Interview: Sheel on PMF Convo

Why defining PMF is like defining love(!), how maniacal focus on customer success + speed of iteration helps in achieving PMF, and why long-term success involves finding multiple PMFs

This is interview #3 from the conversations I have been having with founders, funders, and operators, as part of the research for my book on product market fit (PMF here onwards). This one is with Sheel Mohnot, and unlike the earlier two convos with founders (Anshuman Bapna and Chaitanya Ramalingegowda) this one is with a funder, a VC, Sheel Mohnot, who is fairly famous on Twitter:) Follow him if you don’t already – he is at @pitdesi on Twitter; his moniker is a diminutive for ‘Pittsburgh Desi’:)

Sajith: I am just going to ask you a set of questions and what you could do is really do a stream of consciousness sharing if you wish. You don't have to structure it too much; whatever comes to your mind! We can always come back and re-edit some of those thoughts.

So, I've got a set of six questions. But we can use that as a scaffolding really to explore this topic of PMF or product market fit. Feel free to deviate from the question if you need to. So my first question really is: Do you have a definition of PMF?

Sheel: I think it's one of those things that's like what is love? You know when you're in love. And I think for product market fit there are signs that you have it. You can say it's basically a strong pull from the market. I think Rahul Vohra from Superhuman has this survey that's become quite common; where you ask your users, how would you feel if you could no longer use the product? And you measure the percentage (of) very disappointed ones and ideally you want 40 or 50+ percent of your users to say - I would be very upset if I couldn't use this product. So that's one way you can know. Another is all sorts of stuff - how big is the word of mouth growth? Are you growing organically? That's of course primarily on consumer side. On enterprise side, we've seen in some of our companies - every one of our customers wanting to invest (more in the product) or the contribution margin of the sales team being much more than the cost of the team in the early days. So basically, can you acquire customers for a lower cost? There's also some CAC LTV thing there too.

Sajith: That's great. I have heard that PMF is kinda like love, in another context as well. So I think it's interesting that you mentioned that too. Does BTV (Better Tomorrow Ventures) come in pre PMF or post PMF?

Sheel: So we are a very early investor. Often like the last investment we did was one guy and there was nothing else. It was just an idea and he has to figure out a lot of things to get where he wants to go. We are definitely usually pre PMF. I think there's maybe one or two times where we came in when the PMF was already there but usually very early.

Sajith: So for the one-two times when you came in when PMF had happened, if you could recall - and I'm sure you must have discussed it when you're either writing the investor memo or having a discussion internally - what were those one or two signs of PMF? Was it the same thing that you said - CAC and LTV?

Sheel: Customer interviews where the customer said, “I need this. It's so much better than anything else out there. I'm begging them to invest in the company.” Those were a few of the things that happened in these cases.

Sajith: Customer love. Intense customer love and solving a real pain point.

Sheel: I think measuring is helpful and there are a few different ways you can measure. Now, to answer your first question, I'd say like, we're not prescriptive, we can make suggestions. There are times when we've suggested calculating NPS or the other survey I mentioned that Rahul Vohra suggests (Sean Ellis Test). We do have companies that do that. And then I think the other thing is, particularly in consumer businesses, you just look at the retention curves and it's really important that people look at it (to gauge PMF).

People need to look at the real data and not some bullshit metric. Bullshit metric could be registered users, not active users. There's all sorts of games you can play. But the important thing is calculating for yourself. So there's no game that you can play to make yourself feel better and think that you have product market fit.

So, on the retention curve, there's some period of time, depending on the product at various time frames - during which you are going to have a drop off in active users. The user never really got onboarded. So in those first couple of months, you don't really know. But for a user who's actually using the proper product - two months in, are they still using it? That's what you need to solve for. And of course, there are all sorts of problems in that first few months that you can solve for too, in onboarding, making things easier. But I think PMF is really about if the user that’s actually using it, do they continue using it?

