The Four-Way Fit — Chapter 1: Introduction to The Four-Way Fit Framework (Part 1)

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CEO Quest Insights

19 min readSep 29, 2020

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In this chapter, we delve into the Four-Way Fit framework. The job of the framework is to help you sort out what must be true in order to reach your next value inflection point, and then to gauge how confident you are that these things are already true or will become true.

Remember that company-building occurs in two broad phases (Phase I: discovery of a value breakthrough; and Phase II: value optimization / building sustainable competitive advantage). Each phase is composed of stages — four of them in Phase I, and seven of them in Phase II.

To advance on the journey of company-building, it’s good to start by asking yourself what it will take to pass on from your current stage to the next. What performance outcomes will constitute proof of progress? Since progression from one stage to the next makes a company more valuable to investors, these performance milestones are key. I refer to these milestones as “value inflection points”.

Once you have defined the next value inflection point, you will need to figure out how to get there. You will confront key questions in four domains: Market, Product, Model and Team. You will quickly realize there are certain things you “think” are true, and there are things you “know” are true. You think that your customer’s greatest problem is “x”, but you don’t know. You think that if you build product feature “y” your customer churn will drop, but you don’t know. You think that if you increase your price by 10% you will only lose 2% of your customers, but you don’t know.

Then there are the things you’re pretty sure you know. You know the most important segment for your product is North American furniture retailers with five or more stores. You know from past experience that a newly hired salesperson should be able to close, on average, three deals per month after a three-month ramp-up period. To think a thing is true is different than to know something is true. Each requires a different response.

Which claims about the future can you consider settled assumptions — those which you are quite confident are true? Which are still testable claims — assumptions that you think are true but you’re not sure? To clarify the things you must know but don’t know is precious knowledge indeed. Once you understand this, each “don’t know for sure” claim can be turned into a hypothesis and tested. That way you’ll be able to catch a mistake early — before you bet all your chips.

The Four-Way Fit framework helps you avoid the mistake so many business leaders make — to invest scarce money and time atop a heap of untested assumptions.

Over the next four chapters, which comprise Part 1 of this book, you’ll learn about the Four-Way Fit framework and how to put it to use. In this introductory chapter we’ll address:

Framework overview
The two abstractions (canvas and spreadsheet)
How to use the framework canvas
How to use the framework spreadsheet

Framework Overview

In the dictionary, the word “framework” has two definitions: “a skeletal structure designed to support or enclose something”, or “a frame composed of parts fitted and joined together.” For our purpose, both apply. The Four-Way Fit framework is the skeleton you can use to develop claims in the four company-building domains (Market, Product, Model and Team) that define your path to the next value inflection point. Once “fit and joined together” within the framework, these claims can be differentiated: those that you know are true — settled assumptions; and those that you think are true but you’re not yet sure — testable claims. Once you’ve done this, the things you must prove before committing (the claims that need to be tested) and the things you can execute now (based on the plans that emerge from settled assumptions) will become crystal clear.

The Four-Way Fit framework is composed of fourteen subdomains underneath the four domains, as follows:

Market

Market Viability
Customer segments
Gaping Problems / Screaming Needs

Product

Product Features
Product Dependencies
Value Proposition

Model

Pricing
Unit Economics
Customer Acquisition Method
Cash Flow
Competitive Moat

Team

Competencies
Structure / Roles / Objectives
Culture

Take a moment to review these domains and subdomains. Note the flow. Each domain interacts with the remaining three in important ways. The market’s problems and needs must be met by your product, offered within a business model, supported by a team. Your claims within these four domains count on each other: like a puzzle, they must fit together.

