Welcome back to the second session
In the second session,
we are going to talk about the product-market fit
So, product-market fit is very important because
this product-market fit is highly intertwined
with the value proposition that we discussed before
And surprisingly,
not too many people understand the real meaning of the product-market fit,
although we talk this concept frequently
For example, in the startup scene,
everybody talks about how to achieve the product-market fit,
or did you achieve the product-market fit,
or venture capitalists argue that
you'd better achieve the product-market fit as soon as possible
Other than that, we cannot invest our money, something like that
So, my question is, what is the product-market fit?
Again, this concept is not an academic concept
This concept came from
the practical field
So, the venture capitalists talk about product-market fit,
and startup founders talk about product-market fit
So, in the university, not too many people explain it clearly
So, don't worry about it
I am the person who can explain
the concept very clearly to you
Let's begin with the product-market fit together
Before we go into the main topic,
I want to show you the pictures
Look at this picture
The guy who wears the blue shirt is Mr. Lee
And it looks like Mr. Lee suggests some kind of
idea to the old guy, right?
Well, actually, in 2005,
Mr. Lee was working at a motel,
which is a love hotel in Korea, as a janitor
He was cleaning up the motel floor
At the same time, he was running
a very popular internet community
about the love hotels
This internet community was called Motel Tour
So, again, he was a running manager of
the internet community called Motel Tour,
and at the same time, he was a janitor in 2005
So, the internet community, Motel Tour,
covered many information about
the love hotels in Korea, right?
And, of course, he knew many
owners of love hotels or motels
And this old man in the picture is one of the
motel owners, right?
And then, now, they met together,
and they discussed about current revenue
of the old man's love hotel
And the old man was really worried about the current
revenue that was not going up
So, Mr. Lee suggested to him,
what about putting an advertisement?
What about putting an advertisement of your love hotel
to my internet community, Motel Tour?
Then, probably, we expect to have increased sales,
for sure
This is another option
If you decided to advertise your love hotel
on my internet community,
then, if the revenue
if the revenue was not increasing,
then I will fully refund the money
The advertisement costs $1,000
Will you do it or not?
Something like that
So, from the love hotel owner's point of view,
so, why not?
Just $1,000
So, he can invest $1,000
just one month
And then, he can expect to have increased sales
If it is not working, then,
his money is fully refunded
Why not?
So, he said that, let's go together
So, he decided to advertise his love hotel
onto the internet community, which is Motel Tour
Mr. Lee accepted this advertisement
This is the first advertisement
in this internet community
And then, he wanted to make the revenue of this love hotel increase, for sure
So, that's why he gave room service, kind of a free room service,
to the consumer who saw the advertisement from the internet community,
so that
the love hotel's sales would go up,
no matter what
You know what I mean?
So, he said that, yes, I keep my promise
Finally, sales went up
Then, the love hotel owners were very happy
This is the moment
Then, what happened later?
This rumor spread very quickly
And then, the love hotel owners' friends
found out this rumor, found out this story
And they are all motel owners
They are all love hotel owners
So, they let him introduce
Mr. Lee to his friends
So, all of a sudden, Mr. Lee was introduced to
50 love hotel owners
and attracted 50 advertisements
So, let's focus on this moment
That moment when the consumer comes to visit us
on their own,
even though we didn't spend
much money on our promotion or our marketing
So, we describe these types of moments
It's the moment when the product-market fit
is finally achieved
So, now you understand what is the true meaning of the product-market fit
Right?
So, anyway, this is a kind of
humble starting story of Yanolja
Have you heard about Yanolja?
Yanolja is one of the unicorn companies
You know, once Yanolja became the decacorn once
Decacorn means
some startup company valued more than $10 billion
Not million, billion
So, this $10 billion valued company
started from just Internet-based communities
Motel tour
Right?
Isn't it interesting?
