Well a lot of literature is out there specially from Steve Blank and Eric Ries. What is it and how do you demonstrate it? Is it customer traction? Revenue or YOY growth? At what stage does it make any sense for founders or the founding team? Brad Feld wrote on it way back in 2015 and it still makes a lot of sense.
He points to ‘The Revenge of the Fat Guy’, a post by Ben Horowitz referring to Fred Wilson’s post ‘Being Fat is not Healthy’ – where Ben explains four myths around product/market fit. They are :
- Myth #1: Product market fit is always a discrete, big bang event
- Myth #2: It’s patently obvious when you have product market fit
- Myth #3: Once you achieve product market fit, you can’t lose it.
- Myth #4: Once you have product-market fit, you don’t have to sweat the competition.
The myths are self explanatory – but not apparent to the founders. So Brad Feld tries to look at it through the revenue lens and they pop up from $0- $1mn MRR multiple times.
$0 is clear. There is zero product market fit.
$0-10k MRR – you are living an illusion.
$10k – 100K – according to Feld this is where the excitement kicks in. There is some form of product / market fit. You may think it is straight forward at this stage. But this is exactly where Myths #1 and 2 kick in. According to him unless you attain a compounded 10% MOM growth, you are not there yet.
$100k to 500K is where Myth #3 raises its head. Challenges like first annual renewals and churn hit you in the face. This is where a lot of companies stall.
Once you are through that and get to $1mn / MRR you got it. Whew! This is the stage of ‘Initial Scale’. And coupled with a >100% YoY growth you can command a 10X valuation. Less than 50% here puts you in back burner for most VC’s for new investments. And less than 20% – you need to focus on profitability and not raising capital.
Feld also talks about incremental product market fits as you continue to develop new features or new products for adjacent markets. This is critical insight. And truly you cannot rest on your past laurels or quarter results.
However the question on my mind is – what is wrong with 20% growth if you can ensure profitability? And if you are profitable, able to deliver a negative (-2.5%) churn and able to defend your market, will you still be called a company without product / market fit?
I wonder.
Link to Brad Feld’s post below:
The Illusion of Product/Market fit for SaaS companies – https://feld.com/archives/2015/01/illusion-product-market-fit-saas-companies.html
