Minimizing Time to Product/Market Fit and Deciding Equity for Key Employees

Minimizing Time to Product/Market Fit and Deciding Equity for Key Employees

In the fast-paced world of tech startups, two crucial factors determine the success or failure of a company: time to product/market fit and equity distribution for key employees. These topics may seem unrelated, but they both play a significant role in shaping the trajectory of a startup. In this article, we will explore the importance of minimizing time to product/market fit and deciding how much equity to give key employees.

Time to product/market fit (TTPMF) is a concept popularized by Steve Blank and Marc Andreessen. According to Blank, many tech companies fail not because they can't build technology, but because they lack customers. Andreessen goes so far as to say that achieving product/market fit is the only thing that truly matters. The key to a low TTPMF, according to Blank, is to copy something that's already at product/market fit. However, he warns that a 100% clone has its weaknesses. It lacks inspiration and cannot surpass existing competitors. Additionally, it fails to grow the market in a new direction or define the market itself. To truly succeed, a startup must reinvent a substantial portion of the product while keeping the fundamentals intact.

Ideally, the differentiation should be deeply ingrained in the core of the product, visible and tangible to the end user within the first 30 seconds of use. Achieving user engagement is challenging enough, but coupling it with a high bar on user growth makes it ten times harder. Therefore, it is essential to allocate enough time for marketing optimizations to propel the product forward.

Now, let's shift our focus to the allocation of equity for key employees. James Currier, a managing partner at NFX and a four-time founder, suggests that after a seed round, the employee pool should be around 10% to 12%. This percentage may vary depending on the individual's role and level of experience. For example, a senior engineer may receive as much as 1% of the company, while an experienced business development employee typically receives a 0.35% cut. A mid-level engineer may expect 0.45%, while a junior engineer usually receives 0.15%. For junior roles in business development, design, or marketing, the percentage typically ranges around 0.05%.

In the past, employees had up to 90 days after leaving a company to exercise their options. However, this often resulted in costly tax bills and the risk of ending up with nothing. To address this issue, some companies are now extending the exercise period beyond 90 days, ensuring that employees have a fair chance to benefit from their equity.

When it comes to attracting advisors, Currier suggests offering between 0.1% and 0.3% of the company. Advisors play a crucial role in the success of a startup and can provide valuable guidance and industry expertise.

In conclusion, minimizing time to product/market fit and deciding equity for key employees are both vital aspects of building a successful tech startup. By understanding the importance of product/market fit and incorporating differentiation into the core of the product, startups can gain an edge in the market. Similarly, by carefully considering the allocation of equity for key employees, startups can attract and retain top talent. To summarize, here are three actionable pieces of advice:

• 1. Strive for product/market fit by reinventing a substantial portion of the product while keeping the fundamentals intact. Differentiation should be visible and tangible to the end user within the first 30 seconds of use.

• 2. Allocate equity for key employees based on their role and level of experience. Consider offering between 0.1% and 0.3% of the company to attract advisors who can provide valuable guidance.

• 3. Extend the exercise period for employees to ensure they have a fair chance to benefit from their equity, even after leaving the company.

By implementing these strategies, startups can increase their chances of success in the competitive tech industry.