So, currently, the Yanolja revenue is almost $1 billion,
and Yanolja achieved around
$45 million as a profit
Think about it
This profit is $45 million,
and the revenue is almost $1 billion
And the CEO, Mr. Lee, the founder, Mr. Lee,
and his name is Lee Soo-jin,
became the unicorn company founders
Right now, it's a unicorn company
And then we expect Yanolja to
go IPO maybe this year
I don't know
So, we expect that
As I already mentioned,
the concept of product-market fit came from the practical field
Right?
So, originally, this concept came from a famous investor,
who wrote a blog in 2007
Of course, the industry has been using it a lot for a long time
His name was, this expert's name was Mark Anderson
He's a very famous man in the field of entrepreneurship
because he developed the Netscape
Have you heard about the Netscape?
Netscape is an early version of internet search engines
Of course, everybody used the Netscape before
the Microsoft Explorer
So, the Netscape was sold to the AOL,
with $4.2 billion
Think about $4.2 billion
So, the founder of Netscape, overnight
who is Mark, became the billionaire overnight
So, with that money, he started a venture capital company
And right now, he became the very famous venture capitalist
in the world
His name was, again, his name was Mark,
and he's an investor at one of the very famous venture capital companies
And he said that product-market fit means
being in a good market with a product that can satisfy the market
So, again, the product-market fit can be defined as a moment
It's a moment when the startup
builds a product or service that satisfies strong market demand
Of course, product is well aligned with the market needs
That growth can happen naturally,
without any too much effort to promote your service and product
You achieve the growth
And your growth, your company's growth can happen naturally
So, the real users are willing to use it, pay for it, and recommend it
Without any marketing
Right
So, this is a kind of a moment of the product-market fit
There are three signs,
three signals of the product-market fit
The first signal is,
if you notice that your product and services
suddenly pulled from the market,
then you feel that you achieved the product-market fit, like these companies
And second signal was that
if you experience gradual increase, but compounding pull from market,
then you feel that you achieved the product-market fit
Because it is one of the signals of the product-market fit
For example, Instacart
Instacart increased gradually,
but they experienced compounding pull
from the market
And third one,
if the services and product
hit the milestone that proved it is working,
then it is one of the signals for the product-market fit
So, for example, Airbnb
Right
Airbnb
When founders of Airbnb started this company,
then, many years later,
they found that the business is perfectly working right now
So, it is kind of one of the signals of the product-market fit
And there are different time frames
to the product-market fit
Some companies achieve the product-market fit relatively fast
Other companies' product-market fit,
achieve the product-market fit relatively slow
For example, Kevya
Do you remember the business model of Kevya?
Kevya founded by the college student from University,
UC Berkeley
Right
UC Berkeley
And they created some kind of mobile application
and target to the high-end restaurant
and provide the individual contract delivery service
with the high-end restaurant and the consumers
So, anyway, three months later after inception,
the Kevya achieved the product-market fit
And there's a quote
The CEO of Kevya said that,
we saw the same group of super-users over and over again
And retention
Think about retention
Retention stays strong despite not having an iOS app
We don't have an iOS app, but the retention stays strong
What is retention?
We are going to talk about retention later
Retention means how many people, how many users
keep using your services
This is kind of retention
What about DoorDash?
DoorDash
DoorDash achieved the product-market fit after around 12 months
So, one year after its founding,
DoorDash achieved the product-market fit
They said that, we felt we had a product-market fit
close to 12 months in after
we were able to replicate the same or better success in the CD2 versus CD1
Something like that
And Uber
Uber achieved the one year
Udemy achieved two years
product-market fit
It takes two years for them to achieve the product-market fit
Have you heard about Thumbtack?
Thumbtack, valued, these days, valued $3 billion,
which is a big company
But it took five years for them to achieve
the product-market fit
The CEO and founder of Thumbtack said that at year five,
we had the supply, demand, revenue all come together
And growth took off
So, again, different companies have a different time,
different time to achieve the product-market fit
If you achieve product-market fit very fast, you are lucky
But, don't be panic
If you achieve the product-market fit late, don't worry about it
It is natural
So, how to know if you
achieve the product-market fit or not?
