Sequoia's Product-Market Fit Framework

Before we dive into that, jump around. Polyvore did incredibly well. It turned a fashion community into this incredibly monetized, largely by banner ads, a million acquisition by Yahoo. What was the biggest product lesson from that and the experience with Polyvore?

Build only what you have to, I think is one of the lessons I learned. At that time, there was lots of performance marketing. I mean, Google existed, product listing ads existed. So there is a way to build a really, really, sophisticated ad engine that we could have just taken a page out of their book and and really started there. We started with a spreadsheet. So we ran our entire performance marketing engine off of a Google spreadsheet for we did, it I think it was a full year that we ran it on a spreadsheet.

And all the bids from all the advertisers, like, you have Saks Fifth Avenue, Neiman Marcus. You know, these people are coming to us saying, hey. Like, they had to email their account manager to change their bids. So they would say, hey, can I change But my bids for dresses up from fifty to $2.75? And the account manager would let us forward it to us, and then we’d jump into the spreadsheet and change it from $2.50 to $2.75. And I think the lesson I learned was just, it’s so surprising how far you can get, like so little.

Do you think you’ll always be embarrassed by your V1? It’s a common statement. Some people agree, some don’t. How do you feel?

In general, I agree with the premise of that, that, you are almost always going to overestimate the amount that you need to build to actually learn the thing that you want learn. I think the goal of building, like I said, this kind of cycle of conviction and action, the goal of building is to either move an impact metric that you care about or to learn something about how to move the thing that you care about. And both of those things require way less product than people think.

Like, my job as a product leader is almost to scope down the product that I build to build less product I consider successful.

Do you agree with the other statement that to scale have to do things that don’t scale? I think it’s PG that commonly said that at YC.

I think so. I think or at least open your mind to the possibility. We actually do have this scoping MVP framework that we teach during Arc that I teach during product week. And it talks about there’s three columns, of course, there’s three pillars that we break it into. And the first is what does the product actually need to do? And the second is what can you fake? And that’s when people say unscalable things. We’re talking about things you could fake operationally, Wizard of Oz, behind the curtain.

What are the things you can do that maybe someday your product can do, but it doesn’t have to do it today for you to learn the thing that you need to learn?

That’s a great way to phrase it. And of course, there’s threes. I feel like McKinsey could also have been a sponsor for this show. But I I to move to the final segment really being Instagram in terms of the operating career. scaling SMB ads from 200 million to a billion. What was the biggest takeaway from that?

Once again, this continuing this parade of building belief, you know, most of the the vast majority of the ads business was focused on, obviously, makes sense, more concentrated, larger, deeper pocket advertisers. And if you have any experience with Facebook or Instagram’s ad platform, it is complicated. It’s very sophisticated. There are lots of, knobs and dials and levers that you can pull. And when you apply that to the SMB space, you know, people are saying, hey, this is a long tail. They’re a secondary audience. Like, let’s leave them by the wayside and maybe kind of just retrofit or dilute what we have and ship it to them and it’ll work.

And so I think it was always a little bit of a second order customer. And I inherited this team that basically was saying, you know, our goal is to grow. Because this is the long tail, we make up for price with volume. Like, they’re not to have the budgets, but there’s millions of them. So let’s go get a million of them. Right? So the problem statement is acquisition. It’s growth. Our metric is monthly active advertisers. And you just want that number to go up to the right.

And I think the thing that I most learned there is the power of asking the question, what problem are you trying to solve? At Instagram, the problem statement being framed as acquisition, when I spent some time digging into the numbers behind the numbers, we had an awful, awful, awful, retention problem. For every 10 customers that tried the product, six of them the next month would go away. Even though, even despite that, the number of monthly active advertisers would keep going up because we’re just pouring new advertisers in the funnel.

I had to like evangelize the idea that the problem is not acquisition, it is retention. And if we don’t fix this retention problem, we are going to be at a serious cliff in some amount of time. I don’t know if it’s six months, months, but eventually we are going to run out of advertisers to pour on the top of the funnel and we will have nothing. Just reframing the problem and really understanding what problem it is you’re trying to solve is probably my biggest lesson.

You mentioned that kind of the core metric of like actually focusing on retention, not on activation or acquisition. We often hear about product missions. So what is a good versus a great product mission?

