Founders in the early stages of building a startup may have already created a powerful solution, identified a gap in the market, or simply have the inevitable drive to build their own business. there is. Ideally, you have a good combination of all three. But is there a product-market fit? What actually is product-market fit?
Investors at Sequoia, one of the world's largest venture capital firms, have devised a very useful framework for answering these two questions. It distills the landscape into her three archetypes.
“Hair on Fire” loosely means that your startup is working on an urgent problem. Security startups, for example, may fit this bill, especially if they can get some initial business by parachuting in to solve an already-in-progress breach or other problem. Or consider the wave of businesses that served businesses and users during the peak of COVID-19 when they suddenly evacuated and worked from home.
By “hard facts” we mean startups that solve existing problems better than what already exists. Square, a new POS product in a seemingly old and saturated market, is a great example.
Finally, “future vision” relates to deep technology, moonshots, and ready-to-use field products. These include not only quantum startups, but also companies developing flying cars and road-driving self-driving cars (or the technology needed to build such cars).
Each of these archetypes has its own unique customer mindset, competitive market landscape, opportunities/common product goals, challenges, examples of what worked and didn't work, etc. Sequoia partner and early stage investment specialist Jess Lee spoke extensively about this concept at his TechCrunch early stage event in Boston in April. Sequoia also writes about frameworks here.
The theory can be summarized as follows. All startups fit more or less into one of these three archetypes, so identifying which archetype your company fits into can help your company focus and develop.
Sequoia is so confident in its structure that it uses the Arc program framework to allow early-stage founders to focus on how they build. It also helps companies evaluate potential startup investments. More than that, and just as importantly, founders can rely on archetypes to better anticipate and articulate challenges and opportunities in their space. This helps with fundraising, partnerships, and customer pitches, as well as internal decision-making.
In his presentation on the framework, Lee said Sequoia doesn't have a preference for any of the three categories.
“I think we can create great companies in all of these categories,” Lee said. Still, she acknowledged that certain types of businesses may find it particularly difficult to raise capital in the current climate.
For deep tech and moonshots (two common types of startups that fall into the “future vision” category), raising capital “was easier during the zero interest rate era when there was a lot of capital flowing in,” Lee said. said. “I don't know if, but [those companies] I could have raised the same amount [starting out now] They had to do that to help them get to where they are. ”
Mr. Lee was the co-founder of Polyvore, which combines social mechanics and e-commerce. Polyvore users posted clips of fashion and products from around the web, assembled mood boards using those products, and affiliate marketing supported everything. Polyvore was eventually acquired by Yahoo, and she parted ways with Yahoo. Still, the focus on e-commerce and consumers remains with her, she says, and despite the difficulties of trying to break into the space these days, she's hopeful of finding new winners in the category. She added that she is still interested in.
“You can still do it,” she said. “I particularly love working with consumer-facing companies, as I feel that many consumer-facing companies fall into the ‘facts’ category. But you need to be good at both marketing the problem and marketing and building the solution. Therefore, it takes a lot of time to get it right.
“It's like alchemy. I can't tell you how many founders I've met who said, 'Oh yeah, I was working on Snapchat, too.' Like, I had my own version. ” It sounded similar, but the right number of details helped Snapchat break away. ”
That's not to say the third category, “Hair on Fire,” is at all easy. “We must execute him without mercy,” Lee said. “[You need] You can stay ahead of everyone at very fast speeds. ”
Her conclusion is a reminder that one of the most important aspects of building an early-stage business is: “I think each of these categories of product-market fit includes a little bit of founder-market fit.”