuning in. And you can find the transcribed version of this podcast on You can also follow us on Twitter and Linkedin for more updates.

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