Founders, in the early stages of building their startup, may have already created a solid solution, identified a gap in the market, or may simply have a compelling, driving motivation to start their own business. Ideally, they have a good combination of all three. But are they product-market fit? And what is product-market fit, anyway?
Investors at Sequoia, one of the world’s largest venture capital firms, have developed a very practical framework to answer these two questions. He distills the landscape into three archetypes.
“Hair on fire” Basically means your startup is solving a pressing problem. A security startup, for example, could fit in here, especially if it can win a first contract through an airdrop to fix a vulnerability or other problem already in progress. Or think about the wave of companies that offered services to businesses and users as they suddenly sheltered in place and worked from home during the Covid-19 peak.
“Concrete fact” translates to a startup that solves an existing problem better than what already exists. A good example is Square, which emerged as a new point-of-sale product in a seemingly old and saturated market.
Lately, “Future vision” is about deep tech, moonshots, and products out of left field. This would include quantum startups, but also those that build flying cars or even autonomous vehicles that would travel our roads (or any technology necessary for the manufacture of such vehicles).
Each of these archetypes will have their own customer mindset, competitive market status, overall opportunity/product goals, challenges, examples of those who have succeeded and those who have not, and and so on. Jess Lee, a partner at early-stage investing specialist Sequoia, gave a big talk on the concept at TechCrunch’s Early Stage event in Boston in April. Sequoia also wrote about the frame here.
In summary, the theory is this: Startups all fit, more or less, into one of these three archetypes, so identifying which archetype a company fits into can help it focus and grow .
Sequoia is confident enough in structure to use its Arc program framework to help early-stage founders focus on how they build. It also helps the company evaluate potential investments in startups. Beyond that, and just as importantly, founders can rely on an archetype to better anticipate and articulate the challenges and opportunities of their space. This can of course be useful for internal decision making, as well as fundraising or pitching partnerships or clients.
During his presentation on the framework, Lee said Sequoia does not have a preferred category among the three.
“I I think you can build great businesses in all of these categories,” Lee said. However, she admitted that certain types of businesses might struggle to raise funds in the current climate.
For deep tech and moonshots – two common types of startups found in the “Future Vision” category – fundraising”It was easier in a period of zero interest rates, where a ton of capital was flowing in,” Lee said. “I don’t know if (these companies) would have been able to raise as much (right now) as they needed to, to be able to get to where they are today.”
Lee was co-founder of Polyvore, which combined social mechanics and e-commerce: its users contributed fashion and product clips from all over the web and used those products to assemble mood boards, marketing affiliation underlying it all. Polyvore was eventually bought by Yahoo and separated from it. Still, that e-commerce and consumer focus has stuck 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 this sector these days.
“It can still be done,” she said. “I feel like a lot of consumer companies fall into the ‘hard facts’ 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 almost feels like alchemy. I can’t tell you how many founders I’ve met who said, “Oh, yeah, I used to work on Snapchat too.” Like, I had my own version. And it looked similar, but just the right amount of details allowed Snapchat to be the one that stood out.
None of this is to say that the third category, “Hair on Fire,” is entirely easy. “You have to execute ruthlessly,” Lee said. “(You need) so much speed to stay ahead of everyone.
His conclusion highlights one of the most critical aspects of building an early-stage business. “I think there’s a little bit of founder-market fit in each of these product-market fit categories.”
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