I was introduced to a founder of an e-commerce marketplace recently trying to figure out what product-market fit looks like. Specifically what might be some early tells of PMF. And I told him, “If your users are sticking around long enough to try to game your system, you have something they want. While it might not be in the most efficient format, you’re close to PMF. Subsequently, solving that frictional point that users are trying to ‘hack’ will delight them.”
Last year, I wrote that one of the tells of a great unicorn idea is frustration with the status quo. And the lagging indicators of frustration are complaints, but even better, “hacks”. Life hacks. Career hacks. Cold email hacks. Any time a forum or community comes together to share best practices is a potential market opportunity. As Jeff Bezos once said, “Your margin is my opportunity.”
Similarly, if some of your users converge around circumventing your platform, they’re hacking their way to find a better solution. But the fact they’re sticking around on your platform means you have something they want. And while it could be more elegant, you’ve solved the rocks of the “rocks, sand, and water” framework. What’s left are the “sand” and the “water”. And they come disguised as a user hack.
Sarah Tavel of Benchmark once wrote: “You must create an offering that is so compelling, it stands by itself in the consumer’s mind.” Solving all the frictional points in the user journey will get you to that compelling offering – a lovable product.
A reader reached out to me last year and said, “Thank you… [But] you have no idea how long I spend reading your blogposts with a dictionary next to me.” While it wasn’t necessarily a hack, to know there was a reader out there willing to weather through my idiosyncratic vocabulary in my earlier essays meant a million to me. But at the same time, it was a sign I was too caught up in my own wordsmithing. So, I dialed it back. While there will still be some esoteric jargon from time to time, I try to make my writing more relatable when editing. And to that reader… if you’re still reading this essay, thank you.
Back in 2007, Marc Andreessenwrote: “The market pulls product out of the startup.” In this case, that pull becomes a race between you and your users’ frustration. Can you release an update that addresses your users’ pain point before they become so frustrated they pack up and go? Either to build their own version or try a competitor’s.
I love Max Nussenbaum of On Deck’s analogy here. “If the market is indeed pulling the product out of you, you sometimes feel less like a creator and more like a mere conduit.” You, as the team behind the product, are a conduit to satisfying your users’ needs. As Mike Maples Jr.says, “Getting storytelling right means the founder is the mentor of the story (ie Yoda), rather than the hero (ie Luke.).” Your customers are the heroes of the story. Of their story. And your story. How they spend their time should offer you brilliant product insights.
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I recently came across the above quote – the attribution to Einstein. And I found it extremely prescient. In the world last year. And in the years ahead.
Creativity is the ability to find inner peace in a busy world. To weave cacophony into symphony. The ability to recognize and chart patterns between the pixels and decibels around us. A guiding, focusing, and metaphorical – and I mean metaphorical in its truest form – principle that abstracts you from the literal shackles of your current situation. Now before I get to abstract…
I’ve written about where I find my inspiration on numerousoccasions, including while I’m:
Exercising
Driving
Cooking
Showering
Listening to podcasts
Washing the dishes
… just to name a few. In each of the above, I give myself the intellectual bandwidth and the time to ponder. Simply ponder. With no goal or predestination in mind. Frankly, this blog is a product of such intellectual adventures.
And I know I’m not alone. In the world coming out of the pandemic, this may cause a new revolution of creativity.
