Product market fit (PMF) is the stage in a startup's journey where the product meets the needs and wants of its target market, and people are willing to pay for it. It is a state where the product is well-received, and there is a high demand for it in the market. In other words, product market fit is achieved when the product has a substantial market and can generate significant revenue. Building a company around an open source project with good traction indicates that the technology has good potential for product market fit but does not guarantee it.
To achieve product market fit, a startup should be able to identify its target market and demonstrate a deep understanding of its needs and preferences. The product needs to meet the target market's needs and solve their problems.
Once the product is developed, the startup should test it with its target market to get feedback and make necessary improvements. Continuous testing and iteration are crucial to achieving and maintaining product market fit. It is important to note that finding product market fit is not a one-time task but a continuous process. A product may achieve product market fit initially, but it can lose it over time if it fails to keep up with changing market trends and customer needs.
For early-stage startups, PMF can be measurable through certain organization KPIs. For example:
- Increased traction in the open source project (in terms of contributor and contribution growth) shows the first phase of PMF
- An increase in ARR growth speed is a positive sign of getting to PMF
- Each incremental sale has become a more predictable process and less costly in terms of time and resources required
- When the Sales Team closes deals without the founder's involvement, it is also a sign of PMF