Sajith: So to summarise, well, for consumer companies or enterprise ones, NPS is something that you can use. The Sean Ellis test works for everyone. For any companies with a cohort of consumers, either consumer tech or those selling to SMBs, retention curves help. For enterprises, maybe if your account is growing, like land and expand is happening, right? So that’s a great sign as well. Don't look at vanity/bullshit metrics like recorded users instead of active users. Don't play metric games. Be honest, is what you recommend.

One of the findings from my conversations thus far is that founders don't think about PMF explicitly. The founders I have spoken to, they don't work towards PMF. I mean, they do know of this Sean Ellis test, etc. But what they do is they try and solve growth problems and in trying to solve growth problems, they solve for PMF. Or they think about GTM, let me get the GTM working and make it butter smooth, right? No friction, acquire customers predictably, and so on. PMF is what results from all of these GTM and growth actions.

It is all the VCs who talk about PMF, right? PMF was invented by VCs, right? Marc Andreessen popularised it and he says Andy Rachleff conceived of PMF. And all the folks who write very deeply about PMF are VCs, like David Skok used to write a bit on it in the past days and so on. So, the thing I want to ask you is - is PMF a specific VC gating technique in the sense that historically it's been a Series A gating metric for us. So, PMF is a metric for us. For founders, it's growth or whatever. So, I just want to get it from you as to what you think about this and I just want to get your views really.

Two, at BTV, is there a framework that you say, “hey, these are the one, two, three, four things that you need to do to iterate towards PMF” or do you just leave it to the founders. Typically, most seed firms leave it to the founders; perhaps they do suggest some broad thumb rules etc. So, is there anything like a framework that you use at BTV or do you say do at least one, two, three things towards PMF.

Sheel: Yeah, I think you're absolutely right. Because there's no clear definition, it's definitely something that VCs think about probably more than founders on an explicit basis. One perspective for us is that, we're a fintech focused VC. And so, a lot of fintech companies sell into other fintech companies. So, one way for us to detect PMF is actually just like how many of our companies are talking about this other company. Are they saying “man, this product is awesome.” For example, we have a company called Unit that is a banking service company. It was the first company we invested at BTV and actually that has paid significant dividends to us because many other fintech companies are built on them and they say, “Oh, you guys are amazing because you backed these guys”. So, that's a strong element of PMF for Unit. Even though, we didn't make Unit great, but other people, just by our affiliation, think that that we're great. That's another sort of sign of PMF.

Sajith: About US founders, do you see the pattern that I shared that founders think about growth and then PMF is an outcome? This is what I find in India. I don't know about the US. So, are founders more explicit about PMF there?

Sheel: No, I think it's the same. You think about growth and you know, there's the 2021 version, which is you only think about growth and then sort of the now version, which is you think about growth as it relates to contribution margin and those are the things you think about. You wonder if you have PMF or not. But you really think like, am I able to grow sustainably?

Sajith: This is interesting. I tend to see US founders, and especially Valley founders as more evolved founders, so in that regard it is interesting to hear that.

I'm sure in every VC’s portfolio, there are the companies which grow faster and the companies which grow a little slower. I know that you have invested in so many companies at BTV. So, just if you could divide that into the fastest growing ones, then maybe mid-tier that is not too slow, not too fast, and finally the laggards. Are there any patterns that you saw, what did the founders that were growing the fastest do and so on? What did the ones who grew slowly did not do?

Sheel: I'd say there's multiple sides to it, right? There's one side - what did the founders do? There is also, what did the market do? So, it could be, if you're in a fast and growing market, you can actually make a lot of mistakes. And the market demand for the product is so high that you can still have a lot of sales and grow very fast. And I would say number one factor in our companies that grew the fastest was the market was growing extremely fast. And the companies that grew fastest very quickly after entering the market built a name and reputation for themselves as being the market leader in a fast market.

