product-market-fit PMF product market fit startup business strategy
Problem-solution-fit: the first baby steps of a startup
As a startup, your first important step is to achieve problem-solution fit. This means that you have established a clear understanding of who your ideal customer segment is and what exact problem you solve for them. In other words: You find a fitting, value-adding solution for a pressing problem of a certain customer segment.
After that foundational step, one of the most critical milestones for a startup (or any other company) is achieving product-market fit (PMF). Without PMF you will never become a successful company.
No success without product-market fit
In theory, PMF is simple. To quote the mantra of Y Combinator in Silicon Valley, PMF is "building something people want". That said, the more you zoom in and the more you ask yourself what this actually means, the more complex PMF becomes.
Build something people want
You have achieved PMF if you notice four things in your company:
- You have a happy and growing customer base. This means you have a satisfying and reliable problem-solution-fit and a good customer experience.
- Your revenue and sales dynamics improve and grow. This means that your sales performance / productivity increases.
- The profit-per-customer increases. This means, when scaling your business, profits grow faster than your costs.
- Your organization runs smoothly and you have processes in place that allow you to scale without breaking.
When those four aspects of your business improve and go in the right direction, you are approaching PMF and you become ready to grow your business.
The dangers of premature scaling
It's a dangerous undertaking to start scaling your business aggressively without PMF. If you scale your business before having a proper PMF, you run into the risk of scaling the costs more than the revenue. This in turn means that scaling your business without PMF might bring it closer to collapse rather than actually growing and advancing your startup.
Therefore it is so important to dedicate yourself to finding PMF and also be patient. Achieving PMF can easily take a business years rather than months.
Investors love PMF
On the other hand, if you reach PMF and your startup engine runs well, it will feel like you're pouring gasoline into a burning fire. That's the time when investors love investing in your company because they can be confident that they will have excellent returns on their investments.
How do you achieve PMF?
Now that we have established how important PMF is for any startup or company you might want to know in a bit more detail how you can achieve it.
Find out more in the video with Christian Lundsgaard-Hansen at the top of this page or on YouTube, owner of Sparkr and head of the be-advanced startup program. Christian spoke on behalf of be-advanced at the Swiss Startup Days 2023 about PMF in front of startups and innovators.