Table of Contents
Most founders think product-market fit is binary—you either have it or you don't. But Todd Jackson's framework reveals the harsh reality: PMF is a four-level journey taking 4-6 years, and 60% of B2B startups get permanently stuck at levels one or two, never reaching the promised land where "fish jump in the boat."
Understanding which level you're actually at—and what it takes to progress—could be the difference between joining the majority that plateau and the 30% that build truly valuable companies.
Key Takeaways
- Product-market fit isn't binary but progresses through four distinct levels: nascent, developing, strong, and extreme
- 60-70% of startups never progress beyond level two, where they have customers but struggle to scale demand efficiently
- Each level requires different priorities: Level 1 focuses on satisfaction over efficiency, Level 2 scales demand, Level 3 optimizes efficiency
- The "Four P's" framework (Persona, Problem, Promise, Product) provides systematic levers for pivoting when stuck at any level
- True PMF requires three dimensions: demand (customers want it), satisfaction (it solves real problems), and efficiency (sustainable unit economics)
- Level one success means finding 3-5 customers willing to pay for manual, inefficient solutions that deliver transformational value
- The transition to level three marks the psychological shift from "grinding for customers" to "customers finding you"
- Dollar-driven discovery techniques reveal true purchase intent beyond polite customer feedback that misleads founders
- Most pivots fail because founders make 10% changes when they need 200% transformations of their core assumptions
Timeline Overview
- 00:00–11:02 — Todd's Product Pedigree: From Gmail's early days to Facebook's newsfeed redesign, Twitter acquisitions, and Dropbox's IPO journey, plus why VCs rarely have real product experience
- 11:02–21:35 — The PMF Science Revolution: Why existing advice is too vague, the three-dimensional framework of demand/satisfaction/efficiency, and the $100 vending machine metaphor for unsustainable business models
- 21:35–39:13 — Level One Mastery: Vanta's manual SOC 2 story, the power of "Wizard of Oz" approaches, why efficiency doesn't matter when delivering transformational satisfaction, and avoiding the "friend zone" with customers
- 39:13–55:12 — Level Two Scaling Challenges: Looker's "forward deploy" process, Ironclad's positioning pivot from AI assistant to CLM, building repeatable demand channels, and the 10% cold conversion benchmark
- 55:12–1:06:55 — Level Three Breakthrough: The "fish jumping in boat" phenomenon, Retool's boulder analogy, maintaining all three dimensions while competition intensifies, and why even $100M companies question their PMF
- 1:06:55–1:25:11 — Advanced Tactics: The Four P's systematic pivot framework, dollar-driven discovery techniques that reveal true willingness to pay, and why most customer conversations mislead with polite feedback
The $100 Vending Machine: Why Demand and Satisfaction Aren't Enough
Todd Jackson opens with a deceptively simple thought experiment that exposes the fatal flaw in most product-market fit thinking. "Imagine I built a vending machine and stuck it in the middle of San Francisco where you put a dollar in and a $100 bill comes out. That would have insane demand—there would be a line at that vending machine. People would be extremely satisfied and the retention would be very good."
But this obviously ridiculous business model illustrates why most PMF definitions miss the crucial third dimension: efficiency. "You see a lot of startups kind of do this—they're basically giving away $2 for $1 with their products, and it gets them pretty far, but that's not real product-market fit."
This insight explains why companies like WeWork and Casper achieved massive customer satisfaction and demand but ultimately failed—they never solved the efficiency equation that makes businesses sustainable at scale.
Jackson's framework requires all three dimensions working together: widespread demand, critical need satisfaction, and repeatable, efficient delivery. The genius is recognizing you don't optimize all three simultaneously—each level prioritizes different dimensions while maintaining others.
The Four-Level Journey: From Grinding to Magic
Traditional product-market fit advice treats it as a destination, but Jackson's data from hundreds of First Round portfolio companies reveals it's actually a progression spanning 4-6 years with distinct characteristics at each stage.
Level 1 (Nascent): 3-5 Customers, Satisfaction Above All At this pre-seed stage with fewer than 10 people, your only job is finding customers with urgent, important problems and delivering solutions they can't live without. "It's actually okay to be inefficient at level one as long as you're delivering incredible satisfaction."
The Vanta example perfectly illustrates this principle. Founder Christina Cacioppo manually completed SOC 2 certifications using spreadsheets—essentially becoming "the person behind the email address, posing as the AI but doing it herself." This completely unscalable approach unlocked millions in revenue for customers like Segment and Front trying to land enterprise deals.
Level 2 (Developing): 5-25 Customers, Scaling Demand This seed to Series A stage focuses on building repeatable demand generation beyond warm introductions. "To get to 25 and beyond, the product has to be doing a lot of the heavy lifting for you." Cold outreach conversion rates around 10% indicate healthy but not effortless sales.
Looker exemplifies successful level two execution through their "forward deploy" process—spending 20-40 hours with prospects before any purchase decision, modeling their data and demonstrating insights. This investment created 75% close rates and zero churn, enabling rapid scaling from five to 25 customers.
