Founder Market Fit

Rajinder Balaraman
MANAGING DIRECTOR
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In today's episode, Avnish Bajaj and Rajinder Balaraman, discuss Founder Market Fit and how it differs from the concept of building within a domain. Tune in to know more.

Rajinder:

Hi, and welcome to Matrix Moments. Avnish, very excited to do this again with you. Today’s episode is on a hotly discussed topic internally, founder market fit. I want to first ask you, we just did an episode – actually you just did an episode with Anurag where we were talking about experienced founders and how building in domain was a critical part of the journey of being an experienced founder. How is this new term founder market fit any different, is it any different from the previously discussed concept of building in domain?

Avi:

So first of all great to be back here and thank you Rajinder. Before we get into the details of all this I think I have been now doing this 16 years hardly, you’ve also been doing it 10 plus years. I’ll tell you the meaning investing and we’ve always said that first of all we were all believers in the future and the future took forever to show up. Fortunately in the last three years it seems like the future showed up faster than we expected it to and exceeded our expectations which has been lovely.

One of the consistent themes in this grind I would call it has been that the founder quality, you’ve discussed many times has kept on improving from cycle to cycle. And then the latest one became, you know, we were dialed into these first time founders who have by the way – we’ll talk about it later, created the largest companies in the world and in India whether it’s Ola, Razorpay, OfBusiness so on and so forth in our portfolio and a bunch outside.

Then we saw when these companies were becoming large people were starting to come out of them and start new businesses and I remember you flagged this, not only from these kind of companies but in general more experienced founders are coming out. So then we had an episode on that and we are pretty well indexed on that flywheel for our investing. When you look at the global literature in venture capital actually they talk a lot about founder market fit and I’ve never heard it spoken about in India, maybe once or twice here or there from a peer.

So that is something that has now is a realization that has dawned on us internally that the ecosystem is evolving, our thinking needs to keep evolving. We’ve gone from first time founders, we love them, we all love them, we’ll continue to invest, experienced founders we love them, now you have experienced founders who may not necessarily meet the definitions that we have laid out.

One of those is domain, is working in domain a founder market fit, absolutely, it’s the easiest form of founder market fit. But it doesn’t apply whether it’s experienced or first time or we’ll use first time and new and inexperienced in a kind of similar way. It doesn’t matter if somebody is experienced by definition what are they experienced in.

Rajinder:

Domain.

Avi:

In some domain. So if they come out and work in that domain I would think they’re founder market fit but we’ll come to that, I think there’s a nuance there. But there can be people who are inexperienced and we’ll discuss again some of the largest companies in the world where if you just apply domain because they don’t have experience in a domain you would say do they have, do they not have founder market fit. But that's where the nuance starts building. So I actually believe it’s an evolution in our thinking, it is an evolution to keep pace with what we’re seeing in the market but it is something that’s been around globally for a long period of time.

Rajinder:

So, Avi, I agree with you. I think the assertion that founders building outside of domain can also build very, very large companies is clearly true and there’s multiple examples out there. But how should one think of it, like if one is an experienced founder building in domain versus building out of domain. Ultimately you're talking about founder market fit so how should one think about it?

Avi:

So I think for the rest of this discussion let’s separate experienced and inexperienced founders from founder market fit. This point applies irrespectively, it applies to all entrepreneurs. Now you know I often think of myself whether for better or for worse more as a founder than as a VC. So if I were to go out again and start and sometimes for me the clarity of giving any advice comes from what would I do in that situation.

And I would absolutely not take domain risk, I would work in the domain that I know well. Maybe market places would lend itself, maybe on the margin fintech but there I would be out of my domain, consumer would probably be in domain. Now, why? We have discussed before that startups is hard, we all know that. Most of them are destined to fail, if you're starting up again and you're not thoughtfully figuring out how to stack odds in your favor to win disproportionately I think you're probably giving up an opportunity to do so.

