In this talk, the speaker critiques the common misuse of the term "product‑market fit" and expands Dan Olsen’s Product‑Market Fit Pyramid. He introduces an additional bottom layer – the founder’s “earned edge” – which captures industry knowledge, contacts, and credibility that determine whether a founder is suitable to build a business. Building on that, he defines “market fit” as confirming that a real buyer with a hair‑on‑fire problem exists, identifying the buyer’s state (steady, overconfident, crisis, growth) and the trigger that makes them seek a solution. He stresses the importance of using the customer’s own language to articulate the problem and value proposition, gathered through recorded interviews. The speaker then outlines a sequence of validation steps: demand proof (a paying customer), proof of value (repeat purchases and referrals), and finally a scalable, repeatable sales channel. Only after these steps does a product become truly product‑market fit, allowing the team to invest in features and UX. He advises founders to postpone costly product development until the service model, demand, and channel are proven, warning that building on imagination leads to building the wrong thing.
Chapters
So, one of our founders sent us this pyramid the other day, which I thought was super interesting. It's Dan Olson's Product-Market Fit Pyramid, and it explains that product-market fit sits between a customer's underserved needs and the product features and value proposition and UX. And this is something we see quite a lot, that there is a lot of thought given to the product, but not so much thought given to the target customer and the underserved needs. And I think many founders that we speak to are building from their imagination. They are assuming that a target customer has the needs that they are— that they have perceived, and then they focus all their time on creating a value proposition and feature sets, maybe these days building a product with Claude or with Lovable or the equivalent, and then thinking about the UX. And what happens then is that they go and try and sell that to the customer, the target customer, and nobody's interested. And so, we have our own thoughts on product-market fit, and here's our example or our version of Dan Olsen's product-market fit pyramid. And as you can see, there's a lot more work there before you get to product-market fit. And I think, let me just talk you through this because this is basically how we approach every business that we build. So this bottom rung is effectively how we determine whether a founder is someone that we would want to build a business with, and it's their earned edge. And what we mean by that is, what do they know about their industry that we don't? We're pretty good at building companies, but we can't necessarily build a company for a specific industry because we don't have the insider knowledge, we don't have access to the buyers, we don't have credibility in that industry. So that's what we mean by earned edge. What do they know? Who do they know? What's their reputation? Can they open the right doors? Once you've got that established, then we move on to what we call market fit, which is Does anyone actually want this? And this is what Dan Olson talks about, this underserved needs. Now, underserved needs are a lot more complicated than I think many people think. First of all, you need a buyer. You need a buyer with a real problem. We call it a hair-on-fire problem, but a problem that they have an incentive to solve. They have a budget to solve it, and usually there's a trigger. There is some thinking, which I'm trying to remember the name— Miller Heiman. Miller Heiman's thinking is that there are 4 states the customer has. They're either in steady state, they're overconfident, which we see a lot— they have got a problem, but they don't realize it— or they have a problem and they realize it, so they're in crisis mode, or they're in grow mode, where things are growing, things are happening, they just need to keep putting the fires out to maintain that growth. According to Miller Heiman, if people are in steady state or overconfident mode, they're not going to buy. If they're having a crisis or they're growing, then maybe they will buy. And so that's what we mean by a buyer and a trigger. What's the trigger? What is happening in their world that means that they're looking for a solution to that problem? So then you've got the underserved needs, but a key point that we see founders making a mistake of is that they describe their solution in their own words. They're using their imagination way too much. What you need in order to be able to sell something is to put a solution and a problem into the words of the person that's suffering that problem. They need to see themselves in the solution, which is why you have to talk to customers and you have to record those conversations and get the actual words that those customers are using. So, you need to be able to voice or put words to the value proposition in the words of the customer. So, this is all part of the underserved needs that Dan Olson is talking about, but I think it glosses over so much work just by putting underserved needs. It's so easy to assume that you've identified underserved needs. So then, what is the proof that there is that demand there? Well, the only proof really is someone pays. If no one's paying, an LOI, a letter of recommendation, an MOU, these things don't actually mean anything. You need somebody to pay money for the solution that they perceive is being made available. That's demand proof. That's what we call demand proof. First step, big step. But then after that, you have to be able to satisfy that demand. You have to be able to give them something that they feel gives them value. So we talk about proof of value. And what's the best proof of value? The customer buys again, repeat purchases. Once you've got a repeat purchase, you've got hopefully recurring revenue. What's the next step? How do you know that someone would recommend your service? The Net Promoter Score is all about, what's the likelihood of you recommending this product or service to someone you know, to a friend? So what's the best example? What's better than a Net Promoter Score? An actual referral. Don't get them to tell you that they would refer you to someone else, get them to refer you to someone else, get them to give you another customer. And we've got portfolio companies that don't do any marketing because they have such a strong referral mechanism that every customer or every other customer brings in a new customer, and they have more customers than they know what to do with. So it's extremely powerful, and if you don't like marketing, and you don't want to do cold outreach, which doesn't really work that well these days, then that is highly worthwhile. Okay, so you've got a customer, they've paid, showing proof of demand. They've paid again, showing proof of value, that they're getting value. They've brought in a referral, which strengthens that proof of value. So what do you need next to get to product-market fit? People are happy with your solution. That's product-market fit, isn't it? No, I don't think it is, because in order to get to true product-market fit, you have to have the ability to scale. You have to have a repeatable sales process, process. So really, you need a channel. You need a way for strangers to find you and for them to convert. Not just find you, but when they read your value proposition, they see their own words, their own struggles in your words. They can satisfy their job to be done, they think, by looking at your solution, and they buy. So strangers find you and then they purchase. So that's product-market fit, no? Well, it's market fit for sure, but product-market fit really means that you need a product rather a service. You need something that's repeatable, automatable, scalable, so that you can reduce the cost of service and increase your margins. And really, only once you've created something that is part automated or productized do you have product-market fit, in our view. And then once you've got your product, that's when you can start thinking about features and UX, but only then. And we like to postpone the product for as long as possible because when you start building products, you start incurring cost. Maybe these days the cost isn't what it used to be, but it's time, and time is money. And if you're building a product before you truly understand the service and the value that you need to be able to provide, then you're incurring costs that maybe you don't need to be incurring. So, if you're just starting out in your startup journey, or you're thinking about building a business, or if you're thinking about building a product, make sure you go through these steps before you start building your solution. Whatever that might look like. Because if you haven't gone through these steps, if you haven't identified what makes you the right person to build this business, what the buyer is, what the trigger is, how the customer describes their problem and solution, then chances are you're going to be building the wrong thing. I hope that helps, and good luck.
