Early-stage startup founders may have already developed a potent solution, seen a need in the market, or simply been driven by an unquenchable desire to launch their own company. They have a decent mix of all three, ideally. Is their product-market fit, though? Furthermore, what does product-market fit really mean?
To address those two problems, the investors at Sequoia, one of the largest venture capital firms in the world, have developed a very helpful framework. It reduces the terrain to three archetypes.
“Hair on Fire” alludes to an immediate issue that your startup is trying to solve. For example, a security firm could be a good fit here, especially if it can gain initial business by swooping in to patch up an existing breach or other issue. Alternatively, consider the wave of enterprises that sprung up during the height of COVID-19 to provide services to users and businesses when they were suddenly forced to stay behind and work from home.”Hard Fact” refers to a startup that provides a better solution than what’s already available for an existing problem. A notable example of this is Square, which debuted as a novel point-of-sale product in an apparently established and crowded market.
Last but not least, “Future Vision” talks about moonshots, deep tech, and unconventional products. These would include startups working on quantum technology, as well as those developing flying or even driverless automobiles to drive on our roads, along with any technology required to produce them. Every one of these archetypes will have unique customer mindsets, competitive market statuses, opportunities, overall product goals, obstacles, and case studies of successful and unsuccessful businesses. Early-stage investing expert and Sequoia partner Jess Lee presented a comprehensive lecture on the idea at Early Stage conference in Boston in April.
To summarize, the idea states that all startups can be classified into one of these three archetypes, and that determining a company’s archetype can aid in its development and help it stay focused.
Sequoia is so sure of the concept that it helps early-stage founders concentrate on how they are building by using it in its Arc program. It aids in the company’s assessment of possible beginning expenditures as well. Furthermore, and perhaps more significantly, founders can use an archetype as a guide to more accurately predict and express the opportunities and obstacles unique to their industry. Naturally, that can be useful for internal decision-making as well as for partnerships or consumers when funding or proposing ideas.
Lee stated that Sequoia does not have a preferred category among the three during her framework presentation. Lee remarked, “I think you can create great companies in all those categories.” Nevertheless, she conceded that certain types of businesses might find it particularly difficult to get capital in the present environment. According to Lee, funding for deep tech and moonshots—two popular startup types included in the “Future Vision” category—”was easier in a zero-interest-rate period when there was a ton of capital flowing in.” “I’m not sure if [those companies] could have raised the necessary funds [in the beginning] to reach their current status.”
As a co-founder of Polyvore, a platform that fused social mechanics and e-commerce, Lee saw firsthand how users assembled mood boards using items and fashion clips they found online, all supported by affiliate marketing. After Polyvore was eventually purchased by Yahoo, she left the company. She added that despite the difficulties of breaking into the industry these days, she is still interested in trying to uncover new winners in that sector. However, she claimed that her focus on e-commerce and consumers has not changed.
