This article was co-authored with Aviva Blumstein.
“That magical moment when you become a must-have in your customers’ minds.” - Gigi Levy-Weiss, co-founder of NFX
“A continuous and never ending quest.” - Brad Feld, co-founder of Foundry Group
“The new VC religion.” - Michael Eisenberg, partner at Aleph VC
“When you have proven the value hypothesis.” - Andy Rachleff, co-founder of Benchmark Capital
“When people are grabbing your product out of your hands, saying “I want this!”” - Steve Blank
You can’t be a VC and not be obsessed with product-market fit (the degree to which a product satisfies a strong market demand) … but the mentions, definitions and measurements of product-market fit are the subjects of much VC debate.
When can you claim you’ve found it?
What happens when you have it - or when you don’t have it?
Here’s a detailed look at what the top voices in the VC and entrepreneurial communities have to say about product-market fit.
Can’t succeed without it
Alex Schultz, CMO and VP Analytics at Facebook, says that product-market fit is a necessary element for growth:
“Retention is the single most important thing for growth and retention comes from having a great idea and a great product to back up that idea, and great product market fit.”
Moreover, lack of product-market fit is a startup killer. Says Schultz, “The number one problem I’ve seen for startups is they don’t actually have product market fit, when they think they do.”
Voices from Sequoia Capital and NFX chime in, claiming that product-market fit is the prerequisite for sustainable growth:
Sequoia Capital’s Data Science team says that “Most of the time, unsustainable growth is due to lack of product-market fit. A product that offers little to no unique value and grows purely through inorganic means is not likely to sustain itself over the long term.”
“They may initially come if you advertise well enough,” explains Gigi Levy-Weiss from NFX, ”but, eventually, they’ll leave. It’s like pouring water into a leaky bucket: even if it seems full for a second, it will very quickly become empty again. That’s why PMF is so critical.”
Your offering can start either from the product idea or from the market need, asserts Steve Blank, “but you cannot go farther in your startup until you have product-market fit.”
It’s important, but not enough by itself
Andrew Chen of Andreessen Horowitz has a different take:
Relying solely on finding PMF often leads to what Chen calls The Product Death Cycle - where you keep reworking the product according to customer feedback and re-launching… until you’re dead.
“Product-market fit is not enough for success,” asserts Chen. “You have to actively promote growth” with skills that include (but aren’t limited to) “adtech integrations, signup funnel A/B testing, optimizing notification delivery, testing price points, testing cohort curves, etc.”
Finding PMF takes a backseat to finding the right market
Marc Andreessen of Andreessen Horowitz asserts that you don’t need to find great product-market fit so much as you need to find a great market.
“In a great market -- a market with lots of real potential customers -- the market pulls product out of the startup. The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along.”
Finding PMF takes a backseat to finding the right people
Michael Eisenberg of Aleph VC feels that there is a little too much hoopla around product-market fit:
“I am clearly in the … camp of people-oriented investors, because I know little about technology and have little faith in my ability to predict markets. Moreover, like Keith Rabois, I believe that product/market fit (the new VC religion) is forged by great people and not discovered or revealed.”
What level of product do you need for product-market fit?
The product needs to be the highest quality
When Peter Levine, partner at Andreessen Horowitz, discusses the pros of MVPs, he asserts that an MVP will only work if the product has the top few compelling features, and “the product is bomb-proof and has the highest attention to quality.”
“Fewer features yet higher quality usually wins. Low quality loses in all cases, regardless of the feature set.”
The product needs to work
Not so, says Marc Andreessen of Andreessen Horowitz. If your product is filling a need in a great market with lots of real potential customers, then “the product doesn't need to be great; it just has to basically work. And, the market doesn't care how good the team is, as long as the team can produce that viable product.”
The product can be broken
Sounds a bit off, right? But so says serial entrepreneur and investor Elad Gil. “If your product is broken and people are still using it very actively... that’s a clear sign of product-market fit.”
Gil brings the example of Twitter (where he served as VP of Corporate Strategy from 2009-2012): “When Twitter was constantly going down in the fail-whale days, and yet nobody moved off of Twitter, that was a sign of raw market adoption.”
Don Valentine of Sequoia Capital, as paraphrased by Andy Rachleff, used to say similarly: "I'm looking to invest in companies that can screw everything up and still succeed because the customer pulls the product out of their hands."
If product-market fit is strong enough, felt Valentine, there can be any number of bloopers without dissuading the customers to give up the product.
How do you know if you have product-market fit?
Retention
Sequoia Capital’s Data Science team points to retention as the most reliable metric: “Retention is the best way to measure product-market fit and by far the best lever for product growth. Without retention, a growing product will eventually be left with no users.”
Alex Schultz echoes that:
“Retention is the single most important thing for growth and retention comes from having a great idea and a great product to back up that idea, and great product market fit.”
