Product-Market Fit

Product-Market Fit or PMF is the degree to which your product or service satisfies strong market demand. There is no science or hard number behind what is PMF but there are rule of thumbs.  PMF is also a moving target- what metrics worked for you at a point in time may not necessarily work for you later. Which are the most important ones? Read below

Pre-seed

For a company approaching pre-seed, PMF can be validating the idea from potential buyers, and industry people, and to figure out an MVP (minimum viable product). This can be achieved by knowing more about the problem you are trying to solve in detail from the horse's mouth - the people whose problem you are trying to solve. But just figuring out the problem is not the only piece of the puzzle. The next step is to conceptualize how will your solution be different and better compared to competitors. And finally, your ability to build an MVP which your potential users can test and provide feedback on. Without understanding the problem and how it affects your potential users, your product building will struggle.

Seed

For a seed stage company, PMF is no longer validating the problem that exists, and building a better solution than those present in the market. By now, you should have figured out the problem and built out an early version of the product you envisioned. PMF for your stage is to show traction - companies and users who acknowledge the problem you are solving, and their ability and willingness to purchase the solution from you despite alternatives being available. There are no strict rules, but for a consumer SaaS product having 5-10k users, and for a B2B SaaS product, having 10-15 paid customers with a clear roadmap towards getting to $1mn in annual recurring revenue is the logical next step. Your roadmap should include your GTM (Go-to-market) which is your company's disproportionate chance to win customers despite competition existing. A category creator may have lax rules and no hard mandate to show a roadmap to $1mn, but that is where the differences end. Without figuring out your GTM, your company will struggle to raise funds.

Series A

By the time you approach Series A, you should be aware of whether your product is accepted in the market or not. Your traction, revenues, and users will show you in cold hard numbers. PMF for a company approaching Series A is to have a fully functional, repeatable, and scalable GTM. This also includes knowing exactly who is your ideal customer, and what is the extent to which your product solves their problems. PMF at Series A can also mean targeted and tailored pitches for different customer segments you serve. By now, you should be aware of your gross margins, overall sales efficiency, and customer/logo churn rates. You should also have a sales & marketing infrastructure set up that acts as the base for all future endeavours. If a B2B company, expanding to the US (even if remote sales-led) is a must-have. Without growth, your company will struggle to remain relevant.

Series B and beyond

I have limited experience in knowing the intricacies of a company which is beyond Series B. Hence will share what I've learned from founders and investors in the ecosystem. Most companies will either cease to exist by the time they reach Series B - either they built a product nobody wanted or ran out of cash, or couldn't sustain high growth rates and became a zombie company (a company which is self-sustainable, but has limited growth with often a low 7 digit ARR). The most important indicators for PMF in a company approaching Series B are controlled churn, high net retention, vertical/horizontal expansion, and increasing product offerings. By this stage the company is very much aware of the numbers - topline (& growth), bottom line (& trajectory), unit economics (& improvements), and there is second-tier management which can take over the reins of micro markets or products. Without a roadmap toward sustainable financial metrics, your company will struggle to grow.

PMF is more of an art backed by science - there is no right answer. But there are always leading indicators of you achieving PMF at every stage in your journey.