This is especially evident when you view the framework at the level of the subdomains:

A market must be viable — in terms of its size, growth trends and disruptions
Within that market lie customer segments, to be prioritized based on attractiveness
Within top priority segments are gaping problems and screaming needs, experienced by unique personas within each segment
These personas must be convinced that your product features solve their problems and needs
Most products exhibit certain product dependencies, both external (such as access to data, OEM product components, money flows, distribution channels, regulatory requirements, etc.) and internal (such as the current state of the technical stack, its reliability and scalability, etc.) that are key to value delivery — these need to be identified and de-risked
The interaction between the market’s problem set and your product’s solution set lead you to your value proposition, which clarifies and, where possible, quantifies the value you deliver customers
By understanding customer-defined value you can derive a rational pricing scheme, one that enables you to retain some optimal slice of that created value
By knowing your price and your variable costs you can then derive your gross margins. From this you can estimate your average customer lifetime value (LTV). Unit economics principles tell us that a third of LTV can be spent on customer acquisition cost (i.e. you must solve for LTV / CAC >= 3)
In turn, this CAC boundary condition shapes the design of your customer acquisition method (since your customer acquisition costs must remain no greater than ⅓ of LTV)
Your pricing, your gross margins, the efficiency of customer acquisition, business model attributes and the requirements of product delivery all impact your cash flow — specifically in terms of the timing of cash inflows vs. outflows — which, in turn, impacts your funding requirements
Assuming you achieve a value breakthrough, you’ll then need to protect it by building a high competitive moat — so you can sustain your value advantage (and therefore your profit advantage) over time
And finally, to do all of the above requires the right competencies, organized into the right roles, placed into the right structure, with clear objectives. The people that make up your company will be asked to pursue these objectives guided by the company’s culture

See how the subdomains flow in a logical sequence? They are comprehensive. They all fit and join together, a comprehensive company-building framework.

The Two Abstractions

You can employ the framework at two levels of abstraction. In its canvas form, the framework can be used to guide the high-level thinking of a team. This is especially useful in Phase I of company-building. You will begin to use the canvas once you have progressed through the Immerse and Ideate stage, and have entered the Minimum Viable Concept stage. The purpose of this stage is to build out the high-level business concept — in other words, to complete the canvas.

Draw the canvas on a whiteboard. Use Post-It notes to populate its fourteen subdomains. On the whiteboard, you can iterate your ideas by simply updating the Post-it. Since everyone can see it, it’s easy to gain conceptual alignment. If you’ve been exposed to Alexander Osterwalder’s “business model canvas” or Ash Maurya’s “lean canvas” you’ll know how to conduct this exercise.

The canvas view of the Four-Way Fit framework looks like this (Market subdomains in green, Product subdomains in orange, Model subdomains in blue and Team subdomains in teal):

There is a second, more detailed level of framework abstraction — the spreadsheet view. It is best used in Phase II, once you’ve already achieved your initial value breakthrough. In this phase your focus is on value optimization and the building of sustainable competitive advantage. Here the work becomes more detailed than before, necessitating use of a spreadsheet.

Here is a detailed view of one subdomain in the Market domain tab:

In its spreadsheet form, the framework can be expressed inside five tabs. The first spreadsheet tab defines your “desired value inflection point” — the results you must achieve so as to move from your current stage to the next. The remaining four tabs are dedicated to the four company-building domains (Market, Product, Model and Team). Each tab includes the subdomains relevant to that domain. Relevant consideration topics are shown for each subdomain, so that you can more easily define and describe claims.

The spreadsheet leads you to claims that are comprehensive, integrated and internally consistent.

How to Use the Four-Way Fit Canvas

The canvas is a tool. A smart worker selects the lightest, simplest tool to get a job done. To punch a hole in a sheet of paper, you grab a one-hole paper punch, not a power drill. The framework canvas is like the one-hole paper punch. It’s good for organizing high-level thinking. It’s also simple to use — an effective team collaboration tool. It’s the right tool for company-building in Phase I. Phase I is made up of four stages: Immerse and Ideate, Minimum Viable Concept, Initial Product Release and Minimum Viable Product.

During the Immerse and Ideate stage, your work is to immerse within your customer’s world. Watch. Probe. Do the customer’s job. Pretend to be your customer’s customer. During this stage, you seek first to understand: what purpose is being pursued? What jobs are customers trying to complete to advance that purpose? What problems do they face? What human needs are they experiencing as they encounter these problems? Intensity matters: great businesses are built by solving gaping problems and screaming needs. If such problems and needs exist within a large and viable market — and if you sense these can be profitably addressed — then you can begin to brainstorm possible product and business model solutions.