Level 3 (Strong): 25-100+ Customers, The Tipping Point This is where the famous "fish jumping in the boat" phenomenon begins. "Every customer we got felt like the last customer we were ever going to find until we had a few million in ARR. That's when the boulder went down the other side and we had to chase it," recalls Retool's David Hsu.
At this 30-100 person, Series B stage, at least 10% of inbound comes from referrals and word-of-mouth. You're getting known in your category, and efficiency metrics like burn multiple below 3x become critical.
Level 4 (Extreme): 100+ Customers, Sustained Excellence Companies reaching this unicorn level maintain exceptional metrics across all dimensions while expanding total addressable market through new products or markets. Each expansion requires finding product-market fit repeatedly—success with one product doesn't guarantee success with additional offerings.
The Four P's: Your Systematic Pivot Framework
When progress stalls at any level, most founders make random adjustments hoping something works. Jackson's Four P's provide clear levers for systematic experimentation: Persona, Problem, Promise, and Product.
Persona: Think of your market as a collection of people, not a macro category. "Jack Altman was thinking about his market as all of the HR leaders out there—how many are there, what problems do they have, how much money are they willing to spend on solving those problems."
Problem: The specific pain point you're addressing within that persona's world. This often requires the deepest customer discovery to uncover what truly matters versus what people say matters.
Promise: How you position and describe your solution—essentially your value proposition and messaging. This is often the easiest and most impactful thing to change.
Product: The actual solution you're building. This is typically the most expensive to change, so explore other P's first.
Strategic Pivot Patterns: Different companies change different combinations:
- Lattice: Kept Persona (HR leaders) but changed Problem (from OKRs to performance management), Promise, and Product
- Vanta: Changed all four P's when pivoting from earlier concepts to compliance automation
- Plaid: Kept Product (bank connection technology) while transforming Persona (consumers to fintech developers), Problem, and Promise
The key insight: "Most founders do a 10% pivot when what they need is a 200% pivot." Success requires dramatic rather than incremental changes to core assumptions.
Level One: The Manual Magic That Builds Foundations
Level one success requires abandoning efficiency concerns entirely to focus on delivering transformational customer value. This counterintuitive approach separates successful founders from those who prematurely optimize for scale.
The Vanta Validation Model: Christina Cacioppo's approach demonstrates perfect level one execution:
- Customer Discovery: Asking security leaders "What do you hate most about your job?" repeatedly revealed compliance questionnaire pain
- Manual Delivery: She personally completed SOC 2 certifications using spreadsheets—no product, just service
- Revenue Validation: Customers immediately closed enterprise deals they couldn't access before
- Promise Fulfillment: "This product is going to unlock revenue for you" became reality, not aspiration
Warning Signs of Level One Stagnation:
- Customers wouldn't be disappointed if you disappeared
- Each customer requires completely different features (consulting business disguised as product)
- Consistently low usage despite customer payments
- Taking 12+ months without clear progress toward five satisfied customers
The Lattice pivot story illustrates how to escape level one problems. When their OKR tool repeatedly failed to stick beyond one quarter, founder Jack Altman kept his Persona (HR leaders he'd built relationships with) but completely changed the Problem he was solving. "I've gotten to know these heads of HR really well... they just [think] this OKR thing doesn't seem to be a big deal for them, but they've got other problems that I could look at solving."
Level Two: The Demand Scaling Gauntlet
Level two represents the most common failure point, where 60% of startups get permanently stuck. The challenge shifts from proving product value to building repeatable demand generation that doesn't require founder grinding for every customer.
The Ironclad Positioning Breakthrough: Jason Boehmig's journey illustrates how positioning changes can unlock demand floodgates without product modifications. Initially marketed as an "AI legal assistant" (creating a new category), the company struggled until repositioning as a "contract lifecycle management platform"—an existing category with established buyer intent.
The pivotal moment came through an inbound email asking "Are you a CLM?" After researching what CLM meant, Boehmig replied yes and won the contract against 10-12 established vendors. "We had been trying to create this new category... it was just like a slog. When we changed our positioning to play in an existing category but a much better CLM... things started to click."
Level Two Success Metrics:
- 500K to 5M ARR with 10-20 employees
- Cold outreach conversion around 10% (first call to close)
- Magic number (new ARR ÷ CAC) between 0.5-0.75
- Regretted churn below 20%
- Net Revenue Retention at least 100%
- Gross margin above 50%, burn multiple below 5x
Critical Transition Indicators: As you approach level three, startups should begin recognizing your company. "Oh you need a SOC 2 for your startup? Oh, Vanta. Oh, you need AI-powered contract management software? Oh, Ironclad." This brand recognition signals successful category positioning.
Dollar-Driven Discovery: Beyond Polite Customer Conversations
Most customer discovery fails because founders seek validation rather than truth. Jackson's "dollar-driven discovery" methodology cuts through social pleasantries to reveal genuine purchase intent.
