Product Market Fit

Nail it before you scale it!

Sajith Pai
23 April 2022
Section I: Why PMF Matters

Section II: What is PMF, really?

Section III: Achieving PMF - Dos and Don’ts

 Why PMF Matters

PMF: ‘The only thing that matters’

“The only thing that matters is getting to product/market fit. Product/market fit means being in a good market with
a product that can satisfy that market.

You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the
product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle
takes too long, and lots of deals never close.

And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast
as you can make it—or usage is growing just as fast as you can add more servers. Money from customers is piling up
in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are
calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting
entrepreneur of the year awards. Investment bankers are staking out your house. You could drink free coffee for a year
at Third Wave.

Lots of startups fail before product/market fit ever happens.

My contention, in fact, is that they fail because they never get to product/market fit.”
- Marc Andreessen

Source: Pmarchive · The only thing that matters 3

 Why PMF Matters

PMF: Single most important issue for an entrepreneur

“I think that the single most important issue for an entrepreneur to succeed is to find product market fit. To me
product-market fit trumps execution. You might execute really well but if the dogs don't want to eat the dog food you're
going to fail. Conversely, you might be terrible at execution but if the customers want to buy your product you'll be a
great success. Customer development helps you figure out what the dogs want to eat. ”
- Andy Rachleff
Source: YouTube
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 Why PMF Matters

PMF in one tweet

Source: Twitter
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Why PMF Matters: Setting Context

Why is there so much concern about PMF? Why are so many

founders or VCs obsessed with PMF?
 Why PMF Matters: Setting Context

Hitting PMF and Series A

Because PMF becomes the first ‘objective’ point of validation of a growing company in a
large market, it has become a gating mechanism for funding.

Source: Product Market Fit (PMF) and Series A+ disconnected earlier this year | by John Danner
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 Why PMF Matters: Setting Context

How funding, risk, and PMF interact

Journey Pre - PMF Post - PMF

Pre-Seed Seed Series A, Growth

Funding

Risk Product risk Market risk Scaling risk

MVP PMF

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Section I: Why PMF Matters

Section II: What is PMF, really?

Section III: Achieving PMF - Dos and Don’ts

 What is PMF, Really?

What does product market fit look like?

Perhaps like this?

Source: Twitter
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 What is PMF, Really?

What does product market fit look like?

However, this is in-fact product-problem fit.

Source: Twitter
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 What is PMF, Really?

Perhaps PMF looks like this?

Source: Twitter
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 What is PMF, really?

Signs of PMF

→ You don’t really need to market – customers buy/subscribe to it

after hearing from others / via word of mouth

→ Organic / inbounds are more than any other channel

→ Customers recommend your product to everyone else they know

What do you think could be some

other signs of PMF?

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 What is PMF, Really?

Multiple definitions of PMF exist

Broadly they fall into the qualitative or quantitative buckets

Qualitative Quantitative

My definition of product-market fit is you are drowning in demand - your A great measure of having product/market fit is a stable retention curve.
product is being used by so many customers that you cannot handle all the - Sean Ellis
new people knocking at your door! Absent that you do not have product market
fit. Most people use the term too loosely.
- Michael Siebel

True product market fit, which I measure as 20% MoM growth for 12+ months
and 80% organic leads.
- John Danner
Product / market fit is about proving there is a market with a need for your
product and that you have the right core product for that market.
- Jill Soley, Todd Wilms

….when a company gets to a sales yield greater than one, that's how you
know you've hit product-market fit. That's to me the best test of enterprise
product-market fit.
PMF is very simple - are people grabbing the product out of your hands and - Mark Leslie, Chuck Holloway
saying I want it, I am using it or I'm buying it or I've given you email addresses
or I'm downloading it or or some evidence that people actually like what your
vision is.
- Steve Blank One of the most common techniques for assessing product/market fit is known
as the Sean Ellis test. This involves surveying your users and asking them how
PMF is one of those concepts that seems easy to understand as a concept but they’d feel if they could no longer use the product. The general rule of thumb is
in practice, hard or impossible to articulate what it actually means. Most people that if more than 40% of the users would be ‘very disappointed’, then there
lazily say "Product-market fit is like porn...when you see it, you just is a good chance you’re at product/market fit.
know!" - Marty Kagan
- Elizabeth Yin
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 What is PMF, Really?

Working Product, Great Traction

All PMF definitions have product and traction at their heart; They are essential but not sufficient. Let us look at what else matters

Large enough achievable Nailing, before you start

market for your product scaling

TAM matters; while it is not central to PMF Before Series A and later investors want to
definitions, it continuously lurks at the back of it. make sure you are in the right direction, and
won’t break at scale. Hence quality of revenue
matters - predictability, unit positive.

