Product Market Fit & Good Markets
As seed investors founders frequently talk to us about “getting to product market fit”.
Most of the time the conversation around product market fit (PMF) circles around
- Iterating on a product until “it works” in a market
- Getting to a point where customers are happy with the product and distribution starts working properly
- A stage in the lifecycle of a company
The Lean Startup et al. have taught a generation of entrepreneurs that it’s all about getting started quickly, iterating, pivoting. Essentially getting to PMF by making-your-product-fit-a-market.
What we often are missing is pre product-building diligence on finding a market worth making your product fit. Being smart about picking a good market in which it at all pays off to get to PMF. In a very good market you will often be able to show initial traction with well-paid trials long before your company actually gets to PMF.
There are many ways of defining a good market. Yes it should be large. A simple heuristic we at Fly like is the healthiness of EBITDA margins of companies in the industry you are selling to: Think about 15–20% for P&C insurance or big pharma vs. 0–2% for the airline or construction industry.
You can be the best team in the universe in a sucky market and will usually have a very hard time. Equally, mediocre teams can still succeed simply by getting market (and timing) right.