Steve Blank defines Product-Market-Fit (PMF) (to paraphrase) as the stage in a company’s lifecycle at which they have successfully identified a target audience, understood their needs, and developed a product that meets those needs effectively.
As investors in SMEs, often at a key stage of development, we regularly see businesses that are building, or who have built, genuinely exciting products, but who have not necessarily thought about what specific problems these products solve. Founders, who know their products intimately, and are their strongest ambassadors, are often able to sell on their quality and their knowledge of the ins and outs, compensating for imperfect PMF by tailoring the proposition in the sales process. However, this is rarely scalable to a full revenue function, where the people selling the product rarely have the same depth of knowledge.
So how can we identify whether we have PMF, monitor whether it is beginning to drift and understand the organisational barriers to maintaining it?
The typical metrics used to identify PMF are standard commercial KPIs – churn and net new MRR. Being able to sell to new customers, then retain them is generally taken as a sign of PMF. However, both of these signals are lagging indicators; they can tell you something has gone amiss, but typically only once PMF has already drifted. Conversely, they are slow to demonstrate that changes intended to improve PMF are actually working.
Proactively monitoring PMF is therefore important. There are a couple of early warning signals that your PMF may be drifting, depending on what exactly your business offers. One relatively universal signal is the dynamic at the top of your sales funnel; assuming you haven’t saturated your target market, are you still able to consistently identify good-quality leads, and is this due to an ineffective outreach motion, or something more fundamental?
An Ideal Customer Profile (ICP) is not the same as PMF, but having a strong PMF should usually make defining your ICP clearer and therefore finding new quality leads easier.
Monitoring PMF through existing customers
Assessing how your current customers and users are engaging with your products or services is also key to identifying whether you have PMF. For a tech or SaaS product, the usage metrics and patterns of customers can shine a light on this. Is the product’s usage well embedded, with multiple, frequent users per organisation? Is usage across your customers reasonably distributed, or is there a long tail of lower-engagement customers (and might this be a precursor to churn)? And are there clear super-users, or advocates, within customers organisations “championing” the product as mission-critical or a real pain-point solver?
Beyond metrics and numbers, across services and tech, your customer success team should be your eyes and ears. It is not just important to monitor whether customers are happy, but also whether the product or service you provide is clearly solving the pain points it was brought in to solve; if not, why is there this disconnect? Surveys are an oft-used tool by these teams, and can be very powerful, but you always need to be sure that respondents are filling them in for the right reasons – are they invested in improving the product, or just keen to get a reward, or stop an annoying pop-up? Direct conversations often cut through this and are key for your most important accounts.
Common obstacles to achieving or maintaining PMF
As organisations scale, what I sometimes see is previously closely interacting teams begin to drift apart, and information silos begin to form. Commercial teams, such as sales, marketing, customer success, etc, are the eyes and ears of the business, a team ready-made to provide continuous feedback, but often don’t share this information with product or tech teams.
Siloing of commercial and product and tech teams can happen easily as organisations grow; the loss of information flow between these teams can lead to PMF drift, leading to a product disconnected from its end users. The tech and product teams produce “cool things” without an understanding of what problem it’s meant to solve, while commercial teams are left trying to sell or service a product they don’t fully understand.
Forums and mechanisms for information and ideas to flow, aligning incentives, and bringing members of teams into adjacent conversations (e.g., product in customer success calls) are all potential mechanisms to increase this information flow, as is the creation of new, cross-functional roles as an organisation scales further.
Another challenge arises when organisations expand into new markets or geographies. PMF should not be assumed to transfer: the same product may need to address different customer needs, behaviours or constraints. Rather than replicating an existing playbook, organisations need to understand which elements of their PMF are transferable and which need to be adapted. Developing and validating PMF in new or adjacent markets and geographies should therefore be a core component of any internationalisation strategy.
PMF is not only something to be achieved; it also has to maintained.
Monitoring leading indicators for the health of PMF is an essential part of this, as is ensuring the right organisational structure and information channels to sustain a virtuous cycle of customer feedback, learning and iteration.
At BGF, we have experience across hundreds of investments in supporting management teams in areas such as achieving and maintaining PMF. This can include ensuring the right processes, infrastructure or reporting is in place to help with monitoring or moving towards PMF, as well as providing support to businesses in building the right teams and capabilities needed to respond as market and customer needs evolve.
Michael Hong is part of BGF’s Value Creation team, with a focus on helping portfolio companies generate value via commercial and go-to-market initiatives with a Data & AI lens. He supports businesses with pricing, customer segmentation, lead generation, ICP refinement and sales analytics, helping management teams translate analysis into practical growth initiatives.
