Product-market fit, or PMF, is the point at which a product satisfies a strong market demand. Customers are buying, using, and recommending it, and the company can barely keep up. Marc Andreessen famously described PMF as something you can always feel: it is unmistakable when product/market fit is not happening, and unmistakable when it is. A common empirical test is the Sean Ellis survey, which asks "How would you feel if you could no longer use this product?" If more than 40% of respondents answer "very disappointed," the product likely has product-market fit.
Knowing whether you have PMF requires the right metrics. Vanity metrics look impressive but do not inform decisions, for example total registered users, page views, or downloads without engagement context. Actionable metrics demonstrate cause and effect and can inform business decisions, such as activation rate, retention rate, or revenue per user. Innovation accounting is the discipline of measuring startup progress using actionable metrics, learning milestones, and validated experiments, replacing vanity metrics with real learning velocity. Its three learning milestones are: establish the baseline (current metrics), tune the engine (run experiments to improve metrics), and pivot or persevere based on results.
Several frameworks help teams identify and focus on the right metrics. The "One Metric That Matters" (OMTM) is the single key metric at each stage of the startup that best measures progress toward the current goal. The North Star Metric extends this idea across the whole company, capturing the core value the product delivers to customers, such as Airbnb's nights booked, Slack's daily active users sending messages, or Shopify's gross merchandise value. Dave McClure's pirate metrics framework, also known as AARRR, tracks the full user lifecycle through Acquisition (how users find and arrive at the product), Activation (whether they have a great first experience and reach the "aha moment"), Retention (whether they come back over time), Revenue (whether they pay for the product), and Referral (whether they recommend it to others). Retention is often the most critical metric for long-term success. To measure retention properly, teams rely on cohort analysis, tracking groups of users who share a common start date to understand how behavior changes over time. Weekly retention provides faster signals in early-stage products, while monthly retention is standard for SaaS and gives a smoother long-term view.