PMF (Product-Market-Fit) v0.1 vs v1.0

When tal­king with some of our port­fo­lio com­pa­nies recent­ly, I had a small epip­ha­ny. As all things with star­tups, the jour­ney to find PMF is neit­her linear nor pre­dic­table. My epip­ha­ny was that get­ting to PMF may actual­ly con­sist of (at least) 2 dis­tinct phases.

  1. You start with somet­hing based on your assump­tions. If tho­se are anyw­he­re clo­se and you execu­te well, you will start win­ning some busi­ness. Poten­tial oppor­tu­ni­ties start pop­ping up – “with this tweak we could ser­ve that seg­ment, with that the other”. Your busi­ness may show healt­hy growth and cashflow posi­ti­vi­ty starts loo­king like a real pos­si­bi­li­ty. You have a PMF – a v0.1 of it. Don’t get mis­lead by it.
  2. The cus­to­mers you win in pha­se #1 are your gold­mi­ne for deve­lo­ping your unders­tan­ding of dif­fe­rent types of cus­to­mers and their problems. As you can zoom clo­se in on them, you start see­ing the dif­fe­rences: from a dis­tance the cus­to­mers and their use cases look the same but once you can see them clo­se enough, they are not. That’s when you need to have the know­led­ge and cou­ra­ge to nail the nic­he you will focus 100% on – so that you have somet­hing you can even­tual­ly sca­le. If you succeed in that, you may have a PMF v1.0 – the one that real­ly works, whe­re “cus­to­mers pull the pro­duct out of your hands”.

Get­ting from 0.1 to 1.0 is har­der than it sounds. First, you must have cla­ri­ty on what is the nic­he you want to make your beach­head – whe­re you can gain such a strong mar­ket posi­tion that it gets the snow­ball effect going. Second – the har­dest part – is to have the guts to say no to what looks like good and viable busi­ness. If you real­ly want to focus on somet­hing, the flip­si­de is you must de-focus off the other things. If you don’t do that, you didn’t focus.

The grand sin of star­tups – pre­ma­tu­re sca­ling – is often the result of trying to sca­le PMF v0.1. Which isn’t sca­lable! Yes you can gene­ra­te some busi­ness if you try real­ly hard – 6 figu­res at least, with luck may­be 7. But pret­ty soon  you hit a glass cei­ling – your growth cur­ve flat­tens, you lose cus­to­mers at the pace of gai­ning new ones in, you throw in more resources and try even har­der – to no avail. You just tread water.

PMF v1.0 is a result of an evo­lu­tio­na­ry process, only with lot­te­ry win­ner luck can you get the­re wit­hout all the hards­hips in between. The­re will be a lot of full step forward, half back – and even half forward, full back. And the­re is no get­ting the­re wit­hout v0.1 first – it is an achie­ve­ment and a cri­tical miles­to­ne. But it’s just the star­ting point, not yet what you should lock the dial on.

The big­gest visible dif­fe­rence between v1.0 and v0.1 is that the v1.0 is way shar­per, far more focused, more nar­row, more preci­se. Which frigh­tens many people “hey I want my mar­ket poten­tial to be as big as pos­sible, not as nar­row”. But the mar­ket poten­tial that mat­ters to you is the mar­ket you can mas­ter, not the theo­re­tical mar­ket that exists somew­he­re. And as you as a star­tup have very litt­le gun­power, you can tru­ly mas­ter only a very nar­row tar­get segment.

But that’s not the end, that’s the begin­ning. The evo­lu­tion does not stop the­re, once you have nai­led your nic­he you see oppor­tu­ni­ties you didn’t see befo­re. The­re is no limit to how far you can go. But you first need to get your PMF v1.0. Anyt­hing that has ever beco­me big has star­ted real small and focused.

The metrics that matter for baby stage companies

You don’t ask a school kid “how much money you are making”. If you did, that would gui­de them to skip school and get the odd job they are qua­li­fied for wit­hout educa­tion. And that would be the end of their deve­lop­ment – they would be stuck with that for the rest of their lives.

