Sajith Pai
Velocity | 14 April 2023
Product Market Fit
What it is, and how to achieve it!
Section I: Why PMF Matters
Section II: What is PMF, really?
Section III: Achieving PMF - Dos and Don’ts
PMF: ‘The only thing that matters’
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“The only thing that matters is getting to product/market fit. 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. Investment bankers are staking out your house.
Lots of startups fail before product/market fit ever happens.��My contention, in fact, is that they fail because they never get to product/market fit.”� - Marc Andreessen
Why PMF Matters
PMF: Single most important issue for an entrepreneur
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Why PMF Matters
Source: YouTube
“I think that the single most important issue for an entrepreneur to succeed is to find product market fit. To me product-market fit trumps execution. You might execute really well but if the dogs don't want to eat the dog food you're going to fail. Conversely, you might be terrible at execution but if the customers want to buy your product you'll be a great success. Customer development helps you figure out what the dogs want to eat. ”
- Andy Rachleff
PMF in one tweet
Source: Twitter
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Why PMF Matters
Why PMF Matters: Setting Context
Why is there so much concern about PMF? Why are some founders and so many VCs obsessed with PMF?
Hitting PMF and Series A
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Why PMF Matters: Setting Context
Because PMF becomes the first ‘objective’ point of validation of a growing company in a large market, it has become a gating mechanism for funding.
How funding, risk, and PMF interact
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Why PMF Matters: Setting Context
Pre - PMF
Post - PMF
Pre-Seed
Seed
Series A, Growth
Product risk
Market risk
Scaling risk
Risk
Funding
Journey
MVP
PMF
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Section I: Why PMF Matters
Section II: What is PMF, really?
Section III: Achieving PMF - Dos and Don’ts
What does product market fit look like?
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What is PMF, Really?
Perhaps like this?
Source: Twitter
What does product market fit look like?
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What is PMF, Really?
However, this is in-fact product-problem fit.
Source: Twitter
Perhaps PMF looks like this?
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What is PMF, Really?
Source: Twitter
Signs of PMF
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What is PMF, really?
→ You don’t really need to market – customers buy/subscribe to it after hearing from others / via word of mouth
→ Organic / inbounds are more than any other channel (Pull)
→ Customers recommend your product to everyone else they know
What do you think could be some other signs of PMF?
Multiple definitions of PMF exist
Broadly they fall into the qualitative or quantitative buckets
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What is PMF, Really?
Qualitative
Quantitative
PMF is one of those concepts that seems easy to understand as a concept but in practice, hard or impossible to articulate what it actually means. Most people lazily say "Product-market fit is like porn...when you see it, you just know!"
- Elizabeth Yin
PMF is very simple - are people grabbing the product out of your hands and saying I want it, I am using it or I'm buying it or I've given you email addresses or I'm downloading it or or some evidence that people actually like what your vision is.
- Steve Blank
Product / market fit is about proving there is a market with a need for your product and that you have the right core product for that market.
- Jill Soley, Todd Wilms
My definition of product-market fit is you are drowning in demand - your product is being used by so many customers that you cannot handle all the new people knocking at your door! Absent that you do not have product market fit. Most people use the term too loosely.
- Michael Siebel
One of the most common techniques for assessing product/market fit is known as the Sean Ellis test. This involves surveying your users and asking them how they’d feel if they could no longer use the product. The general rule of thumb is that if more than 40% of the users would be ‘very disappointed’, then there is a good chance you’re at product/market fit.
- Marty Kagan
True product market fit, which I measure as 20% MoM growth for 12+ months and 80% organic leads.
- John Danner
….when a company gets to a sales yield greater than one, that's how you know you've hit product-market fit. That's to me the best test of enterprise product-market fit.
- Mark Leslie, Chuck Holloway
A great measure of having product/market fit is a stable retention curve.
- Sean Ellis
All PMF definitions have product and traction at their heart; They are essential but not sufficient. Let us look at what else matters
Working Product, Great Traction
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What is PMF, Really?
Large enough achievable market for your product
Nailing, before you start scaling
TAM matters; while it is not central to PMF definitions, it continuously lurks at the back of it.
Before Series A and later investors want to make sure you are in the right direction, and won’t break at scale. Hence quality of revenue matters - predictability, unit positive.
‘Scalable GTM, enabling Predictable Repeatable Unit-Positive Customer Acquisition’.
Let us unpack this…
You hit PMF when you have a…
Unpacking the PMF definition
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What is PMF, Really?