There are several metrics,
several metrics to check out
whether you achieve a product-market fit
The first metric is kind of word of mouth
You can check it out word of mouth
Second metric is simple survey questions
Third metric would be user engagement
And next metric is paying ICP consumers
I will explain more detail
And another metric would be the retention curve
Another one is bond multiple
And the last one, CLV
divided by CAC, ratio
Let's look at the word of mouth,
So you need to check out your word of mouth,
About your brand name, about your product,
about your services
The first one, you can track your brand mentions,
especially in the social media
So you visit many social media,
such as Facebook and Instagram,
and you can check and you can monitor
how many people, how many times
they mentioned your service or product
If they mentioned your service, your product,
too much,
then you feel that, wow,
there is a word of mouth spread out, right?
Second, you can search for your brand
through, what about the Google Trend?
You can use the Google Trend,
and you can check out about your trend
or your brand name, right?
Third one, you can check out
how many people visit your homepage
So it is organic traffic to the homepage
Let's move to the survey question, survey
Well, there is a very famous survey question
It's a CNList test
CNList test is kind of one simple question
How would you feel if you
cannot use this service
or product no longer,
anymore?
How would you feel if you could no longer use this product?
And you can provide three options
Yeah, they're very disappointed
Second, somewhat disappointed
The last one, I don't care, not disappointed
There is a rule of thumbs
If we ask these types of question to your consumers,
four out of 10 consumers, four out of 10,
four out of 10 consumers should say
it could be very disappointing
Not using your service?
You close down your service?
Oh my God, I'm really satisfied
I'm really, I'm sorry
I'm really disappointed
The fact that I cannot use your service right now
Four out of 10 consumers should say very disappointed
This is a 40% rule
40% is answering very disappointed
It's the strong,
it's a strong signal of a product market fit
Other than that,
you cannot say you achieved the product market fit
Let's move on to another metric, which is user engagement
User engagement mean there are several
several indication of the user engagement
The first one is how actively and meaningfully
users are involved with your
services or product
And we can measure this engagement
throughout kind of active user
monthly, I mean, daily active users
or monthly active users
You can identify how many users are daily active users
or how many users are monthly active users
Secondly, you can check it out the average time,
average time your users spend on your website
or on your service
So how long users stay per visit
So you can check it out the length of time
For example, Facebook
So users of the Facebook stay long time,
when they use the Facebook
So that's why Facebook charging premium prices
on the advertisement option for the advertisers
Because Facebook already achieved the product market fit
in terms of the session length
Another one is that
you can check out the user engagement
throughout the click-through rate,
So engagement with the contents or buttons
You can count the click numbers
Click-through rate
So anyway, based on those metrics,
you can make a graph
So for example, if your product or service
achieved the product market fit,
then we can find out
these types of graph
So your user engagement
will be increased as time goes
Then probably your companies
will be increased
Your company will grow
If you do not achieve the product market fit,
then of course your user engagement
is a decrease or same low
Then your company didn't grow
Do not grow
So this is a kind of a user engagement, right?
Let's move on
It's a paying ICP consumers
What is ICP consumers?
ICP consumers refers to ideal consumer profile
Ideal consumer profile is kind of
your most valuable consumer segment
It is a little bit different from the consumer persona
Consumer persona is kind of individual users,
individual users,
but ICP is kind of a
consumer segment
Consumer segment
Well, think about it
User persona is kind of a description
of the individual users
So for example,
who is our user
with this internet lecture
provided by Hanyang University?
Well, the users would be
kind of 20 to 25 years old
university student,
who lives in
kind of other Asian countries,
out of Korea,
and also who are
very interested in Korean culture,
and also who are very interested
in kind of the entrepreneurship or startup,
something like that
And then they have some kind of motivation,
of taking the online course
because they don't have time to visit Korea,
and also they
should do part-time job
while they're taking class, something like that
And also they need some kind of credits
There are several motivations
And also we can figure out who are they, right?