What people nor­mal­ly do is ask about how kids are doing at school and what new did you learn today. If they keep lear­ning eve­ry day, by the time they are adults they are rea­dy to be wor­king and then “how much you are making” will be a rea­so­nable ques­tion to ask.

For grown up com­pa­nies, reve­nue growth, EBIT­DA, quick ratio etc KPIs the tra­di­tio­nal (and domi­nant) busi­ness lite­ra­tu­re (not to men­tion for­mer cor­po­ra­te execu­ti­ves) is full of, are per­fect­ly valid met­rics. But what about com­pa­nies who are still at school, i.e. startups?

By defi­ni­tion, a star­tup enters unc­har­ted ter­ri­to­ries and its job is to do explo­ra­tion so that it can draw a map. The success cri­te­ria for explo­ra­tion is – lear­ning. Fin­ding the answers to the unknown.

The results of lear­ning do not trans­la­te to reve­nue, pro­fit, growth etc then and the­re. So what hap­pens if success is mea­su­red as reve­nue growth, pro­fit etc? You get what you mea­su­re. Star­tups skip lear­ning and are trying to get the odd jobs they can, to get the ins­tant results. For­get­ting what their rea­son to exist is. Even­tual­ly, this may result in pre­ma­tu­re sca­ling – the #1 rea­son star­tups die. Pre­ten­ding to be an adult when one is not.

In star­tup world eve­ryt­hing is ext­re­me­ly con­text depen­dant. The con­text being your posi­tion on the lear­ning cur­ve – the “Star­tup J Cur­ve”. Like a kid growing from child to adult­hood, a star­tup is growing from a set of hypot­he­sis to real busi­ness. How its success is mea­su­red should reflect their place on that jour­ney. A concep­tual illustra­tion of that below.

As you get what you mea­su­re, knowing what is the mea­su­re­ment that mat­ters at each sta­ge on the way is crucial. You should unders­tand what is the indica­tor that gui­des you best given whe­re you are and whe­re you want to go next. You first need to vali­da­te that your plan works befo­re you start trac­king your per­for­mance against it.

The Corona issue – what to think about it ?

Fri­day Mach 6, 2020

To: Goril­la Capi­tal port­fo­lio companies

From: Ris­to Rautakorpi

The Coro­na issue – what to think about it

Note – I focus enti­re­ly on the busi­ness implica­tions, per­so­nal health & safe­ty is of cour­se #1 prio­ri­ty and I lea­ve tho­se mat­ters for the Healthca­re pro­fes­sio­nals to advi­se on.

I rat­her cry wolf than regret later, and as “only the Para­noid sur­vi­ves”, I’m OK to be the paranoid.

No-one knows yet what the end outco­me of the Coro­na issue will be. But alrea­dy now it has caused a visible dis­tur­bance on busi­nes­ses and eco­no­mies worldwi­de and the ripple effects are yet to be seen. Some busi­nes­ses are affec­ted more than others, but very few will be comple­te­ly immu­ne. For some (like face mask pro­ducers or remo­te wor­king solu­tions) this can crea­te a mas­si­ve windfall.

Your busi­ness will be affec­ted as well. In what way, when and how seve­re­ly, depends. That’s what you should now form a view on, and do miti­ga­tion accordingly.

A like­ly sce­na­rio for any­one sel­ling to cor­po­ra­tions: In the 1st wave, they focus on their people risks: they cancel atten­ding events, making busi­ness trips, they ask people to work from home etc. In the 2nd wave they do the imme­dia­te adjust­ments to their own busi­ness (such as air­li­ne industry), in the 3rd wave they start calcu­la­ting the cost of all that, and how to balance the effect. They will try to assess what their cus­to­mers do and how that will affect their own busi­ness. The 1st thing they’ll do is step on the bra­kes and will do only the man­da­to­ry until the dust has sett­led – which means anyt­hing non-man­da­to­ry will be post­po­ned. They will try to mana­ge costs, in antici­pa­tion of their reve­nues decli­ning. This may mean lay­offs, freezing any new costs (such as deve­lop­ment pro­jects) etc. They will have to add new issues on their agen­da, chan­ging the prio­ri­ties. At this point you will start fee­ling the heat.

