How do you know if you have product market fit? The simple answer is, if you have it you know.
During covid, I was running my Wine List a DTC startup focused on wine education. And for a period of time it was easy.
We managed to secure a Soho House partnership with minimal effort
We got a £2 CPA deal with popular phone networks
We ran terrible Facebook Ads and had a £20 CPA
We ran live tastealongs on YouTube and over 50% of the customers showed up
We announced remote classes and people flocked
60% of people who signed up, purchased again after 30 days (and 75% of those bought again a month later)
This was despite the fact the product was full of issues, fulfilment was frequently a disaster, and none of us knew what we were doing.
We were doing well despite our own efforts.
We had product market fit.
When you have it, it’s unmistakeable.
But gradually, month by month that ease disappeared. Partnerships became harder to negotiate and response weakened. People made excuses for not coming to events then stopped replying altogether. Retention slowly bled away. And acquisition climbed up another rung of the ladder every month.
When I tell people the PMF story at Wine List, I usually say “12 months later, we suddenly had 10x higher CPA and 3x worse retention.” Except, it wasn’t sudden. It happened gradually.
We had lost product market fit.
Product market fit is transient
The thing no-one tells you about product market fit is that it’s transient.
Just because you’ve been lucky enough to find it, doesn’t mean you’ll have it forever.
Worse still is how hard it is to recognise it slowly slipping away. Anyone who’s read Thinking Fast and Slow will know that we don’t walk around processing every single piece of information we come across. Any number of pscyhological biases stop us from noticing small changes from inattentional blindness to change blindness to habituation.
So when something changes gradually, we don’t tend to notice it.
It’s highly unlikely product market fit will disappear overnight.
Your brand and positioning will stay in people’s minds for a long time. The existing customers don’t pay too much attention day-to-day. And so product market fit disappears not with a bang but a whimper.
At Wine List, it disappeared gradually. And every month when numbers slightly worsened, I was able to find excuses as to why. With hindsight it should have been easy to spot.
The problem for established businesses
Imagine this scenario play out.
You work in a 15-to-20-year-old business. You’re doing £15-30m of turnover per year. You’re surrounded by some really smart and lovely people.
While maybe five years ago you may have seen yourself as a startup, today you don’t. You let go of your agile work practices. You now have a few people each in your marketing, operations, customer support, engineering, and design teams. People don’t imagine their job is at risk like it would be in a startup.
When you sit down with your board and think about OKRs you’re thinking in year-long horizons. You’re forecasting like you’re a Unilever brand.
You now get mentioned all the time by the press. You’re the go-to one mentioned. Your family and friends finally get what you do. You no longer work every hour under the sun.
Things feel peaceful. Indeed, you are operating as if you are in peacetime.
Humans create levels of structural incentives around them to protect their status quo. Leadership, management, heirarchy, planning, forecasting, accountability, meetings, meetings, meetings. All of this stuff creates safeguards against disruption.
At a certain point, maybe 10 years in, you were probably growing amazingly well. Everything you did just worked. You had the equivalent of the Soho House partnership that just happened. The CPA deals that felt like you were printing money. The FB ads that just worked with little effort. Customers loved you, and stayed around.
But somewhere over the last five-to-10 years that all changed.
And you’re looking at these tell-tale moments:
CPA is 20-40% higher than it was a decade ago
Retention is 10-20 percentage points lower per cohort
Competitors seem to be springing up every day
Lots of those competitors are fighting you on price and you’re wondering if you should respond
Repeat is flat but for now it’s covering most of your opex
You’ve pivoted marketing strategy once or twice trying to find a new answer
You’ve launched new products only to see them fall a bit flat
Everyone’s calendars are filled with meetings and less than half the week is for work
You’ve launched brand campaigns on the tube and OOH but none seem to work
Your huge influencer budget did something but you can’t tell what
Another quarter passes by and you’re behind on target
I’ve met maybe a dozen founders over the last year who have described to me these sorts of problems.
You no longer have product market fit
“But we’re not in those scrappy startup days anymore,” you might think reading this. “We definitely still have it, it’s just –––––”
Product market fit is a lot of things.
But at its crux, I think of it as:
You have a product that is desperately needed and adopted by a large-enough market to support your business goals
Your product needs to be exceptionally good
Now in a market with no competition, you can afford to be less good than others.
Likewise, if your goal is to build a great lifestyle business – or you do not need a big financial windfall – then it can probably be less good than others too.
Less good doesn’t mean bad. But you can create a decent services business that gets you to £1m without needing to be 10x better than everyone else in your category.Your market needs to be adopted by your market
It’s not good enough to have a great product. If you can’t market it, you don’t have product-market fit.
Products don’t live in vacuums (or at least they shouldn’t). Your product should be a living, reactive thing based on who your customer actually is. And you can’t do that without having your customers use it.