So domain to me is one of them, why is domain relevant? When you're going through a startup journey and we’ve discussed this in the Anurag journey episode there are a bunch of other experienced founder things you can build and all quickly all of that, let’s keep that aside. Ultimately you have to have the best thought around how do I get to the product market fit I'm looking for. If everything goes per plan, great. When things don’t go per plan why do they not go per plan because you have some unknown has shown up that you didn’t know.

Well, if you're in your domain likely your unknown box is very small. So to me that just becomes a very easy answer. But what we discussed in the previous question we have to also evolve. So to me easy lazy answer is absolutely domain, I would take the easy lazy answer. But I think there is more nuance beyond that and that then applies to new and inexperienced founders also because they don’t have experience. Which can be an asset not a liability, so we’ll come to that.

Rajinder:

I think that's a good point because I was just reflecting and this isn’t something I’d typed up earlier but very often companies pivot and there are so many examples out there where a founder when they generally pivot the business will also pivot within the same domain. Like if you look at say M Khoj to InMobi or Zomato from restaurant discovery to food delivery generally are pivoting within domain to an adjacency and finding product market fit you generally stack odds in your favor if you're building in the same domain.

Avi:

And which will come to part of what we’ll cover next in one of these questions, but I think it’s important to call it out here. If you're outside in which by the way will become one criteria for founder market fit, and you're customer obsessed which will become the second criteria for a product market fit. I mean what does Deepinder signify, I mean he is one of those guys. So if you're that then from those customers you will discover some other pain point of that customer which you're able to solve better, so I think it does become.

Rajinder:

So let me ask the question another way then which is it sounds like the answer for you is very clear that you’d always build in domain why should that not be the default answer for every founder out there?

Avi:

So I think before we get there we should make sure, Salonie, we include this chart or maybe you can flash this but the net net is this is a chart of company success percentage with a big exit depending on the founders’ background, how many companies have they started. And I’ll just give two numbers or maybe three. Previous companies founders founded 0 big exit percentage with the exit 5 percent, percentage with big exit 0.5 percent. Let’s take previous companies founded, 3, percentage with exit double which is about 10.5, percentage with big exit 5x, about 2.5.

Interestingly if more than four companies were founded the big exit goes back down and I’ll give a nuance around this. So first of all odds are going up which is what we said, but I was having this debate with an experienced founder in the US, serial entrepreneur, made a lot of money, billionaire on to his fourth venture out of domain. And I was giving him this gyan about domain and all of that and he turned around and said but don’t you see that I can give you a counter argument if I have been working in the same domain and none of them – and he’s very smart and he has all the other followership this that. None of them have become 50-100 billion dollar companies maybe the domain has capped outcomes.

And it really hit me, and I think interestingly in this four plus data you're seeing that the big exit is actually even smaller. So maybe somebody is just kind of punting with base hits from time to time. So why would they be out of domain, capped out outcomes. We spoke about knowns and unknowns before, they know enough to know that the opportunity doesn’t exist. In fact the people starting in that domain may be gullible because they may be operating in an unknown box where this person is operating in a known box. Fatigued, not intellectually stimulated.

A lot of us are looking for self-actualization at some stage, so what is it that is driving you. You made this point in the context of Zomato, spotted a related problem and that related problem may be in a different domain but for the same customer. So which we’ll come back to in terms of founder market fit.

So I think net, net it is about stacking odds in favor and I do think it can override domain. But I think the bar goes up, the bar really goes up. And I think the person should be thinking that okay, I'm operating out of domain but I'm going to be competing with somebody who’s experienced in that domain who’ll come with all the check boxes. And then even if I'm first mover will they get past me. So I just think the level of introspection and questioning should go up.

Rajinder:

I guess we’ve done our podcast in this and product market fit as a topic is well discussed, well understood. Isn’t founder market fit just a little too cute like why --

Avi:

VCs are very cute, they always try to sound smart.

Rajinder:

At the end of the day companies and startups are seeking product market fit they’re not like seeking founder market fit.

