How Do You Define Product Market Fit?

There’s a great quote that US Supreme Court Justice Potter Stewart said about obscenity. He said, “I know it when I see it.”

The same can said about Product Market Fit from my experience. You know it when you see it.

When we started selling, I had visions of our products instantly flying off the shelf. Things didn’t exactly work out that way. Our revenue ramp was much slower than I expected it to be.

Yet, I knew we had achieved some sort of product market fit when we got ten customers buying our first product.

Now, the revenue from those ten customers was all of $130, so we weren’t going to get rich if we kept this pace up because our goal was getting to $10,000 per customer per year. However, I knew from experience that we were on our way.

How could I be so sure?

The reality is I was still full of concern and fear. I was constantly asking myself:

“Would the ten customers turn into 100 customers?” and…

“Would the 100 customers turn into 1,000 customers?"

But, I knew we were on our way with those first ten customers. All the leading indicators were pointing towards success:

The first leading indicator of product market fit:

Our model was a broad based distribution fulfillment model. We needed to get the word out to a lot of potential customers.

Getting the word out meant primarily spending money on Google Adwords. We added in some focused PR, and it worked.

Our web traffic started growing at a sizable clip. Check.

Then we needed:

The second leading indicator of product market fit:

Getting traffic to our website was step one for us. Then we needed to get customers to order free samples of our products.

So we put simple links to our sample page where, in exchange for giving us information about what you were building, your company, and your email address, we gave customers free samples of products.

More good news!

Customers were using free samples of our product in direct proportion to the growth in website traffic. We were selling hardware (analog ICs), but you can think of it like a freemium model for software.

Once we had customers using the product, we started talking with our potential customers. This lead to:

The third leading indicator of product market fit:

The big fear you have in the world of Analog ICs is that customers will order samples of your product, put them in a desk drawer, and never use the samples.

We needed orders and positive customer feedback to confirm that we were on the right track.

The feedback from our customers was positive. Many customers identified flaws in the product but said they would use the product despite the flaws.

It’s a great sign when customers indicate they will use a product despite the problems. That’s when you know you are on to something.

Sure enough, ten customers quickly led to 100 customers. And 100 customers led to 1,000 customers. And the revenue per customer increased significantly from where we started.

You need to identify your leading indicators of product market fit.

Our business became very predictable as time went on. We knew that X visitors to the website would lead to Y number of sample requests and that would lead to Z number of customers. You could set your watch to it. That’s product market fit in my business.

Now, that doesn’t mean you don’t pivot along the way.

Of course we pivoted. Every company pivots. But the pivots were small pivots, not let’s throw out everything we’ve done and start from scratch type pivots.

The key in the early stages is identifying some key metrics to achieve. As long as you are achieving those key metrics, you are on the right track to achieving product market fit.