A Credit Card Swipe Is Only the Tip of the Iceberg for a Startup

Last night a friend asked me at what point I knew that SimpleData had product-market fit. I responded, “When I saw evidence that I had solved my customer’s problem.”

Novice entrepreneurs think that the goal of customer development is to swipe a credit card. This is not true. A paying customer does not prove product-market fit. It simply validates that your customer has a problem, which is only the tip of the iceberg.

It’s not until you solve your customer’s problem that you can claim product-market fit. But how do you know when you’ve solved that problem?

Before your customer swipes their credit card, ask them how they will measure the success of your product or service. For a B2B startup this is easy. Ask your customer what Key Performance Indicator (KPI) they hope your product will affect. An obvious example might be increased revenue.

At SimpleData, we helped a customer sign an $18,000 in their first month using the service. They had only spent $2,000 which means we sold them a machine that takes $1 and returns $9. The $2,000 we collected from them meant very little compared to the $18,000 they collected from their customer.

This logic extends to consumer products as well. Bonobos, the men’s clothing company, set out to create a pair of chinos that men could love. Product-market fit didn’t come when they sold their first 100 pairs. It came when many of those 100 people came back for a second pair.

A credit card swipe is only the tip of the iceberg for the entrepreneur seeking product-market fit. In order to build a company, you must deliver on the promise inherent in that payment.