Ben Doherty, co-founder of Favor and Sunroom, explains why low prices alone don't create product-market fit. If a competitor matches your price and customers leave, your fit is fragile. He points to Uber's early strategy: the real moat is convenience and reliability, not just being cheap. Raise capital before you need it.
Chapters
Can you talk a little bit more about like market product market fit and profitability? Because like somehow it looks like fit, it's only because you provide it at a really low price. Yeah, so I think the pricing is including profitability, it's including your business model. Which just means the product, I think.
Yeah, so he asked a really good question. He said, it seems like oftentimes the only way to find product market fit is just by having lower prices than whoever else is in the market. I've seen companies that have succeeded that way. I would say that I would be really worried if the only reason why you have product market fit is because you're charging lower prices. And the reason for that is that it's generally not defensible. Unless you have some sort of very unique way or some sort of technology that you've completely pioneered that allows you to have essentially lower costs than any of your competitors, then That is not gonna be, I guess if you can ask the question, if my competitors also lowered the price to my price, would I have product market fit? And if the answer to that is no, then you don't really have product market fit unless your competitors would go bankrupt by doing that. Because you have some competitive advantage. For the businesses that I've started, I definitely think there is ways to achieve that through cost. With Sunroom, we feel like we're starting to get there. I think even when you think of the way that Uber, that was in some ways Uber's strategy. It was a long-term, let's just keep the prices lower through raising money, and then over time all of the competitors except for Lyft will get ran out of the market. But even them, when they first started, they had a very unique value prop that had nothing to do with pricing. In fact, they could have charged way more money, and they did with surge pricing. And that did way better, which is essentially like, hey, you can hail a ride from a phone. And you don't have to call a taxi, and it reliably shows up, and you can get a ride even when you can't get a taxi.
Yeah.
So yeah, I would be really, really wary if that's your pitch or if that's the reason why your product market fit is just by lowering the price below your competitors.
Another question would be, how much time would you have to see one side of the platform? Just for the platform, like you mentioned with the financial model, are you like throwing away some money after you see you're going to make X amount of money? Did you have some sort of runway, 6 months, 8 months, just to get seeding right on the left-hand side of the platform so that the infections happened? Can you tell me a little bit about that?
Yeah, so is the question how much time did we have?
Seeding stuff, just to get the rooms, or in the Favors case, seeding all these funds before You should have a grace period where like 6 months where you just focus on getting like—
Yeah, so I think as far as how much time you have, well, it really depends on how much money you've raised and how much money you're burning. So I mean, the only, yeah, some investors might lose patience with you if your company's not growing fast, but the only true Reason why you don't have as much time is because you're going to run out of money. How did you tackle that issue? How did we tackle that issue? By making sure our burn, like, you just got to control burn, right? I mean, even nowadays where I've sold Favor and I could self-fund Sunroom, we're really, like, we take extra costs really seriously. If you don't have to hire somebody before you find product-market fit, don't hire somebody. Whatever you do, it's your startup. Your startup for a really, really long time is a ticking time bomb. You really, as soon as you get to within 3 months of running out of money, you're gonna be in a really tough spot. And that's how we ended up Working, like, even beyond that, the first story I told about who we worked with, we went on and we almost ran out of money like 3 or 4 more times. And each time you end up making compromises with who you work with or what your valuation is or whatever. And the more sort of compromises you make, you know, you're gonna be in worse position to actually be the winner.
You have a dog?
In your space? We never had a down round, no. I mean, we were growing, that's why I say what's so interesting about our story is we were growing insanely fast, but from all views of it, our metrics were good. They were really good. We executed really well, but it was like we didn't fundraise early enough. Really, you need to be raising money when you don't need money. If you're out raising money when you need money, you're already in a bad spot.
