Product Market Fit

You have product market fit, when all of the following are true:

1. Your customer has a sufficiently important problem.
2. Your product is the #1 solution to this problem.
3. You are able to consistently find more customers.

If you satisfy all the pre-conditions above, by definition your revenue will grow rapidly:

• If you satisfy #1 and #2, nearly every customer you encounter will buy your product or service.
• If you satisfy #3, you will consistently encounter more customers.

I will explore conditions #1 and #2 in detail, as they have a great deal of nuance. Condition #3 is generally straightforward.

A sufficiently important problem

To have PMF, you must solve a sufficiently important problem. I choose the words “sufficiently important” with care.

I have intentionally not said:

• An important problem
• A lucrative problem
• A very painful problem
• A problem costing your customer a lot of money

For a sufficiently important problem, if a solution appeared now, you would drop whatever you’re currently doing to implement it immediately.

If your problem is not important enough to make your customer drop their current task to solve it, it is not important enough to ever get solved.

Founders fall into the trap of solving a problem that is important, painful, or lucrative, but which is not sufficiently important.

Solving an insufficiently important problem results in:

• Low email response rates for outbound sales
• Many prospective customers interested in talking, but few interested in buying
• Low contract sizes for customers who buy
• Low usage from customers who buy

A startup solving this kind of problem can laboriously collect revenue through the sheer will of the founding team, but will never find strong PMF.

The #1 solution

To have PMF, you must be the #1 solution to your customer’s problem. I choose the words “#1 solution” with care.

I have intentionally not said:

• A high quality solution
• The cheapest solution
• A viable solution
• The #2 solution

If you are not the #1 solution, a logical and well informed customer has no reason to choose you.

It doesn’t matter if your solution is a good solution to your problem. It doesn’t matter if your solution has a sleek user interface, more flexible billing terms, or a more dedicated support team.

If the sum of your advantages does not make you the #1 solution for the problem, you will never find strong PMF.

Founders fall into the trap of building a solution that is effective, sleek, well-crafted, but which is not the #1 solution to their customer’s problem.

Not being the #1 solution, results in:

• Not knowing why your (few) customers are choosing you versus a competitor
• Your product roadmap being driven primarily by cloning the #1 solution’s features
• Losing important deals, and only winning deals with small, weird, or offbeat customers

A startup that is not the #1 solution can accumulate customers and revenue (with 10x more effort per dollar, compared to the #1 solution), but will never find strong PMF.

Appendix 1: Sufficiently Important

A problem’s “sufficiently important” status is not globally consistent. It is dependent also on the person experiencing the problem, and the cost of solving the problem.

problem.is_sufficiently_important(person, cost) -> bool

Depending on the person and the cost, the problem may reach the level of sufficient importance, or it may not.

We can give a few examples, using “Compensation Benchmarking” as our example problem.

Compensation Benchmarking is the process of figuring out what market compensation, in cash and equity, looks like for a role. There are a few inputs, such as seniority, location, and stage of company. Pave is a company that solves this problem.

person represents both the individual, and their circumstances:

1. A startup founder, who is just about to hire their first engineer
2. A software engineer at Google who has an offer in-hand expiring tomorrow
3. A Chief People Officer at a 10,000 person public company, who needs to define new company-wide comp bands

cost represents monetary cost, risk, and opportunity cost:

1. Free, but requires access to sensitive data, and I don’t trust their security posture
2. $1,000,000 per year, on a 3 year minimum contract
3. Free and reputable, but the time to implement would force me to give up a major opportunity

Depending on the specific combination of person and cost, you’ll have different results for sufficient importance.

To have PMF, your problem must very often be sufficiently important for the person you target, and the cost you demand they pay.

Appendix 2: The #1 solution

A solution’s status as the #1 is not globally consistent. It is dependent on the person experiencing the problem, and the specific nuances of the problem itself.

Successful startups that are not broad market leaders, are typically #1 in a smaller market.

One example is Close CRM versus Salesforce. Salesforce is the largest solution in the broader CRM market, however Close is the #1 solution for early stage startups with few sales reps.

Startups that are not #1 in any market rarely make it past infancy.