The Three-Part Framework:
1. Identifying Extreme Value: Ask about problems and goals without leading toward your solution. Look for "wow statements" or demonstrated behavior showing genuine interest, not polite responses like "that sounds interesting" (which Jackson identifies as the polite way of saying no).
2. Ability to Pay: Determine if customers are actively looking for solutions, have existing budgets, or have tried building internal solutions. "If a customer has a problem and they know they have the problem and they're looking for a solution... or they've even tried to build their own solution and failed, that's like the best customer because they've demonstrated that they want this thing badly."
3. Willingness to Pay: Use specific pricing questions like "What's a fair price? What would be expensive? What would be prohibitively expensive?" The expensive price is usually what customers will actually pay if the product delivers value.
Avoiding Happy Ears Syndrome: Most founders unconsciously seek information supporting their preconceptions. Jackson advocates for non-leading questions that force authentic responses: "What stands out as valuable here?" rather than "Don't you think this would be valuable?"
The Psychological Journey: From Grinding to Magic
One of Jackson's most valuable insights concerns the emotional experience of finding product-market fit. The journey from level two to three represents a fundamental psychological shift that founders recognize viscerally.
The Grinding Phase: "Every customer we got felt like the last customer we were ever going to find. It felt like rolling the stone uphill, and if you stop pushing, it's going to roll back on you and crush you," describes Retool's David Hsu about their early years.
The Breakthrough Moment: "That's when the boulder went down the other side and we had to chase it." Level three arrival feels sudden despite years of building foundation. Lattice founder Jack Altman describes the shift: "I remember thinking I don't even know where these leads are coming from—just more and more of them are showing up each month."
The Paranoia Paradox: Even successful companies maintain uncertainty about their product-market fit. Ali Ghodsi from Databricks "said even at $100 million he wasn't sure they had product-market fit." This ongoing paranoia often drives continued innovation and customer focus among the most successful companies.
This emotional journey validates Jackson's framework—the levels represent real psychological states founders experience, not just arbitrary metrics. Understanding where you are emotionally can help identify which level you're actually in and what changes might unlock the next stage.
Common Questions
Q: How do I know if I'm stuck at a particular level versus making normal progress?
A: Each level has specific time benchmarks. If you're spending 12+ months at level one without finding 3-5 satisfied customers, or 18+ months at level two without reaching 25 customers, you're likely stuck and need to consider changing your Four P's.
Q: Should I focus on building product features or talking to more customers?
A: Depends on your level. Level one prioritizes customer discovery and manual delivery over product development. Level two requires both product improvement and demand channel building. Focus follows your current stage priorities.
Q: How do I know if my customer feedback is real or just polite responses?
A: Look for "wow statements" and demonstrated behavior rather than general positivity. If customers can't quickly articulate specific value or show signs of urgency, they're likely being polite rather than genuinely interested.
Q: What's the biggest mistake founders make when trying to find product-market fit?
A: Making 10% changes when they need 200% transformations. Most founders are psychologically attached to their current approach and make incremental adjustments instead of dramatic pivots of their core assumptions.
Q: Can companies skip levels or move backward in the framework?
A: Companies rarely skip levels since each builds essential capabilities for the next. However, market changes, competitive pressure, or execution failures can cause regression to earlier levels, requiring renewed focus on foundational elements.
Conclusion
Todd Jackson's four-level framework transforms product-market fit from mystical art to systematic science. The journey from nascent to extreme PMF requires 4-6 years of focused execution, with most companies failing to progress beyond level two due to premature efficiency optimization or insufficient demand scaling.
Success demands understanding that each level requires different priorities, metrics, and psychology. Level one prioritizes satisfaction through manual, inefficient delivery. Level two scales demand generation while maintaining satisfaction. Level three optimizes efficiency across all dimensions while competition intensifies. Level four expands market reach through new products or segments.
The Four P's provide systematic levers for transformation when progress stalls, but most founders underestimate the magnitude of change required. True breakthrough comes from 200% pivots that fundamentally reimagine persona, problem, promise, or product—not incremental optimizations of existing assumptions.
Practical Implications
• Embrace inefficiency early: Don't optimize for scale until you've proven transformational value for 3-5 customers
• Measure what matters per level: Track satisfaction at level one, demand scalability at level two, efficiency at level three
• Use dollar-driven discovery: Replace polite customer conversations with specific questions that reveal genuine purchase intent
• Make 200% pivots: When stuck, dramatically change your Four P's rather than making incremental adjustments
• Focus on one dimension: Don't try to optimize demand, satisfaction, and efficiency simultaneously—each level has clear priorities
• Build systematic demand: Level two success requires moving beyond founder-led sales to repeatable channels that scale
• Prepare for psychological shifts: The emotional journey from grinding to magic is real and helps validate which level you've reached
• Plan for multiple PMF cycles: Each new product or market requires restarting the journey, even for successful companies