Our grassroots
Hundreds of thousands of years ago, we transitioned from a nomadic to a more specialized lifestyle. The transition to specialized roles in a hunter-gatherer society allowed hominids to share the responsibility of survival. As we learn in the basics of economics, economies that have comparative advantages who trade can create a larger global supply of goods and services. In this case, it was the cooperation among the citizens of the same society that freed individuals’ bandwidths to explore other interests, including, but not limited to:
Controlled use of fire
Adaptability to colder climates
Specialized hunting tools, like fishhooks, bow and arrows, harpoons and bone and ivory needles
Intricate knowledge of edible plants
While hand-built shelters likely go as far back as 400,000 years ago, and huts made of wood, rock and bone as far back as 50,000 years ago, it wasn’t until the Neolithic Revolution that agricultural culture became a permanent habitual change. In the emergence of an agricultural lifestyle, humans now freed up time they would have otherwise spent on migration or hunting. And with that same free time, they invented more creative means of living, not just survival, like the means to combat disease and increased agricultural knowledge. Economists Douglass North and Robert Paul Thomas call this Neolithic Revolution the “first economic revolution“. The two state this was the result of “a decline in the productivity of labour in hunting, a rise in the productivity of labour in agriculture, or [an] … expansion of the size of the labour-force”.
Maslow’s Hierarchy
If we look at Maslow’s Hierarchy of Needs, the evolution of free time, and therefore creativity, makes complete sense. Psychologist Abraham Maslowwrote in 1943 that humans make decisions motivated five tiers of psychological needs.
Maslow’s Hierarchy of Needs
A person’s most basic, tangible needs are at the bottom, whereas the intangibles reside at the top. And according to Maslow, you cannot begin to fathom the higher echelons of your needs, like esteem and self-actualization, until you’ve fulfilled the tiers underneath. Maslow also calls self-actualization “growth needs” and the lower tiers “deficiency needs”. In a very real sense, when you’re struggling to find food and shelter or job security, you don’t have the mental capacity or free time to entertain how high your potential can go. Time, specifically leisure time, is a luxury for people who have fulfilled all their deficiency needs. And that leisure time is what creatives need.
Asking the best
Of course if I was to write anything on creativity, I had to ask my buddy, DJ Welch (IG, LI) – one of the most creative minds I know. Not only did he grow his YouTube channel to 370,000 subscribers in less than three years, he was also an artist for Lucasfilm, Instagram, Cartoon Network and more. Now, he’s working on a new project – Primoral Descent – one that I’ve been excited for the public to finally see.
“As a child, my parents let me have a lot of free time. They let me make my own choices. They let me be imaginative. That’s when you come up with innovation. Creativity is a river above everyone’s head.”
When I asked him to unpack that, he said, “Good ideas are gifts from the universe – fish that swim in that river. All you have to do is learn how to reach up and fish for them. And just like fishing, if you stick around long enough – if you’re patient enough, you’ll be able to catch a few. But you never know what fish you’ll reel in. Just that you will.”
Toys for adults
We see the same with entrepreneurs and creatives. They have time to think. Time to reach into that river and pull out an idea. They are investors and the medium of investment is their time. In fact, you can argue they’ve dedicated almost every waking hour to optimize themselves to offer a creative solution or perspective into the market. They’ve made it their job to be innovative. After all, innovation, by definition, is a creative solution. Under Einstein’s definition, we could call them professional time wasters.
As Chris Dixonsays, “The next big thing will start out looking like a toy.” Today, we see the rise of NFTs, VR/AR, content creation, e-sports, and much more. Not too long ago, we had the telephone, and eventually the smartphone, as well as the internet. All of which had their origins as toys. And I know I’m only scratching the surface here. In order to have time to create toys, or for that matter, even play with toys, you need leisure time.
With that same time, more and more people are pursuing their interests and passions, creating, what Li Jin at Atelier Ventures dubbed, the “passion economy“. Similarly, more people are dabbling into new hobbies. In the pandemic, the average person saved 28 minutes of time that would have been spent on going to work. An hour on average for the round trip. Some people used that time saved to get more work done. Others used their time saved to discover new passions – be it baking, starting a podcast, hiking, or gaming. For many Americans, that extra time was paired with stimulus checks and communities coming together to cause political and economic shifts – for better or worse.
As Tal Shachar, former Chief Digital Officer at Immortals, said, “The next big thing in 2021 is the YOLO economy. Consumers will be more open to trying new products/services and spending on novel experiences, particularly with friends, as we emerge from the pandemic with pent up demand and few routines.” In the process of trying, you will inevitably uncover more surface area to expand on.
