Entrepreneur-product fit

At First Round, I often hear the term “product-market” fit.  Since we often invest before the big “hockey stick” traction that bigger VCs wait for, a lot of times the company is still trying to tweak exactly what service or application will take off in a given market.  Sometimes they’re testing various pricing models…other times they’re not sure if it’s a partnership strategy or a direct sales effort that will get the most uptake.  Either way, there’s usually a lot of bobbing and weaving at our stage.  Take Hot Potato, for example.  In my mind, Hot Potato became the best place to watch and display what is going on at an event with one simple feature—pulling in the Twitter hashtag of a particular event.  Now, when an event has been setup on HotPotato, you can pull out the iPhone app, automatically see what events are going on around you, click your event, and see a livestream of everyone talking about that event, both on and off Hot Potato.  Now people who don’t even have iPhones can participate, comment on each other’s comments, add photos that actually get displayed w/o a click, etc.

This was the source of a lot of debate—because you couldn’t be certain what the quality would be of hashtags of people who may not be aware of Hot Potato getting pulled into what is essentially a live chatroom.  Would they appear out of sync, disjointed, etc?  It’s only one data point, but I think it was a big win.  Interestingly enough, I thought more people started taking part in the conversation who weren’t on Hot Potato because they now knew their thoughts were being syndicated to an app where more people were talking about the event.

The bigger picture here wasn’t so much whether this was the right feature for this market—it was more about the entrepreneur and the team.  A less product-focused entrepreneur would not have been able to make that call.  From the beginning, we knew that there was a big market opportunity with Hot Potato, but we also knew there was still a lot of work to do on the product side.  If Justin Shaffer was more of a “deal guy”, someone less familiar with building products, he might have gone a long time without recognizing the need for, or at least testing, this feature.  Instead, what we have is a bobbing and weaving product with a product-focused entrepreneur—one who takes in the feedback of those around him, his customers, and sees the existing trend and is able to discern a product strategy around it—a nice fit.

On the other hand, I recently saw a deal where it was clear that we needed a very business development focused entrepreneur.  There were lots of sources of value in his market that needed to be tapped—you couldn’t really get to important value inflection points without the data and channel access that other companies had.  It wasn’t clear, however, that this kind of deal savvy was present on the founding team.  It seemed like they were a strong team by any account and they had built a pretty cool product, but without a deal rainmaker—and perhaps that kind of DNA infused into more than just the CEO—it was going to be tough slogging.

Similarly, and not to beat the examples to a pulp, but I also saw a great idea in the legal space—big market, still lots of inefficiencies, but getting customers would necessarily mean getting mixed up in the dogfight that is litigation related keyword advertising and search optimization.  That’s a pretty competitive market and without someone on the team who lives and breathes search marketing in the legal space, it’s tough to see how the company could succeed.  Simply put, the product demanded a certain skillset of the entrepreneur, and without a match, you’d be in almost as difficult position if you didn’t have the right product for your market at all.  

The reason why I focus on this a lot is because product-market fit is something you can tweak and iterate on.  You can get there eventually, but you can’t really get there on the founding team if they don’t have the skill set that matches what their idea will demand of them.  Similarly, there would be no sense in putting my dad in a Ferrari because that’s just not the way he drives—regardless of what’s under the hood.

This is something that founders should pay a lot of attention to when choosing a partner.  Think about what your product and market will demand of you.  Will a product like yours win because of product design, business development, savvy customer acquisition, founder visibility, or something else?  Are you or any of the members of the founding team awesome at the right things?  (And by awesome, I mean that you’d look for the best person to execute this strategy and after a long exhaustive search, hire yourself.)  If not, then that should perhaps inform you of what you should seek in a partner, instead of just finding what compliments you.  If you’re not good at marketing and the product itself doesn’t really need much marketing, then don’t feel the need to hire a marketing expert just to compliment you.  Hire what compliments the product and necessary strategy.