Building a startup from scratch is no easy task. Founders often possess a strong solution, identify a market gap, or have an unwavering motivation to build their own business. However, the question remains: do they have product-market fit? Understanding the concept of product-market fit is crucial for startups to ensure their success.
Sequoia, one of the world’s largest venture capital firms, has developed a framework that simplifies the concept of product-market fit into three archetypes. These archetypes provide founders with a better understanding of their startup’s position in the market.
The first archetype, known as “Hair on Fire,” represents startups that address urgent problems. For example, a security startup that can quickly fix breaches or other ongoing issues falls into this category. The COVID-19 pandemic highlighted the importance of this archetype, as many companies emerged to provide services to businesses and individuals during the crisis.
The second archetype, called “Hard Fact,” refers to startups that solve existing problems more effectively than their competitors. Square, a point-of-sale product, serves as an excellent example. Despite entering a saturated market, Square managed to offer a superior solution and gain a significant market share.
The third archetype, “Future Vision,” encompasses deep tech, moonshots, and groundbreaking products. This category includes quantum startups and companies working on flying cars or autonomous vehicles. These startups focus on disruptive technologies that have the potential to revolutionize industries.
Each archetype comes with its own customer mindset, competitive market status, opportunity goals, challenges, and successful and unsuccessful examples. Jess Lee, a partner at Sequoia and an expert in early-stage investing, discussed this framework at TechCrunch’s Early Stage event in Boston. Sequoia applies this framework in its Arc program to help founders focus on their development process and evaluate potential investments.
Lee emphasized that Sequoia does not favor any particular category among the three archetypes. She believes that great companies can be created in all of them. However, she acknowledged that certain types of startups may find it more challenging to raise capital in the current economic climate. Deep tech and moonshots, for instance, enjoyed easier fundraising during a zero-interest-rate period when capital was abundant.
Lee’s own experience at Polyvore, a company that combined social mechanics and e-commerce, has shaped her perspective. Polyvore’s success in merging fashion and product clips from various sources led to its acquisition by Yahoo. Lee remains interested in consumer companies, despite the difficulties they face in today’s market.
Building a successful startup requires founder-market fit, which aligns with the chosen product-market fit category. Lee stated that marketing the problem and solution effectively is vital for consumer companies in the “Hard Fact” category. It often comes down to small details that allow a company like Snapchat to break away from competitors with similar ideas.
However, none of these archetypes are easy paths to success. Lee emphasized the need for ruthless execution and maintaining high velocity to stay ahead of competitors.
In conclusion, understanding product-market fit is crucial for founders in the early stages of building their startups. Sequoia’s framework offers three archetypes that help founders identify their position in the market and make informed decisions. While each archetype presents its own challenges, founders must find alignment with their chosen category to achieve success. With the right combination of vision, execution, and market understanding, founders can navigate the complex landscape of building a startup and increase their chances of achieving product-market fit.