Since you’ve already registered a company, you should already have a PMF at least at a basic level, or at least an understanding about it. PMF is basically an abbreviation for Product Market Fit. We will go into detail about what it is, why it is important, and how to achieve it for your startup to succeed.

What is Product-Market Fit (PMF)?

If you want to define PMF in simple terms, it is basically when your product satisfies a real market demand, meaning a company has built the right product for the right customers. The product should usually solve at least one significant problem for customers.

PMF is usually achieved in a product cycle, when users will start loving your product so much that it is enough to pay for it, stay back & keep using it, and finally spread the word through word of mouth which will bring in new users to try your product.

“Being in a good market with a product that can satisfy that market.” - Marc Andreessen about Product-Market Fit.

Very few startups reach this particular stage. PMF can also be considered as the lift-off stage of a rocket launch. Lots of startups die even before they achieve PMF (before lift-off stage), and that is mainly because they are in so much love with their own idea and ignored to check if there is any PMF interest for it. Or it could even be a right product but for a wrong audience. What is even the use of an amazing idea or product, if the market does not have any demand for it?

Why Product-Market Fit Matters for Every Startup

As said above, a rocket which cannot lift-off is almost useless, and does not achieve its core purpose. No amount of marketing or pumping in funding will save a product if there is no PMF for it. You may gain initial traction and virality, but eventually the market will stop caring about your product, no matter how much you try to shove it down their throat.

Think of PMF as a foundation or base of a building or a structure, which holds together the weight of adding more layers of floors (aka sustainable growth) of your startup's expansion. It also helps in fundraising because investors love startups which have a proven product-market fit.

Steve Blank defines product-market fit as the stage where a company has successfully identified a target audience, understood their needs, and developed a product that meets those needs effectively. It's the point at which the value proposition of the product aligns with the customer's needs in a way that the market accepts it, leading to increased sales and company growth.

Signs You’ve Achieved Product-Market Fit

There is a very simple analogy to understand if your startup is on the right path towards product-market fit.

• Are you struggling daily to get new customers? PMF isn't there yet ❌
• Are you struggling daily to keep up with the demand? PMF is working ✅

When you as a founder stop worrying everyday about how to get new customers and are more concerned about how to scale and meet the demands of the new sets of customers being flooded, then these are the positive signs of getting validation of product-market fit for your startup.

At this stage people start recommending your product vocally, the retention of the existing customer base is also strong as they keep coming back to use your product regularly, and somehow magically the demand keeps growing without spending as much resources on heavy marketing.

With great demand also comes more scrutiny and loads of complaints. You aren’t able to fix those issues or bugs sooner, before people start finding more issues in your product. Your revenue is growing rapidly, and so are your customer support pings. This is the right time to expand your team and hire more people to reduce the workload, and make the rectification gap smaller, while also scaling your product to meet the market demand.

Common Mistakes Startups Make Before Finding PMF

Are you one of those founders who easily gets distracted and keeps moving the goalposts of adding new features every other day? You have three unpolished features and you already have five more features ready in your head to be added in your roadmap?

“Maybe this new feature will help bring in more user signups. Maybe this another feature can help us gain traction. Maybe I should start a third feature because someday some random user requested it.” The list is never ending, and you are now puzzled and overloaded with building countless useless features, yet still not having any user growth or retention.

Majority of first time founders make this mistake of over-investing in a startup or scaling it even before PMF has been achieved. And some founders tend to ignore crucial feedback given by users. They feel that it is an attack on their startup and assume these are haters. They ignore the feedback and go on with the idea they are so infatuated with. Some do the opposite of it, and keep listening to the wrong customer segment. Instead of building for a customer base who would spend a good amount of money on your product, you are busy chasing useless feedback from a crowd who hasn’t even moved beyond a free trial, or has put words where their mouth is.

And lastly, a common mistake founders make is assuming the early traction itself as product-market fit. Everyone is excited about a shiny new product, and due to your initial efforts and marketing, there is a lot of noise and early movement. This is an early traction, which is important but should not be confused with Product-market fit.

