What Prey Tell is PMF?

Product Market Fit (PMF) means having a product that solves an important problem – without custom work and better than existing solutions – for a significant number of independent customers in a large market. Some companies have PMF, some companies don’t, and others are somewhere in the middle, where they have indications of PMF but it’s not clear if they will ever get to strong PMF. Most seed investments are usually in the middle of the PMF spectrum, but put simply for a company to find its PMF, they need to identify a compelling value hypothesis. A value hypothesis identifies the features you need to build, the audience that’s likely to care, and the business model required to entice a customer to buy your product. Companies often go through many iterations before they find product/market fit, if they ever do.

The Process behind PMF:

Steve Blank developed a customer development process based on the idea that startups should apply the scientific method just like scientists do: start with a hypothesis, test it, prove it, move on or further iterate on the hypothesis. Similarly, Andy Rachleff observes that “First you need to define and test your value hypothesis. And then only once proven do you move on to your growth hypothesis. PMF emerges from experiments conducted by the entrepreneurs. Through a series of build-measure-learn iterations, PMF is discovered and developed during a process rather than a single Eureka moment. A-ha moments of inspiration do happen, but PMF is not created that way.

What are considered some of the best tests for PMF?

Rachleff writes that “You know you have fit if your product grows exponentially with no marketing. That is only possible if you have huge word of mouth. Word of mouth is only possible if you have delighted your customer.” But a technical tool to use to predict or estimate the magnitude of customer love for one’s product/service is what is called the Net Promoter Score (NPS), by which ideally a score of 40 or higher would indicate that the PMF of your business is on the right track. However, while NPS is a pretty good proxy for likely fit, it is not nearly as accurate as having market feedback in the form of purchases. People vote with their dollars, after all. 

Here’s an overview of the most important factors that we’re looking at when we try to assess the degree of PMF of a SaaS company. In isolation, none of these factors can tell you if you have PMF or not. But taken together, it can hopefully give you at least a good indication:

Salespeople sometimes refer to "elephants", "deers" and "rabbits" when they talk about the first three categories of customers. The two tables above illustrates specific metrics and figures which indicate which end of the PMF spectrum a SaaS company has.