Some companies focus on building and launching products before fully understanding whether they meet market demand. As a result, growth decisions are often made before customer demand is firmly established.

Camila De Souza, Vice President, Innovation Economy at J.P. Morgan, offers her perspective on how founders can recognize product-market fit and build toward durable demand.

What is product-market fit?

Product-market fit (PMF), a term popularized by venture capitalist Marc Andreessen, is defined as being in a market where a product can satisfy a need. In practice, it’s better understood as an ongoing signal to be measured, interpreted and acted upon. For an early-stage company, reaching it is often the catalyst for their startup—where a promising idea becomes a business that can scale. But it’s important to treat PMF as a diagnostic, not a final destination.

Behavioral signals are the most reliable indicators. Returning users, repeat transactions, referrals and expansion point to a product that’s delivering value, while stated preferences in surveys or interviews are often less reliable.

Transaction data, cash flow patterns and payment behaviors can help a business see product-market alignment as it emerges. With help from a digital payments platform, these patterns can appear as increases in payment frequency, changes in average transaction size and shifts in retention behavior. Together, they provide a more complete picture of whether the market need is sustainable.

Which PMF metrics matter most?

Revenue is often viewed as the primary measure of success, but it’s actually a lagging indicator that reflects past activity, not the strength of customer engagement.

“What customers do—such as returning, referring, expanding, paying more—matters far more than what they say in surveys,” De Souza said.

Insightful metrics focus on behavior, specifically how customers engage with a product:

• Retention curves: Whether use stabilizes or declines over time
• Activation rates: The percentage of customers who reach the point where the product becomes useful to them
• Referral behavior: Growth driven by customer advocacy
• Expansion revenue: Existing customers who increase their use or spending
• Organic growth: New customers arriving without paid acquisition

One widely used gauge, the Sean Ellis test, asks customers how they’d feel if they couldn’t use the product any longer. If more than 40% say they’d be very disappointed, that’s when a startup is approaching PMF.

Qualitative signals are important, too. Customer interviews, support interactions and feedback loops provide context for what the data alone can’t explain.

As startups grow, metrics that help translate product engagement to sustainable business performance become more important, such as customer retention, churn and cost of acquiring customers.

Another signal is how quickly a company recoups customer acquisition costs. A shorter payback period often reflects improving unit economics (and, in some cases, stronger demand) and can be an important metric investors consider when assessing a business. These are often the signs investors watch to determine whether a company is ready to scale.

Visibility into cash flow and transaction-level activity allows startups to track these signals early. They also help founders understand how much revenue they generate and how predictable it will be over time.

Common pitfalls on the path to PMF

Startups can fall into familiar traps despite access to data and frameworks.

Growing too quickly is one of the most common mistakes. Expanding headcount, infrastructure or moving into new markets before establishing need can lead teams to rely on assumptions that haven’t been entirely tested, resulting in overspending and reduced financial flexibility.

Other common traps include:

• Misinterpreting early enthusiasm: Initial users—particularly those from personal networks—don't typically represent the broader market. “The question isn't whether your first few users liked it,” De Souza said. “It's whether the next thousand will find it the same way and stay.”
• Mistaking activity for demand: Measures like downloads or signups can obscure whether customers are actually finding value in the product. Strong early interest can give the impression of progress, even when customers don't continue using the product.
• Building for investors rather than customers: Roadmaps shaped to impress the next funding round, rather than to solve a real user problem, can move away from the demand that sustains a business.

Companies that expand before establishing interest and need can face pressure on cash flow, forcing them to slow down or make tough operational decisions. Keeping spending in line with proven demand can help sidestep these issues.

Scaling after PMF

Once PMF is established, the challenge shifts to achieving disciplined growth. A key question is whether early success can be repeated as the company reaches more customers.

Signs of readiness to scale include bringing in new customers at a consistent cost, retaining them and seeing them continue to use and pay for the product. If these patterns weaken as the company grows, it may be a sign that more refinement is needed.

Scaling also requires changes in how a company operates. Early progress is often driven by founders, but growth depends on creating processes that others can follow. Products developed during early testing may need to be simplified. Pricing should be clear and easy to understand as the customer base expands.

As companies grow, financial operations become more complex, especially when they enter new markets. Managing payments, liquidity and foreign exchange in a consistent way can help companies navigate uncharted territories and achieve growth more efficiently.

PMF as a continuous process

Understanding that PMF isn’t permanent means continually adapting solutions. Markets evolve, customer expectations shift and competition changes.

Maintaining PMF requires ongoing engagement with both data and customers. When feedback loops remain active, teams can continue to test assumptions. Companies that treat PMF as a capability, rather than a milestone, may be in a better position to navigate change and manage growth.