Do you have Product / Market Fit?

You need a framework for deciding if you’ve achieved Product/Market Fit and whether you still have it later. Here’s mine.

Product/Market Fit (PMF) defines the point in the life of a startup company when the business model is really working. When you have PMF the challenge of your company shifts from trying to get started to seeing how fast you can grow. It’s one of the most important milestones in the life of any startup.

However, PMF is a notoriously hard thing to define. You can achieve it and then lose it, just to regain it later. How do you know if you’ve achieved it and how do you know if you still have it? The reality is that PMF is a moving target.

I use a simple framework that is useful when answering these questions. It comes down to four factors:

• The Buyer is the person (or group) who has a problem and is in need of our service.

• The Use Case is the problem the Buyer needs help solving.

• Channels are the ways you can reach the buyer cost effectively.

• The Price is how much the buyer can pay for the solution, based on their finances and ROI.

The overlap of all four is where you find PMF. With effective channels to reach a buyer with a use case that is a good fit, you can easily grow at the price you want to charge.

But what about free services? There is always a price for using something, and it is not always paid in money. For many apps the price is attention, which can be even more scarce than money. 

Similarly, the Use Case might not be an actual “problem”. For games, or any form of entertainment, the problem you are solving is that people want to be entertained and/or are bored. That’s a perfectly valid use case!

This framework applies regardless of whether you sell enterprise software or provide free mobile apps. Here are some examples:

When you start to map your business this way, you might realize how dependent you are on things that didn’t seem critical at first. For example, that DTC Clothing company is very dependent on Facebook not banning their ads account for any reason. You might also realize that you have a stronger business than you thought, with multiple channels to reach the same buyer or multiple buyers to target instead of just one. Either way, understanding these drivers of your business and how they interact is critical to your long term planning. 

Using this framework, it’s also clear how easy it is to lose Product/Market Fit. Here are some common ways that companies lose PMF:

• Change in Price. A mobile game can have strong PMF because it’s the most fun way to spend downtime. However, players may get bored of the game quickly and it becomes less fun over time. As a result the players are less willing to pay the Price (attention) for the Use Case (entertainment).

• Change in Channels. Direct-to-consumer (DTC) brands get started using advertising platforms like Facebook for early sales of their products and have PMF. However, as they move beyond early adopter customers and have more competitors it quickly becomes too expensive and difficult to acquire new customers that way. As a result they lose their primary channel to reach customers and cannot easily find a new one to replace it. 

• Change in Buyer. Enterprise software startups can have very strong PMF until larger companies add similar features to their larger platforms. When that happens, the Buyer can more easily solve their Use Case with the larger platform they already use instead of buying the startup’s product. The Buyer disappears because they no longer have a need. 

These are just a few examples, but the lesson is that PMF is as easy to lose as it is to gain in the first place. 

If PMF is so slippery, what can you do as a leader? Watch it like a hawk. You should be constantly monitoring the health of all four parts of your PMF even after you believe you’ve achieved it. You should make it part of the operating model of the business to challenge yourself and ask the hard questions. Does your Buyer still have the problem? Is your price still the right price for the Use Case? Do your channels still work to reach your Buyer cost effectively? The more often you ask and answer those questions, the more likely you will control your PMF instead of being controlled by it.