So, how they did that was, in our every case, it was a sort of maniacal focus on customer success. And the CEO was involved in all of the early sales iterating on product and making sure customers were happy early on and then that led to word of mouth that led to them becoming a market leader, even sometimes in cases even when they were not first to market, but 5th, 6th, 7th to market. And then the sort of word had gotten out and reference customers were there. And the word had spread in an organic way that made things easier. Those companies grew fast. I have other companies for whom it's been a real slog. I have one company, seven years in between seed and Series A and I think it was a lot of small iterations. The founder is not giving up. And in some ways, there's sort of a  cockroach mentality that allows them to beat others in the market.

Sajith: So, companies grew with the market tailwinds combined with crazy focus by the founder on customer success which led to organic word of mouth reference, even if they were not necessarily the first one in the market. What about the ones who grew slowly? Was it just market according to you or was it more of a founder action. So, any specific thoughts on that?

Sheel: So are we talking about companies that were successful or not successful ones?

Sajith: Companies which are not successful. What is it that the companies are growing a little slowly do? Say, it should typically take 12 to 15 months for a Series A, but it's now 18 - 20 months. What's typically the conversation that you have with them?

Sheel: Yeah, I think it's all about a sense of urgency. For some it is like, I'm going to do everything. I'm going to get it done. I'm going to respond on weekends. While some founders just don't have it and it sucks to work with them for me, and I wouldn't work with those founders again.

Sajith: So, speed of iteration matters a lot?

Sheel: Very much.

Sajith: Is there a way in which you can gauge that early on?

Sheel: I haven't been able to find it because I still make those mistakes. I haven't been able to figure it out. And now I think there's something about, you just had to make a decision so quickly in the last couple of years. Now I have a little bit more time with the founder and I can see that over time.

Sajith: You've done two startups (Thistle, and Innovative Auctions) and what are your learnings there on PMF? Both are still active, but you're not (actively involved). I mean, maybe you're a small shareholder or something like that. So, what are your learnings there? And both are very different businesses. One is very enterprise-y and the other one is consumer, right?

Sheel: Thistle is very much a consumer business and that's why I'm not involved. Actually, it's a lot of operations, it's a slog. My co-founder who's running the business, he’s done a phenomenal job. We just raised Series B. But I decided at this point many years ago that this was not the business for me. It's a consumer acquisition + heavy logistics business, those are the two sides of the business, and it's just not a fit for me. So, while I initially was excited about it, and it was actually my idea originally, but Ashwin, my co-founder, he really ran with it and made the business where it is today. He did a phenomenal job.

But in terms of PMF, I think the other thing to know is there's not just one PMF. There's like, you have a market and you find a product that fits that market niche, but that market might be too small so you have to expand from there. And so, in the case of Thistle, we start out selling juices and delivering juices. Very small market, but people really liked it. And then we expanded into vegan meals and vegan meal delivery. Again, we had a market that liked the product and we found we were able to acquire them (customers) sustainably, but weren't sure how big the market was. So, eventually we added animal protein options and then expanded the market again and then it became healthy meals on delivery. So there's a few different markets that we sort of search for product market fit within.

Sajith: So, you can get PMF, but market can be tiny or niche and then you've got to search for multiple PMFs. What about Innovative Auctions, and is that very early or, and this is enterprise-focused, right?

Sheel: Very enterprise-focused. So now the company sells primarily to governments and large entities. We were selling to non-government but large entities including the likes of Amazon, Google, Microsoft, etc. And so, very much an enterprise sales process. So once we executed the first successful auction, you know, we worked like hell to get the first one and we got people on board in whatever way we could and then built a brand around having done it successfully. And then once we did it successfully, people felt comfortable with us. Like, these guys are pretty smart. My co-founders have PhDs in auction theory. Okay, these are the guys we're going to back. And then it felt like, okay, we worked exceptionally hard to deliver an amazing experience for the first six customers and then it actually felt like there was a market pull and then after the first six, it felt like everybody's coming to us.

Sajith: So, here you would say that it's got PMF in the government space and that's what you focus on because that's big enough? Would you say it's got PMF or not got PMF?

Sheel: Each project has separate amounts of PMF.

Sajith: Got it. Cool, hey Sheel, so we are going to call it a wrap here, and I am going to pause the recording. Thank you for the chat and your perspectives!