At this point, you know less than you might think. Much of what you think you know is wrong. Ask some basic questions:

Are the problems we observe really gaping and are the needs really screaming? Or are they just irritations?
Do these problems and needs exist in a big market, one that points towards, at minimum, a $1B TAM?
If we were to solve these problems and needs, how much value would we deliver our customer — ideally expressed in financial terms?
What customer expectations must be met to cause them to consider these problems and needs solved?
Can these expectations be met — technically, legally and profitably?

If you’ve immersed long enough to earn confidence in your own judgment, and if you then conclude that the answer to these questions is “yes”, you’re ready to move to the second company-building stage.

At this point it’s time to work inside the canvas, which brings you into the Minimum Viable Concept stage. To use the canvas, it’s best to start in the Market domain and focus on just one top priority segment. What jobs need to be done in this segment? What gaping problems and screaming needs are encountered while pursuing those jobs? You’ll then move to the Product domain. Considering the jobs to be done, and the gaping problems and screaming needs, how can they be solved?

As you work outward from this white hot center of customer-defined value, you will develop claims in the other domains and subdomains. Gaping problems and screaming needs of segments must be met with product features. Product features may depend on product dependencies. These product solutions are the raw material for your value proposition. The value you create links to your pricing, which ties to your unit economics, which ties to your customer acquisition method, which ties to your team.

As you and the rest of your team think through each subdomain inside the canvas, you’ll begin to post claims on it. As you do, you’ll notice the linkages between the subdomains. As you continue to immerse, ideate and iterate, you’ll learn more and more. Your claims will become more integrated and internally consistent. Posting them on the canvas ensures you have a fully integrated, holistic view of your assumptions. It helps you clarify what it will take to move from problem to product to business model.

Claims are not settled truth. In fact, since you’ve not yet discovered a value breakthrough, your claims will be disproven with disconcerting frequency. But as you learn things and update the claims accordingly, you will slowly but surely narrow in on truth.

When you reach the point where you sense your canvas claims have been conceptually confirmed by visionary customers, you are ready to move to the Initial Product Release stage. Now it comes time to build something, based on the concept you have validated.

Later, as the resulting initial product begins to be adopted and retained by paying customers, you will progress to the Minimum Viable Product stage. Once you exit that stage, your value breakthrough will have been achieved. You will be ready to move from Phase I to Phase II of your company-building journey.

Even once you enter Phase II you’ll not say goodbye to the canvas forever. The canvas comes into play again when you expand beyond your core product to create new product extensions. Far too often, a scaling enterprise presumes too much when it decides to expand into a new product. It thinks it knows more than it does about customer problems and needs. Assumptions regarding this extension opportunity are likely to be at least somewhat wrong — just as they were at your company’s beginning. That’s why, for the team charged with building this new extension product, it should begin back at the Immerse and Ideate stage and proceed with care. The canvas will keep innovation team members honest. It will help them clarify what they already know and (most important) what they don’t yet know with sufficient certainty.

There’s another situation in which a return to the canvas may be called for: if previously settled assumptions (ones at the core of your value proposition and business model) suddenly change. This can happen when a competitor’s technology advance destroys your advantage, or when a competitor introduces a superior business model, or when a marketplace shift changes the customer value calculus. In such situations, a leadership team is well advised to go back to the whiteboard, working in the canvas to discern the way forward. As you reckon with your new reality, the canvas will help you to re-conceive the business and develop a new set of claims.

Once you have proven a value breakthrough (the job of Phase I on the company-building journey), you’ll be ready to move on to Phase II — where the job is to optimize value and build sustainable competitive advantage. Throughout Phase II, a more detailed framework format is required — the spreadsheet.

How to Use the Four-Way Fit Spreadsheet

The framework spreadsheet is a more granular planning tool than the canvas. The four domains (Market, Product, Model and Team) and their subdomains remain the same, but the level of detail is much greater. It is presumed that your most fundamental claims about the business have become settled assumptions. Now you need to figure out how to drive value optimization and to build sustainable competitive advantage.

At the beginning of each new Phase II stage, the first step is to establish your next value inflection point. Remember, the value inflection point is the performance milestone that will “inflect” the value of your business — ensuring that once it is reached, you can raise more money on favorable terms. Figuring out the performance milestones you need to hit to become fundable again is important; it’s also a good way to mark the completion of each company-building stage.

