Lean Startup teaches us that we should not scale up our businesses until we have “product/market fit.” Easier said than done.
There is no consensus on what this is. It seems to fall into the “I know it when I see it” category.
But even that is tricky. Here are some examples of how it’s been defined, starting with Marc Andreesen’s original post called “Product/Market Fit.”
It’s a matter of “feel” not precision. But quantitative accuracy wasn’t his point. He kicked off a whole movement where “product/market fit” became THE milestone for startups, going so far as to divide the life of startups into before and after product/market fit.
Steve Blank and Eric Reis have made this division fundamental to Customer Discovery and Lean Startup respectively.
Even so, the definition remains illusive.
Ben Horowitz has offered up four “myths” of product/market fit that point out how difficult it can be to declare this milestone.
Brad Feld put out some guidelines as a starting point for discussion with respect to SaaS companies in "The Illusion of Product/Market Fit for SaaS Companies." (This post is also a nice brief summary of the Fat vs. Lean debated between Horowitz and Fred Wilson. I particularly like how Feld pointed out that the Fat vs. Lean debate "really is about discovering product/market fit and it gives a good history lesson on the thinking circa 2010 on this issue.")
At the end of the day, product/market fit is something that you as founder-CEO and your board need to agree on. Don’t walk into a board meeting after reading a blog post and declare product/market fit in an act of empty triumph.
Instead, work with your board and investors on how this should be defined for your own company.
Here’s some actionable guidance from Marty Cagan at Silicon Valley Product Group.
To net it out, if you’re a B2B company, focus on establishing a base of paying customers in your defined verticals. If you’re a consumer company, focus on personas.
Sean Ellis at Startup Marketing gives us a quantitative method that can be part of your discussion. Survey your customers using this simple question…
How would you feel if you could no longer use [product]?
1. Very disappointed
2. Somewhat disappointed
3. Not disappointed (it isn’t really that useful)
4. N/A – I no longer use [product]
If 40% don’t answer “very disappointed” then there’s a good change you don’t have product/market fit. (You'll find this reference in the Marty Cagan post.)
Even so, there is no magic formula. You’ll need to define it for your company based on your own situation. The important thing is to make sure it’s a conversation with your board. That way, you can all decide when it’s happened, and perhaps even more importantly, adjust the criteria as you evolve.