In closing
In 2021 and onwards, as entrepreneurship and solo-preneurship lowers its barriers to entry, we’re lowering the Gini Index equivalent for creativity. More people will have increased access to time – time to self-actualize. Time to challenge our status quo.
I love this line in Kevin Kelly‘s “99 Additional Bits of Unsolicited Advice“: “The greatest rewards come from working on something that nobody has a name for. If you possibly can, work where there are no words for what you do.” If you can succinctly describe what you’re working on, then you’re not really pushing the envelope.
Later in that same essay, Kelly writes, “A multitude of bad ideas is necessary for one good idea.” And to have ideas, you need time. As DJ and I were wrapping up our conversation, I asked, “So, DJ, how do you optimize for creative moments?”
And he responded with some great food for thought. “I nap. Sleeping is how I process information. As I go lay down for a nap, right in that lucid moment, I come up with my ideas. I quickly scribble them down, then go back to sleep. When I finally wake up, I go work on them. The great Winston Churchill’s naps were a non-negotiable part of his day. In fact, during WWII, he had a bed set up in the War Rooms so he could take his daily afternoon naps. Similarly, I often take 20-minute power naps around 2-3PM. And I’ve never pulled all-nighters. Thinking isn’t hard for me. Thinking is the part ‘efficient people’ [who work straight through the day] get stuck on.”
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Years ago, when I first started in venture at SkyDeck, I met a founder who made me sign an NDA before he pitched. At the time, I had no idea that it wasn’t the norm. So, I ended up signing it without a second thought. It wasn’t my first time I signed one, and certainly not the last. He spent 20 minutes pitching his idea to me. I don’t remember the exact details of the pitch, but I remember it being an intriguing pre-launch idea outside of my realm of expertise.
In our last five minutes, out of curiosity, I asked him why he had me sign an NDA – something I’d never been asked to do since I jumped into VC.
He said, “I can’t afford to have you take my idea.”
Nevertheless, I had a couple names in mind that might be useful to him. At least more useful to him than I could be. But given the NDA, I needed written consent for every person I wanted to send his startup to. As well as consent for what I could and could not tell them. After two weeks of back and forth emails, he only allowed me to pass his idea to one other person. Even so, in a very limited scope. With very little context. Far from enough for my investor friend to say yes to a meeting. All in all, regrettably, the long slog of asynchronous communication heavily drained my willingness to help. And at the end of the two weeks, I was happy to get that load off my chest.
It was a lesson for myself. Ever since then, I err on the side of not making people sign NDAs. Why?
Most people don’t care enough about your problem space to pursue the idea you’re going for. If they were, they’d have pursued the idea/solution already.
Sharing your idea helps you more than it helps them. You get free advice and feedback, all of which are ammunition to further your idea. The more you share, the faster you learn, the faster you can iterate and grow your startup.
If you make a potential partner sign an NDA, it implicitly shows a lack of trust in the partnership, and there could lead to future friction between you 2, which would detract you from focusing on actually building the business. I’ve seen it happen. And I’ve seen businesses crumble because of a lack of trust. And it could start from the smallest thing and exacerbate into a full-blown drama.
On the off chance, they do take your idea and run with it to the market, they become a competitor to your business. And if you’re scared of competition, you’re probably in the wrong industry. Or if you want to run a lifestyle business (one at your own pace) – like a side hustle or one you find great joy in doing, it really doesn’t matter what other people are doing.
The success of a business is determined by how well you can execute. The first mover advantage is about who can get to product-market fit first, not who birthed the idea first. Before Google, AltaVista, Aliweb, and Yahoo! existed, just to name a few. Equally so, Myspace and Friendster started before Facebook.
A week after my intro, my investor friend hit me up again to tell me he turned down that founder before the founder even pitched. He told me, “It’s unnecessary red tape and not worth my time. And I’m not short on deal flow.”
