How to assess Founder Market Fit — A framework
How do you find Founder Market Fit (FMF)? Why is it important? Can we build a framework around it? Let’s dig deeper.
Founder-market fit is an innate, unfair advantage that sets founders apart from their competitors.
There have been many blogs written on FMF and each have opposing viewpoints. I thought to myself, does the world need one more blog on FMF? Isn’t FMF overestimated? As an early stage investor, I am always grappling with FMF. Always trying to assess whether “Are these the right founders for this business?” And I never get an easy answer, more so I do not even know whether I have the right answer. So in such situations, the process to assess FMF becomes important. But can something so subjective be ever confined to a process? Won’t a process draw boundaries based on pre-existing patterns and biases? How will I identify the pattern-breakers, the innovators, the ones challenging status quo?
Like most investors, I don’t have the right answers.
But let me make an attempt at it. Let me introduce you to Founders Attribute Framework (‘FAF’) which we use at Gemba Capital. It is a set of 20 attributes bucketed into 4 core dimensions.
Before we get into each of these buckets, let me highlight this to you — this is just a framework to “Ask the right questions”. Objective is to know the founders as much as possible. There is no rule book and no right answers when it comes to assessing FMF.
- Ability to sell: One of the founders need to be a great salesman and a storyteller. Period. Irrespective of the type of business, someone needs to sell the product either to consumers or to other businesses. Certain partnership driven biz models like market places would require a higher need for a founder who can sell well.
- Ability to solve: Courage to solve big problems, to solve complicated problems. The returns are non-linear on such businesses if you back brave founders. Not saying that every founder needs to solve big problems, many ‘vitamins’ have become large businesses and not necessary that only ‘painkillers’ win. It takes high courage to solve problems in space tech, clean tech, deep tech, biotech and the likes.
- Childlike curiosity: A very understated trait for all founders. These are some of the best founders who constantly question everything around and look for better answers. High observation skills and high willingness to learn, adapt and improve. Very important if you are running a B2C business. These founders make the best pivots in their business.
- High agency attitude: “Relentlessly resourceful founders” — Paul Graham. Eric Weinstein has defined high agency behavior as “When you’re told that something is impossible, is that the end of the conversation, or does that start a second dialogue in your mind, how to get around whoever it is that’s just told you that you can’t do something?”. High agency founder looks to bend reality to their will. They either find a way, or they make a way. Basically, you are looking out for the ability to hustle in a founder.
- Ability to build: Some founders can build products and processes. They might not be great at selling or problem solving, but are great at 0–1 building new things. They are the initiators of new ideas, pivots, features and help in building POC and MVP. He/She could be the tech co-founder on the team.
- Domain knowledge: Can be a double edged sword. In certain cases, it hinders the ability to think ‘out-of-the-box’ and can be a baggage. In certain niche and technical sectors, it is a must. Most investors would agree that having domain expertise is an advantage especially in a B2B market, the key here is to not confuse domain expertise with work experience.
- Founders Synergy: One of the most important aspects to look for while assessing FMF. Do co-founders have complimentary skill set, respect for each other? Have they worked together in the past? Do they understand each other well (friends)?
- Intellectual flexibility: Education, pedigree, quality of companies worked earlier comes under IQ. This mainly proves that the founder is hardworking, diligent and has the basic intelligence to take right decisions. Ability to learn from new findings and change/re-validate hypothesis accordingly with new variables is intellectual flexibility. Not rigid on ‘own’ ideas and open to other viewpoints. As founders, it is important to have ‘strong opinions loosely held’.
- Proven competence: Simply put your past achievements. If you have done it earlier, and tasted success, chances are you will yearn to do it again and will likely succeed again. This is the reason why successful entrepreneurs are able to raise institutional money at such high valuations for their 2nd venture.
- Creativity: Ability to work on the edges and create magic operating within a chaos. Ability to look at problems differently from others and have a unique approach. This is critical in highly competitive industries to get an edge over your competition. Creativity need not be 0–1 innovation, it could mean small nuances in the product, unique GTM strategy or even creativity in a hiring process.
- Emotional maturity: This is required for certain businesses which need longer investment horizon and have high gestation periods like Agri tech or Deep tech. Age could be a wrong proxy to assess this and what will be more relevant is past failures, personal hurdles overcome etc. For eg. Founders in B2C healthcare would require higher emotional maturity to run their business as compared to running a social consumer app.
