What Is Product Market Fit and Why Should Founders Care?
Product market fit is the constantly discussed, rarely defined, but often considered the make or break “metric” of a startup.
Well that’s pretty ambiguous don’t you think? If you have ever been part of a startup or even just read a book about one, you’ve probably heard of this term “product market fit” before.
But what exactly is it?
With every blog post (like this one), podcast, or book on startups seemingly having a different definition, defining product market fit can be confusing to startups who haven’t experienced that glorious moment where things “click” and someone emphatically concludes “We’ve done it! We have found product market fit!”.
Now of course, in many of those moments the startup hasn’t actually found PMF but has just strung together a series of wins that they chalk up to finding market fit.
At Peak Product Group we define product market fit as: “Having the product fly off the shelves over a sustained period of time”
Now I’ll be the first to admit, this isn’t meant to be a perfect definition but rather one that is simple and generally correct.
I agree it’s worth noting that there are two main components to dig into here when assessing this definition.
“Having the product fly off the shelves…”
“…over a sustained period of time”
“Having the product fly off the shelves…”
What exactly does this mean? To us, it means you’ve finally stopped struggling for each and every customer. Anyone who has been part of an early startup knows the pain that goes into getting each of those early customers. It’s the lengthy explanation of the product, back and forth trying to lure them, and the promises of future functionality that come back to haunt founders.
PMF means most but not all of this friction is gone. Instead of explaining all the details of your solution through multiple sales cycles, customers get it right away. They have a problem so big that you don’t have to convince them it’s worth solving and that your product is that solution. Instead of having to sell future functionality to close deals, your customers are content paying for the product that exists to date. This is what we define as a reduction of friction.
As I mentioned prior, this isn’t the perfect definition. There are ways founders can trick themselves to think they have found PMF such as:
Pricing so low or offering free models so that customers have little risk in using the product. Here customers might be signing up in hordes but after initial signup usage and retention will be low.
Selling only through founder networks or pre-existing relationships. Here founders may rack up early wins by leveraging their networks but soon find that converting customers outside of those networks isn’t occuring as easily. I like to call this “Product Network Fit”.
Selling ahead of the product to close deals. This one I’m sure most, if not all founders have done before. Here startups close a series of deals based on future functionality. This one is tricky because it’s often necessary and even encouraged to do so, however, until those features are built and prove to provide value as you intended, your product might not have the true PMF you thought it did.
“…over a sustained period of time”
This component of PMF is important for all the reasons mentioned above. It is not uncommon to to string together a series of early wins, hop into an all-company call, and proclaim that PMF has been achieved. Many startups might even raise thousands, if not millions of dollars on the back of this. The problem is that at this point, companies can stop searching and experimenting towards finding product market fit. They think what they’re doing has worked and they keep their heads down and focus on the same things that got them early success. Then three, four, maybe six months go by and growth has slowed, existing customers are getting unhappy, and investors start to ask questions.
This is why looking over a sustained period of time, ideally two quarters plus, is one of the barometers we use to assess if true market fit has been achieved.
Again, this isn’t a perfect definition and there are pitfalls along the way for founders such as:
Selective trust in data. Here founders look at their numbers, see month over month growth for a quarter or two and assume that PMF has been achieved. However when digging deeper there might be factors artificially inflating growth numbers such as slowly increasing ad spend, going from a small user base to a slightly larger user base (i.e. big % changes but little volume), or even just ignoring vital data points like usage/retention.
Conflating GTM success with product success. Here founders might have a killer marketing campaign or sales team who can go out and gather a ton of interest in your product. The issue here is that often there is a huge discrepancy between what hooked users in the marketing and what they receive when actually using the product. Having a great early GTM plan is half the battle but it doesn’t necessarily mean you’ve found PMF.
Finding product market fit is more of an art than a science.
There isn’t a specific metric you can chase when trying to evaluate if your company has found product market fit. There are plenty of examples of companies who have closed millions and millions in ARR but come tumbling down because they never find true PMF. It isn’t just a revenue number, a user count, or the number of funds raised. PMF is more a feeling.
It’s that moment when you have paying customers who are happy. You’ve solved a pain point so big that they were willing to pay you to do it. Even better, you didn’t have to pull out all the stops to get them to sign that contract. Your company is growing sustainably, your feedback is positive, and your employees are buzzing with that feeling of building something that’s making a real difference in someone’s life. That question of “have we found PMF” stops being asked because it’s clear to everyone you have.
This is one of many reasons that investors love founders who have both failed and succeeded prior.
These founders know what finding PMF feels like and they know the feeling of thinking you found it just to have the rug pulled out from under you. They know the value of not getting complacent and always innovating until you find PMF, then continuing to innovate to hit the subsequent thresholds that make new customers happy and keep the ones you have engaged.
Having been in these shoes before, our goal at Peak Product Group is to fast track founders towards finding PMF.
We help founders build the strategy needed to find PMF with a strong emphasis on designing an experimentation strategy that helps founders iterate until they experience that feeling where things “click”. It isn’t an exact science, it’s truly an art and one that we love helping founders learn and succeed at. We will be the first to admit that there is no magic bullet to finding PMF and success isn’t guaranteed with out methods. However, at Peak Product Group we have developed the frameworks and processes designed to help founders make the necessary strategic decisions that increase a companies odds of reaching the elusive product market fit threshold. If this sounds like something that would benefit your company download our white paper to learn more or reach out for a free needs assessment.