Almost a year after that, in an effort to keep a complete record of the deals I’ve sent to investors, I revisited that startup. A quick LinkedIn search told me they’d closed up shop. I never checked back in with them to ask why. It could have been trouble in their go-to-market motions. It could have been co-founder disputes. Or it could have been their inability to find investment. I don’t know. But I imagine that their inability to find investors contributed to their closure.
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While I don’t always ask this question, when I do, it provides me enormous context to how the founding team works together. What do you and your co-founders fundamentally disagree on? Over the years, I’ve heard many different answers to this question. “We disagreed on which client to bring into our alpha.” “On our last hire.” “Our pricing strategy.” And so on. As long as you contextualize the point of friction, and elaborate on how, why, and what you do to resolve it, then you’re good. There’s no right answer, but there is a wrong answer.
The answer that scares me the most is: “We agree on everything.” Or some variation of that. While people may share a lot of similarities, even potentially the same Myers Briggs personality type (although I do believe people are more nuanced than four letters), no two people are ever completely the same. Take twins, for example. Genetically, they couldn’t be any more similar. Yet, to any of us, who’ve met any pair of twins in our lifetime know they are vastly different people.
Priorities lead to disagreements
One of my favorite counterintuitive lessons from the co-founder and CEO of Twilio, Jeff Lawson, is: “If your exec team isn’t arguing, you’re not prioritizing.” He further elaborates:
“As an executive team, we never actually argued — which is a strange thing to bother a CEO. But in fact, something always felt not quite right to me when we always agreed. Clearly, we must not be making good enough decisions if we all agree all the time.
“What I came to realize was that the reason why we didn’t argue is we weren’t prioritizing. One person says, ‘I like idea A,’ and the other person says, ‘I like idea B,’ and you say, ‘Great, put them both down, we’ll do it all!’ And in fact, when you look back on those documents at the end of the year, we rarely got around to very much of anything in those documents.
“Be vigorous not just about what makes the list, but the specific order in which priorities fall. “We realized it’s not just about all the things we could do, but the order of importance — which is first, which is second. Now you get disagreements and a lot of vigorous, healthy debate.”
Starting the tough conversation
Admittedly, it’s not always easy to have these tough conversations with the people you trust most. In fact, often times, it’s even harder to have these conversations because you’re scared about what it can do to your relationship. Arguably, a fragile one at best. At the end of last year, Yin Wu, founder of Pulley, shared an incredible mindset shift when building an all-star team, which led to my conversation with her.
3/ We are not a family. We are a world class team, purpose built to win. Most founder-types do not want a 2nd family, they want to excel.
We push each other to improve. We own our mistakes so we can avoid making same mistake twice. We celebrate our joint success as a team.
You’re a team driven to change the world we live in. And to do so, you need a system of priorities.
One of the best ways I’ve learned to address conflicts – explicit and implicit, the latter more detrimental than the former – is taking the most obvious, but the one that most people try to avoid. Address the elephant in the room at the beginning.
I love the way Elizabeth Gilbertapproaches that elephant, “The truth has legs. It’s the only thing that will be left standing in the end. So at the end of the day, when all the drama has blown up, and all the trauma has expressed itself, and everyone has acted up and acted out, and there’s been whatever else is happening, when all of that settles, there’s only going to be one thing left standing in the room always, and that’s going to be the truth. […] Since that’s where we’re going to end up, why don’t we just start with it? Why don’t we just start with it?”
When it hasn’t happened yet
If you haven’t disagreed with your team yet, you either haven’t established your priorities or one or the other or both has yet to bring it up. A mentor of mine once told me, “Whatever you least want to do or talk about should be your top priority.” And the goal is to sit down with your team and figure it out. To come into the conversation suspending immediate judgment and trying to see where your other team members are coming from.
As the CEO of a startup or a leader of a team, you don’t have to use every piece of feedback or input you get from your teammates. But you should make sure your teammates feel heard. That you’ve put thought and intention behind considering their ideas and opinions. Whether you choose to deviate from your teammates’ opinions or not, you should clearly convey the rubric that you used to make that decision. And why and how it aligns with the company’s mission.