- High conviction: Founders that deeply understand the pain points and are absolutely obsessed with the problem they are trying to solve. Probably they have faced the problem first-hand and are passionate to solve it for themselves and others. These are high conviction founders who have unique insights on the problem statement and are looking to build a solution around it.
- Founders drive: Very difficult to assess ambition. If a founder thinks ‘very big’, you might presume arrogance, over-confidence, immaturity. On the other hand, if a founder paints a realistic picture of his business, you might presume absence of drive/ambition. Critical here is to assess the business requirement. For eg. If it is a ‘winner takes all’ market, I would like founders who have high ambition, high aggression, willingness to take higher risks and capture market share.
- High pain threshold: Simply put ‘resilience’ or tenacity. Easier to assess at Series B and beyond, but very difficult to assess at seed level. Will this founder quit easily or fight? What is the opportunity cost for him/her? At what stage of life is he/she in? Skin in the game? What motivates him/her?Some of the answers you will get from his/her past and some you will need to ask directly.
- Humility: You would notice many times the ‘top’ management in an organization is more humble than the ‘mid’ management. It is this humility which has made them reach the top. Honesty to admit past mistakes, body language, mindfulness, respect for others are some of the traits to assess humility in your interaction with the founders.
- Ability to recruit: One of the most important attribute for any successful founder is your ability to build a fantastic team around you. Ability to identify the right people for the right job, having the necessary connections and relationships to do so becomes important. Here, strong alumni network increases the ability to attract good talent early on. If a founder is able to hire people better than him/her — it is a battle half won, though in early stages it is very difficult to do so.
- Long term vision: Ability to think with clarity and communicate that across the organisation helps in steering the company towards the common goal. Ability to have shared values, core principles and a true north which guides each employee of the company. Delegation becomes effective, when organizations grow, if the guiding principles are laid out clearly.
- First principles: Most of the successful global entrepreneurs have been voracious readers. Reading helps to build multi-disciplinary mental models which then can be used for better decision making. Thinking from first principles and thinking deeper peeling through multiple layers to come with unique insights. Being a reader helps and being a writer helps in better retention, recall and application of what you read.
- Feedback loops: Helps in quick iterations, fail fast ship faster. Building inherently strong feedback loops in your product o management style, accepting constant feedback from mentors, peers, employees, customers is a key ingredient to become a great leader.
- Customer focus: Relentless almost obsessive focus on customers. Taught in the first lecture of MBA, but implemented actually by very few practitioners in business. “Our goal is to be earth’s most customer-centric company.” — Jeff Bezos . This is one trait which sets Amazon apart from all its contemporaries. This is one of the most important attribute for any founder in any business. No great company was ever built without customer love.
Create your own matrix
The idea to build this framework is to know the strengths and weaknesses of the founders. Some of the attributes like founders synergy, customer focus and ability to recruit are a necessity irrespective of the nature of the business. But some attributes are more required than others to get the right FMF as per the nature of the business. Create your own matrix/framework to possibly answer the question “Is this the right team for this kind of business?”
For eg. For an enterprise SaaS startup — 5 key attributes I would look for are: >>Emotional maturity, domain knowledge, proven competence, customer focus and long term vision.
For an agritech marketplace startup — 5 key attributes I would look for are: >> Ability to sell, high agency attitude, high pain threshold, founders drive and domain knowledge
For a vernacular social media platform — 5 key attributes I would look for are: >> Founders drive, feedback loops, creativity, high agency attitude and childlike curiosity
For a deep tech healthcare startup — 5 key attributes I would look for are: >> Domain knowledge, proven competence, Intellectual flexibility, long term vision and ability to recruit.
You can assign weights and scores to each attribute and get a Founders Attribute Score, if you will. Depending upon your objective you can find the best way to use this framework!
It is impossible for any one to get a ‘tick’ on all/majority of the attributes. I’ve intentionally tried to make this list exhaustive since each attribute can have different importance/ meaning for different investors. This is just a guideline. You choose the attribute you wish to look for.
There will be pattern-breakers, there will be extra-ordinary founders. Stripe, Uber, Airbnb, and Palantir were not started by bankers, taxi drivers, hotel operators, and defense experts. And this is what makes investing so exciting and rewarding to investors who can find and back such extraordinary entrepreneurs.
This framework is just a humble attempt for investors to ascertain FMF and hopefully make better decisions. This framework is also a checklist for founders to assess FMF, build teams accordingly and understand what investors look for.
nfx — 4-signs-founder-market-fit/