I Obsessed Over Product-Market Fit - Here Are the 5 Stages of PMF

0:00If you're building a SaaS product, you probably heard everyone talking about product market fit. That magical point where your product perfectly solves a problem people will pay for, and the market recognizes you for it. Most founders either don't know what product market fit means at all, or they think it's a binary, that you either have it or you don't. But after two decades in SaaS and investing in more than 220 companies, I can tell you that's not how it actually works. It's not a switch that suddenly flips on. Product market fit is a spectrum. It's more like a dimmer switch that goes gradually from, let's say, 1 to 100. There are a lot of

0:37different gradients in a dimmer switch, and it gets brighter as you go up. It gets stronger as you increase that number. In this video, I've broken down product market fit into five distinct stages to try to approximate how it feels as you grow and move forward. And here's the thing, whether you realize it or not, you're already somewhere on this spectrum. Maybe you're stuck between phases. Maybe you're focusing on the

1:02wrong things for where you actually are. But after watching this video, you'll know exactly where you stand and what specific actions will push you forward. Let's dive into phase one, pre-product market fit. This is where founders spend a lot more time than they think they will. You're probably wondering what it looks like to be pre-product market fit. This is where early adopters start showing some enthusiasm, but are not necessarily converting to long-term users. You have a heavy reliance on the founders for sales, product development, and all customer interactions. And typical company metrics is where it gets difficult, and this is why you don't see stages of product market fit often

1:39broken down because it really does depend. But I looked across the more than 220 investments I have, as well as the tens of thousands of folks in the MicroConf and TinySeed audience, and I came up with my best estimation for each of these bands. So, typical company metrics include things like your month-over-month growth being less than $500. Your monthly revenue churn is high, 5 to 10% or more. You can have 15, 20, 25% and in this case your MRR is usually in the zero to $5,000 range, though it can be higher if you have an audience or you're otherwise able to, you know, kind of artificially juice the

2:14early numbers. In this phase, the things you should focus on include conducting customer interviews to understand pain points, building relationships with early users and gaining their trust, prioritizing features that address the most critical customer needs, refining core features quickly in response to customer feedback, identifying your ideal customer profile if you can, experimenting with different value propositions, and testing one or more marketing channels to find initial traction. Common pitfalls include not driving enough new leads or demos and expecting to build a business with a small trickle of new customers, ignoring negative feedback or only seeking positive reinforcement, underestimating the importance of customer conversation, taking your audience's initial usage of

2:55your product as a false sign of product market fit, and neglecting the importance of user onboarding and initial experience. Once you have your first few customers actually paying you money, and I mean really paying, not just promising to pay, you start to enter phase two, weak product market fit. And here's the thing, this phase is called weak for a reason. It's where most founders get stuck because the signals are so mixed. What it looks like, you're in this phase when customers are using the product regularly but with mixed levels of satisfaction and retention rates. There are early signs of customer segments that resonate with the product and you

3:29have a continued reliance on founders for product development, sales, and customer support. Typical company metrics include month-over-month growth in the $250 to $1,000 a month range. In this phase, your monthly revenue churn should be decreasing, so I'll say it's moderate, maybe between 3 and 7%. And your MRR can be between $2,500 and maybe $20,000. Things you should be focusing on here include strengthening customer retention, enhancing product features and building new ones based on feedback, increasing and doubling down on your marketing and sales efforts, identifying and targeting your most promising customer segments, improving your onboarding to ensure new customers get value quickly, and building relationships with other founders,

4:13potential mentors, and advisors. Common pitfalls here include over-reliance on a small number of key customers, failing to differentiate from competitors in a meaningful way, underestimating the importance of a strong value prop and clear messaging, spreading your marketing efforts too thin across multiple channels without mastering any, focusing too much on acquiring new customers instead of retaining existing ones, and neglecting to track and measure key funnel conversion rates to drive growth. When you finally crack the code on retention, when people not only pay but stick around month after month, that's when you hit phase three, emerging product market fit. This is where the fog starts to clear and you

4:49can actually see a path forward. This is where you see consistent inbound interest and a growing customer base. Improved conversion rates from trial to customer and longer retention periods. Customers regularly using and finding value in the product. Word of mouth probably starts here. And ideally, your product road map becomes clearer and a bit more strategic. In this phase, your

5:09month-over-month growth is ticking up. Maybe it's still as low as $500, but it can often be in the $2,000-$2,500 range. Your monthly revenue churn should be dropping, so, you know, think of it being 1 to 5% and your MRR starts to get wider here. The band is probably 15,000 to maybe 40,000. The things you should be focusing on including growing your team to scale, whatever you need to scale, marketing, sales, customer support, investing potentially in customer success if you run that kind of business, continuing to reduce churn, potentially experimenting with pricing structures, and strengthening your brand and your messaging to differentiate from competitors. Common pitfalls include