This is why it’s the idea of “we’re going to find PMF then work out our marketing” doesn’t make sense.The market needs to be large enough to support your business
Maybe your goal now is to be profitable. Maybe it’s chasing the VC £100m exit. Maybe you never wanted that and you remain happy growing from £1m to £1.3m to £1.6m.
All of these avenues are fine. But you need enough customers in it who can support it.
And that means enough customers for your current product as it is, with the current marketing as it is. These three things all link together.
Take stock of your business and think deeply whether your business still satisfies those three demands.
Is your product still that much better than your competitors considering your marketing, market size, and aspirations?
Has competition now meant that the marketing is less effective per pound spent and so your marketing which once worked no longer does?
Is the market you’re acquiring from now big enough? Have you extinguished that cohort of users for whom the original version of the product and propositioning made sense?
The hard part of course is that all of these things interlink with one another. All tie together, and any change you make in any direction pushes on those numbers in odd and fascinating ways.
Rediscovering late-stage product market fit
It turns out the process isn’t too different from what we’d recommend for early-stage brands:
Get enough customers to learn from
Acquire some customers. Don’t worry too much about CPA, just get people through the doorLearn everything you can about those customers
Speak to them. Meet them. Learn who they are and what problems they’re trying to solve. What psychological biases drive them.Evolve your product based on what you’re learning
Now might be the time to realise there’s a need state that can be better satisfied if you adjust your product, now is the time to iterate.
Put that new messaging into your ads (this now trumps your product positioning)
Test it. Probably entirely with statics, test different approaches to explaining what your customers have told you.Measure
Stay on top of this and work out what you need to see for the business to work.Repeat until you get to good unit economics
Until that point forget campaign structures, don’t worry about long-term. You are just repeating in weekly sprints trying to articulate why your customers are desparate for your product.Scale to prove the market
Then you hit scale and need to push to start to demonstrate the market size needs stack up. Then you move into a different mode of thought.
This might sounds like pulling teeth for lots of people. Especially if you feel like such days are behind you.
And while the above is definitely a ‘purist’ approach to finding product market fit, there’s going to be a million reasons why you can’t / won’t / don’t want to approach it in this way later on.
Feelings of job security might go down if you rip up the playbook. Managers who have been used to delegating work might find themselves having to do more IC work than before. There’s going to be someone in product or brand worried about what will happen to the existing customers as you think through these challenges. It’s going to feel tiring and stressful all over again.
But the bigger question should be the existential one: what happens if you don’t do this stuff?
Depending on what type of org you are part of will dictate how you can operate.
If you’re a physical product business with broad distribution and obligations to maintain, then the purist approach isn’t going to cut it. On the flipside, if you’re a consumer technology product, then you’ve got every opportunity to lean in.
I’d spend a quarter or two in PMF mode. Assume nothing. Turn off your acquisition. Tell your board you’re trying something radical to solve your core challenges and that you’re not going to be looking at or reporting on revenue for the next six months. You expect it to drop, and you expect runway to tighten.
Then get to work:
Research your customers intensively
Think through if product changes are needed
Try entirely new approaches to advertising and marketing
try new ad accounts, new pixels,
maybe even a new website – you and fable or codex should be able to do that in a few hours)
ignore every “best practice” you’ve learnt so far – they have acquired the wrong people
try different creators who look totally different
make ads that look nothing like your brand
Focus on learnings and hitting your unit economics all over again
You might be surprised at how radically different your CPA could be.
I speak to brands who are 15 years old who are amazed that their three-year old competitors have CPAs at one-tenth of their cost.
This is a good thing
All is not lost. This might sound like a nightmare scenario. But it’s not.
To begin with, you’ve hired an amazing group of people – the best ones will respond well to these challenges.
Secondly, you’ve got the business maturity, and hopefully cash in the bank and cash flow to support some time in PMF mode. You should be less driven by short term today than you were historically or your upstart competitors still are.
Third, the competitors are doing this stuff now. And having read Innovators’ Dilemma you’ll know they have many advantages to you already. (If you haven’t read it buy yourself a copy today).
Finally, learning about customers is never a bad thing. Getting rid of all of your assumptions is no bad thing. People are small-c-conservative by nature, they hate change. Too quickly people do stuff ‘because that’s the way we do’. Ignore that urge, rip up the rulebook.
Worst case scenario, you hugely refine your knowledge of customer and realise you’re doing mostly the right things. Best case, you get to radically restart your business and the 10% annual growth you had last year is replaced by 50% growth this year.
If you want to chat this stuff through, I’d love to share what I’ve learnt from talking to other founds on this matter. And if you needed an agile growth agency who really gets this sort of challenge who can feel like an extension of the team, then we’d love to help.
Josh is the founder of the technology-driven creative growth agency Ballpoint. He spent most of his career working on consumer startups, then he founded one himself (Wine List) which failed after two years and £1m in ARR. Today he loves writing about profitability, incrementality, advertising, and AI.