Yeah, that’s a great question. So this is actually taking from a framework that I do teach during Arc. And so this framework aims to basically demystify and break down the act of product management into a framework. so it’s a four part framework. It has, as you suggested, mission is that kind of like the top of the framework and all of the remaining factors kind of like cascade down from mission. So first you have a mission, which is a qualitative statement of what success looks like. So we usually use an image of a mountain, it’s and like the flag at the top of the mountain.

What does it look like to achieve, you know, to to scale this mountain?

What would an example of that be? Would that be like be the number one CRM provider for SMBs?

Oh, that’s a perfect yes. Okay. So there’s two core things I think that make a great product mission. One is that it’s customer centric. It should describe what it changes for the customer and their world, how it changes the customer’s world. Two is that it is a thing that you can imagine working against or working towards for the next decade, not the next quarter. So one problem statement that a lot of early stage founders have is that they’re so hyper focused on what’s right in front of them.

This week, this inbox, this meeting, this feature, this ship date. And it’s really, really, hard to think way bigger than that. And when we say way bigger, we don’t mean before your series A, we mean the next decade or two. The one great example I use that because, you know, most of us are customers of this company is Airbnb. Their mission is belong anywhere. That just immediately kind of like grounds the idea of, okay, for you as a customer, they’re hoping that they can produce experiences and places for you to stay that help you feel like you belong wherever you go, wherever you travel in the world.

It is a customer focused statement, and it is pretty massive in terms of, I can imagine 10 from now, maybe Airbnb doesn’t feel like that box has been checked. right? It’s something that you kind of almost work towards but never achieve.

Is it measurable? Is there any you could look at customer NPS, but different customers like different things. it may not actually suggest home from home. do you think about the importance of whether it’s measurable in a mission statement?

What a great segue, Harry. The next part of this framework, the four part framework, is actually the metric. So the the whole point of the mission is inspiration, aspiration, also clarity around what it is that you want your team to achieve. The metric is the quantification of that aspiration. So at any given point, there is one number that is the best determinant. And if you’re talking about the mountain analogy, the best compass to tell you what is up the mountain and what is down the mountain.

And that thing can change over time. So pre product market fit, for example, we give our Arc founders the strong advice to pick a number that represents customer happiness. And you mentioned NPS. I recommend not using NPS. I recommend using for this purpose, I recommend using a metric that’s specifically an action in your product. So imagine any time this user takes this action, they’re pressing a button that says, this product is great, I love this product, or I’m using this product. So it could be an API call, it could be a dashboard that’s created.

It could be a query, it could be image that’s created. There’s something that they’re doing in your product that is the core action of your product that suggests that they’re finding value out of it. And that is the thing, that is the quantification of their happiness at this current stage.

I so agree with you because I get so pissed off when I and I shouldn’t be as vocal as this, but I am anyway, so fuck it. But when people are like, oh, oh, like, our metric is MRR. And I’m like, there’s 10 different input metrics that lead to that as the output metric. It means nothing.

Yes. If you’re talking early stage pre product market fit, the farther you are from customer happiness. and like I literally imagine them pushing a button or raising their hand. Like every time this thing happens, they are happy or they’re getting value. And there’s, like you said, so many output metrics and downstream metrics that you can measure. Great. Measure them all you want, but goal on the thing that makes your customer happy. And one example from a recent Arc company that I worked with is a robotics company.

The whole point is that the robots are set up in your lab and helping you automate what otherwise would be done by human work. And so they have, you know, they have a long sales cycle. They have a long implementation cycle. And you can go on any number of those things, you know, time to implementation, robots live, contracts, you know, signed, things like that. But really what you should be going on is robot hours live. How many hours, how many actions, how many things are the robots actually doing in the lab environment that are driving value?

All those other things are either upstream or downstream of like the moment of value delivery for the customer.

We have the mission, we have the metric. Okay. product strategy wise, what’s the first step in defining a good product strategy?

Yes. Okay. So it follows from the mission and the metric. The product strategy piece is the most mystical black box thing. Like people either think you have product intuition or you don’t, or you can’t follow a formula because every product is different. So you just of wing it. From my perspective, can break it down into its component parts. The first component is to have the mission. The second is to have the metric. And the third is to understand the metric. So basically, let’s say we have repeat monthly active advertisers or maybe it’s retention.

