Community StoriesN2 Insider

What the 🤬 is Product Market Fit

Derek Watson
Derek Watson
What is product market fit

Share this article!

Share on email
Share on linkedin
Share on twitter
Share on whatsapp
Share on telegram
Share on facebook

What Is FinTech? The Basics

What the 🤬 is Product Market Fit

➡️ PMF is bandied around by everyone, but rarely do I hear it accurately described with context, process or valuable insights. ✅ Product market fit is an outcome, you either have it or you don’t.

💡 The helicopter statement.

Product market fit = ❝ When the cost of repeatedly acquiring paying customers drops significantly below what the customer pays because organic acquisition has kicked in. ❞ 🔚
Derek Watson
Derek Watson

💡 But...

➡️ For early Startups there is no such thing as PMF, it is just a series of experiments, from hypothesis, to build, to getting some early traction and paying customers. Just nudges in the right direction and here is why.
When a product is first adopted, users are grouped into a few categories.
1️⃣ The lunatic fringe of innovators. They will try anything if the idea rings true.
2️⃣ Early adopters. Are revolutionary, not evolutionary.
3️⃣ Pragmatists. The biggest segment of the market, is evolutionary, not revolutionary. It doesn’t matter how well you serve them, They’re not going to buy until they get references and social proof.
4️⃣ The laggards, if it’s not broken why to fix it, don’t buy.
💡 PMF comes when the Pragmatists start signing up (and paying) through word of mouth. * But you cannot start by onboarding Pragmatists.
➡️ When you have PMF several things will happen, you’ll have issues with capacity, need a bigger team and money will start pouring in.
⏱ Of course, consumer and enterprise have different routes, but the one common thing is time, and it is not infinite. Money dictates how long you have to find PMF.
😡 This is where a lot of the hacks come in veiled as PMF. Buying customers is not one, I’m always amazed that people fall for it and kid themselves into thinking they have PMF
🤩 If you turn your servers off and the phones start ringing with customers screaming, you might have found it.

➡️ There are a couple of heuristics for PMF:

1️⃣ The sales yield.
The contribution margin of a sales team divided by the total cost of the sales team.
If the Sales yield is > than 1 you probably have PMF.


2️⃣ Net Promoter Score (NPS), a proxy for word of mouth.
To understand promoters, detractors and passives use a 0 to 10 scale for rating likelihood to recommend.
➡️ Promoters rating 9-10, highly likely to recommend.
➡️ Detractors rating 0-6, unlikely to recommend.
➡️ Passives rating 7-8 neutral.
🧮 To calc. NPS. 60% promoters -10% detractors = 50%
✅ Scores > 50 = good ✅ Scores > 70 = excellent.

➡️ PMF is just for a moment in time

Think Nokia, Blockbuster, you need to continuously innovate.
And think Uber, they still don’t turn a profit per ride, This is not PMF.

Planning your fundraise? 

Get Matched

Sign up now and get the latest updates on investor preferences and access to our fundraise toolbox, full of helpful tips

We care about protecting your data. Here's our Privacy Policy