Avi:

So before we go there so far we’ve discussed about this domain, non domain, founder market fit. Like where does it sit for you?

Rajinder:

No, so for me it’s actually very clear. The reason why founder market fit resonates well with me is because ultimately it comes down to what is the founder’s calling, what is the founder’s purpose mission and honestly their personality also ties into the business that they’re building. And to take some examples from that I have seen if I look at say OfBusiness Asish was not building in domain but if I think about his personality, his, Ruchi’s, Bhuvan’s, Nitin, Vasant, all of them many of them came from ITC in their early years and so they understood manufacturing but they didn’t really have enough domain expertise in that.

But fundamentally Asish is just a very, very commercial person like he’s very, very commercially minded on business and business model innovation and where to make money. And so it just seems natural that he would succeed in B2B commerce because ultimately it’s a business which is a business built on scale but a business where a lot of innovation is required to find the margin and the profit pools in the business. And so if instead if I were to imagine him as a D2C entrepreneur where he’s responsible to innovate and create a category and branding and marketing honestly I just can't picture him --

Avi:

Well, he’ll be listening to this and he’ll be calling you.

Rajinder:

So, Asish, apologies.

Avi:

No, so actually let’s follow that train of thought, we were going to have these examples later but let’s just follow that train of thought. So if you look at the largest companies or actually let’s maybe come back to it, let’s first define the framework and then we’ll come back to that. Okay, so coming back to this product market so to your point you're saying it does resonate. And I think to that point coming back to the question is FMF too cute or is it – and how’s it different from product market fit. Asish didn’t start in the business he’s doing now, he actually tried to start in domain, he was going to do procurement for healthcare and healthcare is his domain. And very quickly he iterated because he was extremely outside in.

So my simple question is what happens if there’s no PMF, who’s still there?

Rajinder:

The founder.

Avi:

So I think products come and go, founders remain. Vision of the first product also comes from the founder so to me a founder with FMF – now this is going to sound like a lot of acronyms but a founder with FMF will get PMF and they will figure out the GTM to get to the PMF. Because they’re just obsessed, they’re constantly iterating and churning until they hit that nail on the head. I mean we have done this episode we should link it, the hack job, there are so many things that go into building a business and unless you're obsessed about building that business which we’ll define I don’t think and that’s FMF and I think everything else is an outcome of that.

Rajinder:

I know you're very structured in your analysis on how to define these things.

Avi:

I think it’s seeming like an underhanded compliment and a disguised insult to me, not even disguised.

Rajinder:

Let’s define founder market fit, for you like as I laid out what I thought.

Avi:

Exactly what you laid out, exactly what you laid out. So if I had to put it in one sentence it would be life’s calling. How do you get there, there are lots of frameworks, right, so we have POS on Matrix Moments just passion, opportunity, skillset. By the way this Chris Dickson made this statement when he was being quizzed about crypto and to his credit he’s still a believer and he’s a maxi and he’s still even in this market which is great. He did make a statement that what the smartest people do on weekends is what the rest of us will do in the next decade.

To me founder market fit is what is that obsession for you that if you had all the money in the world what would you do. And I'm assuming and of course some people would retire and take a holiday that's also fine, there’s no founder market fit for you. Maybe open a beach shack and that's fine. So there are a lot of people who if you were to tell them that they would say I would go and do something this. For example after I sold Baazi I asked myself this question and one of the plans possible was that I would go and teach or I would set up an educational institution something – one of the guys I get inspired by Ashish Dhawan what he’s done with Ashoka University.

So I do think that that is the overarching definition. Now what are the elements if you were to actually put it in a framework, domain. And if you're inexperienced and you're new let’s say you're young but there is a domain you're obsessed by. I’ll tell you one place where I saw a amazing pattern and I think the FMF was clear. When we were looking at space tech all the founders, we must have met 20-30 companies, all the founders shared the following background. Parents were scientists most likely ISRO, DRDO, IISC, IIT Chennai, and 30, 40, 50 percent had done aerospace, that's FMF.