Pick a number. You basically analyze your metric and determine why and what the gap is between what the level is today and what the optimal or ceiling of that number is. So if you know your monthly retention is 20% and you know that amazing world class monthly retention is 60 or 70%, there’s a huge difference there. And so you have to either break down the gap and understand or have a hypothesis as to why there’s a gap. And the key there is that there’s a user facing hypothesis.

So this is users are not coming back. They’re voting with their feet and their behavior that this product is not sticky and they don’t to return. What are the top three reasons why that is true?

How do you find them out?

How do you find out the hypotheses? Good question. I think it’s through the feedback loop into your business. So it’s the data. It’s their actual data. Where are they retaining? Where are they not? What types of users are retaining? What types of users aren’t? It could be by geo. It could be by platform. It could be by flow. Step of the flow. So data is a really good tool here. And then secondly, actual qualitative feedback. you talk to users, they will tell you why they’re not coming back.

What was the biggest product mistake that you made and what was your biggest lesson from it? If we think about tactics, hypotheses, I’m just intrigued. I think we learn a lot from things that don’t work out.

Yeah, I think I actually fell into trap early on when I was at Instagram, adopting the mindset of I kind of like failed one of the first tests, I would say, which is to build the product for the customer. Don’t build the product and then find a customer for it. We really did just take this big massive ad platform and try to water it down for SMBs. And you’re imagining, you have big, deep pocketed advertisers that have millions of dollars, agencies, whole teams that are working on their ad platform.

Your whole job title is to work on Facebook ads on behalf of this advertiser. And we’re taking this platform, and then we’re shoving it into the hands of a baker who is running, you know, a local bakery, and they’re baking cakes and and, you know, And then they’re trying to figure out this, like, ad platform during the day. In what world do we actually think that that would work? I think this was kind of before the awakening or the realization that, hey, like, diluting this product for this person is not going to work.

Even if that’s the most efficient path, it is not the most effective path. And I think it took a few cycles to actually break out of the growth mindset and then break out of the, hey, let’s take what we have off the shelf and see what we can do with this.

That’s what I find so funny about product market fit in the way that I I think it’s such a challenge statement because product market fit changes with every segment, with every product that you release, with every pricing customer.

Absolutely.

You know, for you going to SMB with, you know, the Instagram product, you to refine product market fit in a new segment.

And And I think product market fit, I mean, this is to sound very meta. You know, it’s a it’s a journey, not a destination. I mean, I truly believe that. Even growth stage companies, you’re either finding product market fit in a new area, you’re trying to you’re struggling and you’re fighting to keep it because of what’s changing in the competitive environment, or you have you’re trying to expand it to different places. And so nobody ever actually gets and keeps product market fit. It is an ongoing battle or an ongoing journey that nobody ever really just conquers and says, okay, I’m done.

I’ve done that.

Did you really just say it’s a journey and not a destination?

really did. really did. That’s also part of. Yes. You know,

A little I interested. Don’t worry. We’ll put that as the title. Yeah. It’ll be great. Yeah. Really inspiring. Oh, yes. This is We can do a mountaintop illustration as well. Okay. I I to move into the actual kind of archetypes themselves now because we’ve highlighted, if you can believe it, three. So what are the three different types of PMF?

A lot of PMF content talks about your product as if it existed in a vacuum. It’s like, how do you get your product in front of the right customer? How do you get your product used? How do get your product to the retention number? How do you get your product to hit this benchmark? But what about the market? And specifically, what about the customer mindset? So that’s really what this whole framework is anchored on, is the product that you build has to follow from the mindset that your customer and the relationship that your customer has with the problem that you’re solving.

And how they, how actively or either actively they’re trying to solve it, urgently they’re trying to solve or how even aware of the problem they are really factors into how you build the right product and how you get to PMF. So that’s kind of the core insight of the framework. And so there are three basically archetypes of customer mindsets. So the three archetypes, we’ll start with the first one, which is hair on fire. I think that’s pretty self explanatory in terms of a name. But this customer obviously is in the mindset of help me now, help me yesterday.

I am urgently trying to solve this problem. I’m out there actively comparing my solutions that are available. I’m, you know, doing feature comparisons. I’m also probably inundated. You mentioned earlier, there’s millions of data lakes. I am inundated with messaging that all sounds the same, but I need to solve this problem. So what do I do The hurdle to overcome here mainly is it’s a crowded marketplace. You’re not the only person that has discovered this customer has a burning need. Somebody else is tackling and maybe multiple people are tackling this problem as well.

