Understanding Good Product Market Fit vs. Bad Product Market Fit

Understanding Product Market Fit is a key component to building a successful SaaS business. Most entrepreneurs take over a year to find it, many never do. Once a company has achieved Product Market Fit, a new set of challenges face the business as it seeks a repeatable, customer acquisition model (that will be a post in the future). Today we’re focused on the often elusive Product Market Fit entrepreneurs passionately seek.

Before we go into hard set definitions of Product Market Fit, let’s take a few steps further back and look at the decisions and steps an entrepreneur must make to attempt to achieve Product Market Fit for their business.

First an entrepreneur must decide they want to start a company. Second, they must enter a market and solve a problem they obsess over the next 5-20 years. Then, they must find and recruit a team that fills in the skills gap. Normally this is a technical founder connecting with a non-technical founder or vice versa.  After that, the entrepreneur must find enough funds to support their and their team’s life style while not bringing in any revenue for 3 to 6 months to build the minimum viable product. Finally, the entrepreneur must sell a potential customer on the vision of the solution, so much so, the potential customer will make time on their calendar, sit through a web presentation, have a deep enough pain in their business, and eventually purchase the solution.

It takes a lot.

If you can do step five enough times, you have Product Market Fit. It’s a huge accomplishment for any entrepreneur to achieve this feat -- after all, look at all the steps required to get there!

Here are some good posts on Product Market Fit by David Cummings here and here along with David Skok here.

The must have checklists of Product Market Fit include 10-20 paying customers that are referenceable and referring you additional customers.  

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There are different degrees of Product Market Fit.

After talking with thousands of SaaS entrepreneurs over the past 10 years and spending 5 years building one myself, it is clear there are different degrees of Product Market Fit. Some entrepreneurs blow right by this stage, others spend years navigating its in’s and out’s. While each company and industry is different knowing signs of good Product Market Fit versus poor Product Market Fit will make you a better entrepreneur.

Signs of Good Product Market Fit

  1. Your customers are excited to share your product with their co-workers and friends at other companies. People want to look cool and informed. Technology has the ability to do that if it adds immense value to that person’s life or company.

  2. They are willing to pay for it without much hesitation -- this means the ROI is clear.

  3. They immediately change their workflow. (a great example of this is Calendly)

  4. Your customers are no longer just friends/colleagues.  They chose you because your product could solve a problem, not because they felt obligated to help you.

Signs of Poor Product Market Fit:

  1. It takes a while to even get on your prospect’s calendar. This alone means what you are selling is not compelling enough for them to prioritize your product on their calendar. If they don’t prioritize it on their calendar then they won’t prioritize it in their budget.

  2. You cannot simply explain the ROI of using your product.

  3. After selling the product or getting on their free trial, you check back in with them in 2 weeks and they haven’t touched the product. Often times they might have already paid you but they still haven’t started using your product.

  4. Most people are using and paying for your product as a favor to you. If you can get 10-20 paying customer but half of them are former colleagues.

These are just a few signs of good Product Market Fit vs. bad Product Market Fit. The better your Product Market Fit, the faster you can move on to the next stage of the business. Often times entrepreneurs will go out and raise money on poor Product Market Fit in hopes that the additional capital will turn their poor Product Market Fit into great Product Market Fit. Save yourself the time and hassle. The best companies only spend a few months in the Product Market Fit stage because their story, market, or product (likely a combination of all 3) pull the entrepreneur quickly through the Product Market Fit stage. If you don’t have good Product Market Fit, it will be the number one leading indicator of churn in months to come.

Nail good Product Market Fit, it will set the course of your business for the next 5-20 years.