Founders dream of building a captivating product that customers are clamoring to buy. Whether it’s a consumer product or a SaaS tool, no one sets out to start a company and sell a product that’s just a nice-to-have — and it’s certainly not the path to building a thriving, lasting business.
And yet, time and time again, products fail to catch on. The sales cycles take too long, and deals linger without being able to close. The user base isn’t growing much, and customers aren’t getting compounding value out of the product. Word of mouth doesn’t spread. Why? What’s going wrong?
Put simply — these companies haven’t found product-market fit (PMF). In this article, we’ll explain how founders can assess and measure whether they have product-market fit at every stage of the startup and product development lifecycle.
What is product-market fit?
Product-market fit is one of the most important, yet elusive concepts in company building. But for something so critical, there are a lot of “you’ll know it when you see it” hand-wavey explanations about PMF.
After nearly 20 years of investing in pre-product-market fit startups, we’ve broken product-market fit down to an incredibly granular level (which you can read about in detail here). Here's how we've come to define it:
Extreme product-market fit is a state of widespread demand for a product that satisfies a critical need and — crucially — can be delivered repeatably and efficiently to each customer.
There are a couple of things that routinely go wrong here. Either you build a product that doesn’t actually solve the problem that you thought it would — perhaps you didn’t do enough customer research to deeply understand the problem and your value proposition before building. Alternatively, you could build the perfect solution, but the problem is more niche than you expected, and you can’t seem to break out beyond a smaller set of passionate users.
So how do you sidestep these common dead-ends? We pulled our favorite frameworks from The Review archives to help you chart your course to extreme product-market fit.
Why is product-market fit important?
As we’ve learned here at First Round by teaming up with hundreds of early-stage founders (and in our ongoing Paths to PMF interview series here on The Review), no two journeys to finding product-market fit look exactly alike. Some products quickly take off, rapidly amassing fanatic customers with a tidy up-and-to-the-right revenue trajectory. Others have some false starts and need to pivot to find that kernel of customer love — Slack and Notion are two such examples where the first version of the product didn’t land, but the following iterations would become widely beloved.
On one end of the spectrum, Slack pivoted quite dramatically from originally creating a video game to spinning out an entirely new company based on the unique messaging technology they had built for the game. On the other end, Notion’s founders stuck by their same idea but refined it over time and rebuilt the original experience to capture that customer fervor. (For a deep dive into the product-market fit journeys at some of the most successful startups operating today, we recommend checking out our essay on the four levels of PMF.)
No matter how you get there, if you’re looking to go the venture capital route to fund your startup in the early days, showing that you have nascent product-market fit and plenty of customer love (or at least are on the path to getting there) is massively important. Investors will be looking for these signals when you pitch them.
Even if you don’t go the venture route with your business model and instead decide to bootstrap, product-market fit is still essential. To grow a business, you’ll need capital — which relies on folks coming in and purchasing your product. That’s only possible if the product is solving a unique need for an underserved group.
How to find product-market fit
It may seem counterintuitive, but finding product-market fit starts before you even have a product. Before you begin building your castle, you have to make sure you’ve picked the right piece of land. No amount of hard work and grit can overcome the challenges of choosing a market that’s either too small or too saturated.
Start with a thesis
As you start turning over startup ideas, repeat founder Sasha Orloff suggests leaning on these three questions to form your hypothesis and lay the groundwork for PMF:
- What are the big problem areas in the world?
- What personal skills, advantages or insights do you have to help solve it?
- How can you turn this into a viable business idea?
Bob Moore, another multi-time founder, puts this another way: “Plain and simple, here’s the formula you need to nail down: Here's what we’re here to do, here’s why we'll be the best at doing this very specific thing, and here are the tailwinds that make now the right time to do it,” says Moore.
What are we going to do? What is our unique vision behind it? That’s an existential, table-stakes prerequisite to building a resilient venture-scale company. Even with the best team in the best market, you’ll hit a ceiling without these ingredients.
Validate your idea
With your thesis in hand, it’s not quite time to start building yet. Next, you want to start testing your idea with the folks in your target market who you envision using your product — well before you have anything to sell them. Product executive Michael Sippey sets a baseline to aim for: Get customers on the phone and line up 30 meetings with the point people you will eventually be selling to at each company. Talk to them about their problem and describe what you’re potentially building that solves it. Do this before you write a single line of code.
As you sit down with folks, the key questions you want to uncover are:
- Do they actually face the problem?
- How acute is the problem?
- How are they solving the problem today?
- How much are they spending to solve the problem?
- How does the problem impact their business?
Towards the end of the conversation, you can begin to introduce how you’re thinking of solving that particular problem and ask for feedback — but only after you’ve spent ample time deeply excavating the customer’s experience with the problem at hand (at least more than half of the time you’ve allotted, says Sippey).
