Product-market fit is a multi-variate equation
3 min read

Product-market fit is a multi-variate equation

Product-market fit is a multi-variate equation

Product-market fit is the holy grail for startups.  

As it goes, it’s the only thing that matters.

If you’re asking if you have product-market fit, you don’t have product-market fit.

The thing is, PMF is not an either/or. There are varying degrees of it.

The largest companies in history had the highest levels of PMF.

This is an obvious, but often overlooked statement.

It's hard to comprehend just how insanely huge companies like Google, Facebook, Amazon, and Apple really are.

Facebook has 2.9 BILLION users - their limits on TAM is now internet penetration globally. Once the genie was out of the bottle, their growth was incomprehensible.

There's a natural limit to PMF

I’ve built a bunch of things on the internet - only one (so far) had PMF.

It was a resume building website.

It helped people who were looking to build a resume, build a resume. Simple.

Arguably, it’s much easier to get to PMF with a tool.

If a user has a specific problem, and your tool solves that problem - you can build a million (or 10 million) dollar plus company.

Counterintuitively - the more nebulous the problem definition, the bigger the opportunity.

We had some degree of product-market fit. Revenue growth was steady, we acquired millions of users. But there was a natural limit to that business.

There wasn't much virality. Not much word of mouth. People weren't super stoked.

We solved a problem with a tool, and did it well.

That business still made millions in revenue and got millions of users - but it had a natural limit. We expanded the scope, but most people still wanted that simple tool to solve their specific problem.

Premature scaling is often a death sentence

Most businesses have a range of outcomes, and those outcomes depend on many factors. I’d argue the most important factor is to what degree of PMF they have.

Market is key here - not in the TAM sense, but in the “are people organically discovering this thing that you built and are super stoked about it?”

Most startups scale too fast when they have hints of PMF. The focus on LTV to CAC ratios is an indicator of this - the second your LTV is greater than your ad spend, wisdom dictates the next step is to drop a million dollars on Google ads.  

That’s not PMF, that’s brute forcing your way to revenue growth.

When AirBnb was blitzscaling, their limiting factor was onboarding hosts. This is because there was so much demand for their product that they didn’t need to do much marketing in specific geographies (save for crushing it on PR). They had insane levels of PMF.

Like people, every company has a range of outcomes based on their DNA.

Most companies don’t make it far enough and die.

But many companies push too hard on their potential, and also die.

Instead of spending more time iterating towards an opportunity that will be massive, they try to optimize and grow a business people just don’t care that much about.

The startup graveyard is littered with these kinds of companies.

Many neobanks will land there (is that reskinned API really better than a traditional bank)?

Most productivity tools (does anyone looove their to-do list?)

True innovation and breakout growth happens in this weird nebulous world where all the right variables need to come together to create something the world has never seen before.

When that happens, shit goes crazy.

Startups might be better served to spend more time trying to build things that might end up with a billion people using it, than fighting tooth and nail for market share for a customer base that doesn’t care that much.

In doing so, all we’re really doing is subsidizing the companies with real PMF (Amazon, Google, Apple, Facebook….) through buying ads and servers.

How do you get to true PMF?

In practice, this means creating an environment and culture that allows for more experimentation at the early stages - ruthlessly optimizing for customer love, not LTV to CAC. It's longer pre-seed and seed cycles (not raising a series A after 2 months on inflated metrics).

It means more people building more interesting things, on a longer time scale.

When it all shakes out we'll have more breakout companies, better returns, and (hopefully) a better world.

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