In closing
And of course, the follow-up to the first question about disagreement would be: How often do these disagreements happen? And how do you move forward after the disagreement comes to light?
I go back to a line Naval Ravikant, co-founder of AngelList, once said, “If you can’t see yourself working with someone for life, don’t work with them for a day.” Indubitably, you’re going to be working with your co-founders for a long time. And if you haven’t dissented with your co-founders – or for that matter, other team members, investors, and customers – yet, you will. And knowing what, how and why you disagree with others can be invaluable for your company’s survival and growth.
This past weekend I heard a new phrasing of disagreement I really liked from a friend of mine. “Creative conflict.” I’m adding that phrase to my dictionary from now on. And well, this is my preface to you all before I do.
Prioritize. Communicate. And embrace creative conflict.
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I recently tuned back into Elizabeth Gilbert‘s, author of Eat Pray Love, 2016 interview with On Being. It also happens to be one of my favorite interviews about creativity and curiosity. I found myself pausing, rewinding, playing, pausing, rewinding, then playing again one line again and again.
“Everything that is interesting is 90 percent boring.”
She further elaborates, “And I think one of the reasons that both my sister and I ended up being authors is because we were taught how to do boring things for a long time. And I think that’s really important, because here is one of the grand misconceptions about creativity, and when people dream of quitting their boring job so that they can have a creative life, one of the risks of great disappointment is the realization that, ‘Oh, this is also a boring job a lot of the time.’ It’s certainly tedious. It’s a boring job I would rather do than any other boring job. It’s the most interesting boring job I’ve ever had. […]
“And we are in a culture that’s addicted to the good part, the exciting part, the fun part, the reward. But every single thing that I think is fascinating is mostly boring.”
She takes it from a perspective that everything has its boring parts. So you have to learn to accept what’s boring along with what’s interesting. I think she’s absolutely right. But while I was tuning in again to that same interview – those exact same lines – for who knows, the 20th time, I thought… maybe there’s something more. Forgive my brain for having the tendency to jump into numbers and equations. That for some reason, one of the primary ways I understand life has to be through some quantitative lens. I thought, what if we take it from an expected value perspective.
Expected value = 10% * (Utility of interesting) + 90% * (Utility of boring)
The utility we gain from boring, often times, is of course, well… boring. Some utility value less than zero. Or in other words, more often than not, we lose utility. On the other hand, the utility we gain from interesting is positive. So, then it becomes a balancing act between what’s interesting and what’s boring. That in the decision to pursue something interesting, there might be the below subconscious calculus:
10% * (Utility of interesting) > 90% * (Utility of boring)
To shine a different light, is the interesting part interesting enough that it outweighs all of the boring parts combined, and ideally, more?
Take, for instance, writing for me. I love writing. It’s meditative. Thought-provoking. And it’s challenging. But at the same time, editing, filling in the keywords for SEO, finding a cover image, all the way to writing when I don’t feel inspired, but I do so to commit to a weekly routine is tedious.
Similarly, Gilbert uses the example of raising children. “Raising children — I’m not a mother, but I’m a stepmother, I’m a grandmother, I’m a godmother, I’m an aunt, and I know that 90 percent of — especially, being with very small children…
“Incredibly — it’s hard. And then there’s the moment where you realize, ‘Oh, my God, this is a spark of creation that I’m working with, and this is magic, and this is life seen through new eyes.’ And creativity is the same, where 90 percent of the work is quite tedious. And if you can stick through those parts — not rush through the experiences of life that have the most possibility of transforming you, but to stay with it until the moment of transformation comes and then through that, to the other side — then, very interesting things will start to happen within very boring frameworks.”
