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.

Gorilla Capital Management Oy

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Lapinlahdenkatu 16,
00180 Helsinki

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