The Sequoia USA team recently presented its PMF thinking approach with businesses.
The primary goal of start-ups at every early stage is to determine Product-Market Fit (PMF). Having worked with businesses that have not yet attained PMF for years, Sequoia America is of the opinion that there are several approaches to consider and determine this match. Sequoia will walk founders through the following framework in its immersive Arc experience for seed and pre-seed stage companies. This framework outlines three distinct PMF frameworks to help understand product positioning in the market and business operations; it is not intended to diagnose whether PMF has been achieved.
Three frameworks for PMFs
Ultimately, PMF is about where items are located globally. A product’s ability to adapt to its environment may be seen from a variety of angles, including its competitive landscape and technological advantages. According to Sequoia, concentrating on how users perceive the issues that the solution resolves is the ideal place to start. Different problems exist, as does the link between the problem and the client. Sequoia observes three fundamental frames, each with distinct dynamics pertaining to the customer-product connection.
Hair Burning at the Pain Point
Clearly identify and respond to the customer’s urgent demand. The need is clear. As such, there can be a lot of rivals in your category. The client is actively working through the problem and could be contrasting current fixes. In this dynamic, you have to be different to succeed. Offering the best answer is the only option. The finest goods stand out not merely because they are superior but also because they are unique. To get long-term benefits, you need to provide a really unique consumer experience rather than merely being quicker or less expensive.
Hard Facts: Hard Facts
You see the challenge of gaining broad acceptance as a real pain area that your solution really helps people with. Your client has come to terms with the fact that they must live with the issue. They are not pressing to find a solution. It seems that there is no way to modify the existing circumstances. You have unexpectedly disrupted the routine by pointing out that although the facts cannot be altered, the issue can be resolved. The strength of habit is the obstacle to be overcome.
Consumers’ present behavior will need to alter, and inertia is a strong force. To make a difference, you need to take a sufficiently original approach to a sufficiently significant problem.
Prospective Outlook Prospective Outlook
Utilize innovative thinking to create a new reality. Customers may think this sounds like science fiction since it’s either never been done before (like the iPhone) or because the idea is known but unfeasible (like getting wealthy cheap energy via nuclear fusion). Either unaware or inclined to believe it’s a fantasy, the consumer does not attempt to address the problem. The challenge is in mistrust in both situations: the client needs to think that your solution is a novel approach, often coupled with its own ecosystem. The iPhone App Store offers a new way to engage with the Internet, making it more than simply a gadget. Tesla is more than simply a vehicle; it’s a self-driving software and video network that offers a novel driving experience.) The buyer has to be drawn in by this paradigm and its potential. This journey is often rather lengthy, as the following description explains, and it is typically vital to identify the correct business opportunities along the route.
How each route should be worked on
After comprehending these frameworks, businesses are able to choose their own course. Many of the founders Sequoia America met via the Arc program believed they need to be in the way of a “pain point”. They embraced the adage, “Pay attention to what the customer needs.” This is a wise recommendation. However, they are often taken aback to learn that there are other realistic avenues for searching for PMF, such as the dynamics of “hard facts” or “future vision”.
I’m hoping the business is already putting a lot of effort into finding a solution for a problem where they have a distinct edge. Still, the customer’s perspective on the issue (as well as their feelings about the remedy) will determine the company’s future course. Businesses may succeed by taking any road, but each one has its own set of operational goals that need to be recognized.
Path 1: Burning Pain Point Hair
Rapid succession need both a superior product and a superb market entrance strategy for the “pain point” method. It need a mix of sales, solutions, and quickness to beat the competition.
A company’s ability to aggressively outperform rivals is indicative of its success in the “pain point” route, in addition to the pace at which items are produced. Adallom was formed by Assaf Rappaport and his Wiz co-founders before. They are interested in learning more about the security of cloud infrastructure for their new business, but this is a crowded industry with both established players like Palo Alto Networks and up-and-coming firms like Orca Security offering solutions.
But in their interviews with Chief Information Security Officers (CISOs), this was the one that kept coming up as the most desired issue. In a sizable market, there is an obvious need for this; but, potential for distinction must be found via some digging.
The majority of cloud security solutions depend on proxy, an application that must be set up on every server in order to be monitored. Wiz sees a “proxyless” approach that more effectively identifies vulnerabilities while simultaneously lowering friction and headaches.
