Interview with Todd Jackson

The elusive concept of Product-Market Fit often feels like a whispered secret in the startup world – a magical state you’ll "just know when you have." But what if it wasn't just magic, but a methodical path? This is precisely what Todd Jackson, a partner at First Round Capital with a legendary product background spanning Gmail, Facebook, Twitter, and Dropbox, set out to demystify in a recent insightful conversation with Lenny. Drawing on years of experience, both as a product leader and an investor, Jackson and First Round have distilled the journey to PMF into a practical, actionable framework designed to increase founders' odds of success.

The PMF Paradox: Why a Framework for the Undefined?

For many founders, Product-Market Fit (PMF) remains a nebulous goal, often approached more as an art than a science. Despite its critical importance, specific, tactical guidance on achieving it is surprisingly scarce. Todd Jackson laments, "Product Market fit is the single most important thing that your startup does in the first 3 years and it's just underexplored and it's just underexplained as a topic." This gap is what inspired Jackson and his team at First Round to dedicate over a year to analyzing data and hundreds of startup journeys, identifying consistent patterns. Their goal isn't to guarantee success, but to provide a structured path, reducing the role of luck for early B2B founders navigating their first six to nine months.

Key Insights:

• PMF is Critical: It's the singular most important factor for a startup's first three years, propelling growth and simplifying challenges like hiring and product direction.
• Lack of Specificity: Existing advice on PMF is often vague ("you'll know it when you see it"), creating a need for a more scientific, tactical approach.
• Structured Guidance: The framework aims to increase odds of success by providing a clear path, levers for change, and defined goals at each stage.

Beyond "You'll Know It When You See It": The Four Levels of PMF

One of the framework's core tenets is that PMF isn't a binary state but a sequential journey through distinct levels. It unfolds over multiple years, typically four to six for the best enterprise companies. Jackson introduces four levels: Nent, Developing, Strong, and Extreme, each with unique priorities and tradeoffs. The ultimate goal, "Extreme Product Market Fit," is precisely defined as "a state of widespread demand for a product that satisfies a critical need and crucially can be delivered repeatably and efficiently to each customer."

This definition highlights three crucial dimensions: demand, satisfaction, and efficiency. The inclusion of "efficiency" is particularly noteworthy, as Jackson points out it's often overlooked. He illustrates this with the "100-dollar vending machine" analogy: imagine a machine that takes a dollar and dispenses a hundred. Demand would be insane, satisfaction off the charts, but it's economically unviable. "That's not real product Market fit," Jackson clarifies, emphasizing that without efficiency, even a product with high demand and satisfaction is unsustainable. As companies progress through the levels, they must balance these dimensions, often making tradeoffs.

Key Learnings:

• PMF is a Journey: It progresses through four defined levels: Nent, Developing, Strong, and Extreme, not a single "aha!" moment.
• Three Pillars: True PMF requires balancing demand, satisfaction, and crucially, efficiency – a dimension often neglected by founders.
• Marginal Customer Focus: As PMF strengthens, acquiring and serving the "marginal customer" (the next incremental customer) should become progressively easier and more efficient.

Level 1: Nent Product-Market Fit – The Scrappy Beginnings

At the Nent stage, typical for pre-seed or seed companies with fewer than 10 people, the focus is entirely on intense customer satisfaction. The mission is to find three to five customers with a deeply important and urgent problem, and then deliver a highly satisfying solution that fulfills a critical promise. Inefficiency is not just tolerated but often necessary to uncover those insights. Vanta, the compliance automation powerhouse, provides a perfect example. Founder Christina Cacioppo initially manually filled out spreadsheets to secure compliance for early customers like Segment and Figma. Her "product" was essentially her own manual labor, but it delivered on a profound promise: "This product is going to unlock revenue for you; you are going to be able to land this Enterprise deal."

Founders at this stage are primarily relying on their network for demand, with a high conversion effort (e.g., 20 warm intros for one customer). Metrics like burn multiple or gross margin are irrelevant. The goal is to feel a sense of progress, that what you’re building truly resonates. But what if you're stuck? This is where Jackson introduces the "Four Ps": Persona, Problem, Promise, and Product. Lattis, now a leading people management platform, famously started as an OKR tool. Founder Jack Altman found himself "friend zoned" by customers – they liked his product but didn't need it. He kept his Persona (HR leaders) but pivoted the Problem, Promise, and Product, moving into Performance Management. "I believe he sold his first five or 10 customers like with Figma mockups," Jackson recounts, highlighting how changing the Ps without rebuilding the product can unlock PMF. Rick Song of Persona famously advised founders not to get "friend zoned," urging them to ask customers directly: "Is [my product] like a necessity for your company? If we went away, you know how painful would that be? If a competitor came along that charged half as much as us, would you switch to them?"

Key Practices:

• Hyper-Focus on 3-5 Customers: Identify a handful of users with an urgent, important problem and solve it deeply.
• Embrace Inefficiency: At this stage, manual efforts and "Wizard of Oz" solutions are acceptable if they lead to profound customer satisfaction.
• Iterate on the "Four Ps": If stuck, systematically analyze your Persona, Problem, Promise, and Product to identify where to pivot.
• Avoid the "Friend Zone": Actively seek honest feedback from customers to ensure your product is a critical necessity, not just a nice-to-have.

Level 2: Developing Product-Market Fit – Scaling the Spark

Moving into Level 2, Developing PMF, the mandate shifts from 5 satisfied customers to 25. This transition marks the point where demand becomes equally important as satisfaction. "It is very hard to just grind your way all the way to 25 customers with sheer willpower," Jackson notes. The product itself must begin to drive demand, moving beyond purely warm intros to early signs of scalable channels like cold outreach, content, or community events.

At this stage, a company might be a seed or Series A firm, with up to 20 people and ARR between $500K and $5 million. Founders start to consider foundational sales metrics like a magic number between 0.5 to 0.75, retention benchmarks (e.g., at least 100% NRR, less than 20% regretted churn), and gross margins not worse than 50%. Looker, another First Round company, illustrates this shift. Founder Lloyd Tabb spent a prolonged period at Level 1, essentially consulting for his first five customers to model their data and demonstrate value. Once the deep satisfaction was established, the repeatable product and sales process allowed them to fly through Level 2, scaling that initial spark into broader demand.

Key Changes:

• Scaling Customer Base: The goal shifts from 3-5 to 25 satisfied customers, requiring a move beyond pure willpower.
• Developing Scalable Demand: Begin investing in early, repeatable demand channels beyond personal networks.
• Initial Metric Focus: Start tracking key sales and efficiency metrics like ARR, magic number, retention, and gross margin, though they are not the primary focus yet.

"If you find extreme product Market fit, the momentum just carries you and the market pulls you along and it's easy to know what to build because you're building the thing that your customers want and it's motivating as a team it's easy to hire people it's easy all everything becomes easier if you find product Market fit is it is the thing that propels the company." - Todd Jackson