And so the key hurdle is really differentiation and overcoming noise. And we come full circle. I know we touched on that earlier in our conversation. But the nuance here is not just differentiation in the product, which means that you’re actually solving their problem in a way that is compelling, but also that they get the difference. Because like we said, there’s a million other people trying to sell them something that sounds the same. I think the true test of this is whether the customer can say in one sentence clearly, what is this point of differentiation and whether it is compelling.

Because if you still have a gap to that, I think there’s still a lot of work to do in a market like this and hair on fire.

Do you not find that every founder overemphasizes their customers pain to the problem that they think they have? Every founder I know is like, oh, my customers are dying of this pain. And then you speak to customers and they’re like, it’s like top 10, but not massive. Do they not always overestimate it?

Yes. And I think that’s one of the things that we teach also in Arc is ask the terrifying question. You want believe. right? We’ve talked about having a a room of believers that is all kind of, you know, moving and rowing in the direction of bringing that belief to reality. Sometimes you gotta have somebody that’s sanity checking you. Right? There’s always at least one terrifying question.

What sort of thing is a terrifying question?

Is this problem actually that bad? If you got the real answer to exactly what you just said, that happens over and over and over again, like this problem statement of this is a huge problem. It is a big deal, the most urgent number one problem. Budgets are there and you hear the customer literally tell you the exact opposite. Maybe top 10, it’s not that big of a deal. think the terrifying question is, does this problem actually matter in many cases? I think when you face the terrifying question, you get answers very quickly.

And I think on the hair on fire, in the hair on fire path, it is specifically the differentiation point around, does this problem matter? And are you solving in a compelling way?

My trouble is like you said before, is your customer compelled by your difference? As a clarifying statement around that? Again, the difference is the really hard part. Product marketing, think, I think it’s actually done really poorly today. Again, I’m mean, in trouble for this. How do you think about advising founders on standing out in supremely competitive markets and what works and what doesn’t?

I think I would go back to using their words, not your words. The number of times that I have seen a founder, you know, describe, this is what my product does. This is what it is. This is, you know, the category we’re in. This is the feature set we have. And then you go and ask the customer and say, how would you describe this product? And it is completely orthogonal to the way that the founder either describes it or thinks it exists in the world. For me, it fits here.

For me, it is this useful. For me, this is the biggest benefit. And the the words just don’t align.

Question for you. Yeah. What do you do when you’ve got horizontal products? You know, I look at your notions, I look at your air tables. They’re not vertically applied to problem statements. And so it’s like very difficult to come up with compelling catch all statements that you can put on a billboard. How do you think about effective horizontal product marketing?

I would actually, I would challenge that in that at least every truly engaged and evangelist customer has a way that they describe Notion and why they think Notion is head and shoulders above the rest. Basically, what you have with a horizontal product is you have to collect that data point across a lot of different customer profiles and use cases and pull together a thread of similarity across those. But you still have to do the work of understanding how a customer uses that product. Same thing with I always use Excel as the example because Excel is, you know, there’s so many different ways that you could use Excel.

But it didn’t start as a, hey, here’s a spreadsheet. Use it for whatever you want, right? There was somebody that was like a more compelling and deeper use case for that, whether that was, you know, financial analysts or people that really needed to manipulate data to do their day day to day job. You have to actually pull the true value prop and the evangelism out of people that actually see that value prop clearly.

Challenge accepted. That was the most You like, I’m challenging. I’m like, oh, I I didn’t realize it was a challenge or a duel. How wonderful. I I want go to the second, which is a hard fact. What’s a hard fact, Vickie?

Yeah, a hard fact, I think I would. I love that this comes right after hair on fire because these people are, you know, please help me now. Hard fact customer mindset is literally we use the phrase, it is what it is. It’s just resignation. It’s not the best. Yes, it’s a problem statement, but I hacked together something. I’m using something that existed for years. There’s no better way to do it. I’ve got what I’ve got. It is what it is This is a hurdle of not noise and crowded and competition, but this is a hurdle of habit.

It’s a hurdle of inertia. It’s a hurdle of people who have just lived their lives this way and they’re not. This is, I think, the most eye opening path, I think, for many of the founders that we walk through this framework with, that there is any other path outside hair on fire. Because I think the conventional wisdom is build something people want. And so that means you go out and build a thing that people urgently are saying that they need, which is not what hard fact is.

