Finance and describing product-market fit
The goal of any startup: that elusive moment in which the product clicks perfectly with the market, and things take off. 🚀 What is product-market fit?
We’re all familiar with the concept of product-market fit. It’s the goal of any startup: that elusive moment in which the product clicks perfectly with the market, and things take off. 🚀
We typically associate the hunt for product-market fit with startups and very early-stage businesses. However, I prefer how Tribe Capital describe it:
“Most people think of product-market fit in binary terms – either you have it or you don’t. In contrast, we tend to think of it as a spectrum.”
Within that framing, the goal then of any company is always to improve product-market fit - there’s growth to be unlocked in doing so. For startups, it’s about finding that first wave of customers. For later-stage companies, it's about prioritizing certain features, product lines, or personas. I then came across this passage from Bill Campbell, in Trillion Dollar Coach, who was a mentor to executives at the largest tech companies in the world.
“[Finance, sales, marketing] can supply intelligence on what customer problems need solving, and what opportunities they see. They describe the market part of “product market fit.” Then they stand by, let the product teams work, and clear the way of things that might slow them down.”
This positioning of finance (or analytics, I might add) as a team that describes the "market part of product-market fit" was something I’d never quite considered. Yet, it feels so obvious and exciting in hindsight. Replace “can” with “must.” Great finance and analyst organizations, I believe, must approach their work from a place of being core contributors to product-market fit. After all, contributing to product-market fit is core to the existence and strategy of the company.
Tribe’s approach to quantifying product-market fit is an excellent starting point. I find it particularly valuable for early-stage companies. Their frameworks around growth accounting and cohort analysis are excellent, and among the first analyses any early finance or analytics hire should build.
In my experience, the next most valuable exercise is a deep dive into segmentation. If a company’s overall position along the spectrum of product-market fit looks something like this:
In reality, what’s happening under the hood most likely looks something like below. There are segments within the business where product-market fit is strong and others where it’s weak. It’s almost always the case that the product serves some customers well and others less well. Similarly, for some groups of customers, the go-to-market motion might fit better than for others.
In this example, the best strategy might be to double down on the fourth segment where product-market fit is strongest. That strategy would most likely depend on how much running room the company has left within that market. Alternatively, the company could be better off understanding and addressing the issues in the second segment where product-market fit is weakest. Can the issues be resolved? Should that be a focus? Is it a segment that's not too far a deviation from its core customers and competencies?
Done properly (perhaps a topic for another post), segmentation describes the market - the personas and products - at a level against which a business can act. As a company scales in complexity, working against focused and sharp segments is the only way to improve overall company product-market fit. It's our role as analysts to define and quantify those actionable segments. Most importantly, our work isn't complete until we've enabled real tradeoffs and clear priorities.
Ultimately, I remain curious - how else can we, as finance and analytics folks help to drive product-market fit?