In startup-land, the notion of product-market fit (PMF) has been a popular concept for the last 15-20 years at least. It has served as a milestone of sorts for product success to obtain additional funding and/or demonstrate that the company may be ripe for acquisition or an IPO.
People often think of product-market fit as a switch. You either have PMF or you don’t, and VCs often try to figure out if a company has achieved PMF.
Regardless, it is important to recognize that PMF is not a discrete event, and its definition is not precise. Below, I discuss the evolving concept of PMF and how a balanced approach to growing your business and managing spend is a sensible way to manage risk while not missing out on key competitive opportunities. While this article focuses on enterprise SaaS, the advice can be applied to other product sectors as well.
HOW THE EXPERTS DEFINE PMF
“PMF is creating a compelling product that properly satisfies the target market, such that the market embraces the product,” says Harvard Business School Senior Lecturer Jeffrey Bussgang.
Marc Andreessen, an early thought leader on the topic, wrote: “Product/market fit means being in a good market with a product that can satisfy that market.”
CHANGING VIEWS ON PMF
The reality is—and I can say this after having founded three companies—PMF is rarely ever that linear and it’s not a one-time event. More commonly, you hit upon a target market where customers resonate with your value proposition. Over time, you expand use cases for customers and continue delivering value so that customers renew and spread the word about your product and company, leading to higher adoption rates. You can then expand to additional markets where you again must establish PMF.
PRODUCT MARKET FIT FOR 2024 AND BEYOND
The notion of product market fit is still germane because it demonstrates that you have a viable product—the goal of any startup. There are many signals from the market to watch for as you improve and fine-tune your PMF:
SIGNALS FOR PMF
-Resellers are bringing you an increasing percentage of deals, indicating efficient marketplace scale. At the same time, major brands in or adjacent to your space want to work with you, whether to resell or co-market products.
-Customers want to engage with you and provide feedback on your product.
-Customers are renewing and expanding at an increasing rate.
-Your company is getting word-of-mouth referrals.
-Customer time to value or TTV (for an enterprise/B2B sale) occurs within 60 to 90 days. A strong customer success function is intrinsic to achieving PMF.
-SaaS metrics also signify PMF: A commonly held milestone is when your business crosses the $10-$15M ARR.
A BALANCED APPROACH TO PMF
Startup founders and executives sometimes follow too closely what venture capitalists, economists, and other influencers are saying about the market. Listen but don’t let it blindly direct your strategies. The hardest part of the job is knowing when to invest in the company, how much, and where.
FINAL THOUGHTS
Product-market fit is something that all startups should strive to achieve, yet PMF is part of an overarching journey toward sustainable growth. Measure sustainable growth by how much customers expand and renew, whether the cost of customer acquisition is going down, and how the channel can help your company scale faster.
The original content of the note was published on Fastcompany.com. To read the full note visit here
