To address those two problems, the investors at Sequoia, one of the largest venture capital companies in the world, have developed a very helpful framework. It reduces the terrain to three archetypes.

"Hair on Fire" basically denotes that your startup deals with a pressing issue. For example, a security firm may be a good match here, especially if it can gain initial revenue by swooping in to patch up an existing breach or other issue. Alternatively, consider the surge of enterprises that sprung up at the height of COVID-19 to provide services to users and businesses when they were suddenly forced to stay behind and work from home.

"Hard Fact" refers to a startup that provides a better solution than what's already available for an existing problem. A notable example of this is Square, which debuted as a novel point-of-sale product in an apparently established and crowded sector.

Last but not least, "Future Vision" talks about moonshots, deep tech, and unexpected items. These would include firms working on quantum technology, as well as those developing flying or even driverless automobiles to drive on our roads, along with any technology required to produce them.

Every one of these archetypes will have unique consumer mindsets, competitive market statuses, opportunities, overall product goals, obstacles, and case studies of successful and unsuccessful businesses. Early-stage investing expert and Sequoia partner Jess Lee presented a comprehensive lecture on the idea at TechCrunch's Early Stage conference in Boston in April. Sequoia has also written about the framework in this article.

To summarize, the idea states that all startups can be classified into one of these three archetypes, and that determining a company's archetype may aid in its development and help it stay focused.

Sequoia is so sure of the concept that it helps early-stage entrepreneurs concentrate on how they are creating by using it in its Arc program. It aids in the company's assessment of possible beginning expenditures as well. Furthermore, and perhaps more significantly, entrepreneurs may use an archetype as a guide to more accurately predict and express the possibilities and obstacles unique to their industry. Naturally, that may be useful for internal decision-making as well as for partnerships or consumers when funding or proposing ideas.

Lee stated that Sequoia does not have a preferred category among the three during her framework presentation.

Lee stated, "I believe you can create great companies in all those categories." Nevertheless, she conceded that some types of businesses could find it particularly difficult to get capital in the present environment.

According to Lee, funding for deep tech and moonshots—two popular startup types included in the "Future Vision" category—"was easier in a zero-interest-rate period when there was a ton of capital flowing in." "I'm not sure if [those companies] could have raised the necessary funds [in the beginning] to reach their current status."

As a co-founder of Polyvore, a platform that fused social dynamics with e-commerce, Lee saw firsthand how users assembled mood boards using items and fashion clips they discovered online, all supported by affiliate marketing. After Yahoo finally purchased Polyvore, she severed ways with company. She said that despite the difficulties of breaking into the industry these days, she is still interested in trying to uncover new winners in that sector. However, she claimed that her focus on e-commerce and consumers has not changed.

"It's still possible," she declared. "I think a lot of consumer firms are in the 'Hard Fact' category, and I really enjoy dealing with them. However, you also need to be skilled at constructing this and selling both your solution and your problem. To get it correctly, therefore, it requires a lot.

It resembles alchemy nearly entirely. The number of founders who have told me, "Oh, yeah, I was working on Snapchat, too," is uncountable. I mean, I had a version of that. It sounded similar, too, but Snapchat managed to stand out by providing precisely the appropriate amount of information.

This is not to suggest that the third category, "Hair on Fire," is particularly simple. Lee stated, "You have to execute with ruthlessness." "You have to move at such a fast pace to keep up with everyone."

She emphasizes in her conclusion one of the most important parts of developing a startup. "I believe that each of these product-market fit categories includes a small amount of founder-market fit."