Product market fit (pmf) is now a phrase woven deeply into the start-up world and used (or some might say over-used) on a very regular basis. But there is less of an understanding or consistency as to what it actually means.

At Notion we decided that we wanted to include a reference to product market fit within our investment decision making process but before we could do this we needed to agree on a definition.

There is plenty of information and definitions available on the web as you would expect. I have tried to distill it down into something that is clear and concise, makes sense for Notion’s purposes and is measurable.

A good definition from Tristan Kromer is as follows:

Product/Market Fit is sufficient demand in a defined marketplace to allow the efficient expenditure of capital (human or financial) to scale company processes such as marketing.

There are three key components to product market fit – value proposition, customer segment and pricing. Once product market fit has been established none of these three areas requires any further iteration. They will need to be reviewed from time to time but are set for at least the first phase of the company's growth.

To determine the extent to which a company has product market fit I think the following guidelines can be followed:

1. Can the company provide a clear articulation of its value proposition, customer segment and pricing model?

2. Can the company provide evidence that these three areas are aligned and working?

• Number of customers that fit within the definition of the customer segment and are paying at or close to the list pricing (this needs to be a representative group of customers rather than outliers – at least 10 and/or $50-100k MRR that fall squarely within customer segment)

• Show the level of criticality or dependency that the customer has for the product (the best way to do this is to conduct a survey or simply speak to a good sample of customers and ask them to rate the extent to which their business is dependent on the company’s product. Contract lengths, account expansion and renewals are also good indicators)

My thinking is that there will never be a perfect or binary answer for product market fit. But I think by following these guidelines Notion is able to rate companies from 0 – 5 in terms of their PMF and that this helps to inform the investment process.