Product-market fit: what it is and how to tell you have it

Product-market fit is when the product solves a problem that hurts the chosen group of customers so much that they come on their own, pay and stay.

Signs

• Cohorts reach a plateau: after a few months customers stop leaving.
• More and more customers come through recommendations rather than ads.
• Selling gets easier: less persuading, a shorter path to payment.
• A test question: "How disappointed would you be if the product disappeared?" If 40% or more answer "very disappointed", that's considered a good sign.

What only looks like it

• Growth that rests on ads. Ads off — growth stops.
• Raves in interviews without payment. Praising is easier than paying.
• Lots of sign-ups and few payments.

It exists for a group of customers, not a whole market

The same product can become indispensable for small studios and turn out useless for large companies. So you first pick one group and make customers from it stay. Only then do you move on to neighbouring ones.

How to test demand before building the product — in Customer interviews.

In Runway 200

Fit with the chosen segment is one of the main numbers in the game. Churn depends on it. At a funding round the fund looks at five things: growth, segment fit, paying customers, market mood and how well known the company is, and fit weighs more than the rest. The sign that you have fit is the same as in real life: you leave the first phase when seven in ten new customers make it to month two.

More in the glossary: Burn rate · CAC · Cohort · LTV · MRR and ARR · all terms