For many of this blog’s readers, it’s starting a business. Whether you’re changing the world or the people you care the most about, that mission is what drives you. That’s what makes it interesting. And every time you hit a milestone –
Your first user outside of your friends and family,
Rated #1 on Product Hunt,
One of your customers writes a handwritten love letter to you and your team about how you saved her family,
You finally have enough revenue to pay your team members who’ve been working with you for free for two years,
$1M in ARR,
50,000 users,
You reach profitability,
Your dream investor says yes,
A Fortune 500 business offers you 9 figures for your business,
And the list goes on and on.
… it’s exciting! But let’s be honest, not every day will be sunshine and rainbows. 90% of your days will be tedious. Some percent of those days or weeks might even suck! 90% of your days will be you working to find and reach that 10%. And if that 10% is just that amazing, it’ll make that 90% worth it.
In a sense, it’s like the Pareto Principle. 80% of your utility will come from 20% of your achievements. That star 20% – your customer love letters, providing employment for all your team members during the tough days of COVID.
In an analogous mental model, in everything that is boring, there might be a small percentage that makes it interesting. Now I’m really curious as to what I might discover here.
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.
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One of the most common questions I get from first-time founders, as well as those outside the Bay Area, is: “Who is/How do I find the best investor for our startup?” Often underscored by circumstances of:
Raising their first round of funding
Finding the best angel investors
Doesn’t have a network in the Bay Area or with investors
While I try to be as helpful as I can in providing names and introductions, more often than not, I don’t know. I usually don’t know who’s the best final denominator, but I do know where and how to start. In other words, how to build a network, when you don’t think you have one. I emphasize “think” because the world is so connected these days. And you’re at most a 2nd or 3rd degree connection from anyone you might wanna meet. Plus, so many early-stage investors spend time on brand-building via Medium, Quora, Twitter, Substack, podcasting, blogging, and maybe even YouTube. It’s not hard to do a quick Google search to find them.
“Googling” efficiency
While I do recommend starting your research independently first, if you really are stumped, DM me on my socials or drop me a line via this blog. Of course, this is not a blog post to tell you to just “Google it”. After all, that would be me being insensitive. Here’s how I’d start.
One of the greatest tools I picked up from my high school debate days was learning to use Google search operators. Like:
“[word]” – Quotes around a word or words enforces that keyword, meaning it has to exist in the search items
site: – Limits your search query to results with this domain
intitle: – Webpages with that keyword in its title
inurl: – URLs containing that keyword
Say you’re looking for investors. I would start with a search query of:
Feel free to refine the above searches to “angel investors” or “pre-seed funds”.
Landing and expanding your investor/advisor network
I was chatting with a friend, first-time founder, recently who’s gearing up for her fundraising frenzy leading up to Demo Day. She asked me, “Who should I be talking to?” While I could only name a few names since I wasn’t super familiar with the fashion industry, I thought my “subject-matter expert network expansion” system would be more useful. SMENE. Yes, I made that name up on the spot. If you have a better nomination, please do let me know. But I digress.
First, while you might not think you have the network you want, leverage who you know to get a beachhead into the SMEN (SME network) you want. Yes I also made up that acronym just now. But don’t just ask anyone, ask your friends who are founders, relative experts/enthusiasts, and investors. Ideally with experience/knowledge in the same/similar vertical or business model.
Second, if you feel like you don’t have those, just reach out to people who are founders, relative experts/enthusiasts, and investors. Via Twitter, Quora, LinkedIn, Clubhouse. Or maybe something more esoteric. I know Li Jin and Justin Kan are on TikTok and Garry Tan and Allie Miller are on Instagram. You’d be surprised at how far a cold email/message go. If it helps, here’s my template for doing so.
Then you ask them three questions:
Who is/would your dream investor be? And two names at most.
Or similarly, who is the first (or top 2) people they think of when I say [insert your industry/business model]?
Who, of their existing investors, if they were to build a new business tomorrow in a similar sector, is the one person who would be a “no brainer” to bring back on their cap table?
Who did they pitch to that turned them down for investment, but still was very helpful?
