Two-Step Framework to Solve for Product Market Fit (PMF)

Many tech founders with a brilliant ideas struggle to turn that spark into a product or service that customers love—and are willing to buy. The lack of structured frameworks for this transition often leads to start-ups ending up in the dreaded “valley of death.” Achieving Product Market Fit (PMF) or finding a profitable business model isn't just about luck; it requires a methodical approach. Without this, the outcome can be disastrous.

This article aims to help tech founders of AI and data startups find PMF using a straightforward two-step framework. It’s built around answering two key questions:

1. Is the business model repeatable?
2. Is the business model scalable?

If you can't answer these questions by testing in the market and gathering real data, you risk facing a major setback. So, if you're a tech founder with a promising AI or data product or service idea and you’re looking for a structured path to ensure a profitable business model, keep reading.

Before diving into this 2-step framework that guides you from an idea to building a successful business, it's essential to understand the core concept of a business model.

The Business Model

A business model is simply your strategy for creating and capturing value in the market. It’s also known as the customer development model, a term popularised by Steve Blank. This model is defined by five key variables that you need to solve for through market experiments—not theory. 

1. Segment (S): The specific person or industry (market) experiencing the problem you’re solving. The more specific you are, the better your chances of success. Start with a small, well-defined segment.
2. Transformation (T): The promise you make to this segment—how you’ll help them achieve their desired outcome. The more valuable this transformation, the better your chances.
3. Price (P): The amount your segment is willing to pay for the transformation. This depends on the value you provide and the segment's purchasing power.
4. Mechanism: This is the method, product or service you’ll use to deliver the transformation. In the beginning, focus on your innovation as a methodology rather than a finished product. If the method doesn’t deliver results, the product won’t either.
5. Distribution (D): The channels you use to inform your segment about the transformation and deliver the mechanism.

Your goal in finding PMF is to get the right values for these five variables through market testing. Initially, these values will be just guesses—and they’ll likely be wrong. The only way to find the right ones is to test them in the market through a series of experiments.

Preparing to Go to Market

Before testing your business model variables, start with a hypothesis, identify the tests you want to validate, and design experiments. Here’s a simplified three-test approach to find PMF:

1. Test for Desirability: Focus on the Segment, Transformation, and Price (STP). If you get these right, you’ve proven that people want your solution.
2. Test for Feasibility: Focus on the Mechanism. If your method effectively delivers the transformation, you’ve proven feasibility.
3. Test for Viability: Focus on Distribution. If you can profitably deliver your transformation to the segment, you’ve proven viability.

The sweet spot where desirability, feasibility, and viability overlap is known as the innovation sweet spot"—or in business terms, the zone of Product Market Fit.

With these concepts in mind, you’re ready to learn about the two-step framework to execute your market experiments effectively.

The Two-Step Framework to Achieve Product-Market Fit (PMF)

This framework is designed to help tech founders turn their brilliant ideas into products or services that customers love, using a build-learn-iterate loop. It combines what happens inside the building (agile product development) with what happens outside (customer development). The first step focuses on making sure your business model is repeatable, while the second step is all about scaling it.

Step 1: Solving for a Repeatable Business Model

As a tech founder with a clear vision of the problem you're solving, your first task is to translate that vision into a series of business model hypotheses—your initial guesses for the five key variables. Then, create a plan to test how customers react to these hypotheses and turn those reactions into facts. This is not the time to gather extensive feature lists from prospective customers or conduct endless market research.

Forget about building a fully-fledged MVP at this stage. Instead, start with a low-fidelity MVP or even a simple sales letter to gauge customer interest in the problem, their need for a solution, and their willingness to pay for it. As you head into the market, test for desirability, feasibility, and viability, and gather data to refine the true values of your five key variables. Embrace the possibility that your initial guesses might be way off. Learn from early customers, adapt your product or service, and iterate as quickly as possible.

By the end of Step 1, you should have nailed down the three tests (desirability, feasibility, and viability) and identified the correct values for the five variables. Now, ask yourself:

• Can you do this repeatedly and achieve consistent results?
• Can others on your team execute the model using these values and achieve similar results?
• Is the business model repeatable?

If the answer is yes, congrats! You’re ready for Step 2: Validating your business model.

Step 2: Solving for a Scalable Business Model

In this phase, the focus shifts to determining whether your repeatable business model can scale to reach the volume of customers required for profitability. You now have the validated values from Step 1; it’s time to test their scalability against a larger audience through more rigorous, quantitative experiments.

At this stage, you should have a high-fidelity MVP to test key features further. As you conduct larger-scale experiments, gather data to verify your scalability hypotheses. Continue to iterate within a tight build-learn loop, refining your MVP’s features based on market feedback. Now is also the time to start building scalable systems, such as:

•  A marketing system that scales with your budget.
• A sales system that grows with more sales agents.
• A pricing model that achieves positive ROI within 60 days.
• A fulfilment process that isn’t dependent on specific employees.
• A financial model that ties everything together toward profitability.

Throughout this step, keep asking: Is my business model scalable? This shouldn't be based on gut feeling; use data from your market experiments to guide your decisions.

Summary of The Two-Step Framework to Achieve Product-Market Fit (PMF).

This two-step framework helps tech founders refine, test, and validate their initial business ideas. Completing these steps confirms your product’s core features, verifies market demand, identifies target customers, and establishes pricing and distribution strategies.

Before you dive into costly commitments—like spending heavily on marketing, renting office space, or registering your business—make sure you’ve worked through this framework. Skipping this process can lead to only one outcome: catastrophe.

Getting Started

Building a successful startup is not about guesswork. It involves a tight loop of agile product development and customer development. To make this process easier, I’ve put together a FREE report titled: The AI & Data Business Model Innovation and Growth Marketing Framework. This report aims to help tech founders build innovative business models around their ideas and attract high-value customers. Grab your FREE copy here: Link

And I’ll leave you with a great reminder from Steve Blank: “There are no facts inside your building, so get the heck outside.”