This is the first in a series of articles featuring insights from experienced Founders and Operators in the Nauta portfolio. We've distilled their experiences into easy-to-read chapters to help others navigate the challenges of growing a B2B software startup.

Highlights of this article include:

• Understanding the term
• How to start finding Product-Market Fit (PMF)
• The importance of listening to customers
• Improving your product based on market need

Understanding the term

Although the term is often misused, it’s still important to know what people mean when they claim they have achieved PMF. To some, it means having a product that many customers want and are willing to pay for. Although this is an important milestone for any startup, however, it is merely a stepping stone in the pursuit of ‘real’ PMF, which only occurs when you have a product that satisfies a strong market demand.  

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It has been defined by First Round Capital as “demand for a product that satisfies a critical need and – crucially – can be delivered repeatably and efficiently to each customer”, but the term is overused and often misunderstood. In this article, we will explore the importance of PMF and how it can be achieved.

A demand so strong that:

“The customers are buying the product just as fast as you can make it - or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can.”

This definition, popularized in the 2000s by Marc Andreesen (A16z), highlights PMF as a state where exponential growth is driven by overwhelming demand. Importantly, this growth must also be profitable – negative margins suggest PMF hasn’t been achieved.

How do you start finding PMF?

In addition to understanding the endpoint everyone is searching for, Adam Fisher (Bessemer Venture Partners) stresses the importance of avoiding the common detours companies can take, slowing their journey to product-market fit. This is depicted in the quadrant below.

A great product cannot exist in a vacuum. Its value is determined by the customer, and thus the market. So, how should you approach PMF? Well, first and foremost you need to understand that it’s not about how great your product is, it’s about how well it addresses its market. In other words, how well does it understand and solve the problem.

The importance of listening to your customers

Learning from customers is key, as Dave Holden (Techspert) puts it “Go and find the customers who experience the problem you are trying to solve. Speak to them, keep speaking to them. And build what they need.” Techspert’s network now indexes research from over 233 million healthcare experts.

John Beckett (ChannelSight), stresses the importance of finding and understanding your first customers by being “willing to go the extra mile”. He also highlights the value of engaging with potential buyers early on and recommends “spending time with as many people as possible who are your potential buyers ensures you’re building something with genuine product-market fit. That is definitely the most important thing.”

John also highlights the necessity of having a core offering with a clear and measurable return on investment (ROI). He explains, “Having a core offering that provides a very clear ROI ensures there is a direct, quantifiable pain point that the client knows they have and that they are willing to pay for us to fix.” This approach helps establish trust with customers while validating the viability of your product or service.

If your problem has a significant market, then the market will shape the product your startup builds. Which is why the most important thing for you to do is listen to your customers and not attach yourself too firmly to any preconceived notions of what the product ‘should’ look like.  

Roope Heinilä (Haiilo), had the same experience initially “we did not have a deep enough understanding of the problem we were solving and thereby we built the wrong product”. Haiilo has gone on to supply over 1,000 enterprises with its solution, including Coca Cola, L’Oreal and T-Mobile.

Remain agile and flexible to market needs

Vedran Cindrić (Treblle), emphasizes the need for an open mindset and “being okay with constantly adjusting your product” to meet evolving needs because “the more you talk to people, the more you realise some of the problems they’re facing”. Reflecting on his approach, he adds, “We want to continuously listen to problems that make sense and fix them. It was a process: the more customer calls we did; the more potential customer calls we did, the more we learned.”

Vedran also underscores the importance of agility in go-to-market and marketing strategies, stating, “Failing fast with the go-to-market and marketing strategy is a must. So, the faster we can prove something is or isn’t working the better.”

What you shouldn’t be doing is “over investing in the technology and not focusing enough on the customer”, Dave adds. Without a product your customers want, you don’t have a company that requires venture capital. Your entire focus in the early stages of building your business is ironically not building a business, but rather building a product or service that your customers will pay for. Building a business come later; and that’s a whole different animal.

Key takeaways

A company’s ability to achieve product-market fit is determined by a whole range of factors and often a big slice of luck can help you along the way (think of all the products that thrived during the pandemic).  

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• Make sure you’re solving a problem that the market needs
• Engage directly with the customers that need your solution and integrate their feedback into your product development process
• Constantly evolve your product to ensure its always meeting the needs of the market, as you engage with more and more customers

Thank you for reading. Stay tuned for future articles in this series, focused on pitching, hiring, networking and staying efficient with your time as a founder!