We dont have product market fit.
The board room fell silent.
How could a rapidly growing company with a $50 million revenue in a hot categorynothave product market fit?
Product market fit (PMF) has evolved as a concept over time.
Moreover, PMF requirements increase as a business matures.
In our experience, these distinctions are meaningful.
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It was striking to observe the extent to which company success differed across these three PMF stages.
Companies with Business Validation had a 50% success rate.
Those with Financial Validation have had a 100% success rate.
Avoid premature scaling
A leading cause of startup death is mistaking early traction for PMF.
Companies win markets by being first to PMF, not first to market.
Hiring after PMF speeds up companies.
Hiring before PMF slows companies down, increases burn and risks a death spiral.
As Warren Buffett observed, Only when the tide goes out do you discover whos been swimming naked.
Go deep before trying to go broad
Focus on and win a market segment.
This is the fastest, most efficient way to test PMF and the business model at scale.
Onlyafterwinning Shanghai did Ganji expand rapidly across China.
Ganji sold for $3.6 billion in 2015, the largest tech acquisition in China at that time.
Iterate quickly
In biology, species that reproduce rapidly (r-selection) survive and thrive best in unstable ecologies.
The same applies to startups.
Rapid iteration is essential for success in any fast-changing environment.
Monetizing is essential to strong PMF and is often harder than anticipated.
CEO Nir Erez now acknowledges that he should have started much earlier.
Though it took much longer than expected, Moovit is fortunate in finding a revenue model that scales.
Too often funding runs out before a company with great traction learns how to monetize its users.
Growth efficiency a ratio of revenue growth to burn rate should improve over time if a company has PMF.
High-performing companies tend to be early adopters of Net Promoter Scores.
Intermedia thrived under Phils watch and ultimately sold for about $500 million.
While varied in nature, startups follow a common path to success.
Story byPaul Asel
Paul is Managing Partner of NGP Capital.
He has realized over 20 successful investments, including 5 IPOs and four $1B+ exits.
He has comple(show all)Paul is Managing Partner of NGP Capital.
He has realized over 20 successful investments, including 5 IPOs and four $1B+ exits.
He has completed acquisitions and IPOs valued cumulatively at over $25 billion.
