As an entrepreneur or startup operator, navigating product-market fit (PMF) is crucial for any business’s success. PMF is the sweet spot where your product features, target customers, and business model come together seamlessly.

Rather than any specific performing metric, PMF is a composite signal for a company that, based on market response and conditions, the time is ripe to sell and scale operations around a specific product. Many startups fail due to a lack of PMF, which may stem from issues such as narrow market focus, insufficient R&D, or inexperience.

And while PMF is not the sole factor investors consider, it significantly influences their decisions during Series A and B funding rounds. Demonstrating PMF can improve a startup’s chances of securing investments.

To better understand this vital aspect of company building, we debunk some common misconceptions about PMF, explore its importance for long-term growth, and examine real-world examples from Southeast Asia.

Misconception: PMF solely depends on the product and market

Reality: Product-market fit isn’t the only fit that matters. Achieving PMF is a challenging journey that involves factors beyond the product and market, such as language, distribution channels, and operations. Understanding these factors can help refine your product and achieve better PMF.

Real-world example: Especially for fintechs, it’s important to know existing regulations and consumer sentiments around the status quo. The founding team behind the pioneering digital bank Tonik had to spend time working with local regulators to secure a license to launch in 2021. They also made it a point to find a language-market fit that would appeal to their target market.

Misconception: PMF is a one-time achievement

Reality: PMF is not a final destination but a continuous process that requires constant adaptation based on customer feedback and data. Embracing this dynamic journey can lead to long-term growth and success.

Real-world example: Instead of optimising for topline, GTV growth on their financing and ERRP SaaS business, Indonesian fintech for FMCG SMEs AwanTunai optimised their ability to manage risk and build up their data ops to unlock successive PMFs after their initial financing product, leading to the launch of their app-less ERP software and financing products for other stakeholders in the FMCG supply chain. This especially enabled the company to weather the impact of the pandemic on financing businesses and more recently, become a Top 50 APAC high-growth company.

Misconception: Sustaining growth is all about product features

Reality: Every product eventually reaches a plateau in user growth. To break through this ceiling, startups must revisit customer assumptions, optimise performance, and unlock new market segments.

At the heart of breaking through what is often called the “S-curve” of growth is the company having the ability to unlock value from the data it has. Already we are seeing today that the biggest companies today aren’t just great at selling, they are great at leveraging data to make what they’re selling matter.

Also Read: Achieving product-market fit: The ultimate guide to growth, strategy and positioning

Real-world example: From day one, auto retail platform Carro has been leveraging its ability to ingest data on customer transactions to improve the auto retail experience, from offering personalised financing and insurance to optimising pricing and ensuring the quality of their supply of used cars.

Misconception: Achieving PMF guarantees long-term growth

Reality: Long-term growth requires continuous product improvements, experimentation, and the ability to build viral products. PMF is a critical aspect of achieving this durability and sustainable growth, but not a guarantee.

Real-world example: Vietnam retail wealth management platform Finhay found PMF with their initial mutual fund investment product, but realised in order to unlock further growth, they needed to expand into other asset classes. This led to them launching several other products in the next few years, including savings accounts, stock trading, and gold investing.

Misconception: Scaling is independent of PMF

Reality: Scaling a business without a solid PMF can lead to wasted resources and customer churn. Establishing a paying customer base, ensuring your product can be sold by your sales team, and maintaining customer retention rates are essential steps in the scaling journey.

Real-world example: Indonesian startup Gojek, in its early years, successfully scaled by focusing on its paying customer base, expanding its services beyond ride-hailing, and maintaining low churn rates.

While there’s no single formula to find PMF, it is clear that having clarity on what this means for your startup is crucial for long-term, sustainable growth.

Instead of a single formula, what we have are many frameworks, mental models, and approaches born out of the experiences of entrepreneurs over the years. We distilled 20 of these frameworks and more insights into a Product-Market Fit playbook which is free to access here.

–

Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic

Join our e27 Telegram group, FB community, or like the e27 Facebook page

The post Debunking 5 common misconceptions about product-market fit appeared first on e27.