📚 Sequoia's 3 PMF Models

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👋 Hi there - it’s Egemen. Thanks for reading Scalable.

Folks, it’s one of those editions this week - LOADED.
All yours, I hope you enjoy it, and it’s useful to you.

I recently read this somewhere, and it stuck with me: Anything that helps you zoom out and gain a new perspective about a topic that you think you know too well is extremely valuable.

With that being said, this week, we’ll cover the ultimate startup term out there in the space: product-market fit (PMF) based on a recent framework I ended up loving by Sequoia Capital.

👉 I can comfortably say you’ll gain a new “rule of thumb” when it comes to picking the right PMF pathway throughout the startup’s journey.

Whether you're fine-tuning your product or gearing up for a market launch, this edition is packed with practical know-how to push things forward.

Here’s a snapshot of what’s on the menu today:

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☝️ Scaled this past week: osapiens

osapiens lands $120M from Goldman Sachs Alternatives - it’s the scale of the week!

osapiens helps implement ESG requirements quickly. The company develops innovative SaaS solutions that help companies across industries to implement ESG requirements automatically, and securely.

Here’s what they offer:

• AI-based cloud platform that creates compliance and transparency along the value chain.

• Allowing companies to identify risks and implement reporting requirements, including several regulations in Europe.

🧠 Deep-dive: Sequoia’s Arc PMF Framework

I was recently reading Sequoia’s Arc Framework, which is a fresh take into the whole PMF journey. I enjoyed it very much indeed.

This framework isn’t just theory - it’s a practical guide based on real-world experiences.

If you are at the early days of your startup’s journey, you can easily find yourself questioning what’s the right or wrong approach to take.

I find the Arc Framework quite fitting as an answer to that issue.

In principle, it’s pretty simple:

In this framework, there are three paths to PMF. Each represents a different relationship between your product and your customers.

Once you understand these, it’ll be easier to identify your startup’s pathway:

According to Sequoia, apparently, many founders assume they should follow the “Hair on Fire” path because they focus on immediate customer needs. While that's useful, the Hard Fact and Future Vision paths are also valid ways to achieve PMF.

Ideally, you're addressing a problem you're uniquely equipped to solve.

Ask yourself these two questions if you feel lost:

• What’s the one problem you solve really well?

• Solving that problem, what’s the atomic unit of value you create?

Your path depends on how customers perceive and interact with this problem. Each path can lead to success, but each requires a different strategy and focus.

Some companies find themselves on more than one path at a time. Working towards PMF isn't about locking yourself into one path forever. It would be a mistake to define your startup too narrowly by just one approach.

Remember, finding and maintaining PMF is actually cyclical, and never ends.

As your company evolves, so might your path because you actually never know how customers will react before going to market.

I absolutely love this example below, hits the spot 👌

👉 As always, the thinking process should be about the problem. Then it’s about how you’ll tackle that problem and create an atomic unit of value.

Here are some examples to finish it off:

• Hair on Fire

  • Look at Zoom during the pandemic. People URGENTLY needed a reliable video communication software. They stood out by offering a user-friendly, high-quality experience.

  • It’s also a pretty good product-led growth example by the way.

• Hard Fact

  • Airbnb changed the way people think about travel lodging by turning spare rooms into accommodations. Neither the guests or the hosts thought it was a solvable problem, because to them, there was no problem. They demonstrated that staying in someone’s home could be just as good as, if not better than, traditional hotels.

• Future Vision

  • SpaceX aims to make space travel affordable and eventually colonize Mars (- oh god I can’t believe I wrote that 😅). Initially seen as overly ambitious, they now have reusable rockets. It’s a long journey, and they’re taking the right steps at a time.

🗺️ Method: PMF Archetypes Checklist

You might be wondering what the best fit is for your structure and progress, and that’s okay.

I’ve put together this checklist to help you determine which path is the most suitable for your case.

For each archetype, this template has:

• tailored checklists,

• roll-out strategies, and

• case studies (in the form of short examples)

I hope it comes in handy - all yours!

💡 Spotlight: Riverside

I first used Riverside last month while we were recording a podcast with a buddy of mine.

Cannot recommend it enough - it’s become an irreplaceable video call tool for me recently.

What they do is pretty interesting - check it out if video content is part of your startup’s GTM strategy.

They handle recordings locally on each participant’s device, eliminating internet disruptions and maintaining high quality. Each participant’s audio and video are recorded on separate tracks for easier editing.

⚾️ Catch: Global VC Fundraising Activity

I came across this graph as I was reading the Growth Equity Update report by Rothschild & Co.

Very, very intriguing data.

The decline suggests a cautious investment environment, possibly due to economic uncertainties around the globe.

Since the beginning of the year, the downhill trend continues, but it’s not all bad. Average fund sizes have increased, indicating that larger players are dominating the market.

TLDR, let me share some bullet-points to highlight key takeaways:

• Global venture capital fundraising is down (I mean like real down).

• In H1 2024, $80.5 billion was raised across 632 funds.

  • If this trend continues, 2024 will see $161 billion raised, down from $196 billion in 2023 and $380 billion in 2021.

  • This would be the lowest since 2015's $119 billion.

👉 Startups may find it more challenging to secure funding for the rest of the year - we’ll see together I guess!

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