Hard fact is somebody has accepted that this is just a hard fact, a hard truth of their life. And you’re trying to get them to accept that, no, this is a hard problem that I have now solved for you.

What do you think is an example of that? It is what it Yeah.

Oh, for me, I have so many. So we So we work with a lot of great marketplace companies. I think marketplaces actually fall into this mindset very clearly in that I need a cab. And if there’s no yellow cab on the street, I’m standing out here for five minutes, can’t find a cab, guess I have to take the subway or walk. And it’s just like, it is what it is That’s just how it works. right? And you have something like Uber come along and say, actually, there’s a completely different source of supply that you have not thought of for getting you from point point A to point B.

And that kind of jars you out of I have I I actually started my career in investment banking, and I used to work in downtown San Francisco. And so I would get out of the office at or 3AM. I would call up a cab company. And I lived not in the city, but I lived like across the bridge in in Berkeley. And these cabs would come and show up to the office and then they would see that I’m going over the bridge and they’re like, I don’t to go over the bridge.

And they would just leave me. And I’d have to call off sometimes two, three, four cabs at two or three in the morning to get one to agree to take me across the bridge. And that’s how I lived my life. And I think that’s one of these things about hard fat companies is why was I living my life that way?

Yeah. Are they not inherently so hard because you have to fundamentally reprogram human brains around habits?

Yes. And it may sound almost like, I think as a founder, oh, wow. There’s not a bunch of competition to elbow out of the space. That sounds great. But no, I mean, I think breaking people’s habits could in many cases be way harder than kind of standing out amongst competition.

Well, and I think there’s like the inherently entrenched incumbents, which is, I think, too, which is like banking traditionally was always and phone contracts. It’s like, you know, AT&T, It is what it is. They’re paying the customer service sucks, but what but AT and the infrastructure requirements, the brand, I mean, just so entrenched.

Yes. It’s a hard fact. Remember, not just for the customer, but also for potential competitors. And so it’s a hard fact for everybody. everybody. has just accepted it both as not a problem they want to solve and also not as a habit that they want to change. And your job is to shake them loose of that belief. It has its challenges for sure. And I think the two ingredients to really overcoming this habit, one, once again, pick a problem that people care about. If I have a habit in a space that, you know, sure, it’s not the best, but I’m not trying to bend over backwards to change my life over this behavior.

If you pick a problem that is actually a, you know, a soft fact, I guess, using the hard fact analogy, right? If it’s a soft fact and not really a problem, then you’re, you know, dead on arrival. And I think the second one is to actually have a compelling or novel enough solution to shake them out of their habit. Another example I often use is Instacart. Prior to COVID, I have a I have two young kids. At that time, my son was one year old and I used to. before COVID, would like schlep him to the grocery store.

I was like a first nervous first time mom, I would use the shopping cart cover and I’d have to bring all the toys and the snacks and prepare. It was like a whole journey just to get our groceries for the week. And then because of COVID, I tried Instacart. I I think I have now, I don’t know, 350 orders on Instacart lifetime, and it’s truly a, why was I living my life that way? They broke this habit that wasn’t even it wasn’t great. I didn’t enjoy schlepping him to the grocery store and schlepping all the stuff back, but I thought it was just the way that I had to live life.

And Instacart broke me out of that habit.

That, but I think also bluntly COVID also broke a lot of happening around consumer patterns, which is really interesting for an investor. like the why now we always have to ask, And it’s like an an external event can cause a hard fact to become shakable.

Exactly. Yes. In often cases, that is actually exactly what happens.

The hard thing is to understand whether it’s enduring. like you’ve seen a lot of e-commerce, which has not been enduring. That’s definitely true. That’s the challenge. I want move to the third, which is again, kind of completely different one. Yes. Future vision. Yes. What is future vision and how does that compare?

Yes. Future vision is for all the dreamers out there. So future vision is a place where you have some deep expertise in some area that causes you to see a world that not everybody else sees yet. Think Elon Musk, think Jensen Huang, you know. Think yeah. These these are the types of folks that not only see a product that can change people’s lives, but a paradigm that can change people’s lives. The thing, you know, we said in the first path, the hurdle to overcome was competition.

