Why Product Market Fit Shouldn't be an Indicator in International Expansion
Growth consultants and CEOs of startups that enable international expansion regularly give advice about when a Founder or startup should start their international expansion.
Their advice: Wait until you get product market fit.
I think it’s poor advice. Here's why:
It raises the question “how to know if you’ve got product market fit?”.
And there are 1.52 Billion answers to that question.
Lenny Rachitsky, Former Growth PM Lead at AirBnB, admitted to having the same struggle in his recent (January 2020) newsletter “How to Know if You’ve Got Product Market Fit”.
“I’ve noticed that most people (including myself) have only a vague grasp on what product-market fit actually is. And even fewer people are going after it in a systematic way. For my own benefit if nothing else, last year I began collecting the best descriptions of PMF that I could find across Twitter, podcasts, books, and blog posts.”
Lenny’s article ranks as #2 in Google’s indexing of the 1.5 Billion answers.
I greatly respect someone with Lenny’s experience admitting he’s muddled on this matter. For the record, so am I. And to be clear, I’m not in the same league as Lenny Rachitsky.
Given the sheer number of differing definitions of Product Market Fit, and reading the experience of a thought leader on Product Management like Lenny-- product market fit is more of a feeling than something derived from data.
In fact, Lenny’s latest article (published 17 hours before this masterpiece 😉 ) is entitled “What it Feels Like When You’ve Found Product Market Fit”.
If a thought leader like Lenny talks about Product Market Fit as a feeling -- more than a data-driven decision point -- then I think we should admit that it’s not a clear-cut matter nor a reliable measure to use in international expansion.
Those advising ambitious startups should stop using Product Market Fit as a metric to indicate readiness for international expansion. Because Product Managers, Founders and CEOs are struggling, still, to find a data-driven way to measure it.
I’ll offer three data-driven ways of quantifying when you should start your journey towards international expansion. I'll also qualify this advice is for SaaS companies.
- You have 10 paying customers in another, single country that is outside of what you designate as your home market. This is taken directly from Jason Lemkin at SaaStr. (See source below) It's ok to let those first 10 customers find you. His rationale is that if you can get 10 customers you can get 100. Note this logic is applicable to SaaS companies with product-led growth strategies and may not be applicable to a more sales-driven, enterprise or e-commerce businesses.
- You can measure the following: Customer Acquisition Cost, Lifetime Customer Value, and Cost of Goods Sold. Being able to attach a meaningful number to each of these metrics means you have a repeatable sales process - which is one of our key measures for readiness for international expansion. The actual numbers will change for each country. These measures also imply that you have engaged a significant number of customers through a full life cycle.
- You have free cash flow of at least 10,000 per month in a tradeable currency. (e.g. USD, Euros, British Pounds, Japanese Yen, Swiss Franc, Canadian or Australian Dollar, South African Rand) This is not about having enough budget to hire local staff or open an office, but starting to test and experiment with channels within a new country. The more commonly advised metric of around U$1M in international revenue actually causes problems. It reinforces short sightedness and delay in implementing an international mindset in favor of local success and the ever-elusive "product market fit metric".
These may not be the perfect metrics to determine when a company is ready for international expansion, but they are far more measurable than the muddy matter of Product Market Fit.
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If you have comments, criticisms or questions, please send them via the contact form below. I’ll be glad to amend and expand this article with arguments for (and against) my recommended international expansion metrics.
Sources:
Remember that SaaStr focuses on SaaS companies growing from U$10M to U$100, which means their sample size – and corresponding advice – is biased towards larger companies. Also remember that the article from where we take the "10 customers advice" is from the larger context of establishing a European office. SaaStr's advice is to start a cadence and conversation with international customers when you have 10 from a specific country. Then move on to an office with later metrics.