Hello to Canada’s SaaS Community,
Product-market fit is the first major business milestone in an early startup’s journey. But it’s also a unique moment for every company, making it hard to specifically define. Speaking with SAAS NORTH, serial entrepreneur turned venture capitalist Pablo Srugo explained how to spot when you’ve got product-market fit and how to accelerate your startup’s journey toward it.
Key takeaways:
- When your systems are inefficient and your product may even not work properly all the time, yet customers buy anyway… you likely have product-market fit (PMF).
- You can tell if you have PMF if you start getting (positive) visceral emotional reactions during sales pitches, your biggest problem is onboarding rather than demand generation, and customers don’t churn even if things break.
- Accelerate your path to PMF by keeping a small team, rapidly experimenting, and prioritizing customer understanding.
Co-Founder/Producer, SAAS NORTH Conference Editor, SAAS NORTH NOW
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“Nothing else really matters until you have product-market fit.”
This is a hill that Pablo Srugo, a serial entrepreneur turned Partner at Mistral VC, is willing to die on when it comes to early stage startups.
But at the same time, he acknowledges how esoteric the concept can be. It’s difficult to give one specific measurement that works across all companies. However, you can often “know it when you see it.”
Speaking with SAAS NORTH, Pablo shared more about the “symptoms” of product-market fit and what founders can do to get it faster.
Everything else is just the means
The moment of product-market fit (PMF) can be hard to define, particularly as there’s no universal metric (Sean Ellis test notwithstanding). Instead, Pablo defines it as a state when customers are willing to overcome obstacles and buy anyway.
“It’s when so many things in your operation are inefficient—the way that you’re selling is not perfected; the way that you’re marketing is not perfected; your product is not perfected—but customers are still buying your thing,” said Pablo.
This slightly vague definition explains the difficulty in measurement. Welbi, for example, leveraged four different product-market fit metrics as it 35x’ed its customer base. And with that definition in mind, Pablo said everything you do in an early stage startup should be solely in service of finding PMF, whether it’s platform-wide or feature-specific.
“We talk about hiring; we talk about fundraising, legal, product development—all these other things, as far as I’m concerned, are means to an end,” said Pablo. “And the end is product-market fit.”
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6 ways to tell if you’ve got product-market fit
The good news is there are common symptoms of the PMF moment regardless of company.
1. A visceral emotional reaction: Pablo shared the example of his podcast interview with Spellbook, an AI copilot for lawyers. Originally, the platform aided lawyers in a different way, and grew to hundreds of customers. However, pitches were difficult—it took a lot of convincing. When the team added its AI features in a very specific way, things changed drastically.
“When [Spellbook’s CEO] demo’ed the new AI feature to customers, their eyes would open up,” said Pablo. “It was an actual visceral emotional reaction of ‘Oh my God, I can’t not have this now that I’ve seen it.”
2. Customers don’t churn even when something breaks: Let’s say the platform goes down for a day. Customers are understandably angry—but if they stick around, that’s a solid proxy for having built a valuable platform.
“They don’t churn because there’s no other alternative that they could replace it with,” said Pablo. “And because the problem would be even worse without having this product.”
3. The market is pulling you: When buyers are asking when they can buy or recommending the platform to relevant professional contacts, you can feel confident it’s solving a true pain for them.
4. Your real problems are about onboarding and product maturity: Pablo said if your number one pain is finding customers, you likely don’t have product-market fit. On account of the market pulling you (symptom three), your top of funnel should be looking pretty healthy.
When you have PMF, “your number one problem should be customer onboarding [or] keeping the product from failing,” said Pablo.
5. You’re worried about running out of a niche market too quickly: Pablo shared another interview example—Fullscript, a platform to help naturopathic doctors (ND) sell on-demand supplements. Within a few months, the majority of NDs in their market signed up.
“[The] problem is not landing customers; it’s running out of a market,” said Pablo.
6. You can confidently say you have product-market fit: At the end of the day, you’ll know if you have PMF.
“Unless you’re sure that you have product market fit, you don’t,” said Pablo.
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Accelerate your journey to PMF
Pablo has four key pieces of advice for early-stage founders in search of product-market fit. First, he recommends teams stay as small as possible, for as long as possible. This allows you to avoid wasting time on communication, alignment, and time management so you can follow his second piece of advice, which is to rapidly experiment. In fact, his tip is to measure in terms of experiments per day or week to keep velocity.
Pablo also recommends ignoring sunk costs, saying “everything you’ve built, by definition, is not that valuable because you don’t have product market fit.”
All of this is underpinned by staying as close to the customer as possible. Pablo cited support chatbot Ada as an example, explaining that founder Mike Murchison worked as an actual support rep to truly learn the ins-and-outs of the job. Pablo credits this intense customer-focus as one of the reasons Ada was able to stand out and build to unicorn status in the incredibly crowded AI chatbot market.
In the end, Pablo said getting to PMF is what’s most important—how long it takes is not correlated to the size of market opportunity. Instead, it’s about making sure you truly have PMF with a core set of customers.
“Take the time to find what is undeniably true product-market fit with a small team in a lean way,” said Pablo. “It’s hard to stay in that mode, but if you can do it, it’ll pay dividends.”