It is generally acknowledged that the key aims of a tech start-up are to develop a differentiated proposition that delivers a benefit to target customers at a price point that delivers economic benefits and ideally in a market that is expanding. This is of course encapsulated in the term ‘Product Market Fit’ (“PMF”) and it is widely accepted that achieving this should be the key focus of a tech start-up looking to scale.
By seeking to achieve PMF, we are accepting a binary position – an enterprise has either achieved PMF or it has not. But is it that simple?
Clearly the binary extremes do exist: an early stage start-up with an MVP in beta trials does not have PMF and conversely, a longstanding dominant product in a mature market will (currently!) have achieved PMF. However, I would suggest that there is a large grey area between these extremes and that PMF is not a binary concept. No matter how great the product, the target market won’t stand still and neither can the product. It is therefore an ongoing, iterative process and most scale-ups will continue to overhaul their products for many years after they have apparently achieved PMF. PMF is therefore a transient concept although market dominance at scale will protect incumbents.
Take the example of a start-up that has developed a product that is getting significant traction with smaller early adopting customers that fall into a specific segment and has some early traction with larger customers. Overall growth may be impressive; they are selling into larger customers and the temptation may be to assume that PMF has been achieved.
The company may decide to take on more funding to invest heavily into increasing sales to larger customers. However, if it’s then found that the product isn’t quite there for larger customers, that could be catastrophic.
Instead, the company could have continued to market to the customer segment where it has significant traction, whilst continuing to engage with and iterate the product as required to meet the needs of larger customers. I would suggest that the company has PMF with one particular customer segment but not yet in the other.
Segmentation is therefore key and not just by size. Every prospective scale-up should look critically at their customer data to enable them to really understand their customer traction and when/where it is right to scale.
These considerations also play into decisions about funding strategy. Taking too much investment, too early can lead to a loss of focus but also create a pressure to scale too early: just one of the many dangers that face start-ups.
Head of Technology Sector and Business Advisory Partner