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.
- 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.
- 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.