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Product-Market Fit: 5 Blindspots to Consider

While defining product-market fit (PMF) is simple, measuring it, enhancing it, and claiming product-market fit victory is a lot more complex. Here are five important, often overlooked things to think about and execute on for any company founder who is asking themselves the question: “Does my company have product-market fit?”

1.  Be Wary of Too-Much Customization

One of the key questions at Volition Capital we consider to determine whether a company has product-market fit is the amount of customization needed to onboard a customer. While large customers, especially ones with complex problems, often require a level of configuration or customization, this is ideally limited to implementing the product, not changing the product itself.

While this sounds easy, it’s a dilemma many software businesses face, especially early in their growth phase. In the face of a large, blue-chip logo, tantalizing sums of dollars upfront to make “modifications” to the product requires sound judgment on whether this will be additive to the product roadmap and benefit other customers, or if it will end up being a one-time project. Saying no to large dollars upfront is difficult, especially as one bootstraps, but management teams need to be sensitive to the time and resources this will take to implement and whether or not it will derail the company from the core product it is trying to build.

Specifically, rinse-and-repeat use cases are key in scalability. Without this established, there may be a product in place, but not a defined market yet. And if you raise capital without a defined market, acquiring customers will likely be an expensive and inefficient endeavor.

2.  Is There a Market Worthy of S&M Investment?

Defining a market is tricky. While prospects may share similar pain points across different verticals, the willingness to pay for a solution and desired satisfactory outcome may be different. Finding the ‘market’ of product-market fit is finding the optimal intersection of willingness to pay vs. desired outcome and making sure there are enough such targets to build a large business out of.

One way to start thinking about the ‘M’ in PMF is understanding your existing customers, the differing quality of those customers (i.e. cost to support them, renewal rates, etc.), and defining the ideal customer profile. The best customers may share traits such as size, industry, geography, or even the persona of the actual user. The more granular a company can get and find overlapping traits, the better it can define its market. Too often we see market size estimates of hundreds of billions of dollars on pitch decks. While this may be 100% true, it may also be a sign that the company has not found its true market just yet.

Coupled with a rinse-and-repeat use case and product, having a tightly defined prospect base are two primary ingredients in determining whether a company has found product-market fit and is ready to raise growth capital.

3. Measure Improvements in Product-Market Fit

Customer retention is one of the best ways to measure product-market fit. The higher the retention, the more willing customers are to continue paying for the solution. When it comes to comparing GRR (gross revenue retention) vs. NRR (net revenue retention), GRR tends to be a more straightforward way to measure the product’s fit with the customers that the company is going after.

A low GRR, however, does not always mean there is no product-market fit. It may simply mean that the company is not going after the right prospects, in which case it needs to spend more time redefining ICP (ideal customer profile) and their sales strategy.

A flaw with GRR, however, is that this is a KPI that was not originally intended to measure product-market fit. It is more of a financial KPI that helps quantify the predictability of a company’s revenue stream, which in turn enables the business to better predict its revenue stream and budget from an FP&A (financial planning & analysis) perspective. 

For measuring product-market fit and its improvement, a cohort analysis of revenue retention is often more revealing, as it enables management to see the improvement of retention over time between cohorts. Changes in product or ICP can be correlated directly with certain cohorts of customers vs. blending all ARR (annual recurring revenue) together over time, which masks the time-series improvement.

Therefore, I recommend looking at a cohort analysis of your customer and revenue retention and monitor its change between the cohorts over time. This will isolate whether the product and strategy changes are making an impact on PMF (or not).

4. PMF Is Not a Permanent State

SaaS businesses are offering a recurring service, so the product needs to continue to adapt to a customer’s evolving needs. A company that has achieved product-market Fit today does not mean it will maintain product-market fit tomorrow. A customer’s tech stack or workflow may have changed, meaning the pain point they are facing may change and a competitor could create a product that is more affordable or simply better at solving the new pain point.

This is where customer success and product management need to play a key role. Customer success is not only about closing ticket items quickly. It is about constantly communicating the value the company’s service is providing and building a relationship with customers by listening to their pain points and evolving needs. A company always needs to have its finger on the pulse across all customers on their level of satisfaction and requested features. An underappreciated data point is also making sure to understand why customers are churning via an exit survey or interview.

As customer demands and reasons for churning are understood, customer success and product management need to be in interlock. Organizations are responsible for retaining customers, upselling customers, and helping shape the product roadmap. Make sure there is a clear feedback loop established between customers, customer success, and product management. It will enable F in PMF to continue to stay intact for the long run.

5. Product-Market Fit and Growth Capital

Management teams primarily raise growth capital to invest in go-to-market and build out a company’s infrastructure to support its rapid growth. While this usually comes after achieving a certain level of product-market fit, the key question becomes how mature is the product-market fit.

In an ideal world, the product is perfect for its market – it is scalable, implementation is seamless, and the ROI is clear. All there is left to do is build a go-to-market engine that scales economically and can ingest large amounts of capital and bring in large amounts of ARR. Unfortunately, it is never that easy, which brings to light the question: “how much growth capital should a company raise?”

Product-market fit should be a large driver in this decision. While a large portion of growth capital goes towards go-to-market, if PMF is early in its maturity, it may be wise to raise a smaller amount to continue searching for PMF, while a business that is mature in its product-market fit may raise a larger amount to invest in ARR growth. Over-capitalizing a business means shareholders are taking more dilution than necessary for cash on the balance sheet that has no clear use, which may create artificial pressure to deploy the capital or change a company’s capital-efficient culture. 

Before investing too heavily in go-to-market, it may be wise to determine how clear PMF is, and how refined the communication of this PMF and ROI to customers is, before determining the size of the capital raise. Spending large sums of money selling a product with no PMF rarely leads to a good outcome.


This information is provided for general informational purposes only.  Under no circumstances should this information be used in connection with or be considered an offer, solicitation of an offer, or a recommendation to purchase or sell, any securities, nor does any such material constitute investment, legal, accounting or tax advice or an endorsement with respect to any investment strategy or company.  

This information may include forward-looking statements.  Volition Capital LLC (“Volition,” “we,” or “us”) can give no assurance that such expectations will prove to be correct.  Past performance is not indicative of any specific investment or future results.  Any specific companies listed or discussed are for illustrative purposes only, and do not represent any or all companies purchased, sold or recommended or an investment recommendation or offer to provide investment advisory services.  Views regarding the economy, securities markets or other specialized areas are not guaranteed to be accurate.  

Volition does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any of this information, and Volition takes no responsibility therefor.  Volition has no obligation to update, modify or amend any such information or to notify you in the event that any information, opinion, projection, forecast or estimate changes or subsequently becomes inaccurate.  

The views expressed herein are those of the individuals quoted or named and are not the views of Volition Capital LLC or its affiliates. This information is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by Volition.

Volition Capital

Tomy Han


Tomy Han



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