What the @#*($&# is product market fit?

I've been trying to study PM fit for the last decade. First with my own startup (that never reached PM fit) and then with my < 300 companies I've invested in and the tens of thousands I've reviewed. Here are my thoughts on PM fit:

1) Product-market fit is one of those concepts that seems easy to understand as a concept but in practice, hard or impossible to articulate what it actually means. Most people lazily say "Product-market fit is like porn...when you see it, you just know!" But what does that mean?

2) At a high level: You have found product market fit when you can repeatably acquire customers for a lower cost than what they are worth to you. This is not earth shattering. This is a simple business statement. Are your costs lower than your revenues? Are you profitable?

3) What is not clear, though, is on what time scale? At t = infinite, this must be true, otherwise you do not have a sustainable business. But btwn when 0 < t < infinite, you don't need to be profitable.

4) What is also not clear is that in the beginning of starting a company, you do not know what your customers are worth to you. And you don't know what your costs will be at scale. So you have two moving parts that make assessing profitability difficult!

5) When you first start out with a V1 product, ask yourself is there even a channel(s) that will allow you to get customers profitably at some level of scale? (as opposed to one-off sales from different places)

6) And, because PM fit is about repeatable customer acquisition, it's possible (& common) to have PM fit for a while and then lose it. You can saturate out an acquisition channel. Or a competitor saturates out said channel. Or demand for your product changes. Etc.

7) So, the better way to talk about PM fit is in stages. E.g. do you have PM fit for series A benchmarks? I.e. can you get to $1m-$3m runrate through repeatable customer acquisition channels? You may lose PM fit after that and iterate to get it back.

8) Note: the key word is "repeatable" -- these days, it is possible to brute force your way to $1m runrate without having a repeatable sales process & investors don't want to back that.

9) Can you continue using those same channels to get to series B benchmarks? series C? Series A, B, and C benchmarks roughly equate to $1m runrate, $10m runrate, and $100m runrate. But what worked to get you to series A benchmarks may not work to get to series B levels.

10) An example of having, losing, then finding PM fit again is Heroku. Started w/ a platform for Ruby devs. Customer acq was easy. Then they saturated the market. They had to expand their prod to support other programming languages to grow to the next level & achieve PM fit again

11) Just because you are able to raise a lot of money DOESN'T mean you have PM fit. There are companies who go IPO who do NOT have PM fit. You can raise money on a dream & initial proof points, but, true PM fit is profitable cust acq that enables a sustainable company

12) Unpopular opinion - Uber doesn't have PM fit. They are unprofitable per ride. They need to increase LTV of their customers. And/or reduce the cost per ride. Their financing is all based on selling the dream - e.g. self driving cars will cut costs + Uber EATs will increase LTV

13) Often it's easier to upsell customers than to reduce costs (when already costs are already pretty optimized), so if you are not profitable with your customer acquisition channels, a common "pivot" is to upsell or expand your offering.

14) Marketplaces tend to sell you 1 thing and then many other things. E.g. GoDaddy sells hosting + domains + email + security. Expedia sells flights + rental cars + hotels + tours.

15) SaaS companies tend to upsell offerings or expand as your co expands - e.g. Slack is free but now we pay because we want the chat history and as our company expands, we buy more seats

16) For fundraising purposes, it's ok to be unprofitable at first if you can see a clear vision / path to how you can increase LTV to make the sales process repeatable. If you can sell this story to VCs, then you can afford to acquire customers unprofitably for a while.

17) BUT, selling this story is easier for some ppl than others. If you have pedigree or a network etc, you can sell this "path to PM fit story" easily. When famous VCs say things like "Everyone should just have a big vision & raise big money", that is called being out of touch

18) If you are a first time founder / no connections / "wrong geography" / unusual background / demographic that VCs have typically not pattern-matched in favor of, then unfortunately this type of "famous VC advice" would be bad advice to follow.

19) It's important to get a sense of how much money you will be able to raise before you are stuck in a rut. Your runway dictates how much you can build and tackle at each step.

20) E.g. if you were building Expedia, and if you had access to only limited capital, you might build out the flight search portion only. And you might not find many channels that you could repeatably profitably get customers from. And you may saturate out at a lower rev runrate

21) But you can use that progress to raise more money. This shows you can execute. Then you sell the rest of your vision of what you will build & how that will unlock the next set of customers who want other things and will increase your LTV so you can pour more into acquisition

22) BUT you must sell the bigger story if you want VC funding & explain how the funding will help you tackle other pieces to make your idea bigger. The initial traction is just to show you are a strong founder. You still have to show a clear path to a big business for VC money.

23) The end goal, though, is profitability at a high revenue level, so the holy grail is to find repeatable customer acquisition channels that can scale to the $100m per year level (for VC backable businesses) that are profitable. And do this as cash efficiently as possible.