#5 Working Bottom-up: The Key to Unlocking Strategy, Metrics, and Tactics

5 Working Bottom-up: The Key to Unlocking Strategy, Metrics, and Tactics

In the world of product development and growth engineering, finding the right balance between strategy, metrics, and tactics is crucial. It is often a delicate dance of identifying the high-level product strategy, assigning a proxy metric to measure its effectiveness, and brainstorming a set of projects that will move the metric. But how do we go about this process effectively?

One approach that has proven to be successful is the "bottom-up" method. This involves asking the team to list all the projects they believe are important and then sorting them into "buckets" of ideas. Each bucket represents an implied strategy, and this exercise helps to identify the common themes and goals within the team.

On the other hand, some companies prefer a "top-down" approach, like Netflix with its personalization efforts. They start with a high-level hypothesis, such as creating a highly personalized experience to improve retention, and then identify a proxy metric and brainstorm projects to move the metric. This approach can also be effective in aligning the team's efforts towards a common goal.

Now, let's talk about the best metric for determining quantitative product market fit. When a product has achieved "product market fit," it means that it is good enough to start focusing on growing distribution channels. But how do we know when we've reached this stage?

Many experts agree that cohort retention rate is the most important metric for determining product market fit. This metric measures the percentage of users who continue to use the product over time. A good product market fit metric will have a low rate of false positives and false negatives. It should indicate when the product is good enough to start working on acquisition channels, without mistakenly suggesting distribution when the product still needs improvement.

One commonly used metric is the "40% rule," which states that if 40% of your users would be "very disappointed" if they could no longer use your product, then you likely have product market fit. This metric has been successfully used by Superhuman and has proven to be more reliable than Net Promoter Score (NPS).

However, it's important to note that reaching a high cohort retention rate alone is not enough to determine product market fit. It's crucial to find the retention rate of comparable products that have achieved significant growth to establish a benchmark. For consumer products, a cohort retention rate of 25% is considered a good floor, while for B2B SaaS products, 70% is a good floor.

So, how do we put all of this into action? Here are three actionable pieces of advice:

1. Embrace a bottom-up approach: Encourage your team to list all the important projects and sort them into buckets. This exercise will help identify common themes and strategies that can guide your product development efforts.

2. Track cohort retention rate: Make cohort retention rate a key metric in determining product market fit. Aim for a retention rate that surpasses the benchmark for your industry, ensuring that your product is good enough to start focusing on distribution channels.

3. Continuously iterate and improve: Product market fit is not a one-time achievement, but an ongoing process. Continuously gather feedback, analyze metrics, and make improvements to ensure that your product remains aligned with market needs and expectations.

In conclusion, finding the right balance between strategy, metrics, and tactics is essential for successful product development and growth engineering. By embracing a bottom-up approach, tracking cohort retention rate, and continuously iterating, you can unlock the potential for product market fit and drive sustainable growth for your company.