For each of the above questions, why two names at most? Two names because any more means people are scraping their minds for “leftovers”. And there’s a huge discrepancy between the A-players in their mind and the B-players. Then you reach out/get intro’ed to those people they suggested. Ask them the exact same question at the end of the conversation (whether they invest or not). And you do it over and over again, until you find the investor with the right fit.
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Founders often ask me what’s the best way to cold email an investor. *in my best TV announcer voice* Do you want to know the one trick to get replies for your cold email startup pitches that investors don’t want you to know? Ok, I lied. No investor ever said they don’t want founders to know this, but how else am I going to get a clickbait-y question? Time and time again, I recommend them to start with the one (at most two) metrics they are slaying with. Even better if that’s in the subject line. Like “Consumer social startup with 50% MoM Growth”. Or “Bottom-up SaaS startup with 125% NDR”. Before you even intro what your startup does, start with the metric that’ll light up an investor’s eyes.
Why? It’s a sales game. The goal of a cold email is to get that first meeting. Investors get hundreds of emails a week. And if you imagine their inbox is the shelf at the airport bookstore, your goal is to be that book on display. Travelers only spend minutes in the store before they have to go to their departure gate. Similarly, investors scroll through their inbox looking for that book with the cover art that fascinates them. The more well-known the investor, the less time they will spend skimming. And if you ask any investor what’s the number one thing they look for in an investment, 9 out of 10 VCs will say traction, traction, traction. So if you have it, make it easy for them to find.
That said, in terms of traction, most likely around the A, what growth metrics would be the attention grabber in that subject line?
Strictly annual growth
A while back, my friend, Christen of TikTok fame, sent me this tweetstorm by Sam Parr, founder of one of my favorite newsletters out there, The Hustle. In it, he shares five lessons on how to be a great angel investor from Andrew Chen, one of the greatest thought leaders on growth. Two lessons in particular stand out:
2. Run towards the heat.
If a company has tons of hype and seems overvalued, don't run away. Run towards it. Hype is good. Means they'll raise, exit at higher valuation. And the price likely won't feel overpriced after the startup exits.
3. Look for stuff that's growing at least 3x a year.
A business can grow slowly and still be great. But if you want a huge exit as an angel, you need at 3x annual growth for users, revenue, or something else important in order to get a multi-billion outcome.
Why 3x? If you’re growing fast in the beginning, you’re more likely to continue growing later on. Making you very attractive to investors’ eyes – be it angels, VCs, growth and onwards. Neeraj Agrawal of Battery Ventures calls it the T2D3 rule. Admittedly, it’s not R2-D2’s cousin. Rather, once your get to $2M ARR (annual recurring revenue), if you triple your revenue each year 2 years in a row, then double every year the next 3 years, you’ll get to $100M ARR and an IPO. More specifically, you go from 2 to 6, then 18, 36, 72, and finally $144M ARR. More or less that puts you in the billion dollar valuation, aka unicorn status. And if you so choose, an IPO is in your toolkit.
Source: Neeraj Agrawal’s analysis on public SaaS companies that follow the T2D3 path
For context, tripling annually is about a 10% MoM (month-over-month) growth rate. And depending on your business, it doesn’t have to be revenue. It could be users if you’re a social app. Or GMV if you’re a marketplace for goods. As you hit scale, the SaaS Rule of 40 is a nice rule of thumb to go by. An approach often used by growth investors and private equity, where, ideally, your annual growth rate plus your profit margin is equal to or greater than 40%. And at the minimum, your growth rate is over 30%.
For viral growth, many consumer and marketplace startups have defaulted to influencer marketing, on top of Google/FB ads. And if that’s what you’re doing as well, Facebook’s Brand Collabs Manager might help you get started, which I found via my buddy Nate’s weekly marketing newsletter. Free, and helps you identify which influencers you should be working with.
But what if you haven’t gotten to $2M ARR? Or you’ve just gotten there, what other metrics should you prepare in your data room?
