Founders in the early stages of building their startups may have already created a strong solution, identified a gap in the market, or simply had the inevitability and motivation to build their very own business. Ideally, they’d have a good combination of all three. But do they have product market fit? So what exactly is product-market fit?
Investors in Sequoia, one of the largest enterprise capital firms in the world, have developed a very useful framework to reply these two questions. He divides the landscape into three archetypes.
“Hair on Fire” roughly means your startup is solving a pressing problem. For example, a security startup is perhaps a good fit here, especially if it can get some initial business by skydiving to repair a breach or other ongoing problem. Or think about the wave of firms that offered services to businesses and users when they suddenly sheltered in place and worked from home during the height of Covid-19.
“Hard fact” translates as a start-up that solves an existing problem higher than the one that already exists. A great example is Square, which emerged as a latest point-of-sale product in a seemingly old and saturated market.
At last, “Vision of the future” refers to deep tech, moonshots, and out-of-left-field products. These include quantum startups, but also those building flying cars and even autonomous vehicles that will drive on our roads (or any technology that shall be needed to provide such vehicles).
Each of those archetypes will have its own customer mindset, competitive market status, product capabilities/overall goals, challenges, examples of those that succeeded and those that failed, and so on. Sequoia partner Jess Lee, an early stage investment specialist, gave an extensive keynote on this idea at the TechCrunch Early Stage event in Boston in April. Sequoia wrote about the framework Heretoo.
To summarize, the theory goes like this: all startups more or less fit into one of those three archetypes, so determining which archetype a company suits into can help it focus and grow.
Sequoia is confident enough in the structure that it uses a framework inside it Arc program to assist early-stage founders focus on how they build. It also helps the company evaluate potential startup investments. Last but not least, founders can build on the archetype to higher anticipate and articulate the challenges and opportunities in their space. This can in fact be helpful when making decisions internally, in addition to when fundraising or pitching partnerships or clients.
During her presentation on the platform, Lee said that Sequoia does not have a favorite category among the three.
“AND you think you can create great firms in all these categories,” Lee said. However, she admitted that in the current situation, obtaining funds could also be particularly difficult for some kinds of firms.
In the case of deep tech and moonshots – two popular kinds of startups found in the “Future Vision” category – fundraising “it was easier during the zero rate of interest period when tons of capital flowed in,” Lee said. – I do not know if [those companies] he would have the option to gather that much [starting out now] similar to they’d to to have the option to get to where they are now.”
Lee co-founded Polyvore, a company that combined social mechanics and e-commerce – its users shared fashion and product clips from the Internet and then used those products to create mood boards based on affiliate marketing online. Polyvore was eventually acquired by Yahoo and she parted ways with it. However, the focus stays on e-commerce and consumers, she said, adding that she stays interested in finding latest winners in this category despite the challenges currently associated with attempting to break into this space.
“It can still be done,” she said. “I feel like a lot of consumer firms fall into the ‘Hard Facts’ category, and I especially love working with consumer firms. But you have to be good at each promoting your problem and promoting the solution and building it. So it takes a lot to repair it.
“It’s almost like alchemy. I can’t tell you how many founders I’ve met who said, “Oh, yeah, I worked on Snapchat too.” For example, I had my own version. And it looked like it was similar, but the right amount of detail allowed Snapchat to be the one to separate itself.”
None of this is to say that the third category, “Hair on Fire,” is entirely easy. “You have to absolutely do your job,” Lee said. “[You need] fast enough to overtake everyone.
Her conclusions make us aware of one of the most significant elements of building a business at an early stage. “I think there is some founder market fit in each of these product market fit categories.”