Bootstrapping your startup to gain and maintain traction won’t get you far if you never reach product-market fit (PMF). If you’re just building a product for the sake of building a product, you’re going nowhere because there’s just no feasible business model behind that.
A vacant spot in the market, a problem that is yet to be solved, a customer pain that has not been remedied – that’s how you get the audience hooked on your idea and vision. Once you get them hooked, you will need to reel them in.
That’s where a PMF framework and strategy come into play. Read on to find out more about how to achieve and maintain product-market fit.
What is product-market fit (PMF)?
Product-market fit is a turning point in a startup’s development when you transition from a struggle for every new customer and for any kind of traction dignified of the investor’s attention, to a point where you struggle to keep up with the demand for your product.
Speaking from a technical standpoint, Jason Cohen, a four-time entrepreneur and angel investor with 23 years of experience and two unicorns to his belt, spells PMF out as follows:
Easy growth. You don’t have to pull through anymore. You start growing much faster and the higher growth rate sustains itself, without much effort on your side.
High retention. The churn rate should be no more than 3% in B2B and 5% in B2C. Higher churn means customers are leaving so fast, that there’s no way to sustain growth, therefore, there is no product-market fit.
Critical mass. A month-over-month growth of $20,000 or more in revenue or 200 monthly WAU growth. The rapid growth of active users is crucial because satisfying a wealth of customers proves you are conquering the whole market and not just a group or a select few users.
It’s often said that if you’re still guessing whether you’ve found PMF or not, it means you haven’t.
It's like an ‘Aha!’ moment, you’ll just know: when a never-ending flow of new subscriptions overwhelms your IT resources, being featured in every media outlet, people lining up to become your brand ambassadors…
How do you measure PMF?
Sean Ellis, a well-known growth marketer and entrepreneur, coined “the 40% rule” in measuring product-market fit, and it's the most cited benchmark out there.
The golden 40% stands for the amount of surveyed customers that would be “very disappointed” if your product went off the market. According to the rule, if the amount is less than 40%, then you have not yet reached PMF.
This is quite a good metric when you need to track actual progress toward your PMF goals and show it off to investors. It works well if you have the means to conduct PMF surveys and launch market research campaigns.
Among other PMF indicators which are a bit easier to track are:
LTV:CAC ratio (customer lifetime value vs customer acquisition cost).
Retention rate (measures how successful you are at keeping customers).
Net Promoter Score (NPS) (how many users recommend your product).
There are many ways to go about this and you can define your own benchmarks giving you a better perspective of where you are at and where you are headed. As long as you listen to the voice of the customer and the mannerisms of the market.
The PMF growth curve
All startups that eventually reach a successful exit follow a similar growth trajectory: several years of painstakingly slow linear growth, and then comes a certain moment when the rate increases:
The new growth curve, just as before the turning point, has a steady regular pace, but it is much steeper (the startup is growing much faster).
That moment, the turning point, or the moment you transition from the state of
Getting new customers is an everyday struggle
to
Keeping up with demand is an everyday struggle
That’s the moment you reach product-market fit. An important thing is not to squander it, and figure out a way to maintain this growth.
One brilliant way to reach PMF
Nathan Barry, the founder of ConvertKit, one of the strongest competitors of MailChimp, is not one to be afraid of getting hands dirty when it comes to scraping for each new customer.
Here’s the story of how his company made it to product-market fit that can be used as a blueprint for others:
Nathan would search and cold email his target audience which was bloggers and ask them about their struggles with the competitor – MailChimp.
People would tell him their frustrations and Nathan would sympathize with them and tell them why he built ConvertKit.
He would demo his product and try to close the sale.
The main objections were how hard it was to migrate and switch to a new email provider, so he would propose to set it all up for free to demonstrate how easy it actually is.
Offering a migration for free took away most of the objections and so Nathan continued to grow the customer base by converting MailChimp subscribers.
Nathan’s efforts paid back tenfold and in just a few months his product was bringing in $5,000 a month, after which he made an amazing YoY leap to $98,000 a month. The newfound growth was a clear sign of product-market fit.
It's always a unique piece of the puzzle
You can say finding a way to PMF is like searching for that star player who will carry the rest of the team to a season victory. That’s why following Nathan Barry’s path will not necessarily gain you success, as you have to find your own unique way.
It’s a missing piece of the puzzle, an extra gear that gives you a burst of increased growth. Something like what the professional photography idea was in 2010 for AirBnB:
It’s a bit funny, but sometimes you can’t even figure out what the missing piece was, once PMF rains down on you. That is kind of what happened to Lenny Rachitsky’s newsletter on business, product, and entrepreneurship in 2022:
Here’s what he had to share about the success in a reply Tweet:
How to navigate a product-market fit journey
So if PMF is such an elusive concept, how do you set your startup on the right course? Adam Fisher, a leading investor at Bessemer Venture Partners, offers a noteworthy diagram for founders to navigate their product-market fit journeys:
Here’s how to read the diagram:
Right end of X axis: leaning towards deep customer engagement by putting first the customer’s priorities, needs, alternatives, concerns, and user experience. Startups on this end carefully listen and indulge their target audience.