5:47failing to grow your top of funnel, overcomplicating the product with unnecessary features, neglecting to maintain a high level of customer support as the company grows, and losing sight of your core value proposition in pursuit of new features. This brings us to phase four, where many founders feel like they've made it. And you know what? In some ways they have. And for SaaS, especially bootstrappers, this is called strong product market fit. This is where you start to see good brand recognition and word-of-mouth. Probably have low churn, high customer satisfaction. You start to establish sales and marketing processes. You have a predictable number of inbound leads and organic growth. You

6:24have a loyal customer base with high engagement. You might even have public advocates. You'll start to see potential partners and folks who want to build integrations with you. And maybe if you're a vertical SaaS, the potential to expand into other verticals. Typical metrics here include month-over-month growth, I'd say $2,500 a month and up. Your monthly revenue churn continues to tick down. Let's call it very low, 0 to 3%, and your MRR can be, I don't know, between 30,000 and that magical 83,333, which is 1 million of ARR. Here you should be focused on starting to build and scale your company operations, hiring great people, regularly releasing

7:02new features based on customer feedback to stay ahead of competitors, continuing to refine your pricing with a potential price increase, and starting to develop a clearer long-term vision or strategy. And by long-term I don't mean years, I mean maybe at least into the next quarter or the next 6 months. Common pitfalls include not identifying and addressing bottlenecks early, losing focus on your core product, failing to maintain a high level of innovation and product development, and becoming complacent and not responding to competitive threats. So, what happens when product market fit isn't even a question anymore? When your biggest problem isn't finding customers, but

7:34it's managing growth. That's phase five, mature product market fit. Let me paint you a picture what this actually looks like. I'm going to start with the company metrics, month-over-month growth, $5,000 and up. I mean, you can have 10, 20, 30k a month growth. Monthly revenue churn is approaching zero, and oftentimes you'll see net negative churn. This is MRR of 83,333 and up. So, think of it as, you know, 1 to 5 million, 1 to 10 million ARR SaaS companies. This can look different for different businesses, but if you find yourself in this position, you're probably widely recognized in your market by customers, by competitors, and adjacent players. Your

8:12product is often the default choice for your ideal customer profile or your niche, meaning you have high brand trust. Word of mouth continues to grow, and so do expansion and enterprise opportunities. Pricing power emerges, where customers are less price sensitive and they're more value driven, and your company has multiple strong, repeatable acquisition channels. That one's flexible. I mean, I've seen companies at 2 million who still only have a single acquisition channel, but you get the idea, you want to develop that. It's possible here that customers can experience significant switching costs, and your churn plummets. Expansion revenue can exceed churn, so you can have net negative churn, and you might

8:48have strong network effects or data moats that are evolving. Here, you should start to focus on maintaining nimbleness and feature velocity as your org chart grows. Curating company culture, building internal leverage, like professionalizing your operations, strengthening leadership, and refining processes. This is where, as a founder, you probably start to think about what your goals are. Maybe you've thought about already, but are you building to

9:09sell? At what price? Or are you going to keep going and get into the tens of millions in ARR? And at this point, you're also defending your position, cuz you're probably a market leader. It depends on how large your market is, but you're doing competitive intelligence, you're thinking about improving defensibility through moats, and maintaining quality. And you might even be exploring new vectors of growth, like new verticals, new ICPs, secondary products, and that's always a dance there, or M&A and partnerships. The common pitfalls here include key person dependencies in critical areas of the business, getting disrupted by nimbler competitors, failing to recognize diminishing returns on existing marketing channels, and

9:48mismanaging complexity. Maybe you have too many SKUs, maybe you have technical debt, maybe your org is getting bloated, or you might have strategic drift. Now, with any framework, there's always a few gotchas or caveats, and I'm going to get to those in just a minute. But first, if you're in phase one of product market fit, meaning pre-product you should join us at MicroConf Remote. On November 5th, join me and a couple hundred other SaaS founders for focused sessions on validation, shipping your MVP, and landing your first customers. While recordings are available for ticket holders, attending live means you can ask speakers questions and get answers specific to your situation. We're also

10:24running founder-by-founder sessions. Basically, a digital hallway track where you'll get managed with other founders to share what you're working on, because this journey is tough enough without going it alone. Head to microconf.com/remote for details and tickets. Use promo code startups15 for 15% off. Now that we've covered the five stages, there are a few clarifications I'd like to point out. If you have a large audience or are exceptional at marketing, you can amass customers and MRR without product market fit. The key is whether customers get

10:55value and don't churn in high numbers. If your churn is 10% or higher per month, you're effectively pre-product market fit, I think regardless of your other metrics. High annual contract values, for example, $100,000 a year, can give the appearance of being at a later stage even though you're still early. There should probably be a minimum number of paying customers, say around two for stage two, four for stage three, and 10 for stage four. Until you have an MVP or a V1 of your product, you're effectively doing customer development and validation, so you are pre-stage one. And if that sounds like you, you should check out this next

11:31video where I lay out the seven ways to find profitable SaaS ideas. I hope you found this video useful. Make sure you like and subscribe. I'll see you next time.