20Product: Sequoia's Product-Market Fit Framework | Why the Best Product People Actually Build Less Product | Metrics 101, Good vs Great Product Strategy and more with Vickie Peng, Product Partner @ Sequoia Capital

22:22I've done that. Did you really just say it's a journey and not a destination? I really did. I really did. That's also part of yes. I'm a lot of people. I don't know. We'll put that as the title. Yeah, it will be great. I'm really inspired. Yes. This is good. You can do a mountain top illustration as well. It's perfect. Okay. I want to move into the actual kind of archetypes themselves. Yeah. because we've highlighted it 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?

22:55How do you get your product used? How do you 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 it, or how even aware of the problem they are, really factors into how you build the right product and how you get to PMF.

23:25So that's kind of the core insight of the framework. And so there are three basically archetypes of customer mindsets. So the three archetypes that 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 cluster 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.

23:57So 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 many 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.

24:29I 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 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 in hair on fire. Do you not find that every founder over -emphasizes 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, ah, 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.

25:04You want to believe, right? We've talked about having 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 got to 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. It's the most urgent number one problem, budgets are there, and you hear the customer literally tell you the exact opposite, it maybe top 10, it's not that big of a deal.

25:36I 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 and fire path, it is specifically the differentiation point around does this problem matter and are you solving it compellingly? My job 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, I think it's actually done really poorly today. Again, I'm in trouble for this. How do you think about advising founders on standing out in supremely competitive markets?

26:12And 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 describe this is what my product does. This is what it is. This is 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 words just don't align. Question for you. What do you do when you've got horizontal products?

26:48Yeah, 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, casual statements that you can put on a billboard. How do you think are effective horizontal product marketing? I would actually 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.

27:23But 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 can 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 need to manipulate data to do their 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.

27:52Challenge accepted. That was the most interesting to you. I'm challenging. I'm like, oh, I didn't realize it was a challenge or jewel. How wonderful. I want to go to the second, which is a hard fact. What's a hard fact, Vicki? Yeah, a hard fact. I think I would, I love that this comes right after Hair and 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 hack together something. I'm using something that existed for 20 years. There's no better way to do it.

28:29I've got what I've got. It is what it is. This is a hurdle of not noise and crowded in 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 here 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.

28:59Hard 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 am now solved for you. What do you think is an example of that? It is what it is. Yeah, oh, for me, I have so many. So we work with a lot of great marketplace companies. I think Marketplace is actually fallen to 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. I guess I have to take the subway or walk and it's just like it is what it is.

29:28That's just how it works, right? And you have something like Uber come along and say, actually, there's an 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 a I actually started my career in investment banking and I used to working downtown San Francisco and so I would get out of the office at two or three I would call up a cab company and I lived not in the city, but I lived like across the bridge 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 want to go over the bridge and they would just leave me.

29:59And 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? 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 I found it, 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.

30:34Well, and I think there's like the inherently entrenched incumbents, which is, I think which is like banking traditionally was always on phone contracts. It's like, you know, AT &T it is what it is. They're paying the Christmas other sucks, but what are... But AT &T, the infrastructure requirements, the brand, I mean, it's 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.

31:02And 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 -facred 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.

31:37I have two young kids. At that time, my son was one year old. And I used to, before COVID, I would like, schlep him to the grocery store. I was like a first nervous first time mom. So I would use the shopping cart cover. And I 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 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.

32:11And Instacart broke me out of that habit. That, but I think also Blanny COVID also broke a lot of happen around consumer patents. Which is a really interesting for an investor, like the why now we always have to ask and a site. And an external event can cause a hard fact to become shakeable. Exactly. Yes. In often cases that is actually exactly what happens. A 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 to move to the third which is again kind of completely different one.

32:42It's future vision. 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 yet 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 to overcome is habit. In the third, it's actually disbelief.

33:16It'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 mostly validation to prove the validity of your vision of the future, a almost little technical validity, and then secondly, applying that and finding the right stepping stones to your ultimate vision. I'd 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 chat GBT and all their GPT models were a stepping stone to realizing the vision of AGI.

33:49They 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 10 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 harrowing firm.

34:24Is that true for you and is that reminiscent of how the art portfolio looks? Oh, that's interesting. 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.

34:55And so I think that was the biggest aha moment I saw from founders that actually were on the hard fact path, not realizing that that path existed. So the profile was actually pretty representative, I would say across the path. One interesting thing I would add is that I would say both from a founder perspective and also from an investor perspective. Certain investors gravitate towards certain paths. Oh yeah, Harron Fy, 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.

35:28You 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 much more stale market, whether there's not many alternatives. So actually your margin really changes because you have to have to keep you amazing software updates, amazing CS. They're inherently worse business. And then also you've got no price, sorry, I'm just really getting on high horse to price and college.

35:59I feel your energy around this area. Yeah, the monetization 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, go really deep on the rabbit hole on is personality tests and frameworks. 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 tube has made on necessarily see such a clear, you know, line towards.

36:38I get you, but like, oh, so I have a very clear play but 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'll let a series A for Business that does commodities pricing. It prices the world. To the full circle, the commodities. But there's like one big player in the world. That's it, 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 do those customers actually view those problems?