Scalable GTM means that we have a working playbook of taking the product to the customer, and enabling trial and conversion, that can be ramped up at will (subject to capital). There is no scale break as revenue grows.
There is a broad correlation between sales inputs and volume / revenue outputs. We know that x calls -> y conversions or x $ spent on performance marketing lead to y units sold.
As the startup grows scales, there is no slowing down of growth; this points to a large enough market. You can keep tapping the market for growth continuously.
The revenue covers all variable costs of acquiring that revenue - specifically a) cost of goods sold b) direct cost of acquiring that unit. Now as revenue scales, at some point, the margin will cover fixed costs and thereby make the startup profitable.
Finally, don’t forget that revenue / sales / customer acquisition is the ultimate metric. There is no PMF without customer love / interaction and demand.
‘Scalable GTM, enabling Predictable Repeatable Unit-Positive Customer Acquisition’.
Understanding PMF through an example
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What is PMF, Really?
→ If we lower the bucket and draw it up, it will have water. Predictable; quantifiable input to output ratio
�→ I can do it 100s and 1000s of time till it goes dry. Repeatable; indicates a high TAM
�→ Low energy required to draw water ; or the energy from the water > what is required to draw it out. Sustainable; Unit Positive
Unpacking GTM
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What is PMF, Really?
GTM or Go To Market is all about how you take the product to the customer or bring the customer to your product. It has 3 components.
Who you will reach?��(Ideally the paying customer; sometimes the end user =! paying customer)
How you will reach your customer persona?
What you will share when you reach them or share in order to attract them (interaction mode / message)? The message typically has two parts - benefit & product proposition (esp in the case of B2B).
Persona
Channel
Message
B2C GTM example
I will reach Dog owners residing in Gurgaon (persona) by sponsoring (advertising banners = message) Dog Parks (offline channel)
B2B GTM example
I will reach marketers who spend at least ₹1cr a year on digital marketing (persona) via inbound channel using content marketing (message).
Product and Persona are one-way doors; any change there has significant consequences
Iterate on Message, then Channel, then Persona and only then Product
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Achieving PMF
Have a clear persona identified
Seek the right channel and finalize the message that will go
Keep refining the persona-channel-message mix
Optimize for the mix by changing message first, then channel, and then persona
See article ‘Target the Right Market1’ on Hubspot’s challenges
Seek a channel with the right combination of CAC, repeatability / scalability and predictability that ensures unit positive sale (CM2 +ve; covering of goods, sales, service and customer acquisition)
Basically keep refining till you hit a scenario where you definitely know that to get 5x unit positive sales, you just need Y investment. This is PMF!
The reverse is harder. Often channel and message are interlinked, like inbound and content.
Order
Iterate till you get that right combination of Product + Persona, Channel, Message yielding predictable repeatable unit positive customer acquisition
GTM = Persona + Channel + Message
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Source: Drive Growth by Picking the Right Lane — A Customer Acquisition Playbook for Consumer Startups | First Round Review / Lenny Rachitsky tweet thread
Achieving PMF
Persona
Channel
Message
B2B
B2C
Be careful about end user vs economic buyer persona (more common in B2B, but also in B2C (edtech)
Performance Mktg, Content, Account-based sales, Partnerships etc.
Viral, Performance Mktg, Content (see Lenny Rachitsky piece on growth lanes)
Narrative, Collateral, Emails, Adwords, Display Ads
Adwords, Display
Communicates both benefit and proposition
Section I: Why PMF Matters
Section II: What is PMF, really?
Section III: Achieving PMF - Dos and Don’ts
Nail, then scale.
PMF is a 2-step process
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Product to Problem Fit
Does it reliably solve the problem for a customer?
Motion to Market Fit
Now that it works for a person, we need to confirm that we can predictably find similar people with problems who will readily buy this product
Achieving PMF
Pick the biggest fires or problems
Is your customer’s hair on fire?
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“At Sequoia, they talk about finding customers who “have their hair on fire”....If your friend was standing next to you and their hair was on fire, that fire would be the only thing they really cared about in this world. It wouldn’t matter if they were hungry, just suffered a bad breakup, or were running late to a meeting—they’d prioritize putting the fire out.
If you handed them a hose—the perfect product/solution—they would put the fire out immediately and go on their way. If you handed them a brick they would still grab it and try to hit themselves on the head to put out the fire. You need to find problems so dire that users are willing try half-baked, v1, imperfect solutions.” - Michael Seibel, Twitch, YC.