Left end of X axis: startups primarily engaged with themselves, overconfident in their knowledge of customer needs. Sometimes they are targeting the wrong audience or have a small select group of customers who do not represent the majority of the market.
Upper end of Y axis: marks a strong product and compelling founder’s vision that resonates with the team and the customers, as well as plays very well with investors. Startups here are formed with a disruptive idea or are backed by a new technological breakthrough.
Lower end of Y axis: investors call these types of startups and their products unconvincing as they fail to study the market and it's prevailing fundamental trends that govern consumer behavior. Often, the founder’s vision does not resonate with the target customer.
Beware, product-market fit is not a constant, it’s a dynamic. So to stay in the PMF zone, you will always have to make compromises between your ambitions and the challenges & demands of a constantly evolving market.
Product-market fit framework: 5 steps to reach PMF
One of the most popular strategies used by startups coming out of the gate right now is the Lean Startup Methodology.
It gives you 5 steps to reach product-market fit:
Identify the market and target audience. You need to perform thorough research on your customers’ struggles and pains, define how you’re going to solve these problems, find out about similar solutions on the market and how you are going to compete, think about how you’re going to acquire customers, and how you’ll track your progress.
Ideate & create your product concept. Next, you need to sit down with your team and put all the pieces together to make a blueprint of a product that would provide a clear and compelling value proposition (basically, a pitch deck plus the technical & business execution plan).
Build your minimal viable product (only the essential features). An MVP allows you to build and launch in stages, much faster compared to the time it takes to produce an end-to-end product. You can use the MVP to test your concept on a real audience and improve its usability based on user feedback while spending less money and time on development.
Gather user feedback and performance data. As soon as the MVP is launched into the market, you can collect actionable data on user experience, as well as gather performance metrics such as conversion and churn rates.
Learn from your mistakes and build better. The final step is to analyze the data and discover areas of improvement and new business opportunities. This is where you build stage-upon-stage based on the usage insights you obtain and adapt the product to the needs of the market. Often this path leads to a U-turn and the product becomes much more than was anticipated.
Another strategy called the Value Proposition Canvas was proposed by a well-known business theorist, Alexander Osterwalder. It complements the lean startup framework, although also can be used on its own.
Achieving product-market fit with this strategy involves matching your startup’s Value Map with the Customer Profile.
The customer profile contains:
Jobs-to-be-done: functional, emotional, and social jobs need to be done by your target customers.
Pains: obstacles, frustrations, and risks when trying to complete jobs-to-be-done.
Gains: positive outcomes and benefits customers desire.
After you’ve drafted the customer profile, you can align your value map by ideating about the products and services, pain relievers, and gain creators you aim to provide. You can dive deeper into the Value Proposition Canvas methods by reading the full story from Alexander Osterwalder.
Following footsteps: Airbnb’s path to PMF
Airbnb’s story is such a classic example that it should be put into PMF handbooks. So we choose it as our wayfinder here.
Joe Gebbia and Brian Chesky’s idea for Airbnb came out of their overdue rent situation when they realized they could recover the money by hosting designers who were traveling to attend a local conference.
1. So basically, the market gap here was spotted from personal experience.
However, the product was not built and established in a day. To develop the startup from seed status to a validated product-market fit company, they’ve made several key steps.
They were not sure people would like the idea of renting out their apartments, so they recruited several hosts and created a website featuring a map that showed the host’s locations that were near their customer’s place of interest (the venue where the conference took place).
2. And that’s how they’ve created an MVP version of their product
The map feature showing the nearest hosts was a success. Airbnb soon became the go-to portal for many conference-goers. And so the founders made sure they had the supply (hosts) and the demand (conference attendees).
After that, Joe Gebbia and Brian Chesky started looking for the missing piece or that x-factor that would accelerate growth. This is when they came up with the notion that scenic photos of houses would result in more bookings.
3. They improved their product to solve functional and emotional customer tasks and provide a positive gain in finding better hosts easier than ever.
And they got it right: Airbnb gained a 3x increase in bookings because of the gorgeous photos taken by professional photographers who would visit the properties listed on Airbnb.
Another cool technical stunt they pulled off was making the system automatically repost the rent listing on Craigslist using bots and scripts. It increased the audience of guests and took the hassle of reposting off their user’s shoulders.
4. That was another key step taken based on observation and listening to customer needs.
All these creative methods allowed Airbnb to demonstrate a clear product-market fit in just under 3 years from its inception. A spike in growth allowed it to prosper and evolve into the household name we know today.
Conclusion
If your startup is still in the trenches, it probably means you still have not yet found that missing piece of the puzzle. Don’t be discouraged, though, there are plenty of founders who made it to a profitable business by bootstrapping and pulling their weight all the way through.
If you are longing for that energy boost that is product-market fit, we hope our guide made you a step closer in your pursuit. Listen to the heartbeat of the market and strategize your growth efforts. Take a page from someone’s playbook, or make a leap and try to think outside of the box.
You are the entrepreneur and the world is your playground. Make your move.