You have to see to it that a whole cycle is being constantly repeated along with early traction, i.e., users are coming back again and again, and along with it there is a steady influx of new users also on a daily basis. On top of it, the cancellation/returns of your product is also at a minimum level. This is after all your initial ads and marketing efforts have been paused too.

Steps to Reach Product-Market Fit

A PMF isn’t achieved overnight or within a few days of launching. Sometimes it takes at least two years to reach product-market fit. You will be growing slowly and steadily at a normal pace, and then one day suddenly there is a spike, and from there there is only growth trajectory upwards week over week.

To reach PMF, you need to follow some basic rules which we will list down below.

• You need to find and lock in your target customer. Do not build a product for everyone. Build it for a niche audience and focus on satisfying them.
• You need to identify the underserved needs of that niche customer base and build your product around it. Before building, talk to those customers and validate the problem.
• Now you have got to define your value proposition.
• Then you need to specify a set of MVP features which are required to win your target audience.
• You need to then develop your MVP (Minimum Viable Product) as per your laid out roadmap, without getting distracted by other additional features.
• Finally, test out this MVP with your target customers. See what feedback you’re getting. Interview them and get quantitative feedback (NPS Score, Churn Rate, Growth Rate, Market Share), and also keep track of the qualitative feedback too.
• If it doesn’t work and users aren't hooked yet, iterate fast and pivot. Rinse and repeat until product-market fit is achieved.

How to Measure Product-Market Fit

As talked above in steps to reach PMF, you need to measure feedback loops from our niche audience, and see where your product stands currently. Based on these metrics, you have to take your next step towards achieving PMF.

There are majorly two metrics with which you can measure PMF. Quantitative and Qualitative metrics.

• In Quantitative metrics you measure the retention rate, NPS (Net Promoter Score), churn rate, active users, conversion rate.
• In Qualitative metrics you measure the signals such as word-of-mouth buzz, social media mentions, user enthusiasm in feedback.

A good PMF is achieved when you have a mix of both of these metrics growing successfully and showing positive signs. If you are not measuring and are just pushing your product out without any kind of feedback, it is kind of like shouting into the void and hoping that it reaches someone somewhere. Always remember that numbers don’t lie. And a good product-market fit is not hidden away, even when your competitors want it to go away.

What Happens After PMF

If your product has reached this stage, then you are already on path towards success as a startup. As said before, the majority of startups die even before reaching this stage. You have got to pat your back for crossing this major and most important hurdle of your startup journey. But this is not the time to sit back and relax. This is where you get more serious as a business, and start acting like one.

You are now done with experimentation and pivots. Your focus is now majorly on growth. Both in terms of customers and your team (to handle the customer’s growth). Even though your metrics (both quantitative and qualitative) are showing great signs of growth, you will not slow down on marketing. You should in fact double down on marketing your product, as you are now sure that the market has accepted your product, and you can pump in more resources to market it.

Your goal is to spread the word to a wider audience, and acquire them as customers too. To handle this pressure of scaling operations, you will be needing a bigger team and for this you need to start hiring more.

This is a good time to build defensibility for your product. You need to create sustainable competitive advantages that protect its market position from competitors. You need to build a MOAT, and differentiate yourself from others in the market. Build your branding around this differentiator, so that customers remember the uniqueness of your product, which can even help in network effects on a long term basis.

Always remember, the customer is King. Do not lose focus of their needs even during the growth stage, and keep the feedback loop open to solve their problems efficiently, while making your MOAT and brand stronger each day.

You may think that reaching product-market fit is an impossible task. It is difficult, yes but not impossible, or else everyone would have a 100% success rate in building startups. Keep striving and follow the right steps, and your startup will one day achieve product-market fit.

This is the fifth of the many resources among the Startup 101 series. You can check out more articles on this topic, as and when we keep writing and publishing them. Our goal is to provide an open, unbiased and helpful resource, which can help you build your startup, and avoid common pitfalls.