Product teams launching products have a problem: no matter how much validation they do, they never know if their product will be a success long-term. That’s just the nature of the product development game.
These same teams have a more specific issue: At what point should decision-makers scale up product delivery and go-to-market efforts? To mitigate the risk of poor market adoption, products are often launched with what is perceived as minimal scope (MVP) in limited geographies with limited GTM resources (only a few salespeople actively positioning it with prospects, for example). Leaders in these organizations must decide when there appears to be sufficient market pull to scale these investments up. Poor timing can mean foregoing revenue or even failure. Waiting until there has been a sustained period of obviously desirable adoption often means that, in hindsight, the organization regrets not scaling up earlier.
All products have this challenge, but in this post, we’ll focus on B2B offerings meeting the needs of large companies (”the enterprise”). Many enterprise solutions address massive problems and the nature of adoption is such that it may be years before it is clear that the product will be successful. That presents
Achieving PMF can be a prolonged process, especially for enterprise products where sales cycles are long, customer needs are complex, and large organizations may be slow to adopt new technologies.
Scaling up at enterprise scale can be complicated as the organization may be constrained by:
inflexible annual budgeting
Shared services, especially marketing, whose schedules are inflexible
Limited mobility of engineers and hiring limitations
Lurking beneath this obvious problem of knowing when to significantly ramp up investment in the product are other, more subtle problems. New products not getting traction within the market segments they were designed for can face considerable headwinds. For example, long sales cycles and deal-specific development erode profitability and rob the organizations of inertia.
What is Product Market Fit?
The idea of PMF has been around for over 15 years so the term has many definitions:
"means being in a good market with a product that can satisfy that market."
— Marc Andreessen
“Product Market Fit is … to find a set of potential customers that believe in the vision, and are willing to work together with you to discover a solution…”
— Marty Cagan
“is the degree to which a product satisfies a strong market demand”
— Wikipedia
These definitions provide a general idea of what PMF is but are highly subjective and more than a little vague. How can teams rally themselves around achieving something that is defined so poorly?
A More Complete Definition
The subjectivity and imprecision of existing definitions and the special needs of the enterprise context inspired me to craft what I consider a better definition:
PMF is an acceptable level confidence that a product can sustain a viable business by meeting the needs of a sufficient share of desirable market segments within a defined period.
As with most of my definitions, this one is a bit dense so let’s decompose it a bit:
PMF is simply a level of confidence. We can express this confidence quantifiably, but there is still a strong element of subjectivity and judgment involved in its definition. Later in this post, I’ll propose a way to measure PMF that allows people to align and, hopefully, takes it beyond simply being a gut feeling.
PMF is defined at the offering, e.g., product, level. Most discussions I’ve seen around PMF involve products, especially new products, but, theoretically, PMF could be applied to almost any offering generalized to serve the needs of a market.
PMF addresses viability — do we have a sustainable business, i.e., one that meets our business objectives? Most often, metrics like revenue and margin are critical.
Any reasonable definition of PMF should include the notion of market segments, cohorts within the broader market with similar requirements or priorities. Segments are particularly relevant in the context of new products as, ideally, these products are designed to excel at meeting the needs of a few segments, not the entire market. Getting traction after launch with unintended segments can be counterproductive long-term as the cost of sales is likely to be high (long sales cycle) and overall profitability may be reduced due to custom development that must be done to meet unforeseen requirements.
Finally, PMF should be measured during a reasonable period. If PMF is not reached in this timeframe, some very hard decisions need to be made. Having definition for this time period when the product is launched can help force uncomfortable conversations when the product isn't meeting expectations in terms of market traction, especially when it's falling just a bit short.
Why is PMF important?
PMF is important because it drives timely decisions to scale up our investment in the product, especially go-to-market. Without a bit of forethought and a clear definition across the team, our tendency is to declare PMF too late, delaying the revenue that (hopefully) comes with increased investment in product development and go-to-market. The following figure makes this point graphically.
The thin line shows a delay in ramping up Sales and Marketing efforts, for example, after we’ve gotten clear pull signals from our identified market segments. The thicker line depicts an early decision to ramp up investment resulting in faster growth and accelerated revenue. If we look toward the end of the timeline depicted, we see that failure to make a timely decision may result in a smaller overall addressable opportunity because the gap has given our competition time to react.
Although financial metrics are important, this definition qualifies these metrics requiring that they be generated within desirable market segments. This qualification is important as early traction in undesirable segments (those that will not allow us to meet our business objective long-term) has been the undoing of many a product. Initial purchases that come with expectations or even commitments of evolution in an undesirable direction…
PMF is relevant for a defined planning horizon. Over time markets evolve and factors that indicate fit may become obsolete.
How can we define PMF for a product?