You hit PMF when you have a…

‘Scalable GTM, enabling Predictable Repeatable Unit-Positive Customer Acquisition’.

Let us unpack this…

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 What is PMF, Really?

Unpacking the PMF definition

‘Scalable GTM, enabling Predictable Repeatable Unit-Positive Customer Acquisition’.

The revenue covers all

Scalable GTM means
There is a broad variable costs of
that we have a working
correlation between As the startup grows acquiring that revenue - Finally, don’t forget that
playbook of taking the
sales inputs and volume scales, there is no specifically a) cost of revenue / sales /
product to the customer,
/ revenue outputs. We slowing down of growth; goods sold b) direct cost customer acquisition is
and enabling trial and
know that x calls -> y this points to a large of acquiring that unit. the ultimate metric.
conversion, that can be
conversions or x $ spent enough market. You can Now as revenue scales, There is no PMF without
ramped up at will
on performance keep tapping the market at some point, the customer love /
(subject to capital).
marketing lead to y units for growth continuously. margin will cover fixed interaction and demand.
There is no scale break
sold. costs and thereby make
as revenue grows.
the startup profitable.

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 What is PMF, Really?

Unpacking GTM
GTM or Go To Market is all about how you take the product to the customer or bring the customer to your product.
It has 3 components.

Persona Channel Message

What you will share when you reach

Who you will reach?
them or share in order to attract them
How you will reach your customer (interaction mode / message)? The
(Ideally the paying customer;
persona? message typically has two parts -
sometimes the end user =! paying
benefit & product proposition (esp in
customer)
the case of B2B).

B2C GTM example

I will reach Dog owners residing in Gurgaon (persona) by sponsoring (advertising banners = message) Dog Parks (offline
channel)

B2B GTM example

I will reach marketers who spend at least ₹1cr a year on digital marketing (persona) via inbound channel using content
marketing (message).

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 What is PMF, Really?

Understanding PMF through an example

→ If we lower the bucket and draw it up,

it will have water. Predictable.

→ I can do it 100s and 1000s of time till it

goes dry. Repeatable.

→ Low energy required to draw water ; or

the energy from the water > what is
required to draw it out. Unit Positive.

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Section I: Why PMF Matters

Section II: What is PMF, really?

Section III: Achieving PMF - Dos and Don’ts

 Achieving PMF

PMF is a 2-step process

Nail, then scale.

Product to Problem Fit GTM to Scale Fit

Does it reliably solve the Now that it works for a person, we need to confirm
problem for a customer? that we can predictably find similar people with
problems who will readily buy this product

Source: Stage of company, not name of company - by Nikhyl Singhal 2

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 Achieving PMF

A variant
PMF here is used the second phase of our earlier model

Scaling

Product/
Market Fit

Problem/
Solution Fit

Idea Stage

Source: ‘Corporate Venturing’ by Dado Van Peteghem and Omar Mohout.; 2

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 Achieving PMF

Is your customer’s hair on fire?

Pick the biggest fires or problems (or as Kunal Shah says, the biggest rivers)

“At Sequoia, they talk about finding customers who “have their hair on
fire”....If your friend was standing next to you and their hair was on fire, that
fire would be the only thing they really cared about in this world. It wouldn’t
matter if they were hungry, just suffered a bad breakup, or were running late
to a meeting—they’d prioritize putting the fire out.

If you handed them a hose—the perfect product/solution—they would put the

fire out immediately and go on their way. If you handed them a brick they
would still grab it and try to hit themselves on the head to put out the fire.
You need to find problems so dire that users are willing try half-baked, v1,
imperfect solutions.”

Source: The Real Product Market Fit 2

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 Achieving PMF

Pivot on the market, not the product (ideally)

It is much harder to change the product to fit the market; vice versa is what you are seeking

→ “Most successful new markets begin with a market-sensitive technologist recognizing an inflection point that enables a
new kind of product. The next question becomes: who wants to buy my product? Start with the product and search for
the market as opposed to vice versa.”

→ “Steve (Blank) observed that in contrast to what most people think entrepreneurship is, which is evaluating a market to
try to find the holes or the problems and developing solutions of those problems, that leads to very mundane outcomes.
The truly great technology companies are the exact opposite. They are the result of an inflection point in technology
that allows the founder to conceive a new kind of product. The question then is, “Who wants to buy my product?” So you
start with the product and try to find the market as opposed to starting with the market to find the product.”

→ “Product-market fit really means finding a group of customers who are desperate for your product. If they aren’t
desperate, it means there is likely a good alternative. If customers aren’t desperate for your product, look for a new
group that is desperate instead of iterating your product to find what those people want.”