Even if there’s no experience in the domain because there’s an obsession with the domain. And to me this obsession word is very important. Second there is a potential pitfall with that that you can end up becoming coming up with solutions looking for problems, you're inside out, so therefore being outside in have you experienced a problem in that domain. Do you have a 10x solve for that problem. These things become very important.

Customer empathy, whoever your customer is are you just obsessed about that customer even potentially and this is where the missionary founder’s thing comes in. I think if you're operating outside a “domain” that missionary zeal has to be something we’ve seen the Shashank for example in Practo, right, so I think those would become the elements and then you as a founder have to step back and say what is my unfair sustainable advantage to win because you have to assume that your competition will be somebody who’s going to come within the domain who’ll know a little bit better about the market and then can you still win.

You should talk about – you had sent me some questions that a founder should ask himself or herself.

Rajinder:

Yeah, yeah. So I think the questions are actually instructive, I think one question that I read which was very helpful was why are you the person to solve this or why are you the team that should go out and build this. Because it connects back to the partly to the purpose, partly to the insight, partly to what people learn. Another thing that matters a lot especially when it relates to outside in is what insights do you have from your customers or do you have the right network to be able to succeed in this business?

Avi:

This network thing actually really hit, that do you know your customers better, it’s all about being outside in. Are you going to get the best input and do you have the best access to experts to win?

Rajinder:

For example one of the companies you and Rajat are involved in, Gokwik I think Chirag honestly you can argue he was at the intersection of the domain because he was in a D2C company.

Avi:

It was an experiencial problem.

Rajinder:

Yeah, it was an experiencial problem and frankly he wasn't a fintech entrepreneur before but when it comes to e-commerce enablement and D2C fintech clearly he had the empathy, he had the insight, uniquely placed to solve it, had the network so all of that check, check, check. So I think great set of questions.

Then I think going back to the point that you made on probability of success the reality is whether it’s competition, whether it’s product market fit there are going to be enough pitfalls and so how much conviction do you really, really have in going out and building this. And again to your point are you as a founder more excited by the solution that you’ve figured out or are you more excited by the problem.

Avi:

Or the process. I’ll tell you my and I think your FMF in venture capital. It took us forever, it took the whole industry forever but the reality is we get branded as founders first but we actually live that not because it helps us in the business, it does, but because we enjoy it. That is our FMF, our FMF is we really enjoy interacting with smart founders and of course our job is to make sure we get into business with the best ones. But they really align because we enjoy spending time, we’re obsessed about it.

Rajinder:

Let’s go over some examples just to make it come alive for folks out there. I think the ones where founders building in domain those are easy.

Avi:

And actually let’s just discuss those, right, even within our portfolio. Onecard, Jupiter, Dezerv, Rocketlane, SuperOps and they’re in most cases they’ve gotten off to a very fast start and I'm missing quite a few over there. So that is easy. But if you look at Razorpay and Ola from this lens of FMF it was outstanding. I mean Ola the story is well known, Olatrips.com, Commonwealth Games, realizing can't get a taxi, deeply experiencial and looking at the travel domain.

And by the way also not known is Bhavish and his wife Raj used to be like avid travelers and hikers and all.

Rajinder:

And you know, manned the call center, drove cabs, everything.

Avi:

But that was the obsession and the passion. Razorpay the guys were entrepreneurs in IIT Roorkee, I think I have the institute right.

Rajinder:

Correct.

Avi:

Hackers. And something by the way I had also experienced because of Baazi these credit card payment failure hits the level of depth and obsession and you know it was our in the non-Zoom days our first remote investment. We made the investment over Skype, thank God. I think they were deeply experiencial, they had FMF even without and I think Shashank of Practo has FMF. Actually Manish of Mswipe, doctor working in fintech because he couldn’t get payments because of his alcohol business.

