Do You Really Have Product/Market Fit?
How to measure product/market fit
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I run across many founders who declare product/market fit (PMF), which always catches me a little off-guard until I hear their definition.
Launching a product and acquiring some happy paying customers does not automatically pass the product/market fit test.
The bar for product/market fit is typically much higher.
The reason it’s critical to determine whether a given product is pre-PMF or post-PMF is because there is a marked flip in 80/20 focus after this transition — from getting the product right to growing the product.
In all fairness, PMF is relative to the game the entrepreneur is playing (size of business model) but assuming they are aiming for a VC-backable business model, they roughy need to hit one of the following marks:
Have 10 customers paying them $1m/year
Have 100 customers paying them $100,000/year
Have 1,000 customers paying them $10,000/year
Have 10,000 customers paying them $1,000/year
Have 100,000 customers paying them $100/year
Yes, you need just two inputs: The current number of customers and the average annual revenue per account (ARPA) to roughly determine PMF.
If they pass the first test, they also need to pass the following additional criteria:
(1 product + 1 early adopter) focus
Low attrition (churn)
Profitable or within striking distance of profitability
Simple early adopter segmentation (easily targetable)
Early adopter segment is less than 20% of the market (big enough market)
Most founders don’t readily pass or have all the data on hand to pass all tests, so I prefer a gentler approach.
One that starts with business modeling.
Specifically, getting the founder to
chart a traction roadmap,
position themselves on the roadmap,
formulate a go-to-market strategy from where they are to PMF.
But even this is more easily said than done.
Entrepreneurs with traction are busy with lots of things.
Getting them to slow down to rework their business model without the proper framing is hard.
This is a perfect scenario for practicing Judo versus Sumo.
A Sumo approach would challenge the founder head-on about their assumptions using a knowledge awareness trigger (lecture) to try and interrupt their current routine.
This can sometimes work, but most often backfires.
You can lead a horse to water but can’t force it to drink.
The Innovator’s Bias is immune to lecture, and founders quickly surround themselves with reality distortion fields. Push them hard enough and they avoid talking to you.
On the other hand, the Judo approach plays on their current momentum to test their balance by focusing the conversation around something they want (growth), not something they need (stress-test their metrics).
When done well, this leads to some light modeling or discovery work, which intrinsically triggers them to reprioritize some harsh realities.
Here are some recipes I use for doing this:
The 90-Day Goal Recipe
The Phantom Customer Recipe
The 80/20 Recipe
The Next X Customers Recipe