These days, practically anyone can start practically anything. If you have a sliver of pedigree1, like experience at a reputed company, it becomes even easier.
But as tech permeates everything, people are starting companies in industries they don’t know. In other words, they’re founding companies as outsiders, without strong founder-market fit.
And that’s fine. A fresh perspective is often a huge help. But many industries are complex. The incentive structures, local laws, and nuances about who wins and loses are not obvious from the outside, or even after several conversations with those in the industry. Today, there are over 1,000 seed funds—capital is flowing freely. You will get funded, but that doesn’t mean you’ll find product-market fit, and then get to scale. At any given time, there may be 5-10 companies tackling a similar problem. This is where a founder’s knowledge or experience in the industry is a real advantage.
As my colleague Jonathan Kroll put it:
“The bar has never been lower to build a product. 10 years ago, you’d need millions in investment to have some sort of rudimentary machine learning or computer vision capability. Now, this is all off-the-shelf.
This is amazing! Right?! Well yes, it is—but as a result, building a cheap product with amazing functionality is at everyone’s fingertips. So while amazing products with amazing features could have been the major source of differentiation in the past, today, that’s just not enough.”
Founder-market fit is an advantage because:
- These founders get to asking the right questions quickly.
- If they don’t know the answer, they know who to call in the industry to get the answer.
- “Founders who know exactly what their market needs,” in terms of leverage to move the needle, “might meet those needs faster and in a more capital-efficient manner, therefore extending runway and giving themselves more time to experiment,” said my colleague Sara Eshelman.
- They understand the incentive structures, and so know how to position their company in the most appropriate (read: unthreatening and helpful) manner to the relevant constituents.
- They know local laws and where they can push and where they can’t.
Founder-market fit is not developed only by having worked in the industry. You can also be obsessed with a problem in that industry and immerse yourself in it before you find a solution that works.
One example of this is Filip Victor. Filip is the founder of our portfolio company Mati, which is focused on identity verification. He came to the US as a student and faced the challenges of an immigrant: not being able to get credit and not being able to verify his identity with many of the commercial entities that you need to live a life with agency. This led him to spend time learning about the space to try and solve the identity verification problem for people in the developing world.
Another example is David Zamir at Nana. During a tough moment in his life, he taught himself to repair appliances, going out to customers’ homes to fix their washing machines in order to have an income. This led him to create an appliance repair marketplace that trains technicians and enables them to craft their own livelihoods.
Founder-market fit is real when a founder knows enough of the market to see a real opportunity, while knowing how hard it’s going to be. At the same time, founders need to have a bit of rebellion, a bit of chuztpah, a bit of “fuck it, this may really work,” a bit of willingness to upset former colleagues, boldness, and the ability to envision how things could be. That’s when they can take the leap and build a company that could be amazing.
This is a problem and it is exclusionary, but it is also how the world currently works ↩