Entrepreneurial

Founder-market fit a key for startups

– Chris Dixon is the co-founder of Hunch and of seed fund Founder Collective. This blog originally appeared here. The views expressed are his own. –

An extremely useful concept that has grown popular among startup founders is what eminent entrepreneur and investor Marc Andreessen calls “product/market fit,” which he defines as “being in a good market with a product that can satisfy that market.” Andreessen argues persuasively that product/market fit is “the only thing that matters for a new startup” and that “the life of any startup can be divided into two parts: before product/market fit and after product/market fit.”

But it takes time to reach product/market fit. Founders have to choose a market long before they have any idea whether they will reach product/market fit. In my opinion, the best predictor of whether a startup will achieve product/market fit is whether there is what David Lee calls “founder/market fit”. Founder/market fit means the founders have a deep understanding of the market they are entering, and are people who “personify their product, business and ultimately their company.”

A few points about founder/market fit:

Founder/market fit can be developed through experience: No one is born with knowledge of the education market, online advertising, or clean energy technologies. You can learn about these markets by building test projects, working at relevant companies, or simply doing extensive research. I have a friend who decided to work in the magazine industry. He discovered some massive inefficiencies and built a very successful technology company that addressed them. My Founder Collective partners Eric Paley and Micah Rosenbloom spent many months/years becoming experts in the dental industry in order to create a breakthrough dental technology company.

Founder/market fit is frequently overestimated: One way to have a deep understanding of your market is to develop product ideas that solve problems you personally have. This is why Paul Graham says that “the best way to come up with startup ideas is to ask yourself the question: what do you wish someone would make for you?” This is generally an excellent heuristic, but can also lead you astray. It is easy to think that because you like food you can create a better restaurant. It is an entirely different matter to rent and build a space, market your restaurant, manage inventory, inspire your staff, and do all the other difficult things it takes to create a successful restaurant. Similarly, just because you can imagine a website you’d like to use, doesn’t mean you have founder/market fit with the consumer Internet market.

Notes on raising seed financing

– Chris Dixon is the co-founder of Hunch and of seed fund Founder Collective. This blog originally appeared here. The views expressed are his own. –

I recently taught a class via Skillshare (disclosure: Founder Collective is an investor) about how to raise a seed round. After a long day I wasn’t particularly looking forward to it, but it turned out to be a lot of fun and I stayed well past the scheduled end time. I think it worked well because the audience was full of people actually starting companies, and they came well prepared (they were all avid readers of tech blogs and had seemed to have done a lot of research).

I sketched some notes for the class which I’m posting below. I’ve written ad nauseum on this blog (see contents page) about venture financing so hadn’t planned to blog more on the topic. But since I wrote up these notes already, here they are.

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