In the spreadsheet, the first tab helps you figure the value inflection point out. In this tab, you will posit your current stage, the stage you next seek to reach, and the performance outcomes that would prove you have reached that next stage. The specific rows in this tab will be conformed to your unique business, but it will look something like this:

Notice the tabs at the bottom of the spreadsheet. The second through fifth tabs are dedicated to the four domains (Market, Product, Model and Team). It is here you will enter the claims that, if proven true, will result in achievement of your desired value inflection point.

Your work within the spreadsheet will lead you towards a more comprehensive view of the value journey. You’ll discover and clean up inconsistencies in your thinking, at a more detailed level than before. You’ll clarify the most high-impact claims, and you’ll zone in on the ones you’re least certain are true (and therefore most in need of testing).

Before you begin to enter any claims, it’s necessary to architect the spreadsheet itself. Within the four domain tabs, your architectural objective is to organize the subdomains and the consideration topics so that they properly model the unique requirements of your business opportunity. To begin, you must first set up the column headings inside the domain tab. There are seven:

Subdomain
Consideration Topic
Claim
Significance of Impact if True — 1 (Highest) to 4 (Lower)
% Confidence the Claim is True
Determination of Claim Status (Hypothesis — Test Soon / Hypothesis — Test Later / Settled Assumption)
How will It be Tested?

The first two of these column titles establish the basic structure of your framework. Within each domain, each subdomain is made up of specific consideration topics. For instance, in the Pricing subdomain consideration topics include “who pays?” and “what pricing tiers?”. Within the Product Dependencies subdomain, consideration topics include “what external data dependencies do you have, and how will you reduce the risks of this dependency?”.

While domains and subdomains are universal, consideration topics will vary depending on the specifics of your business. For instance, a B2B SaaS business exhibits a simple two-way transaction between company and customer. Segments are straightforward. The product serves the segments. The product has a price structure paid by customers in segments.

However, a B2B Marketplace business features two (or more) sides of a market, which must come together to transact on the platform. Each side of the market needs a segmentation scheme; product features, pricing and customer acquisition method must also address the marketplace’s multi-sided nature. In the same vein, a B2C Media company needs to address both audience and advertisers.

Differences in business type such as these prompt necessary variations in framework architecture — especially at the level of the consideration topics. So too if your company boasts multiple products. Each will need to be addressed separately inside the framework spreadsheet.

Getting the framework architecture right is an important first step. Take the time to get it right. Especially when a business is complicated, the act of figuring out the spreadsheet architecture is itself of great value. It gives you, the architect, a holistic and integrated view.

The next three of these columns address the claims themselves. For every consideration topic, you must state the claim, its significance (i.e. its degree of impact on achieving your desired value inflection point) and your certitude that it is true. Once your framework spreadsheet is filled with claims, each with a significance and certitude rating, you now have the data you need to develop your testing plan.

The fifth column is where you determine: is this a claim that needs to be tested soon? Is it one that needs to be tested, but can be tested later? Or are you confident enough in its truth that you can consider it a settled assumption? Here’s an important point: in Phase II, most (at least 70%) of your claims should exhibit sufficient certitude for you to designate them settled assumptions. If not, you are probably moving too fast. You can’t test everything at once while still scaling. In Phase II, you must build upon a solid foundation of settled assumptions.

The final column is where your claim testing plan is entered. Fill it in only for those claims to be tested soon. What is the lightest, cheapest, fastest test you can conceive that will still provide adequate claim verification?

The framework spreadsheet is completed at the beginning of each new company-building stage. If you are the CEO, do it yourself first. You may be tempted to assign this first draft to your CFO or someone else on your team. Don’t do that. If you do it yourself, it’s sure to uplift your mental model of the business and sharpen your vision. Then you can profitably engage others in subsequent iterations.