Source: 7 Lessons from Andy Rachleff on Product-Market Fit | by Parsa Saljoughian; Andy Rachleff on founding Benchmark & Wealthfront - Business Podcast for Startups 2
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 Achieving PMF

GTM = Persona + Channel + Message

Iterate till you get that right combination of Product + Persona, Channel, Message yielding predictable repeatable unit
positive customer acquisition
Communicates
both benefit and
proposition

Persona Channel Message

Performance Mktg, Content,

Narrative, Collateral, Emails,
B2B Account-based sales,
Adwords, Display Ads
Be careful about end user Partnerships etc.
and economic buyer persona
(more common in B2B, but
also in B2C (edtech) Viral, Performance Mktg,
B2C Content (see Lenny Rachitsky Adwords, Display
piece on growth lanes)

Source: Drive Growth by Picking the Right Lane — A Customer Acquisition Playbook for Consumer Startups | First Round Review / Lenny Rachitsky tweet thread 2
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 Achieving PMF

Iterate on Message, then Channel, then Persona and only then Product
Product and Persona are one-way doors; any change there has significant consequences

Have a clear persona identified See article ‘Target the Right Market1’ on Hubspot’s challenges

Seek a channel with the right combination of CAC, repeatability /

Seek the right channel and
scalability and predictability that ensures unit positive sale (CM2 +ve;
finalize the message that will go covering of goods, sales, service and customer acquisition)
Order

Basically keep refining till you hit a scenario where you definitely know
Keep refining the
that to get 5x unit positive sales, you just need Y investment. This is
persona-channel-message mix PMF!

Optimize for the mix by changing

The reverse is harder. Often channel and message are interlinked, like
message first, then channel, and
inbound and content.
then persona

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Target the Right Market 2
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 Achieving PMF
The Founder’s Role
The founder has distinct roles to essay, at each stage
Product to Problem Fit
→ The goal here is to arrive at the Minimum Viable Product or
MVP, that solves some or most of the customer problem that
spurred you to start up.
→ B2C: Relatively easier to launch the product with a small
beta group and gauge reaction from the consumer playing around
or using the features.
→ B2B: Harder to get quick feedback – it takes time for the sales
cycle to kick in, and for the adoption to happen. If so, try
short-circuiting the process by co-creating the product with
your consumer.
→ The key here, especially in B2B, is increasing the number of
product iterations and shorten feedback to learn faster. See
how consumers interact with the product – through the process
of buying it and utilising its features.
Source: How founders should think about product-market fit
GTM to Scale Fit
→ Identify the ideal combination of customer segments, sales
channels and customer acquisition approaches (collective
addressed as GTM) that get you to positive contribution margin for
every marginal customer.
→ Create hooks into the customer’s product adoption and
purchase processes – if there is friction, change your GTM.
→ In B2B, it helps for the founder to do a certain number of
sales meetings, in order to get a first hand feel for customer
issues and reactions. This helps build top of funnel as well as
testing the narrative and pitch.
→ In B2C, you need to determine your most effective path for
customer acquisition.
→ Still, in both B2B and B2C, you are striving to double down on
what is working to arrive at the effective playbook. Learnings from
this stage go back to the product, resulting in further iterations,
and refining of the value hypothesis, which influences the growth
hypothesis, and so on.
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 Achieving PMF

Enabling frameworks for PMF

 Achieving PMF

Strategy is a set of mutually reinforcing choices enabling competitive advantage

Success never comes from one thing, there is always a supporting force(s)

Congruent Square says there has be a broad alignment /

congruency in the product you are taking to market, the team
that is taking it there, the consumers / market that will consume
your product and finally, the approach you are taking to get the
products in the hands of the customer (Go To Market or GTM) -
the four mechanisms of the startup org / machine.

Source: The Congruent Square – Sajith Pai 2

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 Achieving PMF

The Two Triangulations

There are 2 continuous iterations / triangulations that the org needs to be doing

Product Goals

GTM Biz model Metrics Incentives

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Appendix
 Appendix

Recommended Readings

- Defining 'Product-Market Fit' – Sajith Pai

- Michael Seibel on the YC Podcast
- How founders should think about product-market fit - Sajith Pai
- How the best founders drive learnings at their startup - Sajith Pai
- Pick the right customer - Sajith Pai
- Target the right market - Jill Avery + Thomas Steenburgh
- The Congruent Square - Sajith Pai

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 Appendix

About Blume Ventures

Blume Ventures is an early stage venture firm based in Mumbai, Bangalore, Delhi that provides ‘conviction capital’ to
founders across India consumer internet as well as software & enterprise technology.

We add value through a platform approach – over 60 specialists across CFO, legal, talent, capital, GTM, operations
– who focus entirely on supporting portfolio companies, helping founders learn and greatly improving their chances
of success. Our value-add approach has helped us retain board representation in 34 of our top 36 companies,
collectively valued at $12.2B (all invested at seed stage).

You can read more about us at blume.vc

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