Founders in the early stages of creating their startups may have already created a powerful solution, identified a gap in the market, or may simply have an inescapable and driving motivation to create their own business. Ideally, they have a good combination of all three. But do they have product-market fit? And what exactly is product-market fit?
Investors at Sequoia, one of the world’s largest venture capital firms, have come up with a very handy framework for answering these two questions. He distills the landscape into three archetypes.
“Hair on Fire” it roughly means that your startup is facing an urgent problem. A security startup, for example, might fit in here, especially if it can win the initial business off the back of a parachute to fix a breach or other problem that’s already in progress. Or, consider the wave of companies that offered services to businesses and users when they were suddenly sheltering in place and working from home during the height of Covid-19.
“hard fact” translates as a startup that solves an existing problem better than what’s already out there. Square, which emerged as a new point-of-sale product in a seemingly old and saturated market, is a good example.
Finally, “Future Vision” it’s about deep tech, moonshots and out-of-left-field products. These will include quantum startups, but also those building flying cars or even autonomous vehicles that will be on our roads (or whatever technology will be needed to build such vehicles).
Each of these archetypes will have their own customer mindset, competitive market position, overall product opportunities/goals, challenges, examples of those who got it right and those who didn’t, and so on. Sequoia partner Jess Lee, an early-stage investment expert, gave a big talk about the concept at TechCrunch’s Early Stage event in Boston in April. Sequoia has written about the framework herevery.
In short, the theory goes like this: All startups, more or less, fit one of these three archetypes, so identifying which archetype a company fits into can help it focus and grow.
Sequoia is confident enough about the structure that it uses the context in it Arc program to help early stage founders focus on how they build. It also helps the company evaluate potential startup investments. Beyond that, and just as importantly, founders can draw on an archetype to better anticipate and articulate the challenges and opportunities in their space. This can be useful for decision-making internally, of course, as well as for raising funds or promoting partnerships or clients.
During her presentation on the framework, Lee said that Sequoia does not have a favored category among the three.
“I think you can build big companies in all these categories,” Lee said. However, he admitted that for some types of companies it may be particularly difficult to raise money in the current climate.
For deep tech and moons — two common types of startups found in the “Future Vision” category — fundraising “it was easier in a zero-interest period when there was a ton of capital flowing in,” Lee said. “I do not know if [those companies] could collect that much [starting out now] as they had to, so they could get to where they are now.”
Lee co-founded Polyvore, which combined social engineering and e-commerce – its users contributed fashion and product clips from around the web and used those products to assemble mood boards, with affiliate marketing underpinning it all . Polyvore was eventually acquired by Yahoo and parted ways with them. But that focus on e-commerce and consumers has stayed with her, she said, adding that she’s still interested in trying to find new winners in that category despite the challenges of trying to break into the space these days.
“It can still be done,” he said. “I feel like a lot of consumer companies fall into the ‘Hard Fact’ category, and I especially enjoy working with consumer companies. But you have to be good at both marketing your problem and marketing your solution and building it. So it takes a lot to get it right.
“It’s almost like alchemy. I can’t tell you how many founders I’ve met who said, “Oh yeah, I used to work at Snapchat too. Like, I had my own version.’ And it sounded like it was similar, but just the right amount of detail allowed Snapchat to be the breakout.”
None of this is to say that the third category, “Hair on Fire,” is exactly easy. “You have to execute relentlessly,” Lee said. “[You need] so much speed to stay ahead of everyone.”
Her conclusion drives home one of the most critical aspects of building an early-stage business. “I think there’s a little bit of founder-market fit that falls into each of those categories of product-market fit.”
