Brad Feld wrote what I think is going to turn out to be a seminal post on product/market fit in this post titled, The Illusion of Product/Market Fit for SaaS Companies. He echoes much of what I wrote about in my post, "No, you don't have product/market fit". back in December, 2014. The difference between his post and mine is that Brad goes in depth on the topic and has included recommended revenue/growth numbers to help guide in the assessment of product/market fit. It is in those numbers that Brad provides us an insight into the revenues numbers that are interesting to investors (especially venture capitalists).
I often get asked by first-time minority entrepreneurs how big (revenue-wise) their company has to be to be of interest to VCs. Brad's article is a MUST READ for entrepreneurs who have the same question. Although not the intent of the article (the article is about product/market fit), it offers a glimpse into ball park revenue figures that are interesting to investors. Most importantly, it's offers a glimpse into the level at which the game is played. For first time entrepreneurs, it is important to know where the revenue bar is in order to be fundable startup. Here are the some of the key revenue ranges (and excerpted comments from Brad) Brad mentions for startups:
[NOTE: MRR stands for Monthly Recurring Revenue]
|MRR Range||Brad's comment|
|$0 MRR||"You are working on a product and searching for your first customer"|
|$1 to $10k MRR||"You finally found someone to pay you for your shitty MVP, but you’ve got a long way to go before you truly have product/market fit. Do not pour on the gas at this point. Stay calm and keep doing what you are doing."|
|$10k to $100k MRR||"a super exciting time ... You are starting to learn what your customers will pay you for. You feel like things are actually cranking ... If you aren’t growing a compounded 10% each month, you don’t have product market/fit yet. If you are growing faster than that, you have found something."|
|$100k to $500k MRR||"a product/market fit sweet spot. You are starting to build a sales organization, have visibility in the market in your segment, and might even have customers coming to you on a regular basis."|
|$500k to $1m MRR||"you’ve found product/market fit. You are now at the magical point some people call “Initial Scale.” Cool – you’ve got a business."|
(NOTE: Please note that investors look at a multitude of factors when deciding to invest in your company and revenue is just one of them. The purpose of this article is to give entrepreneurs, especially first-time entrepreneurs, an idea of the revenue numbers that investors talk about. It is important that you read the full article to get the overall context, The Illusion of Product/Market Fit for SaaS Companies)
As an entrepreneur, it is important to have an idea of what the revenue numbers that are interesting to investors look like because it helps you calibrate your revenue goals; especially, if you are going to seek funding. Please do not use these numbers to simply inflate your market size and revenue targets in your pitch deck (good investors will smell that from a mile away), instead, use these numbers to guide you in building a business model that is capable of scaling to reach those revenue/growth ranges. Use these numbers to craft strategies for executing your business model to reach those revenue/growth ranges. Investors are most interested in understanding HOW you are going to the get to those revenue/growth numbers and some proof in the form of traction goes a long way.
- Tom Chikoore