In the second, the hurdle overcome is habit. In the third, it’s actually disbelief. It’s sure, I’d love flying cars. I’d love teleportation. I’d love all kinds of things. Great. Yeah, But I’ll believe it when I see it. And I think your job as a founder in this path is is mostly validation to prove the validity of your vision of the future, a, like almost literal technical validity. And then secondly, applying that and finding the right stepping stones to your ultimate vision. I like to use OpenAI as an example here.

Their ultimate vision of the future is that AGI exists. And so it’s crazy to think that ChatGPT and all their GPT models were a stepping stone to realizing the vision of AGI. They found a commercial application that solved problems that people were compelled by to adopt for one use case or another on their way to the actual ultimate future vision, which actually hasn’t come to fruition yet. And this is something that, you know, future vision founders, there’s one thing about going into a cave for years and emerging, and then everybody wants the thing that you have.

But there’s another thing to actually prove the hypothesis in bite sizes and in milestones and in stepping stones and finding the right stepping stones.

I would say 90% of the companies that I see as an investor are in the first category, which is obviously the on fire. Is that true for you? And is that reminiscent of how the art portfolio looks?

Oh, that’s interesting. When When we actually look through our portfolio, I would say it was actually pretty representative across the different paths, surprisingly enough. Hard fact is really comes through a lot, I would say, actually, surprisingly so. A lot of founders find that’s why I think a lot of founders found it so illuminating because they realized, wait a second. So all this struggle I have with skepticism and kind of waking people up to like, you doesn’t have to be this way. It’s because I am actually not on the hair on fire path.

And so I think that was the biggest moment I saw from founders that actually were on the hard fact path, not realizing that that path existed. So the portfolio is actually pretty representative, I say I would say, across the paths. One interesting thing I would add is that I would say both kind of from a founder perspective and also from an investor perspective, certain investors kind of like really gravitate towards certain paths.

Oh yeah. Hair on fire, I think is an inherently shit one to be part of.

Why do you say that?

Why? You require a lot of marketing spend to actually differentiate. That’s if you even have great product marketing, which I think is very rare. You have incredibly competitive markets, and so your retention is generally lower and it’s harder to keep them. Also, people forget about the marginal cost of software dev. and if there’s hugely competitive markets, they will expect continuous incredible improvements very frequently versus a much more stale market where there’s not many alternatives. So actually, your margin really changes because you have to have continuous amazing software updates, amazing CS.

Yep. They’re inherently worse businesses. And then also, you’ve got no pricing. Sorry, I’m really getting on a high horse. Your pricing power I

I feel your energy around this, Harry.

Yeah, the commoditization is real.

But don’t forget though that the demand is given. There’s pros and cons to each. Like, it’s kind of like, oh, another thing that I, you know, get go really deep on the rabbit hole on is personality tests and frameworks. But But there’s not, you know, you say in those that there’s not a good one or a bad one. Right? Like there’s just pros and cons to each. And the pros here, like you said, you’ve run into so many founders that say they’re solving a problem that’s number 10 on people’s lists.

In hair on fire, in theory, the demand is clearer, which is why it is hair on fire. And then usually in that space that there is actual budget, there’s actual spend, there’s people ready to write checks, which the other two paths may not necessarily see such a clear, you know, line towards.

I get you. But like, I also, I have a very clear playbook for the deals that we do, which is like, I love huge markets with fuck all competition, no competition.

What are examples of those?

Okay. I led a series a for A business that does commodities pricing. It prices the world full

circle with the commodities.

But like, there’s like one big player in the world. That’s it. no And no engineers out of stripe like commodities. We’re going to do commodities. None. And so I look for large markets with no competition, huge market.

So to me, that reads very hard fact. But how how do those customers actually view those problems? Like, where would you put them It’s on

kind of a combination of hair on fire in terms of recognition of problem, but hard fact as well. So it is kind because they hate it and they are very aware of the need for change. But they’re like, but no one is.

But it is what it is.

Because no one’s building for us. I almost like to build for the unheard. What does software engineers Not I I I you know, bluntly, and this I’m getting in trouble here. Dev tools, what a shit market. Devs like to build their own tools. They don’t believe anything you tell them and so they just are inherently skeptical. They expect insane product. They’re very cynical. The margins are generally quite crap. The CS is required high. Ugh. Just crap. And so not those that’s how I feel. But I would say it kinda falls in those two.

