Mamoon Hamid from Social Capital has an incredible talk on Numbers that Actually Matter for SaaS Founders. The heart of his talk revolves the illusion of product/market fit and failing to understand if your product continues to deliver value once you’ve acquired a user.
The last company I built was based on a pain I had. As an entrepreneur, I rolled up my sleeves and got to work…
With a product built, I needed to get people using the product. So we invested time into a number of marketing channels.
We went from a couple of hundred new accounts to thousands of new accounts signing up every day.
With that many users, some sales started to trickle out of the bottom. It felt like we hit product/market fit!
It wasn’t enough to sustain our business, so we went into optimization mode. Everything was tested to increase our underlying business economics… Business Models… Pricing… Everything!
It worked and things looked promising. But then we hit a ceiling… Churn caught up to us. Every new customer was just replacing a customer that cancelled.
Looking back, we were optimizing the right messaging and right triggers to convince users to hand over their credit card. But after we had them as a customer, we completely dropped the ball. We had no visibility into if they were continually getting value out of the product.
This is a common scenario I see across many startups. The worse part about it, is it can be completely silent and your business can grow dramatically before the impact is felt.
Product/market fit can be a temporary illusion.
Tackling the problem
To really grasp if your product is delivering value, you first need to define what a perfect user looks like. What actions would they take to get value from your product?
You can do this two ways. If you already have the data, you could look and actually see what actions your top quartile users are actually doing. How many times do they login over 30 days? How many times do they perform certain actions on your product?
The second way is with old-fashioned brainstorming. Really get in the mindset of your users and ask yourself what actions must they take to really get value out of the product. It won’t be perfect, but it will at least give you a baseline that you can continually monitor and tweak.
A few examples could look like:
- If you ran a proposal software company perhaps the actions for a perfect user would be logged in 7 times in 30 days, created and sent 2 proposals, and received one client signature.
- If you ran a healthy food delivery company perhaps the actions would be at least one visit the site to consume healthy living content every 30 days, create one order and have a satisfaction score of 8+.
If your product is complex or has many types of users, you will most likely need to identify multiple personas and ideal actions for each persona. To build proper reporting and monitoring, you could ask users to which persona they most identify with during your onboarding process.
To continue down this line of thinking to see how this could impact your business, let’s assume you were building a simple todo application. Your perfect user profile would look something like this:
|Action||# of times||Weighting|
|Logins||20 in the last 30 days||30%|
With these assumptions in place, you could now build a dashboard to get a sense of how many users actually fit this perfect profile.
|User||Logins||Created Task||Completed Task||Health|
Which can then be used to visually show you how many users are getting value from your product.
Before this simple report, if you were measuring your business purely by how many paying customers you had, you may think your business is performing well. You had 5 customers handing over their precious money every month.
However, after building this simple report you would see that only one user is truly getting value from your product and another one is neutral. Three other customers are at risk of churning. You were good at getting them to hand over a credit card, but you failed at providing value after. This is not a good spot to be.
Measuring & Reporting
To track if your team is making progress on providing value to users, it is important to graph user health over time. If your team is making progress, you should see the amount of healthy users grow and the unhealthy users decrease over time.
The graph above shows that over time more users are moving into the healthy territory and less are considered unhealthy. This is evidence of a very healthy product, one in which users continue to get value over time. You can breathe easy knowing your scaling efforts aren’t being wasteful.
If your graph looks like this, then your users are getting less value out of your product over time. This is a recipe for bad news that will eventually catch up to you, even if your business is growing. Those zombie customers will eventually cancel.
As a founder you may get too fixated on trying to influence business metrics like MRR, top line revenue and margins. It is important to continue experiments to improve those metrics. But – it’s equally important to be running experiments on user health. Without checking in to make sure customers are continuing to get value out of your product, the business may continue to grow, but it most likely will eventually hit a ceiling.
By understanding what your perfect user profile looks like and having this type of user health reporting, your product team should be able to understand the key levers to push more users into that healthy zone.
You may be surprised to find new features actually create more unhealthy users because the feature adds too much friction to the product.
You may be surprised to find that simple email reminders may be all it takes to move them from unhealthy to healthy. Or a new onboarding process can create more healthy users.
One thing is for sure, armed with this reporting your team will be fully capable of delighting more customers and build an overall stronger business!
For any SaaS founders already monitoring user health, I’d love to see screenshots of your dashboard, know what tools you use and know any tweaks you’ve made that have really impacted user health.