Johnston Carmichael

Shaun Millican

PRODUCT MARKET FIT – Mythical or real?

It is generally acknowledged that the key aims of a tech start-up are to develop a differentiated proposition that delivers a benefit to target customers at a price point that delivers economic benefits and ideally in a market that is expanding. This is of course encapsulated in the term ‘Product Market Fit’ (“PMF”) and it is widely accepted that achieving this should be the key focus of a tech start-up looking to scale.

By seeking to achieve PMF, we are accepting a binary position – an enterprise has either achieved PMF or it has not. But is it that simple?

Clearly the binary extremes doexist: an early stage start-up with an MVP in beta trials does not have PMF andconversely, a longstanding dominant product in a mature market will(currently!) have achieved PMF. However, I would suggest that there is a largegrey area between these extremes and that PMF is not a binary concept. Nomatter how great the product, the target market won’t stand still and neithercan the product. It is therefore an ongoing, iterative process and mostscale-ups will continue to overhaul their products for many years after theyhave apparently achieved PMF. PMF is therefore a transient concept althoughmarket dominance at scale will protect incumbents.

There are several metrics that demonstratewhether an enterprise has achieved PMF. Clearly these can be useful, but thepursuit of generic metrics (and aggressive growth) may not be the rightstrategy for a start-up, where instead they should focus on establishing asustainable, profitable business.

Take the example of a start-upthat has developed a product that is getting significant traction with smaller earlyadopting customers that fall into a specific segment and has some earlytraction with larger customers. Overall growth may be impressive; they areselling into larger customers and the temptation may be to assume that PMF hasbeen achieved.

The company may decide to take onmore funding to invest heavily into increasing sales to larger customers. However,if it’s then found that the product isn’t quite there for larger customers,that could be catastrophic.

Instead, the company could havecontinued to market to the customer segment where it has significant traction,whilst continuing to engage with and iterate the product as required to meetthe needs of larger customers. I would suggest that the company has PMF withone particular customer segment but not yet in the other.

Segmentation is therefore key andnot just by size. Every prospective scale-up should look critically at theircustomer data to enable them to really understand their customer traction andwhen/where it is right to scale.

These considerations also playinto decisions about funding strategy. Taking too much investment, too earlycan lead to a loss of focus but also create a pressure to scale too early: justone of the many dangers that face start-ups.

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PRODUCT MARKET FIT – Mythical or real?

It is generally acknowledged that the key aims of a tech start-up are to develop a differentiated proposition that delivers a benefit to target customers at a price point that delivers economic benefits and ideally in a market that is expanding. This is of course encapsulated in the term ‘Product Market Fit’ (“PMF”) and it is widely accepted that achieving this should be the key focus of a tech start-up looking to scale.

By seeking to achieve PMF, we are accepting a binary position – an enterprise has either achieved PMF or it has not. But is it that simple?

Clearly the binary extremes doexist: an early stage start-up with an MVP in beta trials does not have PMF andconversely, a longstanding dominant product in a mature market will(currently!) have achieved PMF. However, I would suggest that there is a largegrey area between these extremes and that PMF is not a binary concept. Nomatter how great the product, the target market won’t stand still and neithercan the product. It is therefore an ongoing, iterative process and mostscale-ups will continue to overhaul their products for many years after theyhave apparently achieved PMF. PMF is therefore a transient concept althoughmarket dominance at scale will protect incumbents.

There are several metrics that demonstratewhether an enterprise has achieved PMF. Clearly these can be useful, but thepursuit of generic metrics (and aggressive growth) may not be the rightstrategy for a start-up, where instead they should focus on establishing asustainable, profitable business.

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Shaun Millican
Johnston Carmichael
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