Source: The Real Product Market Fit
Achieving PMF
It is much harder to change the product to fit the market; vice versa is what you are seeking
Pivot on the market, not the product (ideally)
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→ “Most successful new markets begin with a market-sensitive technologist recognizing an inflection point that enables a new kind of product. The next question becomes: who wants to buy my product? Start with the product and search for the market as opposed to vice versa.”�
→ “Steve (Blank) observed that in contrast to what most people think entrepreneurship is, which is evaluating a market to try to find the holes or the problems and developing solutions of those problems, that leads to very mundane outcomes. The truly great technology companies are the exact opposite. They are the result of an inflection point in technology that allows the founder to conceive a new kind of product. The question then is, “Who wants to buy my product?” So you start with the product and try to find the market as opposed to starting with the market to find the product.”�
→ “Product-market fit really means finding a group of customers who are desperate for your product. If they aren’t desperate, it means there is likely a good alternative. If customers aren’t desperate for your product, look for a new group that is desperate instead of iterating your product to find what those people want.”
Source: 7 Lessons from Andy Rachleff on Product-Market Fit | by Parsa Saljoughian; Andy Rachleff on founding Benchmark & Wealthfront - Business Podcast for Startups
Achieving PMF
It can come and go (ask Paytm’s Wallet team or Meesho or the Clubhouse guys)
PMF is not a one and done event.
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Achieving PMF
Occasional examples of ‘lighting in a bottle’ examples like twitter aside, most PMF achievements are a steady, slow grind
PMF is almost always a grind
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Achieving PMF
It is a lot of fiddling with the dials till you hit high fidelity, by continuously iterating on the GTM elements, and then ensuring the product is relevant and updated to every new customer set that you want to cater to.
The founder has distinct roles to essay, at each stage
The Founder’s Role
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Product to Problem Fit
Motion to Market Fit
→ The goal here is to arrive at the Minimum Viable Product or MVP, that solves some or most of the customer problem that spurred you to start up.
→ B2C: Relatively easier to launch the product with a small beta group and gauge reaction from the consumer playing around or using the features.
→ B2B: Harder to get quick feedback – it takes time for the sales cycle to kick in, and for the adoption to happen. If so, try short-circuiting the process by co-creating the product with your consumer (Design Partners). You need to get feedback while selling (top down), or at least get sales proxies (for PLG).
→ The key here, especially in B2B, is increasing the number of product iterations and shorten feedback to learn faster. See how consumers interact with the product – through the process of buying it and utilising its features.
→ Identify the ideal combination of customer segments, sales channels and customer acquisition approaches (collective addressed as GTM) that get you to positive contribution margin for every marginal customer.
→ Create hooks into the customer’s product adoption and purchase processes – if there is friction, change your GTM.
→ In B2B, it helps for the founder to do a certain number of sales meetings, in order to get a first hand feel for customer issues and reactions. This helps build top of funnel as well as testing the narrative and pitch.
→ In B2C, you need to determine your most effective path for customer acquisition.
→ Still, in both B2B and B2C, you are striving to double down on what is working to arrive at the effective playbook. Learnings from this stage go back to the product, resulting in further iterations, and refining of the value hypothesis, which influences the growth hypothesis, and so on.
Achieving PMF
Appendix
Enabling frameworks for PMF
Enabling frameworks for PMF
Success never comes from one thing, there is always a supporting force(s)
Strategy is a set of mutually reinforcing choices enabling competitive advantage
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Enabling Frameworks for PMF
Congruent Square says there has be a broad alignment / congruency in the product you are taking to market, the team that is taking it there, the consumers / market that will consume your product and finally, the approach you are taking to get the products in the hands of the customer (Go To Market or GTM) - the four mechanisms of the startup org / machine.
There are 2 continuous iterations / triangulations that the org needs to be doing
The Two Triangulations
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Enabling Frameworks for PMF
Product
GTM
Biz model
Goals
Metrics
Incentives
Recommended Readings
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Appendix
Blume Ventures is an early stage venture firm based in Mumbai, Bangalore, Delhi that provides ‘conviction capital’ to founders across India consumer internet as well as software & enterprise technology.
We add value through a platform approach – over 60 specialists across CFO, legal, talent, capital, GTM, operations – who focus entirely on supporting portfolio companies, helping founders learn and greatly improving their chances of success. Our value-added approach has helped us retain board representation in the vast majority of our top companies; the enterprise value of our top 30 companies is collectively valued at $15.01B presently (all invested at seed stage).
You can read more about us at blume.vc
About Blume Ventures
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Appendix