Even better, it can identify these weaknesses during the 15-minute client demonstration once it is attached. Assaf and his group saw their advantages and made a concerted effort to actively outperform their rivals: engineers develop goods during Israeli weekdays and work part-time as sales reps at nighttime, which is American daylight. In only 18 months, they achieved an annual income rate of $100 million (ARR), breaking the previous record for the fastest-growing software firm ever.
They went from having no revenue to $2.8 million in just one quarter.
Parker Conrad was entering a sizable “pain point” industry when he launched Rippling. There is intense rivalry among the at least six established players vying for market share, indicating that HR software is a must for any organization.
Actually, Zenefits, Parker’s old firm, is one of them. Why even try? Because of his extensive experience, he is aware that he must approach the task differently than other providers, who assemble disparate data sets to offer a unified platform for benefits and HR. Rippling, on the other hand, takes a different strategy by creating a single database. Then, any component of the employee experience, including benefits, costs, and equipment management, may “diffuse” from the underlying layer of employee data.
Because of their technological advantages, HR, finance, and IT managers now have unique experiences, which has allowed Rippling to differentiate itself from competitors and gain market share quickly. They include the most extensive employee experience in their plan. It is often difficult for new entrants to acquire price advantages and pricing rights, even under the “pain point” dynamic.
Route 2: Hard Fact
The “hard facts” route necessitates a review and modification of the customer’s existing handling. To do this, the market must first be educated, and then the opportunity must be taken.
Your creative strategy might establish a new market or displace an existing one, like Salesforce’s move of CRM to the cloud or Uber’s reinvention of the taxi industry as a shared market. In any case, there can be less competition if you choose the “hard facts” route since other entrepreneurs haven’t been able to solve the issue due to how tough it is to alter the existing quo.
In order to be successful, Uber must not only convince a lot of regular people to transport strangers, but also get in touch with labor laws, municipal rules, and taxi unions. Because other individuals naturally avoid this kind of situation, you can have more possibilities to seize unclaimed territory.
“Cash only is accepted” was one of the “hard facts” that Blocks (formerly Square) addressed when it was initially introduced. Credit card payments are not accepted at farmers’ markets or by many small businesses. Shops often lose out on sales chances since customers would travel far to locate ATMs. According to Jim McKelvey and Jack Dorsey’s novel perspective, cellphones—which are increasingly common—can be efficiently converted into mobile credit card machines.
Square understands that this challenging reality of life is really a challenging issue they can resolve. However, success requires demonstrating to the rest of the world that they are free from this hardship and having sufficient faith in Square’s answers to embrace their novel approaches. Square made the decision to give out its hardware and software to retailers at no cost in order to spark this epiphany, attract early adopters who would promote items, and then create a business plan thereafter. Square ultimately became the new norm.
The three primary forms of marketing in 2006 were direct mail, telemarketing, and advertising. Because these are expensive mediums, this disadvantages small firms. Brian Halligan and Dharmesh Shah have identified a new approach: tiny businesses may reach viewers for a fraction of the price of conventional channels by using quickly maturing Internet features like blogs, social media, SEOs, and email communications.
The client’s issue is resolved by HubSpot’s portfolio of email management, SEO, and content management solutions. But, HubSpot must solidify this new strategy in the eyes of clients by helping them understand that the outdated approaches are ineffective and can be replaced with more effective ones if they want to persuade them of their worth and get them to begin using their goods. They coined the phrase “inbound marketing” to describe their new approach, and they even authored a book about it. Because of their remarkable efficacy in the education sector, HubSpot has been able to transcend PMF and become a popular notion that has sparked a revolution in small company marketing.
Route 3: Prospective Perspective
The “Future Vision” option has the highest potential rewards but also the highest chance of failure and least chance of success. It takes perseverance and the capacity to draw in and keep elite talent to travel this path.
As the philosopher Søren Kierkegaard famously observed, “Life can only be understood by retrospect, but it must be face to front.” Jensen Huang, the creator of Nvidia, and the founder of Vision for the Future both took 30 years to realize their founding goals, which may have resonance.
The initial goal of Nvidia was to enhance personal computers’ capabilities by developing a 3D graphics processor that would transform the computer user experience. Nvidia’s initial processor was so sophisticated when it was launched that nobody understood how to utilize it. The industry where the GPU makes video games enticing took six years to discover PMF, despite the debut of three product lines during that time.
Nvidia’s initial goals extend beyond the video game business, yet its GPU benefits PC and Xbox, and the company has come to be associated with gaming innovation. Had it not been for that very successful hiatus, which forced Nvidia to turn a profit and go public, the business would not have survived long enough to spearhead the AI revolution of today. Before they discovered the PMF in the game, they were really in danger of going bankrupt. A new computer paradigm is being made possible by Nvidia thirty years after its founding because the GPU is revolutionizing everything from data centers to cloud computing.
