The Hidden Foundation of Founder-Market Fit (FMF)
This is part two of the topic I discussed in my last piece, where I intend to elaborate on what I meant when I said that it is okay if founders don’t have direct domain expertise in the conventional sense.
The founder of a Software as a Service (SaaS) company does not have to be a Software Engineer; the founder of a healthcare startup does not have to be a doctor; the founder of construction automation does not have to be a tradesman. But they all need to have a personal or professional insight into the problem.
We had three startups pitch to OSEIN in January, and not one founder practiced exactly what their company sells:
A bioastronautics researcher curing vertigo through next-gen headphones.
A hospitality operator building an AI-powered SaaS marketing platform.
A MedTech professional building an ergonomic solution for urologists.
If you think about traditional relevance, the bioastronautics researcher should probably be making spacesuits, the hospitality operator should be running exciting hotels, and the MedTech veteran should be a CEO in Big Pharma. Their seemingly “hard pivot” into launching these startups makes sense only once you factor in their “earned secrets.” Each of them had a deep understanding of the niche problems that existed in their domains.
The bioastronautics founder could not fly to space because vertigo prevented her from doing so. The vacation home operator was nearly going out of business because third-party marketplaces were aggressively chipping away at her margins. The MedTech veteran empathized deeply with the urologists injured in their line of work. It is the recognition of these unique domain problems that lays the first brick of Founder-Market Fit.
Our analysis today is to understand what contributes to Founder-Market Fit (FMF). The framework for creating this advantage is: first, does the founder have a deep enough understanding or a “chip on their shoulder” to dive into the problem with passion? Second, can they bring together a team that complements their skillset, moves fast, and believes in the vision? A truly excellent team can adapt. They can pivot around a regulatory hurdle. They create their own luck through relentless execution. A mediocre team, even with perfect timing, would squander it.
At this point, I want to reiterate that fit alone does not ensure success, or even early traction. For FMF to yield results, the founder must also have Learning Velocity. Since these founders aren't technical experts in the product they are building, their value lies in how fast they can translate customer pain into product requirements.
All three of the January startups had FMF. They were passionate, knowledgeable, and capable in their markets. The magic word here is markets. No, they did not directly build the product or have the expertise to make it themselves, but they were ideal for the market. They laid out a brilliant vision of how they wanted to solve it and were able to rally a team behind them. This is what we look for before writing a check. The strongest FMF happens when the founder has a deep personal frustration and is capable of executing fast.
In my last piece, I outlined the Hacker, Hustler, Hipster, and Handler. It’s important that the founder has enough knowledge about the problem and market, but not so much that they become jaded with cognitive rigidity. At the same time, we are wary of a completely fresh eye. The ideal balance is a T-shaped team: a co-founder with deep vertical industry knowledge and another with horizontal disruptive thinking from a different field.
Investors on our panel proceeded to peel back the layers, asking uncomfortable questions to challenge their hypotheses. All of them were able to break down the exact steps needed to execute their ideas, solve the market pain points, and become successful. They explained not only the go-to-market strategy but also the market dynamics that exist and why they were favorable to their business.
The vertigo headphones carved out luxury cruise liners as their first market—apparently, extreme adventure seekers have deep pockets. The vacation home operator told us her product was for “professional” operators who already used Property Management Systems that would integrate her SaaS as a complement. The MedTech professional knew for a fact that there were only a few manufacturers of the incumbent product; he knew doctors were so accustomed to the current tools that manufacturers would not run them out but rather let them make the ergonomic “accessory.”
When I heard their responses, I understood that they were very clear about their hypothesized market and what it would take to succeed. Their hypotheses can always be wrong, but here were three founders who at least had a plan of action.
January was a good start to the year. The investment committee debated and discussed, and we ended up having a masterclass in unit economics, spurred by our biases and preconceptions of the companies’ likelihood of success.
In the end, we were all convinced that the right founders were at the helm.