Square Pegs Don’t Fit in Round Holes
Thoughts on Business Model — Problem Fit
Much has been written about product-market fit, founder-market fit, and so on and so forth. Yet, recently I’ve observed that matching the right business model to the problem or opportunity at hand is key to growing and scaling a technology business. Intuitively, it makes sense, but I don’t think enough founders are thoughtful about it and also, it’s really fucking hard to do.
Take the example of app-powered food delivery. For consumers, businesses are essentially solving the same problem:
How can I get a delicious meal delivered to me within an hour or so without a ton of headache?
Startups have taken many approaches here, but let’s look at two in particular: DoorDash and Sprig. From the outside, they look very similar, but are fundamentally two different companies from a business model perspective.
DoorDash is building a marketplace and logistics platform that markets and distributes a variety of restaurants’ food. On the other, Sprig was attempting to build an integrated system, all the way from sourcing to delivery. Their hypothesis was that the capital cost up front would pay dividends down the roads and the margins would start to make sense. Here’s a video of the former CEO explaining the concept.
Yet, Sprig went under. So did Maple. On the other hand, I wouldn’t say DoorDash has thoroughly been a runaway success, but it has done quite well for itself, raising close to $200M from leading investors such as Sequoia and Kleiner. The capital-intensive business models of the integrated food delivery companies did not make sense for the market and the problem they were trying to solve.
Business strategy, capital + cost structure, distribution, product design, customer segmentation are all modular components of a business model. Carefully combining and tailoring those elements to the opportunity at hand is critical to the success of your venture.
But how do you know where to start and what will work?
When approaching a problem within a market, start with first principles. Abstracting everything else away, what is the core process at stake? Who is each stakeholder in the value chain and what is the nature of their relationship to the other stakeholders? What do they gain from a transaction?
Don’t try to take any old business model and use it as a band-aid. Given a framework derived from first principles and bounds you’re operating in, what solution can you build that’s appropriate for the problem at hand? Square pegs don’t fit in round holes.