In terms of their life cycle, their
family background,
their education level,
and their personality, something like that
And also we can provide
several different persona
for this class
And this is a persona approach,
but ICP is different
ICP is
this class target to
target to the foreign countries
foreign country that interested in Korea
And foreign country that are ready
to taking the English courses
Foreign country that
have many university students
who are interested in Korea
and who are interested in the entrepreneurship class,
something like that
So the IPC is much bigger,
and we target for the specific group of the segment,
specific consumer segment
And this segment is the most valuable, right?
Anyway, think about if you have a service,
if you have a product,
and of course you have a lot of consumers
And some of the consumers don't pay anything,
and other consumers pay the service
Think about Spotify
And Spotify's valuable consumer segment
would be the group of people
who listen to kind of a minor musics
So that's why Spotify created some kind of
the platform
because of the people,
target consumer,
who need some minor musics
So anyway, there are a lot of consumers for the Spotify,
and they figure out who would be our ideal consumer profile
Again, the consumer profile,
ideal consumer profile for the Spotify
would be group of consumer,
group of consumer who seek for the minor music
So anyways, the Spotify go there
and ask them whether they pay the service or not
So ideally,
we should have a lot of ideal,
the consumer profile among your basic consumers
Then we say, yes, you are approaching
product market fit,
It's a little bit complicated,
but it's very important concept, right?
Next one is the retention curve
What is the retention?
How many users continue to use a product
over and over
So we can test the retention curve
from the cohort test
So for example, today,
how many people register for our services?
How many people started subscription of our service?
Yes, 100 of them
As time goes,
not all 100 of the consumers
continue the services
Some of them give up the service,
some of them just left the company, something like that
Some of them do not subscribe the service anymore
So anyway, so we expect
the half of the consumers
do not continue the service again and again
So our retention rate will be decreased at first,
but if you achieve the product market fit,
then this retention rate stay same
But if you do not achieve the product market fit,
then the retention rate continuously declines
Continuously decreased, sorry
Continuously declined, continuously decreased
So look at this picture
So from this graph, you can figure out,
you can understand whether you achieve
the product market fit or not
Next one is a calculation,
a little bit complicated calculation,
which is called Burn multiple, Burn multiple
Burn multiple means how much you spend
to grow the revenue
In order to generate new revenue,
you should spend some of the money
for promoting your service and product
to the consumers
It is kind of marketing fee,
marketing money, or kind of sales money, right?
So the rule of thumb is,
the less you spend,
the less you spend, the more efficient your growth
The less you spend is good for your product market fit
product market fit
So in order to understand
whether you achieve product market fit,
we should calculate the Bern multiple
Bern multiple can be calculated by your money,
your money for the marketing, net burn, we say net burn
You just spend the money, net burn
Divided by what?
Divided by net ARR
ARR refers to annual recording revenue,
kind of a recording revenue, annual revenue, okay?
New annual revenue
So again, in order to generate the new revenue,
you should pay, you should spend your money
for the marketing
So net Burn multiple mean,
this is kind of a ratio between your spend money,
your spending money, divided by your new revenue, okay?
New revenue
Ideally, you pay nothing for the marketing,
you pay nothing for your promotion,
but you have a lot of new revenues,
then you achieve the product market fit
for sure, right?
Like Mr. Lee case
Mr. Lee, right, at first,
Mr. Lee didn't pay anything about the promotion,
but he had 50 new contracts
His new contracts,
each contract is 1,000,
he earned 50,000,
one time, 50,000, right?
So we can easily calculate it
He paid nothing divided by 50,000,
and then we can calculate the score
That score should be really low
So in other words
Burn multiple should be low, right?
Let's calculate the Burn multiple
with a hypothetical situation
There are five new consumers,
500, I'm sorry, 500 new consumers
who pay $50 monthly, like ChatGPT
ChatGPT charged me $20 every month
So anyway, there are five new consumers
who pay $20 monthly
Then, we can calculate annual revenue, right?
