There are several important stages in the evolution of a software company: Ideation (where the first glimmers of the product arise); Prototyping (development of a proof-of-concept of the idea); v1.0 (first marketable product); Early Revenue (where the promise starts to be realized)…but absolutely nothing tops Product/Market Fit.

Product/Market Fit (or PMF) is that lovely point where your product is accepted rather broadly as an acceptable solution for the problem facing the market. You need to get PMF before you can achieve hypergrowth, and likely before you can achieve profitability as well.

I’ve heard a couple of different operational definitions of PMF; different ideas on what it exactly is and how you can tell you’ve reached it. Here they are, with some thoughts on each:

FIRST: PMF occurs when you have a predictable sales process. That is, for every 100 opportunities you have with qualified Market participants, you expect to close at least x% (I’ve heard different numbers for “x”, ranging from 25% up to 40%). In this perception, PMF is not so much defined as understood. It can only occur when:

• The Market has a common understanding of its need

• The Product is seen as having the necessary functionality to meet at least part of that need

• The pricing of the Product is acceptable to a sizable chunk of that Market,

• Your Product predictably wins a strong percentage of that Market

In this scenario, then, you know your Product Fits the Market when your Market tells you. How one achieves that feels a bit random (and it may very well need to be).

SECOND: PMF occurs when you Cross the Chasm. From Geoffrey Moore’s book, “Crossing the Chasm”, this conceptualization of PMF arrives when you are able to sell your Product successfully to Pragmatists, not just Early Adopters (all capitalized terms from that book). Again, we’re defining “Fit” after the fact, but unlike definition number one, there is some ability here to work towards PMF - it’s not random.

The theories espoused in Crossing the Chasm suggest that your v1.0 Product is only attractive to Innovative personalities, who are willing to see beyond it’s many shortcomings to work with you to achieve a more-functional product. To the Innovator, though, “functional” is based on their specific needs, not on the needs of the market at large. Accordingly, a Product which “Fits” an Innovator may not Fit anyone else. Going beyond that local experience of Fit with one Innovator to a reality where a Pragmatic buyer can readily purchase and consume your Product is a big step. Moore says it requires creating a “Whole Product”, that is, a Product which includes everything reasonably necessary for the Product’s successful operation, before the Pragmatist is willing to buy.

That “Whole Product” may include additional hardware or services, beyond the software you initially created. It may require partnerships with other vendors (who may even appear to be competitors right now) to execute. In short, it requires a broader vision and scope for your company than you likely originally entertained. But it is something you can plan towards, which makes this definition my preferred definition for PMF.

However you define it, PMF marks the end of the early stage of your company. Attaining PMF is the beginning of your journey to all the dreams you had for your idea. It is the first major strategic target for any software company.