Thoughts on product market fit, part 1
What it is, why it matters, how to achieve it, how I think about it in the context of Gather.
Recently, I’ve been thinking a lot about product-market fit (PMF). It’s come up a lot while working with the start ups I’m consulting for and is top of mind for me while building Gather.
I’ve a first time founder and at present have built 0 successful companies. I do, however, have lots of super smart and experienced friends and mentors (founders, startup operators, investors) who I’ve talked to over the years. Also I read a lot.
My very un-original thesis: initially, a startup’s #1 priority should be finding product-market fit (PMF).
WHAT IS PMF
“Product-market fit describes a scenario in which a company’s target customers are buying, using, and telling others about the company’s product in numbers large enough to sustain that product’s growth and profitability.” LINK.
I found a couple definitions of PMF on the interwebs but this one was my favorite. I like it for a few reasons. (1) It explicitly calls out a target audience, (2) it concretely defines traction “buying, using, and telling others”, and (3) it outlines how achieving that state powers the business “growth and profitability”.
WHY IS PMF (SO) IMPORTANT
I think PMF is (so) important thing because (1) it’s one very few absolutely critical things necessary for a successful business and (2) it makes everything else a lot easier.
I doubt I need to convince you that PMF is important – it’s pretty self-evident why getting your target customers to buy, use, and share your product is A Good Thing. The more interesting question is why is it so important. Why is it, to come back to my thesis, the most important thing.
First, PMF is one of the very few truly necessary elements of a successful business. There are lots things needed to launch a successful startup. A short non comprehensive list: smart people, code, designs, marketing, go to market, funding, legal etc etc etc. In most businesses, you’ll need all of these to be working to build something great. However, if you were to remove or do one of these poorly but you had PMF I think you could survive. In contrast, without PMF, nothing else matters. It doesn’t matter how elegant and performative your code is, how intuitive and delightful your product experience, or how excellent your GTM motion is. If you haven’t created something people want, nay love, you don’t have a business. If you have PMF, does that mean you’ll succeed? No. It’s necessary but not sufficient. However, unlike most other things, it’s truly necessary. That’s why I think it’s worth starting with.
Second, it makes everything else a lot easier. Getting people to try out, keep using, and pay(!) for your offering is really hard. Great marketing, ux, branding, gtm can really help. But if you’re pre PMF and you’re not creating something someone really wants, chances are that person will try product and leave pretty much right away. Pretty sure I’m just regurgitating Y Combinator right now. I never claimed to be original.
The top two reasons why startups fail is they run out of money and they fail to find a market (source). I think these are both symptoms of failing to find PMF. Chances are, your startup idea won’t be stolen or even crushed by an incumbent. More likely, you’ll just be building something no one wants.
One of the hardest things about a startup (based on my vast 3 months of experience!) is that it always feels like there are a million things you could/should be doing. What I love about the PMF focus is that it helps clarify what you should and importantly shouldn’t be focusing on.
Simple test if you’re pre PMF: is what I’m doing right now moving me closer to finding PMF as efficiently as possible? If the answer is no, stop doing it immediately. Find the thing that most efficiently (time and money) moves you there. Do that instead.
HOW DO YOU KNOW YOU’VE ACHIEVED PMF
How do you know you’ve hit PMF? You’ve hit PMF when you can tell ppl love your offering. Indicators of that love include:
MONEY: people buy and keep paying for your offering
RETENTION: people keep using your offering over time
ENGAGEMENT: people use your offering
ORGANIC GROWTH: people share your offering with others
HAPPINESS: people tell you they love your offering
(!!) Be careful about thinking you’ve found PMF when you haven’t. From what I’ve read, this is a common mistake and easy to do. To avoid this, try to check your biases and be as rigorous and dispassionate about evaluating as possible.
HOW TO FIND PMF
Ok the golden question. If I had the perfect answer to this one I wouldn’t be writing about it I’d be doing it and sleeping on a bed full of hundos. Here’s what I suggest (and what I’m doing with Gather).
I think you find PMF by hitting the following milestones:
You understand your chosen market ie the players, dynamics, key personas, TAM, common biz models, growth
You’ve chosen an initial niche audience based on that understanding
You’ve deeply understood the unmet needs of that audience + the intensity of those needs + have chosen a specific problem to focus on
You’ve chosen a specific way to address that specific problem and come up with an offering that you believe will help aka a “hypothesis”
You’ve tested that hypothesis with users in your initial niche audience and continuously sought feedback from the users and continuously iterated based on that feedback
Chances are, the initial niche audience and problem you start with won’t be the right audience/problem. That’s ok. The key here is to make an educated guess, start, and then adjust based on what you learn by talking to customers + trying stuff.
It’s ok to be wrong. It’s not ok to be confused. Cue Tomer’s voice in my head in his Israeli accent: “I may be wrong but I’m not confused”. As you go, I’d recommend being clear with yourself and your teammates about what your audience, problem, hypothesis is at any given point in time. Clarity is key for alignment and for learning.
“I may be wrong but I’m not confused.” - Tomer Cohen
Also of note, though I’ve written this as steps 1-5 it’s more like a squiggly line. If/when you’re wrong and want to pivot, you’ll want to go back to previous steps. Don’t be afraid of this. Progress is learning, so conclusively disproving a hypothesis is great.
MAKING THIS MORE CONCRETE
The above are great milestones. But they don’t tell you precisely what you need to do to achieve those milestones. Here’s what I recommend to achieve each milestone.
[Milestone 1] You understand your chosen market eg the players, dynamics, key personas, TAM, common biz models
Exit criteria: as you do more research, you’re learning fewer and fewer new things
Checklist (concrete deliverables you can complete):
List of top 10 services in your market. For each, list out name, who uses it, what problem is being solved, core value proposition(s), pros and cons from user experience and biz standpoint, categorized into sensible MECE buckets according to offering
Notes from 5 interviews with founders/operators of players in your space
Notes from 20 articles about services and dynamics in your market
Notes from 10 people in various audiences in your market with open ended questions about what they care about
List of 10 potential audiences (who they are, what they care about, pros/cons of choosing this audience to start with)
[Milestone 2] You’ve chosen an initial niche audience based on that understanding
…
OK this is getting long and I gotta run. LMK if this is useful/interesting. If it is I’ll continue it in a future post.
Cheers,
Lachlan
This is useful and interesting, I'd read part two.