Wednesday, July 05, 2017

WTF is PMF? (part 2 of 2)

In the first part of this post, I looked at what some of the most knowledgeable people in the industry said about Product/Market Fit (PMF) and how they try to define and measure it. While everybody seems to agree on the broad concept of PMF there is (unsurprisingly) no consensus on how exactly it can be defined and measured, and some people set the bar much higher than others. For example, according to Brad Feld you find PMF somewhere between $100k and $1M in MRR, while others argue that you can have PMF with much lower revenues.

In this part I’d like to talk a bit about my view on PMF and how we try to detect it when we look at SaaS startups at Point Nine. Here’s my favorite definition of PMF, inspired by many of the people mentioned in the first part of the post:

Product/Market Fit means having a product that solves a problem for a significant number of independent customers.

Note that this definition intentionally doesn’t say anything about market size. Lots of companies have PMF for a very small market, but addressing a small market is not a reason to deny a company its PMF.

If we talk about PMF for “VC cases”, i.e. the type of company venture capital investors are looking for, I would adjust the definition as follows:

Product/Market Fit means having a product that solves an important problem – without custom work and better than existing solutions – for a significant number of independent customers in a large market.

The next step in getting to a solid definition would be to define the pieces that this definition includes: How “important” is important enough, and how can it be measured? How much “better” is better enough, and how can it be measured? And so on.

There are no clear answers to these questions and – sorry – I don’t think there is a razor-sharp way of defining and measuring PMF. Some companies clearly have PMF, some clearly don’t. Others are somewhere in the middle – they have indications of PMF but it’s not clear if they will ever get to strong PMF. Most seed investments that we’re considering fall into the last bucket.

Here’s an overview of the most important factors that we’re looking at when we try to assess the degree of PMF of a SaaS company. In isolation, none of these factors can tell you if you have PMF or not. But taken together, it can hopefully give you at least a good indication:

This concludes my mini-series on Product/Market Fit (at least for now). Let me know if you have any feedback!


1) For more background on the concept of rabbit/deer/elephant hunters, check out this post.
2) Take a look at this post to read more about "expected usage frequency".
3) This is from Sean Ellis’ test for PMF. More on this here.

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