How we define the progress of startups towards product/market fit
Ever since we introduced our NEXT Progress Canvas, we have been thinking about how we can define at which stage a startup is on its path towards product/market fit. A few weeks ago we read about Steve Blank’s Investor Readiness Index and it really helped us turn our ideas into a model that works for us.
If you look at the NEXT Progress Canvas there are roughly four phases. Founders start with an exploration phase to find the problem they are solving and the early customers they are solving it for. After that, they will test some solution experiments and discover their main value propositions. This is the moment they hopefully reach problem/solution fit and is it time to start validating a revenue model. To find a working revenue model, it is important that the key metrics for the startup also have solid values. We usually advise starting optimizing the retention, since happy customers are more likely to pay. If there is a working revenue model and the metrics are solid as well, we speak of product/market fit and the startup can start to work on their scale phase by finding their growth engine and the corresponding channels.
As you just read, it is quite a long explanation on the stage of a startup. Wouldn’t it be nice if we could put a number of 1 to say 7 on it? That way it is also easier for us and our co-investors to determine whether it is the right time to invest.
So without further due, we’d like to introduce our Startup Progress Barometer:
Startup Progress Barometer
- Found problem and early customer
- Ended exploration phase
- Validated first solution experiment
- Found problem/solution fit
- Solid key metrics (KPIs)
- Validated revenue model
- Found product/market fit
In our experience, it usually takes three months to get to step 2 (end of exploration phase) and another six months to get to step 4 (problem/solution fit). Then the real hard part starts: Finding product/market fit. It usually takes several iterations and up to 15 months to get there, totalling to an amount of time to 24 months till step 7. In an almost ideal situation, because often it takes far longer than that. We have written more about it in The 24-month journey to product/market fit.
NEXT Amsterdam invests in and supports early-stage software startups solving real-world problems. We invest with a convertible revenue share, giving founders the option to either take the path of venture capital or focus on generating revenue.