What the 🤬 is Product Market Fit
➡️ PMF is bandied around by everyone, but rarely do I hear it accurately described with context, process or valuable insights.
✅ Product market fit is an eventual outcome, it is only ever a signal of some hope, and even when the true definition is hit it is just for a moment in time.
🚁 The helicopter statement.
Product market fit =
❝ When the cost of repeatedly acquiring paying customers at scale drops significantly below what customers pay because organic acquisition has kicked in. ❞ 🔚
Derek Watson
💡 But...and this is a BIG BUT
How you arrive at this point is the realisation that Go-To-Market for a startup starts on day one and never ends. Even when the helicopter statement happens, it is just a moment in time that you need to hold on to.
Again the noise is overwhelming, but let’s cut to the chase. We are startups, not corporates with customers and data that can afford to separate things into nice little boxes with pretty names and produce massive reports to move things through channels and get signed off before reaching what they call Go-To-Market. For startups, it is not and never will be a moment in time, and the winners understand that it starts with people and ends with people and you are always in the market.
➡️ For early Startups there is no such thing as PMF. There are just a series of experiments, from hypothesis, to build, to getting some early traction and paying customers. Just nudges in the right direction and here is why.
When a product is first adopted, users are grouped into a few categories.
1️⃣ The lunatic fringe of innovators. They will try anything if the idea rings true.
2️⃣ Early adopters. Are revolutionary, not evolutionary.
3️⃣ Pragmatists. The biggest segment of the market, is evolutionary, not revolutionary. It doesn't matter how well you serve them, They're not going to buy until they get references and social proof.
4️⃣ The laggards, if it’s not broken why to fix it, don't buy.
💡 PMF comes when the Pragmatists start signing up (and paying) through word of mouth. * But you cannot start by onboarding Pragmatists.
⭐️ When you have found PMF several things will happen;
✅ You’ll have issues with capacity.
✅ Need a bigger team.
✅ Money will start pouring in.
Consumer vs. Enterprise
💵⏱ Of course, consumer and enterprise markets have different routes, but one common factor is time, and it is not infinite. Money dictates how long you have to find some semblance of Product Market Fit (PMF).
Consumer Market
Rapid Feedback Loops:
Consumer products can gain traction quickly due to a large, diverse user base. However, early traction can be misleading, as initial users (innovators and early adopters) don’t represent the broader market.
Viral Growth Illusions:
Early viral growth might seem like PMF, but it often doesn’t translate into long-term success. Consumers are fickle, and early adopters don’t guarantee mainstream acceptance.
Cost Sensitivity:
Consumers are price-sensitive. Initial price acceptance doesn’t ensure sustainable profitability, especially if the product doesn’t scale well.
Enterprise Market
Lengthy Sales Cycles:
The enterprise market involves long sales cycles and high touchpoints. Early customer interest often doesn’t mean you’ve hit PMF; it means you’ve piqued some interest.
Customisation Needs:
Enterprise clients often require customized solutions, making it hard to determine if the product fits broadly across the market.
Higher Stakes, More Uncertainty:
Securing a few big clients can give a false sense of PMF. Just because a few enterprises buy in doesn’t mean the product has wide market acceptance.
Commonality: Time and Money
Limited Runway:
Startups have limited time (runway) and funding to experiment and iterate. Focusing too much on achieving the wrong type of elusive PMF can drain resources without delivering sustainable results.
Misleading Milestones:
Investors might push for PMF as a milestone, but early indicators can be deceptive. Real PMF, if it exists, takes time and constant iteration.
Market Dynamics:
Both markets require adapting to changing customer needs, competition, and technological shifts. Chasing false PMF can distract from these essential pivots.
The timeframe to achieve PMF is finite and dictated by available funding, regardless of the market. Here's why:
Runway:
The amount of capital (runway) determines how long a startup can operate before needing additional funding or becoming self-sustaining.
Burn Rate:
The rate at which a startup spends its capital (burn rate) affects how quickly it must achieve PMF to secure further investment or generate sufficient revenue.
Milestones:
Investors look for milestones, signals that your GTM is working on route to maybe finding PMF, a gauge a startup's progress, this can obviously help unlock additional funding and resources.
Market Dynamics:
Both markets require adapting to changing customer needs, competition, and technological advancements.
Timely pivots and iterations are crucial.
😡 This is where a lot of the hacks come in, veiled as PMF. Buying customers is not one of them. I'm always amazed that people fall for it and kid themselves into thinking they are on route to PMF.
🤩 If you turn your servers off and the phones start ringing with customers screaming, you might have found it.
⭐️ Heuristics for PMF
There are a couple of heuristics for PMF:
1️⃣ The sales yield. The contribution margin of a sales team divided by the total cost of the sales team. If the Sales yield is > than 1 you probably have PMF.
2️⃣ Net Promoter Score (NPS), a proxy for word of mouth. To understand promoters, detractors and passives use a 0 to 10 scale for rating likelihood to recommend.
➡️ Promoters rating 9-10, highly likely to recommend.
➡️ Detractors rating 0-6, unlikely to recommend.
➡️ Passives rating 7-8 neutral.
🧮 To calc. NPS. 60% promoters -10% detractors = 50%
✅ Scores > 50 = good
✅ Scores > 70 = excellent.
➡️ PMF is just for a moment in time
Think Nokia, Blockbuster, you need to continuously innovate. And think Uber, they still don't turn a profit per ride, This is not PMF because if it is then what a business stands for is not the definition of business anymore.
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It has never been explained so well….
Great Job, Derek
🙏🙌🏾🙌🏾👌🏾💜