The­se “never seen befo­re” cri­sis are part of the busi­ness cycles. I’m older than any of you so I have expe­rienced a few (and their direct con­sequences) myself: oil cri­sis 1973, Cher­no­byl 1986 (this was par­ticu­lar­ly sca­ry in Fin­land, due to the typical wind direc­tions), Iraqi war and 2nd oil cri­sis 1990, dot com crash 2000, Financial cri­sis 2008. Not to men­tion the next tier – SARS, Thai­land Tsu­na­mi etc.

It’s not a bug, it’s a fea­tu­re. If you sail across the Atlan­tic you’re like­ly to get into at least one big storm. You know that from the start so you pre­pa­re accor­dingly. And when the weat­her map turns dark, you get rea­dy: you take down sails, clo­se all holes, tie eve­ryt­hing down, eat and rest whi­le you still can, make rain­gear rea­di­ly avai­lable. When the storm hits you, you are pre­pa­red. Then you do what you must to stay afloat, and just wait. Even the worst storms end one day, the sun is shi­ning again and smooth sai­ling can continue. 

But whi­le sai­ling after is no dif­fe­rent from sai­ling befo­re, busi­ness after a cri­sis is never qui­te the same as befo­re. Oil cri­sis trig­ge­red the need to reduce depen­dency on oil, Financial Cri­sis tigh­te­ned regu­la­tion of financial mar­kets etc. The man­kind is trying take mea­su­res that “this could never hap­pen again” (rat­her success­ful­ly, as the next major cri­sis is always a “never seen befo­re” kind). Tho­se chan­ges crea­te a ton of new busi­ness opportunities. 

The Coro­na situa­tion – once over and back to nor­mal - will trig­ger such chan­ges as well. What exact­ly, we all can make educa­ted gues­ses about. They too will crea­te opportunities.

Pro­fits are made during the high sea­son. Stra­te­gic moves are made during the low season. 

My call to action to all of you:

  1. The even­tual con­sequences of Coro­na will affect all of you (and us, as a result). Mea­ning you all need to take it on your agenda.
  2. You should ana­ly­se your situa­tion (and that of your key cus­to­mers), play with some sce­na­rios and form a view on what you assu­me the implica­tions to your busi­ness to be
  3. What is it you can and should do to miti­ga­te the nega­ti­ve effects. Crea­te an action plan on what to do if the storm hits you, and what is the indica­tor tel­ling you the storm is on
  4. What new oppor­tu­ni­ties will this crea­te, once the storm is over. How could you best bene­fit of it?

I since­re­ly hope none of this is ulti­ma­te­ly nee­ded and the world goes back to nor­mal soon. But it would be irres­pon­sible to just count on being luc­ky. Hope for the best, pre­pa­re for the worst!


Problem/solution fit canvas

Ste­ve Blank wro­te ” The dif­fe­rence between win­ning star­tups and tho­se who­le lose is that the win­ners unders­tand why cus­to­mers buy. The losers never do”.

This is the mate­rial ques­tion of problem/solution fit. 

The­re are dif­fe­rent ways to address the problem/solution fit. One of the first tasks is to seg­ment the infor­ma­tion you have veri­fied on cus­to­mer seg­ments. This should con­ti­nuo­us­ly be kept up-to-date.

On good tool we have found is from Idea­hac­kers ( ) and their problem/solution fit canvas:

More on the problem/solution fit can­vas can be found here:

Then goal is to iden­ti­fy what is the best problem/solution fit for your com­pa­ny to pur­sue further.

Gorilla Capital Management Oy

VAT 2827907-4

Maria 01, Building 1, entrance B
Lapinlahdenkatu 16, 00180 Helsinki


The best way to contact us is through email.

Our email addresses are in the format

Find us on social media