The “too early” future vision product was unable to identify PMF. For instance, augmented reality is still not widely used, even eleven years after Google Glass was introduced. Finding midway stops along the journey that are commercially appealing is thus quite important. Time will favor having a “vision for the future” framework if your vision is correct and you can identify a workable route. As the world increasingly adopts your paradigm, you will gain unbeatable advantages. Finding the ideal midway stop, however, could be challenging.
As Kierkegaard put it, “looking forward at life” means that you must make decisions based on incomplete knowledge, and the flaws are often more apparent in retrospect. Finding the correct route often entails an unanticipated shift in the market that accepts your services and the technologies you provide.
Among the most fascinating “future vision” tales of our day is OpenAI. Its goal is to bring about AGI, which the technical community has long considered to be a pipe dream, for the good of humanity. The founders felt that the company’s profit prospects compromised its human interest aim, thus they began as a non-profit organization in order to accomplish this goal.
But after a few years of travel, they came to the conclusion that even the most well-funded non-profit organizations could not afford the costs associated with developing their big language models. They must take a different route and enter the for-profit industry. As a result of ChatGPT, adopting a more conventional entrepreneurial structure introduces expectations for product delivery along with money. In 2022, consumer demand for creating AI has barely started. It instantly identified the PMF in the iPhone paradigm “I couldn’t imagine wanting it before I saw it.”
OpenAI has made $1.6 billion in revenue by 2023. Even though ChatGPT has the quickest adoption rate of any consumer technology product ever, OpenAI views this as only a temporary measure before pursuing their true goal.
In summary
Sequoia emphasized the significance of the three growth route frameworks and clarified that the benefits and drawbacks of each path are not entirely distinct from one another, urging business owners and entrepreneurs to consider where their goods are located in the world:
Which course is your product taking?
What is your customer’s perspective on the problem you are attempting to fix? Have you considered the appropriate dynamics of the market category?
Which operational priorities do you have?
Do you need to plan the essential strategic stays for your trip, demonstrate breakthrough comprehension to early adopters, or maximize speed and scale?
Businesses may improve their positioning, comprehend client demands, and define their growth and operational goals by knowing the answers to these questions.
Keep investigating
Sequoia America highlights that putting theory into practice is never easy and that there are a few key considerations to keep in mind when using this line of thought in practical settings:
Products and the market have a dynamic interaction. When several businesses introduce new items or when consumers’ perceptions of already-existing products shift and their underlying issues alter, they will ultimately choose a different route.
Some businesses simultaneously hold the top spot on two pathways. This framework’s primary goal is to avoid irrevocability.
Choose your own route; it is a mistake to identify too closely with any one way.
Consider Apple as an example; at first, it was thought to be a futuristic concept. The business first acknowledged to Sequoia in 1978 that there was no market for home computers. However, since they captured people’s imaginations and gained popularity in the 1980s, personal computers are no longer seen as a vision for the future, according to the letter which stated: “Apple’s management believes that most potential customers in 1980 were not interested in buying home computers today.”
With the introduction of the iMac in 1998, Apple addressed the harsh reality that, despite computers’ growing popularity, they lacked individuality. When Steve Jobs unveiled the iPhone in 2007, PMF was quickly recognized as the device’s future. A significant number of new cellphones entered the market as a result, and the smartphone category swiftly transformed into one with an urgent demand dynamic.
Apple has maintained its leadership position via category definition, sound judgment, and constant innovation.
Apple is introducing Apple Vision Pro today, another vision for the future. The gadget leverages a tenfold increase over the sensor created for the iPhone: the PMF journey data from one product may serve as a seed for a subsequent product. In a few years, might Apple Vision Pro provide a novel experience that defies our wildest expectations and directly address pressing needs? The solution will come in time.
Remarkable businesses link several product lines in a succession that progress via successive PMF paths. The following product will start to increase even if the previous one may have peaked.
You may find yourself using this framework, no matter where you are in this cycle. While PMF may seem to be the goal you are aiming for, once you get there, growing and sustaining it will need ongoing research, which will be done in conjunction with your business.
PS: Looking back from 2023 to the present, the majority of the hoopla around AI concentrates on the fundamental model’s horizontal capabilities, while the true potential of AI is in how Agent reconfigures and develops the B2B value chain.