37:11Like, where would you put them on this? It's kind of a combination of hair on fire in terms of recognition of problem, but hard fact as well. So it is kind of, because they hate it and they are very aware of the need for change. 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 a soft -wrenching is. Bluntly, and this time I'm getting in trouble here, DevTools, what a shit market. Dev's 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.

37:49Margin's generally quite crap. The CS is required high. Just crap. And so not those, that's how I feel. But I would say it kind of falls in those two. But the important, sorry, additions. The incumbents in these markets, they need to have terrible sought -down problems. terrible talent brands and they need to be built on terrible infrastructure. Yes. So many founders that we see are going off to like Shopify. I mean, all Stripe in some way and I'm like, unbundling Stripe and going up against the Colossans seems like a really stupid idea. Would you believe that we have a framework for this? We've talked about that.

38:24No, we've talked about that. We've talked about three. No, strangely, it's a number four. Okay, it's the Delta four. It's really simple. I mean, one of our partners internally just started calling this term, but basically out of a 10 point scale, are you at least four points better? And I think to your point about unbundling and taking on the callasons, 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 20 years ago is a three out of 10 and you can be a seven. Those are very different kind of beasts to tackle. Okay, I've got a one and another one there.

38:59I don't think it matters if your product is better anymore. Whoa, hot tea, Carrie. distribution trumps all. We see so many products today where it's like I've seen so many unbundled open AI solutions. Are they enduring? Are they enduring? It's because there's a hype, you know, now and everybody's able to. They are better products than a medical transcriptioners market. There are 10 different medical transcription products that are better than Microsoft's. But bundled into Microsoft's products suite, selling to large incumbents and enterprises, there's no way that they're going to I would argue that's exactly the Delta 4 test of like to your point.

39:38Is it 5 % better or is it 5x better? Because these unbundled ones are not 5x better and therefore there's no reason for me to take on the cost of unbundling that sweet 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 what the power tool is and people still in this building still use PC so that they can access Microsoft Excel.

40:08That's how hard -core they are about it. But it was good enough for most of us, right? We didn't need a 5X better spreadsheet. We just needed to do a little quick math, you know? And so how much better does it need to be? I believe you. I think we agree, actually. Yeah, I totally agree. It's a magnitude of product difference there completely. How many products you actually believe a 5X better than, honestly? It's a good question. and how much, and to the point of, do they need to be five X better to shake either, what are you breaking through? You're breaking through the competition, you're breaking through habit, you're breaking through disbelief.

40:38How much does it take for the product to be better in order to break out of one of those kind of shake one of those things? And one of the things probably depends on less enterprise buying cycles versus consumer adoption are probably two different, absolutely, use of product better. Working on these frameworks, it's just like a scaffolding to have these conversations, I think, and to think through all the different nuances, 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 a little bit one size fits all sometimes.

41:06So it's kind of nice to be able to identify patterns, but allow for nuance, I think. And then you're bringing up some really great examples. There's one I love about investing in. There's no right way to invest. Exactly. Okay, I want to do a quick fire on. So I say a short statement, and you give me your immediate thoughts now. I have no friends, and I've 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 team's listening to this and I, oh, Harry. Not again.

41:36Not 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 in part A, you fail in part B, you fail in both. I think it's as simple as that, actually. It's funny, I sat down at the start of the video and I said to the team, I want to have a smaller audience. I want us to deliberately get smaller as a media company because I want to Me more to fewer people. What's the biggest product marketing mistake you see founders make? I'll go back to say it again.

42:06Say 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 dev tools, 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 got 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.

42:35And 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 is 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.

43:03It's a difficult conversation to have once you find yourself there. Tell me, what other function does product have the most tension with? Ooh, is there a spicy question? 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, my job is to do product strategy. I 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 going to do to solve the problem and how we're going to implement that.

43:33But 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, staying your lane. Here's the wall. 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're saying you're laying, I'll see in my lane. I think many of the tensions arise there and are easily, maybe not easily, but they are definitely surmountable. So a friend calls you up and they've got the first day as a new product leader at this new job tomorrow. What advice do you give them going to stay one as a new product leader?

44:08I 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, or get absorbed all these resources has been done. What are we doing here? What does success look like? 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?

44:35And 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, AMs and they targeted the engineer instead because those people hate this thing. And I've worked with so many teams and 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.

45:09And 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 had licenses for. Some teams use this, some teams do that. But the EPD solely used 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 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.

45:41They've been through the trend. These are jaded, big tech survivor type engineer. Like I've seen 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 flip 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.

46:08They are building products from PMs. They are building products from managers now, but they did it now from this core of love from engineers rather than hate. I find that super fascinating. I love that and I also love Carrie. And so I totally agree with you in that respect. Vicki, I love this. It's been a really fun hearing. She's 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 here. This is great. I have to say, I really so enjoy doing these vertical lead episodes on 20 product, 20 growth and 20 sales.

46:40I think there's so many tangible lessons to founders in scaling their businesses there. If you want to see more, you can check us out on YouTube and watch the full video interview by searching for 20 VC. But before we leave you today, we're all trying to grow our businesses here. So let's be real for a second. We all know that your website shouldn't be this static asset. It should be a dynamic part of your strategy that really drives conversions. That's marketing 101. But here's a number for you, 54 % of leaders say web updates take too long. That's over half of you listening right now, and that's where webflow comes in.

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