But important, sorry, additions. The incumbents in these markets, they need to have terrible talent brands. Terrible talent brands. And they need to be built on terrible infrastructure. Yes. So many founders that we see are going to like Shopify, I mean, or Stripe in some way. And I’m like, unbundling Stripe and going up against the Collisons seems like a really stupid idea.

would you believe that we have a framework for this? We’ve we’ve taught, you No.

this that Is that three?

No, strangely, it’s a number four. Okay. It’s the delta four, and it’s really simple. I mean, one of our partners internally just started calling, you know, coined this term, but basically, out of a 10, point scale, are you at least four points better? And I think to your point about the unbundling and taking taking on the Collisons, if they’re an eight or a nine, are you a 13? Is a very different question than if you are the port operating system of years ago is a three out of 10, and you can be a seven.

Those are Those are very different kind of beasts to tackle.

Okay. I’ve I’ve got another why there. I don’t think it matters if your product is better anymore.

Whoa, hot take, Harry.

Distribution trumps all. We see so many products today where it’s like, I’ve seen so many unbundled OpenAI solutions.

Yep. Are they enduring? Are they enduring? It’s because there’s a hype, you know, now and everybody’s They willing to

are better products than, So medical transcription is a market. I see There are 10 different medical transcription products that are better than Microsoft’s. But bundled into Microsoft’s product suite, selling to large incumbents and enterprises, there’s no way that they’re to go with some niche provider which is 5% better.

I would argue that’s exactly the Delta test of like, to your point, is it 5% better or is it five x better? Because these unbundled ones are not 5x x better. and therefore there’s no reason for me to take on the cost of unbundling that suite, managing all the different types of disparate technology when I could just have all in one here. Same thing with like Google Sheets and Google Docs versus Office. You know, originally, it is definitely not Google Spreadsheets are not better than Microsoft Excel.

Like, period. From a person that used to come from finance, I know, you know, what the power tool is and and people still in this building still use PCs so that they can access Microsoft Excel. That’s how hardcore they are about it. But it was good enough for most of us. right? We didn’t need a 5x x better spreadsheet. We just needed to do a little quick math, you know? And so how how much better does it need to be? I believe you. I I think we agree, actually.

Yeah, No. I I totally agree. It’s a magnitude of product difference there completely. How many products you actually believe are five x better, Honestly,

It’s a good question. And how much and and to the point of do they need to be 5x better to shake either what are you breaking through? You’re breaking through the competition, You’re breaking through a habit, You’re breaking through disbelief. How much does it take for the product to be better in order to break out of one of those kind of

shake one of ones? probably depends on like, enterprise buying cycles versus consumer adoption are probably two different Absolutely. Choose a product better.

Working on these frameworks, it’s just like a a scaffolding to have these conversations, I think, and to think through all the different nuances. But because not everybody knows the product market, there’s no one path and there’s no one formula. But the way that we talk about it, I think, is is a little bit one size fits all sometimes. So it’s kind of nice to be able to identify patterns but allow for nuance, I think. And and you’re bringing up some really great examples.

There’s I love about investing. mean, there’s like no right way to invest.

Exactly.

Okay. I to do a quick fire round. I say a short statement and you give me your immediate thoughts. Now I have no friends and have probably lost every founder that’s building in dev tools for the rest of my career.

You can edit that out. It’s fine. Right?

No, I never wanted to meet them anyway. It’s fine. Literally, my teams listen to this and like, oh, Harry.

Not again.

Not again. Okay, first one. What’s the most common reason you think founders don’t get product market fit? Like one reason.

Not solving a problem that matters with a solution that’s compelling enough. You fail on part A, you fail on part B, or you fail on both. I think it’s as simple as that, actually.

It’s funny. I sat down at the start of the year and I said to the team, I to have a smaller audience. I want us to deliberately get smaller as a media company because I want to mean more to fewer people. What’s the biggest product marketing mistake you see founders make?

I’ll go back to it say it again. Say it in their words, not yours. Your words, the way that you see your product, you are too close to this thing. It is not actually how they experience it. And in some cases, like in these markets that you’re talking about, like DevTools, you know, where you believe that you are your own customer because you are also an engineer. Like, I think we just have to break ourselves from that. Like, you’ve to hear it in their voice.

What would you say is the biggest mistake founders make when hiring product teams?

The thing that I actually warn both founders and product operators against is joining as a product leader too early in a company. And what I mean by that is there’s kind of three layers of product. There’s product vision, there’s product strategy, and there’s product execution. And when you are very, very, early on in a company, I would hope that at least the first two come from the founding team. Some is anchored on the founding team. And if you’re joining to provide one or more of those things, there’s often some tension basically between what swim lanes people live in.