Word of mouth
Andy Rachleff gives a succinct definition: “For consumer apps, you have PMF when you start to experience exponential organic growth, driven by WOM.”
In fact, “The only way to know that you have product-market fit is if you get word of mouth.” If your market doesn’t love your product enough to spontaneously talk about it, the spark just isn’t there.
Customer love
When a customer consistently uses and recommends your product, that’s one thing. When a customer not only uses and talks about your product, but takes the time and initiative to write you a thank you letter for creating the product, that’s another level entirely.
As Elad Gil phrases it, you know you have product-market fit when you get “love letters from your customers.”
Gigi Levy-Weiss agrees: “To simplify [PMF] even more, you can call it “product love”—when your users love your product… they love your product and would be upset if it was taken away. That’s what product-market fit is about.”
Customer desperation
Doug Leone of Sequoia Capital (as quoted by Andy Rachleff) recommends that you actually test if your customer would be upset if your product was taken away.
If your product has a 30 day trial period, then “at the end of 30 days, you pull the trial, no matter what. If the customer doesn't scream, you don't have product-market fit because if they're not going to buy it at the end of the 30 days, they're not desperate. And if they're not desperate, you don't have product-market fit.”
People should be “grabbing it out of your hands, saying ‘I want this!’” explains Steve Blank.
As caring human beings, we can’t enthusiastically recommend bringing customers to desperate measures, though we do admit that it’s a pretty good indicator.
There isn’t always a simple way to know
Ben Horowitz of Andreessen Horowitz (as quoted by Brad Feld, co-founder of Foundry Group) has attempted to debunk the myth that there is THE way to know that you have product-market fit. His four myths of product-market fit include:
Myth #1: Product market fit is always a discrete, big bang event
Myth #2: It’s patently obvious when you have product market fit
Myth #3: Once you achieve product market fit, you can’t lose it.
Myth #4: Once you have product-market fit, you don’t have to sweat the competition.
Brad Feld explains how these myths hit SaaS startups in different stages of growth (as measured by monthly recurring revenue), often creating the illusion of product-market fit.
To take one stage: “$10k to $100k MRR is a super exciting time. You’ve got a semblance of product/market fit. This is the point at which myth’s #1 and #2 usually kick you… If you aren’t growing a compounded 10% each month, you don’t have product market/fit yet. If you are growing faster than that, you have found something.”
Product/market fit is not a one-time destination, says Feld. It’s a process. “Every time you work on something new, whether it’s a new feature, a new product, or a new product line, recognize that you are searching for incremental product/market fit. The search is a continuous and never ending quest. Don’t confuse illusion with reality.”
What do you do if you don’t have product-market fit?
Let’s say you’re not under any illusions. You know, clear as day, that you don’t have product market fit.
What do you do now?
Well, if two puzzle pieces don’t fit together, one of those puzzle pieces is going to need to change or be switched out for a different puzzle piece. Either your product or your market is going to need to give in order to give you a chance at fit.
Here is where you need to do the pivot dance. It’s time to change the direction of your business. The only question is: which direction?
Pivot the product
Yevgeniy (Jim) Brikman describes the process of testing your assumptions about the product, using the results of the test to course correct.
Brikman brings an example of a startup with the idea to create mobile apps for restaurant owners. When you test this assumption, however, you find out “there is not enough interest from restaurant owners to make this a viable business… On the other hand, you might find out that restaurant owners are interested not in mobile apps, but in easy-to-create websites. That’s progress!”
So here you’ve pivoted your product from mobile apps for restaurant owners to an easy DIY website builder for the same market. Maybe those puzzle pieces will connect.
But pivoting your product is not the only way to go. You could also...
Pivot the market
Andy Rachleff takes a hard stance against product pivots:
You have to be willing to fail, but you don't pivot on the product. If you fix the market and pivot the product, then you have no advantage because your original insight is gone.”
Plus, “when they pitch a potential customer on the idea and the potential customer doesn't like the idea, then they try to iterate on the product to build something the customer would want - by definition, that's writing consensus so it's going to lead to a mundane outcome.”
What’s the alternative?
Keep your product idea and change the market. “You want to go find people who actually love what you're doing, not try to convince the no's and turn them into yeses.”
Serial entrepreneur Nickhil Jakatdar used that model of choosing the market to fit the product when he founded Vuclip, a service that optimizes video in real-time for quality streaming mobile phones. He decided to aim for a market where his technology “was a “must-have” rather than where it was a “nice-to-have.” In the U.S., there are many ways to access video. In India, Indonesia, Africa or Latin America the only way the masses can access video is via mobile. So we focused our energies and resources on emerging markets.”
PMF at first sight
That’s the dream, right?
Your market meets your product, falls in love, spends lots of money and you all live happily ever after.
Usually it’s a teeny bit more complicated than that. The quest for product-market fit often involves challenges, pivots and identity crises.
What can we say?
The course of true love never did run smooth.