Once the spreadsheet’s architecture is completed, it’ s time to populate it with claims. Here are the steps:

Construct a well researched, reasonable claim for each consideration topic within each domain and subdomain
Gauge its significance in helping you achieve your desired value inflection point (1 = highest impact; 4 = lower impact)
Gauge your certitude the claim is true, expressed as a percentage
Bucket each claim into one of three categories: those to be tested soon, those that need testing but not tested soon, and those with a high enough certitude rating to be considered a settled assumption
Devise valid tests or research initiatives for all claims to be tested soon

When you have completed the framework spreadsheet, it is well to remember that what lies before you is a claims construct. It exists to guide action. You’ll roll out plans that build on settled assumptions, and you’ll roll out tests to validate the testable claims. As facts stream in, the spreadsheet will change time and again. Even claims you’ve designated settled assumptions might prove wrong. You’ll need to test and test again, and act and act again, bending the claims in the framework towards truth so that they point the way to your desired value inflection point.

Practical Benefits of Using the Spreadsheet

As you begin to use the spreadsheet, you’ll quickly experience three benefits. Other benefits will arise over time.

The first practical benefit happens in first task — to clarify the value inflection point that moves you from your current stage to the next. To define such a milestone gives you directional focus.

The second practical benefit is that in the act of seeking to create your claims within the framework spreadsheet, you will find internal inconsistencies. For instance, claims that highlight gaping problems and screaming needs within a segment will need to link up with their corresponding product features claims. In turn, these product features claims will need to align with the size and competency of your product and engineering team. Is that team large enough to build the product features you say you need? Extending the linkages further, your product’s emerging value impacts your value proposition, which impacts your pricing hypotheses. And so on. These interdependencies aren’t always obvious — until you document them. Once you do, the internal inconsistencies will stand out like scarecrows — compelling you to reckon with them.

The third benefit is that you’ll clarify the order of testing. For every claim, you are asked to consider its impact significance on achieving your value inflection point if true, and your certitude that it is true. Once you fill out the framework with your claims, you’ll be able to easily scan across them to isolate the ones that are both high impact (if true) and low certitude. These, of course, are the ones that must be tested first. That’s a big deal, because it minimizes waste. Waste happens when we invest time and money into flawed claims. The faster we discover our biggest mistakes, the better.

The framework becomes especially valuable at times of rapid, unpredictable change. When a claim is verified, it becomes a settled assumption. Even settled assumptions can cease to be true. For example: “the restaurant segment was our highest-demand segment until COVID 19 hit”. Too often, when a fundamental settled assumption stops being true, top teams can become paralyzed, caught in the fog of war. Fearing they haven’t thought through all the dominoes, leaders hesitate. At such times, your framework spreadsheet will help you to keep your wits about you. Whenever a settled assumption becomes untrue, return to the spreadsheet. Create a new claim where the settled assumption once stood, and identify any linked assumptions or claims — so you can update these as well. Now you can test anew, starting with the highest-impact, lowest-certitude claims that remain. Claim by claim, test by test, you will penetrate the fog of war and find the best path forward, keeping two steps ahead of change.

Summary

In company-building, a set of predictable questions emerges from knowable domains and subdomains. Within each subdomain, the assumptions you make are claims, not facts. Before you go all in (people, money, time), you must validate the veracity of these claims. The Four-Way Fit framework helps you do so in a structured way. It is designed to be used at two levels of abstraction — the canvas, for use during Phase I, the “discovery of a value breakthrough” phase; and the spreadsheet, to be used during Phase II, the “value optimization and sustainable advantage” phase.

The framework is both a puzzle and a pirate map. It is a puzzle, in the sense that it can be organized into rational piles, which helps you join the puzzle pieces together. But it’s also a pirate map, in the sense that the picture you end up with is sure to be somewhat wrong. So as to close in on truth, you must figure out which claims are settled assumptions (and as such are ready to be acted upon), and which are hypotheses — which must first be tested.

This chapter provided an overview of the Four-Way Fit framework. Here in Part 1, we’ll go deeper into the four domains and, within them, the fourteen subdomains. Here are the chapters:

Chapter 3— Market Claims
Chapter 4— Product Claims
Chapter 5— Model Claims
Chapter 6 — Team Claims

By the time you’re done reading these chapters, you should understand how to construct and populate your own Four-Way Fit framework, in both of its versions (the canvas and the spreadsheet).