What is Arc Product-Market Fit?

Finding product-market fit is the goal of any business. It means your product meets the needs of your target audience and solves their problems in a way they value. 

But what happens when those needs and problems change?

That’s where the idea of Arc Product-Market Fit comes in. It’s not just about hitting the mark once. It’s about adapting as your market evolves.

Here’s a closer look at Arc Product-Market Fit and how you can use it to keep your product aligned with what customers want over time.

Product-Market Fit framework

In simple terms, product-market fit (PMF) means you’ve created something people want and are willing to pay for.

Think Spotify. It solved the problem of making a huge library of music accessible anytime and anywhere without having to drag a bunch of CDs around (or accidentally forgetting your iPod in your jacket pocket).

Getting there isn’t always easy.

But instead of deciding whether you found PMF, Sequoia cooked up a special framework that outlines three types of PMF. Rather than measuring PMF by demand and revenue, you focus on how customers relate to the problem your product solves.

The three types of PMF within the Arc framework are:

• Hair on Fire
• Hard Fact
• Future Vision

Hair on Fire

Hair on Fire requires a product that delivers on its promises and a great go-to-market strategy. You need both because sales and speed are key to winning your market.

On the one hand, Hair on Fire is the easiest PMF type to build for because people know they have a pain they need to solve. On the other hand, your competitors know this too. 

This means you’re in for a fight. 

• Customer mindset – Customers are shopping for a solution, comparing products, looking at pricing, and reviewing product pros and cons.
• Market category – Lots of competitors and zero pricing power. You either adjust to market needs and move upmarket or engage in a sales war by dropping prices close to zero.
• What you must overcome – Too many options, too much noise, overflooded inboxes.
• Value proposition – A solution that is so compelling that customers will break contracts to start using your solution.
• Threat to success – Competition. You need to move quickly and press your advantage to build and maintain market presence.
• Key to victory – Something unique. Maybe it’s a standout customer success experience. Maybe it’s a technical solution or feature that’s resource-intensive to copy.

The AI SDR market is a good example of this PMF type. Outbound continues to underperform each year. Sometimes for reasons outside its control, such as changes to email policy.

Compared to the options on the market, some of the unique selling points of AiSDR include automated inbound messaging, AI smart replies, auto-reply handling, and 24/7 customer support.

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Hard Fact

Hard Fact gets prospects to re-evaluate “business as usual” and start looking for a solution to the newly discovered problem.

This needs a mix of educating the market, capturing prospect interest, and monetizing your solution. However, you need to settle on a problem that’s important enough to motivate change (but not so important that people already want to fix it – that’s Hair on Fire), and a solution that’s compelling enough.

• Customer mindset – Your customers are settled in on the way they do business. They’ll need to be shown the problem and how the solution helps.
• Market category – Stagnant with few competitors or legacy options. The status quo discourages new founders from tackling the problem.
• What you must overcome – Work habits. People don’t like unnecessary change.
• Value proposition – Your solution solves a problem that people thought would always be a problem.
• Threat to success – Either your solution doesn’t solve the problem you uncovered or your solution solves a minor problem. Or both 🙃
• Key to victory – Proving that your solution is a better option that the status quo.

The ride-hailing market is a good example of this PMF type. For decades, people accepted having to call a taxi company that would then dispatch a taxi. Or you hailed them on the street if you’re in a high-traffic area.

Uber had to convince everyday people to drive strangers from point A to point B and that hailing a car via an app was easier than calling. They also dealt with unions, local regulations, and labor laws.

Future Vision

Future Vision is encapsulated perfectly in the expression “high risk, high reward.” There are way more paths to failure, but there’s an exponentially larger payoff if your innovation succeeds.

When Future Visions fail, it’s often deemed as being “too early” or not yet ready for mass adoption. Google Glass – and augmented reality as a whole – is a clear example of this. 

However, you’ll need truckloads of endurance, commitment, and talent to execute your vision.

• Customer mindset – People believe your solution is the realm of science fiction. 
• Market category – No competition since you’re creating a new category.
• What you must overcome – The perception that your solution is unrealistic and too futuristic.
• Value proposition – A brand-new way of the world. 
• Threat to success – Little to no adoption. Insufficient capital (creating a new category requires a ton of money). There’s always the threat of being a little too early.
• Key to victory – Making sci-fi a reality.

There are so many examples of Future Vision since the turn of the century, such as:

• iPhone – Smartphones have become ubiquitous since launching.
• Nvidia – Its early chips were so advanced that the only use was gaming. Everyday tasks didn’t need advanced chips. But then came the next example of this list, which Nvidia was perfect for…
• Generative AI – ChatGPT and other models are among the fastest-adopted products ever.