09.26.2024 | By: Charles Moldow
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.
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:
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?
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:
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?
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:
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.
Published on September 26, 2024
Written by Foundation Capital