Product/Market Fit (PMF)

“I’m looking to invest in companies that can screw everything up and still succeed because the customer pulls the product out of their hands.”

Don Valentine

I want a company that has such demand from the market that they can literally screw everything up and still succeed.

Andy Rachleff

Steve’s great contribution to the entrepreneurship business was the idea that first you have to prove a value hypothesis and only once you’ve proven the value hypothesis should you test a growth hypothesis.

Andy Rachleff on Steve Blank

Andy Rachleff’s four heuristics to recognize product/market fir

Consumer side

1.) Exponential organic growth – only way you can get exponential organic growth is through word of mouth

2.) Net Promoter Score (NPS/NPV) – which is a proxy for word of mouth. It’s not quite as good and there are outliers where it just doesn’t work (not ideal indicator, Facebook had at a highest growth negative score)

Enterprise side

3.) Sales yield – is the contribution margin of a sales team divided by the total cost to field the sales team. How much revenue brings one fully loaded-trained sales rep ? ( Sales Learning Curve and same by Sequoia )

4.) Proof of concept trial – at the end of 30 days, you pull the trial, no matter what. If the customer doesn’t scream, you don’t have product-market fit because if they’re not going to buy it at the end of the 30 days, they’re not desperate. And if you’re not desperate, you don’t have product-market fit.

I often get asked, “Well, if your product is so great, why doesn’t everyone use it?” Because it takes a while for you to transition from early adopters to the early majority to late majority and the laggards.

Andy Rachleff

The only way to make outsized returns as an investor or an entrepreneur is to be right in non-consensus. The problem is you only know that you’re non-consensus when you start, not whether or not you’re right. You hope that you’re right. Unless you’re non-consensus, you don’t have a chance to serve the desperate because they wouldn’t be desperate if they were already served. Now, if you ask five people on the street about your idea, which might be a killer idea, at least four out of the five of them should say they don’t like it because they haven’t been conditioned to like it. Human beings are conditioned to like things or not like things. Think of the greatest ideas in the last 10 years. Uber, if you asked 10 people on the street about Uber ride-hailing service, they’d say, “Why do I need that?”


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