So FMF these guys had so actually it’s very instructive to see that they’ve been very successful. But let me ask you about the global well-known names, Apple, originally started by Jobs and Wozniak, what FMF, like completely inexperienced started in the garage. What was Jobs known for and what is Apple known for?

Rajinder:

I guess when he started the company he was pretty early in his career I don’t remember if he had a job before that.

Avi:

No.

Rajinder:

And he hadn’t even graduated but he was incredibly creative, left brained. So I guess product, design.

Avi:

Design, he was taking calligraphy classes and he said this font is shit and let me get it changed. And because he didn’t have the technology domain he partnered with the tech guy which was Woz who could build the hardware. So may not look like FMF but clear FMF, Jobs is imprinted everywhere over Apple. Amazon, I mean book store on the internet, no FMF. Goldman Saks banker or D. E. Shaw banker.

Rajinder:

D. E. Shaw, I guess like incredibly competitive, analytical, I guess we’re --

Avi:

What is Amazon known for?

Rajinder:

Just ruthless on like execution, cost.

Avi:

That one wouldn’t have known at that time, I mean customer obsession.

Rajinder:

Customer obsession, yeah, of course.

Avi:

So it came from him, this is the thinnest of the FMF one would see but it is one of the things we spoke about, are you obsessed about those customers. This guy used to sit, he empowered the front call center people to just return money and stuff like that so I think customer obsession. But would be the least on the FMF, he was a banker. I took inspiration and therefore came and started and outcome was much lower.

Microsoft, Google, easy FMF. Google in particular there were PhD researchers on better search technologies. So I think that this gives me a better -- frankly tunes my own mind better on how to think about some of these founders.

Rajinder:

Yeah, and I guess for founders who are thinking of building and figuring out which idea to go after at some level you can always delude yourself into believing that the idea that you're kind of zeroed in on you have found a market fit for because at a point in time you're obsessed by it and so on and so forth. Some of these things we’ve discussed, you can clearly delude yourself into believing it. So how should one pick like let’s say if someone is like thinking through a couple of ideas like what should they really zero in on?

Avi:

So I would say again let’s separate new founders and experienced founders. New founders we have discussed the whole framework but they should really think deeper about – when I started I didn’t really have FMF, I was actually chasing money. Today I think if I were to start in a deeper market with that outcome I would probably lose because somebody would be there with a better FMF. So I think often I hear from the younger guys this is what I'm going to do and then this is what I really want to do which is later, don’t be in that situation. Do what you want to do later now, that's FMF.

So all the criteria we give, experiencial problem, customer obsession, outside in, is this something that you actually read about in your free time. Is this really your obsession, so I think and remember that somebody from domain is going to come and attack you. Are you building MOTS against that attack because it’s going to come for sure. Now if you're experienced my bias is already out there, domain.

If you're working out of domain I would say at least make sure all the other stacking odds in the favor that should be happening because you’ve been there for 10, 15, 20 years you're doing it. Are you starting with a strong co-founding team and maybe even a core team, that's the whole point of followership. We’ve done this org3.0 where we say that takes three versions of an organization to make this work. Well, experienced founders should be able to short circuit that or if you can get org3.0 and org1.0 you're going to have a huge advantage and this is my point about experienced founders.

Don’t take market risk, don’t take business model risk, leave that for the world changers because unless you're still of that risk appetite I just think stacking more odds in one’s favor and last one would be very, very sharp GTM. Think of the go to market because if you're not taking market risk GTM is more important than PMF. So that's how I would think about it.

Rajinder:

Thanks, Avi, really enjoyed this. And I think enough for us to kind of muddle.

Avi:

For us and hopefully the beauty is we’re seeing a bunch of really talented -- again I just want to reiterate 2006-07, 2010-11, 2014-15, 2017-18 and now ’22 each time it’s a step jump in the quality of the entrepreneurs and that's the most exciting part so hopefully as some of them are thinking through what they want to do this is helpful.

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MANAGING DIRECTOR