Annual revenue based on your new consumers
They pay $20 every month,
then multiply by 12 months,
then multiply by how many consumers, new consumers?
500
So our new annual revenue would be,
$120,000
So you generate, right now, you generate a new revenue
How much?
$120,000
Right now, let's say we spend $300,000,
$300,000 for the promotion fee
to generate the new consumers
So you already spent $300,000
Then we can calculate the ratio between,
how much you spend
and how much you get as a new revenue
Then let's calculate, I'm sorry
Let's calculate it
Then, bond multiple is 2.5
$300,000 divided by 120,000
So we got 2.5
2.5 mean, in order to,
in order to generate $1,
in order to generate one new dollar,
you spend $2.5
What do you think?
Is it efficient or not?
It is not efficient, of course
It is not efficient
You pay too much, right?
In order to generate just $1, you pay $2.5
It's not efficient
So this number should be low
So there is some kind of the rule of thumbs,
some kind of rule of thumbs
The number, burn multiple is less than one,
then you achieve the product-market fit
And we got 2.5
2.5 is kind of bad signal
So now you understand what I mean by that
This is the concept of the bond multiple
in order to understand whether you achieve
the product-market fit or not
So the last metric is CLV
and CAC ratio
Have you heard about the term CLV, CAC?
Don't worry about it, right?
This ratio tells us how efficiently
you are calling the consumers
The behind the philosophy is pretty much similar
to the bond multiple
Again, this is the ratio by dividing by the CLV,
dividing CLV by CAC
What is CLV?
CLV is a consumer's lifetime value
CAC refers to consumer's acquisition cost
Let's look at the CLV first
How to calculate?
CLV can be calculated by
average order value
multiplied by respected, I'm sorry,
repeated sales,
multiplied by average retention time
I will show you example
If you are e-commerce company,
then you can easily understand the average order values
Let's say it is $100
Average consumers pay $100 when they
they purchase a product from your website
And also, they use your website
at least four times a year
So the repeated sale, four
And what about average retention?
Retention, the average consumers
continue your service at least three years
So the retention, three years
Repeat sale, four times a year
And average order value, $100
Then we can easily calculate it,
lifetime value of your consumers,
which is $100 multiplied by,
four times multiplied by three years
So total, total $1,200 would be your,
the consumer's lifetime value
So they spend, basically they spend
$1,200,
for their life
In terms of your service, $1,200
What about CAC?
CAC is the total money, total marketing money,
to get your consumer, new consumers
So you spend the money, how much?
There is some money
Then you have new consumers
So we can get the ratio
So ratio
So the consumer acquisition cost
Then, we can calculate this ratio
It's based on the marketing,
total marketing fee divided by
the number of consumers
Then we can get
how much you spend
to get one new consumers
So let's say you spend $50,000
as a marketing,
then you got 100 new consumers
Then we can easily calculate the CAC
Your CAC is how much?
$500
What do you mean by that, $500?
So you spent $500
to get one new consumer, $500
And these new consumers spend how much?
Averagely, $1,200
This is a lifetime value
Then, we can easily calculate the CLV
divided by CAC ratio
And, CLV,
consumer's lifetime value is $1,200
And this number can be divided by CAC average cost,
for the new consumers, which is $500
So then we got 2.4
as a score, 2.4
What do you mean by 2.4?
It means you spend $1
You spend $1 to get new consumers, $1
You spend $1
And these new consumers,
new consumers contribute to the company
$2.4
So you pay $1,
but the consumers pay $2.4
I think it's good, right?
But, there's a rule of thumbs
This ratio, this number, should exceed
threes,
So the at least three multiple,
At least three is ideal for the product-market fit, right?
So you spend just $1,
but your consumers pay $3,
At least $3
Then you can understand your approach to product-market fit
So now you understand the
clear meaning
of the product-market fit,
and also signs of product-market fit,
and then different time of the product-market fit,
and how to understand
if you achieve the product-market fit or not
I provided several metrics
It will be very helpful in practically, right?
Thank you for the listening