And I’ve seen that happen where the founder thinks that they’re ready to give up product vision or product strategy. And it turns out that that’s not actually the case. It’s a difficult conversation to have once you find yourself there.

Tell me, what other function does product have the most tension with?

these are spicy questions. I think it really depends on the context, and it really depends on how willing the other functions are to step out of their own function. I believe in a cross functional team. Sure. You know, my job is to do product strategy. Like I kind of set the stage for why we’re solving this problem and what the problem is. And then maybe an engineer’s job is to figure out what we’re actually to do to solve the problem and how we’re to implement that.

But we all have a say in all of those voices and rooms. And so I think that the tension usually comes from, that’s your lane. This is my lane. Stay in your lane. Here’s the wall. you know, And and and I think that’s even a bigger macrocosm when you think about product development versus sales or marketing or some of the more business functions. you stay in your lane. I’ll stay in my lane. I think many of the tensions arise there and are easily, maybe not easily, but they are definitely, you know, surmountable.

So a friend calls you up, yeah, and they’ve got their first day as a new product leader at this new job tomorrow. What advice do you give them going into day one as a new product leader?

I would go back to conviction and action. The first thing you should do is build conviction in your problem and your customer. So probably meet a bunch of customers, figure out how to get in front of the customer, get absorb all the user research that’s been done. What are we doing here? What does success look like? Who Who is this person? What do they care about? And then the action side. So that’s outside the building. I think action is more inside the building. How do things get done here?

How do we make decision? Who has influence? How does the process work? How do I fit into this thing to actually make things happen? And I think that is probably the more challenging job for somebody just dropping into a role for the first time.

Final one. Which product strategy recently have you been most impressed by?

Linear is a really interesting one because they took this thing that is normally mostly used by, you know, issue tracking, mostly used by PMs and managers, EMs, and they targeted the engineer instead because those people hate this thing. And I’ve worked with so many teams and the the more senior I’ve gotten my product career, the more senior engineers around me have gotten and the more jaded, specifically around process and stand up and issue tracking tickets and things like this. They’re like, they want none of it.

And I was in this position where we adopted linear here at Sequoia with my team. And we actually had another issue tracking tool that we also, you know, had licenses for. Some teams use this, some teams use that. But EPD solely is linear. And we were being there was a threat of us consolidating. You know what? There’s more seats open here. Why don’t we just take everybody from linear area and move them over here? My team revolted. They wrote a four page manifesto on why you cannot take linear from them.

And like, literally, it was a memo. We actually ended up sharing it with the linear team. They cared about this so much. been through the trend. These are jaded, big tech survivor type engineers. Like seen I’ve every issue tracking tool and like, I’ve never actually not hated one except for this one. And what’s really fascinating is I think from a product strategy standpoint, most of these issue tracking tools go for PMs first, right? It’s like, you’re the manager, you’re the planner, you’re planning the development, the roadmap, the cycle, all this kind of stuff.

That’s the target customer. And the fact that they kind of flipped that a little bit and like went for engineers and now they’re actually now able to expand up and down the stack, up and down the development process. They are building products for PMs. They are building products for managers now. But they did it now from this core of like love from engineers rather than hate. I find that super fascinating.

I I love that and I also love Carrie. And so I I totally agree with you in that respect. Vickie, I love this. It’s been a really fun, Harry. is always so much fun to have. So thank you so much for putting up with me and you’ve been incredible.

Thank you so much. Thank you for having me, Harry. This was great.

I have to say, I really so enjoy doing these vertical led episodes on 20 product, 20 growth, and 20 sales. I think there’s so many tangible lessons for founders in scaling their businesses there. If you to see more, you can check us out on YouTube and watch the full video interview by searching for 20VC. But before we leave you today,

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Give it a try and visit pendo.io/20product-podcast to learn how your team can use Pendo to start building better digital experiences. there. you can also check out Pendo’s lineup of free certification courses, 12 of in-depth training for your product management teams on topics from AI to product analytics to product led growth. To check it out, simply head over to pendo.io/20product-podcast. That’s two zero product hyphen podcast. As always, I so appreciate all your support and stay tuned for an incredible episode this coming Friday with the founder of Freshworks, one of India’s most successful companies of the last decade.