What is this product/market fit thing?

I’m trying to organize my thoughts about product/market fit, so this may seem a bit disorganized to you. It is. But maybe writing it down will help me achieve better thoughts/article fit. Ha Ha.


When I stop to reflect about my startup’s product/market fit, I get very frustrated about the myriad interpretations that the term is used with in the VC/startup pundit circles.

First of all, product/market fit essentially means, when I read and think about it, that I have a product that has a market for it. Product/market fit means there are customers, collectively called a market, that like my product to the point of paying for it.

I have that.

But then I read Marc Andreessen’s seminal *The Only Thing that Matters" post, and it all goes south. He cites Andy Rachleff when trying to explain to us what PMF means:

“Product/market fit means being in a good market with a product that can satisfy that market.

You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of "blah”, the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it – or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck’s.“

Now, product/market fit is about fit, and not about the quality of the market. If I have a product that satisfies a small, niche market, who, even tough is small, needs and pays for my product, I have product/market fit.

But Rachleff’s so-called "corollary” talks about market size, and/or market quality. It sounds wrong. Product/market fit, to me, is about a product finding a market. So it’s more about product, and predisposition to pay for it - which is product - than about how big or rich a market is. To me, the size of the market, or the richness of the market, would be something else, like market/scalability fit, or startup/venture capital fit.

So, when I think about market/scalability fit, or startup/venture capital fit, I can safely say, I have that.

Another thing strikes me as, at least, weird, and that’s Rachleff’s last paragraph:

“And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it – or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck’s.”

Now, it seems to me that a company can achieve what’s described by Rachleff without having what I think (when I think about my company) as having product/market fit. To me, PMF not only means customers are buying my product, but also that they are sticking with it, finding enormous success with it, etc. Lot’s of venture capital money can produce what Rachleff describes above, but I don’t think it can produce true PMF.

That takes us to Tom Tunguz’s article from last week, that takes the subject of PMF a step further, when he says pricing power, or your company’s product(s) low price elasticity with current and prospective customers, is a great measure of product market fit:

“All of these concepts of pricing, pricing power, value, and defensibility contribute to finding product/market fit. True product market fit should be lasting and enduring product market fit”

I can easily agree with that. It means product/market fit (in the original sense of the term, that encompasses founder/product/market fit, product/market fit, market/scalability fit, and startup/venture capital fit) makes much more sense when framed as a continuum, than as a binary variable. I can have more, or less, product/market fit.

The question, if you’re starting a startup, then becomes another one, which is what’s the right amount of PMF I should have before scaling my company? I can name plenty of startups, at various growth/funding stages (even IPO'ed SaaS companies), that are already in scale mode or scaled, but that would probably have a 95% MoM churn if they were to double their prices (or, in TT’s view, that have a very weak PMF). But they’re scaling nonetheless. So what amount of PMF is enough? Should I aim for perfection? Or should the fact that I have 0% churn, and paying customers, be enough validation?

VC’s are surely not the right people to give you the answer (at least not those you’re pitching to). They might tell you you haven’t got PMF, and that it’s a no go for them to fund you before you’re ripe for scale mode, only to go on and fund another company that has much less PMF, if you look with the right lens.

I think the greatest compass to this answer is why you’re building a company in the first place? To make a quick buck, by scaling it fast with outside money and taking the first giant exit, or because you wan’t to build a company for the - really - long run? A company you want to work on for “good”, if no exit opportunity arises, with a wide smile on your face?

From another angle, would you be pleased if your company had a huge CLTV, even tough 50% of your customers were churning every year? If you were making money and scaling profitably even tough half of your customers weren’t finding success with your offering?

 
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