So how do we take the idea of PMF beyond a simple gut feeling? We suggest creating a set of objectives (time-bound, measurable targets) collectively called “PMF Conditions”. If these conditions are met to an acceptable degree, the organization can make an evidence-based decision to scale up. Here’s an example of a PMF Conditions.
Key Metrics
In creating a definition of PMF, we should consider a balanced set of metrics. Metrics are simply units of measure. Here is a list of common metrics types and corresponding metrics:
Financial
Revenue
EBIDTA
Deal Size (Revenue)
Deal Source
Net New Business
Existing business
Pipeline
Pipeline health
Win/Loss Ratio
Competitive Wins
Usage/Adoption
Active users per period
Number of transactions
Customer Adoption Rate
Customer Satisfaction
Net Promoter Score
Customer Satisfaction Score
Defining and tracking a balanced set of metrics is essential for assessing Product-Market Fit (PMF) and guiding decision-making. Metrics provide quantifiable evidence to gauge progress toward PMF, ensuring alignment across teams and reducing subjectivity and bias.
Example PMF Conditions
Let’s imagine an enterprise product that helps construction companies manage complex projects. The release date is approaching so product management formulates this set of PMF Conditions.
EBIDTA, $2M, End of 2024
Deal Size: At least 4 large deals (> $160K) within identified segments
Deal size: At least 10 medium deals (>$90K - $159k)
Competitive Wins: At least 4 competitive wins
Net New Customers: 3 new customers by
Minimum of 100 monthly active users by
Deal size is an important indicator of customer value perception, while competitive wins show that the product has an edge over existing alternatives. Together, these metrics give product teams a more complete and balanced view of whether scaling is warranted.
Attainment Percentage
Since PMF is at its core a perception, organizations may not require 100% or more attainment of 100% of the PMF Conditions. By ascribing each of them an “attainment percentage”, the organization can track progress toward PMF over time (they all may start at 0 attainment) and can let the collective judgment of decision-makers decide that 80% of one of the less important conditions is adequate.
Confidence Level
When validating your definition of PMF with stakeholders, a valuable practice is to ask them for their confidence level (% confidence) in the following areas:
Meeting these conditions is a reliable indicator of PMF
These conditions are achievable in an acceptable timeframe (long-pole condition)
I am confident that we can accurately track these metrics
If single or average scores are low, it is likely that you have more definition or alignment work to do. Asking for confidence provides critical input on your PMF definition that would otherwise be overlooked or discovered too late.
Aligning on PMF Conditions
Reaching PMF can have broad implications for the product organization so it only makes sense to ensure that key stakeholders are on board with it. What makes a stakeholder “key” can vary but we would suggest the following as a minimum:
Executive leadership
Sales
Marketing
We recommend involving these constituencies throughout the PMF lifecycle.
Tracking Progress Toward PMF
The product organization should adopt a lean approach to tracking PMF so that their efforts can be adapted based on market pull and lessons learned. Ideally, tracking of PMF is integrated into other meetings, e.g., operations, financial review, ensuring adequate frequency and that there is sufficient time to discuss the topic with key stakeholders.
Conclusion
Achieving Product-Market Fit (PMF) is vital for product teams, especially in the enterprise space. Despite thorough validation, there’s always uncertainty in long-term success, making the timing of scale-up decisions crucial. Premature or delayed investments in go-to-market efforts can result in missed opportunities or wasted resources, while acting too late can give competitors a head start.
A clear PMF definition, particularly in enterprise settings, offers teams a structured approach to decision-making. Establishing measurable "PMF Conditions" allows for more confident, evidence-based decisions on when to scale, reducing reliance on gut feelings and ensuring alignment across leadership, sales, and marketing.
Tracking progress toward PMF and adjusting based on market feedback helps teams avoid mistakes and position their product for long-term success. Timely, informed decisions are key to ensuring product launches gain traction and sustain growth.
There you have it! Next time you're involved in a launch (regardless of the size of your organization), show strong leadership and define how you'll track achievement of product market fit
Summary
Product teams face uncertainty in long-term success despite validation efforts.
Decision-makers struggle to determine when to scale product delivery and go-to-market (GTM) efforts.
Enterprise products often have long sales cycles and complex customer needs.
Product-market fit (PMF) can take years to achieve in the enterprise context.
PMF is defined as confidence that a product can sustain a viable business in desirable market segments.
Existing PMF definitions are often vague and subjective, necessitating a clearer definition.
Establishing measurable "PMF Conditions" can guide investment decisions and reduce reliance on gut feelings.
Key metrics for assessing PMF include revenue, deal size, customer adoption rate, and satisfaction scores.
Tracking PMF progress should be integrated into regular team meetings for continuous assessment.
Timely, informed decisions are crucial for ensuring product launches gain traction and achieve growth.
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