Founder-Market fit: knowing yourself leads to success 

Recently, I was listening to a podcast from the Yale admissions office where the hosts discussed the importance of students expressing their authentic selves in applications. In many essays, students try to represent themselves as what they think the admissions office wants—but application reviewers are able to sniff this out pretty clearly, and that can lead to an unsuccessful outcome. 

I’ve seen something similar in founders and startups.

Authenticity leads to successful outcomes. And understanding what’s authentic requires founders know who they are and the skills they possess (and don’t), and understand the market conditions in which they find themselves. It’s critical that the founder matches the market condition.

In my 20 years of investing experience, I most often find one of two market realities that require vastly different founder skills.

The race condition 

This starts when a founder comes up with a good idea, and magically, the venture industry funds 3-5 similar companies in a short timeframe (yes, it happens all the time). 

Imagine you were starting a company in the digital payments space around 2010. You might’ve had a decent product and were building a team to get it to market when you see Square raise a $10m Series A, Venmo raise a $1.2m Seed round, and Stripe also raise a $2m Seed. Suddenly, you’re in a race to launch your product, raise capital, and prove your escape velocity. The company that does these things first is often perceived to have a massive advantage over other similar startups. 

Winning here requires a certain type of founder:

• Operate with urgency—it’s a race, afterall. These founders leverage speed as their biggest advantage when it comes to building and shipping product. That might have its drawbacks, but in the race condition, it also has its rewards. 
• Influential leadership style—moving with speed requires buy-in from the team doing it. A founder who leads with influence can build a culture and a team around the battlecry of urgency and get everyone executing on the same cadence. 
• Storytelling capability—raising capital is an important part of the race condition, and the founders who understand how to tell their company’s story might be faster to grab that capital. Of course, this isn’t the only part of fundraising, but it’s an important part when similar companies are cropping up all around. 

Founders in the race condition need to ask themselves if they want to run. Are you willing to prioritize speed, even if it means de-prioritizing other things, including perfection? Do you have the resources to build and ship right now, or do you need to acquire them? Can you rally your team? 

Blue ocean condition (specifically NOT the race condition) 

Here, a founder might look around and see they have no material competition (which could be a good or bad sign). This too dictates where a founder can focus and how their company should operate. 

Take Foundation Capital-backed company, Netflix. The company emerged when video stores still dominated, creating a model initially focused on DVD-by-mail rentals. It slowly added features and explored nascent markets—streaming, a Netflix-first content model, advanced personalization, and more. In the blue ocean condition, companies can operate their businesses at a very different cadence and consider different metrics to determine success, future fundraising, and future product development. 

Winning here also requires a certain type of founder: 

• Methodical approach to building product—with space and time, building product becomes an exercise in quality. You have the time to focus, and when introducing a new solution, you might need to win over skeptics. Getting it out the door right is more important than getting it out the door fast.
• Thoughtful team building—a founder here might be involved in every interview process to maintain company culture, and there’s likely less roles to be filled. 
• Manage spend—there’s a great saying in the Valley that with enough thrust, anything can fly. In the race condition, burning fuel is a necessary evil because you’ve got to hit escape velocity; be first in everything. In the blue ocean condition, however, burning all of your fuel quickly is likely to leave you adrift. Keep a tight rein on investments, don’t be sloppy and make either/or decisions rather than “this and that” decisions.
• Know when good is not good enough—good is the evil of great. In a race, good is good enough because it’s fast. You plant a flag before others, and later, you can iterate and improve. Outside of the race, great is way more important than good. You’ve got the luxury to get it right. Lay low, work with customers, nail the alpha, and take the market.

Founders in the blue ocean condition must be comfortable with matching resources and needs with the market’s ability / desire to accept a new product. Can you identify the opportunity for your company? Can you focus on building something unique? Do you have the patience to figure those things out? 

Identifying—and solving—the mismatches  

Where I often see the mismatch between a founder and the conditions they face is in the founder’s temperament. 

Founders might find themselves in a place where their skills and unique talents are not well suited for their reality. It’s not pretty when a methodical or thoughtful founder is forced to operate in the race condition—they can’t build the right culture, create the right incentives, and paint the correct vision to succeed. Same goes for the founder who prioritizes speed and urgency while in a blue ocean condition—they’ll press too fast trying to make things move at an unnatural pace, creating strain that works against their company’s success. 

One of jobs as investors is to ensure a match between the founder’s authentic self and the business’s needs: 

• Think about Travis Kalanick at Uber. Put aside the controversy later in the company’s journey and focus on the early days. The company entered the market knowing it faced an epic, multi-front war with every local taxi commission in the country (and later the world). This condition didn’t call for a peacetime leader—it needed a warrior willing to turn every fight into the storming of Normandy. Investors, the team, and the executives knew this, making Travis the company’s second CEO. 
• There’s a great expression that perfectly captures the story of the blue ocean founder: “The company is a great, overnight, 10-year success story.” These founders oftentimes grind away in obscurity, but build huge value over time. Deep Mind, an AI company acquired by Google in 2014, is a perfect example. Deep Mind’s three founders (Demis Hassabis, Shane Legg, and Mustafa Suleyman) started working on AI in 2010 and understood the need to methodically iterate and refine their products amidst this new and changing technology. Optically, it might seem like an overnight success but they’ve been working for over a decade to release some of the most impactful AI products. 

As investors, we can help guide a founder. But knowing yourself is, by nature, an introspective exercise. Make sure your personality and skills are well matched for the journey ahead. Impedance mismatch is often a recipe for disaster when it comes to Founder/Market fit.