“When I look back on my career, I’ve made a lot of mistakes in product planning and development. A lot of them,” he says. “The common thread, though, is that we spent too much time thinking about features, and not enough time thinking about the problems that we’re trying to solve.”
Here’s another hint: if you can’t get folks to agree to sit down with you and talk to you about the problem you think they or their business is facing, it’s probably a clue that the problem you’re trying to solve isn’t mission-critical, and you may want to go back to the drawing board with your value proposition and hypothesis.
Build a Minimum Viable Product (MVP)
You’ve lasered in on an idea, and validated with your target persona that it’s solving an acute problem that they’re facing. There can be an instinct here to crawl into the metaphorical basement, tinkering with your product and adding on all the features on your wish list until it’s a shiny, polished gem.
But all that time you’ve spent building is time you could have spent getting something in front of customers for them to react to. That’s why many startups go the route of building a minimum viable product. Instead of building everything under the sun, MVPs focus on a much narrower baseline of features that are needed to test whether the initial product idea is working with customers. These should be directly tied to your product’s main value proposition.
“If you try to solve every problem with your product, you’ll do it all poorly. I call this the Peanut Butter Principle: spread too thin, it’s no longer tasty,” says veteran product leader Jiaona Zhang. Instead, focus on the qualities and features that will set your product apart — and what you can deliver in a timely fashion. “Start with the one feature that’s going to make your product indispensable and build from there,” she says.
How to measure product-market fit
With a product out there (albeit a less-than-perfect one) that customers can get their hands on, now you can start measuring if you’re closing in on fledgling PMF. Here are a couple of tested tactics for how to measure product-market fit.
Use a product-market fit survey to gather feedback
Growth guru Sean Ellis first popularized the idea of using a product-market fit survey as a leading indicator to see if you’re nearing product-market fit. In fact, it’s quite simple: just ask users “how would you feel if you could no longer use the product?” and measure the percent who answer “very disappointed.”
After benchmarking a hundred startups, Ellis found that the magic number is 40%. Companies that struggled to find growth almost always had less than 40% of users respond “very disappointed,” whereas companies with strong traction almost always exceeded that threshold.
If you don’t quite reach that 40% threshold, that’s no cause for alarm yet. Instead, this is a signal that you should dig deeper with these folks who are most passionate about your product. What patterns connect them? And how can you find more of this persona and introduce them to your product?
Superhuman founder Rahul Vohra applied Ellis’s approach to his own product-market fit journey, which he wrote about in one of our most popular Review articles of all time.
“We identified users who recently experienced the core of our product, following Ellis’ recommendation to focus on those who used the product at least twice in the last two weeks,” says Vohra. (At the time Superhuman had between 100 and 200 users to poll, but Vohra notes that smaller, earlier-stage startups shouldn’t shy away from this tactic — you start to get directionally correct results around 40 respondents, which is much less than most people think.)
Vohra then emailed these users a link to a product-market fit survey asking the following four questions:
1. How would you feel if you could no longer use Superhuman? A) Very disappointed B) Somewhat disappointed C) Not disappointed
2. What type of people do you think would most benefit from Superhuman?
3. What is the main benefit you receive from Superhuman?
4. How can we improve Superhuman for you?
Pick one North Star metric
Even when your product is new on the scene, there are still a dizzying amount of metrics that you can measure. Including:
- Net promoter score (NPS)
- Retention rate
- Total addressable market (TAM)
- Sales and signups
- Customer acquisition cost (CAC)
- Churn rate
- Revenue
- Traffic
- Referrals
- Customer lifetime value (CLV)
But instead of paying equal attention to all of these metrics on your dashboard, focus here is paramount when you're scaling, according to ClassPass founder and CEO Payal Kadakia.
Here’s how she explains her own aha moment: “Once the product started working, the number of reservations per person became the clearest representation of true north. I remember that moment, when I thought, ‘This is the number. This is the only number that matters. I’d rather have 150 people using it weekly than 1,500 attending the occasional class.’” she says.
For ClassPass, that reservation number touched every key indicator for the business. It offered insight into churn, revenue and engagement. It represented how happy studios were with their experience. And most importantly, it became a quick snapshot of the impact the company was having.
Looker founder Lloyd Tabb also cautions against metrics mania by distinguishing “vanity metrics” from “clarity metrics.” Here’s the difference:
- Vanity metrics are surface-level metrics. They’re often large measures, like number of downloads, that impress others.
- Clarity metrics are operational metrics, like the number of minutes a day your product actually gets used or how long it took for a user to get service. These are the hidden gears that drive growth.
So as you look to develop your North Star, consider what are the clarity metrics that most directly pinpoint whether your product is resonating with a growing group of customers — that’s the key to measuring product-market fit and hitting your target.
Want to learn the behind-the-scenes story of how top startups achieved PMF? We have a ton of resources for that — check out our Paths to Product-Market Fit series with tons of founder interviews.