Last week, I reconnected with Shuo, founding partner of IOVC, and one of the first people I reached out to when I began my career in venture. That day, I asked her a pretty stupid question, “Given the rise of solo capitalists, rolling funds, equity crowdfunding, and the democratization of capital, do you think now’s a good time to raise a fund?“
She replied, “I don’t know. It could be a good time now. It could be a good time five years from now. If you’re set on sticking around for the long term, it really doesn’t matter. ‘Cause whether it’s a good time or not, you’re going to be raising a fund regardless. So just do it.”
Not gonna lie, it was serious wake-up call. While I was initially looking for her perspective on the changing venture market, what she said was right. If you’re set on doing something, say starting a fund or a business, the “right time” to start is irrelevant. The world around us changes so much so frequently. We only know when’s the right time in hindsight. So focus on what we can control. Which is starting and doing.
So as an aspiring founder, which idea do you start with? And how do you test it?
Starting a business is scary
Starting a business is scary for most people. And well, the government doesn’t always make it easy to do so. Just like what WordPress and Squarespace did for websites, you have companies, like Stripe (and their Stripe Atlas), Square, Shopify, Kickstarter, just to name a few, streamlining the whole process for entrepreneurship. For an aspiring entrepreneur, not only is it taking that leap of faith, before you begin, there’s a slew of things you have to worry about:
Figure out how to incorporate your business (C-corp, LLC, or S-corp),
Assign directors and officers to your business,
Buy the stock, so you actually own your stock,
Learn to file your taxes (multiple forms, including your 83(b) election),
When you raise funding, get a 409A valuation,
And that’s just the beginning.
Of course for the above, do consult with your professional lawyer and accountant. It’s two of the few startup expenses I really recommend not skimping on. While the purpose of this post isn’t designed to solve all the documents you’ll have to go through in starting a business, hopefully, this will help with one front – taking that leap of faith. Specifically finding early validation for your idea.
You can test the validity of an idea faster by writing than with code.
Writing well trains your ability to sell.
Publishing regularly gets you comfortable with shipping early and often.
To which he cited one of my favorite Reid-isms: “If you’re not embarrassed by the first version of your product, you’ve launched too late.” – Reid Hoffman
Writing is easier for most people to pick up than coding.
There’s a “5th reason” as well, but I’ll let you uncover that yourself. Talk about creativity. Side note. Max created one of my favorite personal websites to date.
Much like Max, I write to think. And in sharing my raw thoughts outside of the world of startups via the #unfiltered series, often far from perfect, as well as my take in this fast-changing universe, my cadence of writing twice a week has forced my brain to be accustomed to the velocity of growth. In the sense, I better be learning and fact-checking my growth week over week. Over time, I’ve developed my own mental model of finding idea and content catalysts.
Of course, if you know me, I just had to reach out. Particularly around the third point in his tweetstorm.
3. Publishing regularly gets you comfortable with shipping early and often.
"If you're not embarrassed by the first version of your product, you've launched too late." —@reidhoffman
I'm embarrassed about pretty much everything I write. But less embarrassed with each piece.
What mental models or practices did he use to help him wrestle with his embarrassment from his own writing? And he replied with two loci that provided so much more context:
“Reading other writers who open up way more than I do, which makes what I’m doing feel easy by comparison. Two favorites I’d recommend are Haley Nahman and Ava from Bookbear Express.”
And another I binged for an hour last night. Talk about counterintuitive lessons. My favorites so far are Stephen’s 12th and 16th issue. You might not agree with everything, but he really does challenge your thinking. Thank you Max for the rec.
“Publicly committing to writing weekly and finding that the embarrassment of publishing was outweighed by the embarrassment I’d feel if I missed a week. Also, like all things, I’ve found it very much gets easier with practice.”
Why not both?
Then again, why not both? I go back to Guillaume‘s, founder of lemlist, recent LinkedIn post. He says:
And he’s completely right. If I were to analogize…
Writer = common Writer + coder = uncommon And… writer + coder + X = holy grail
You don’t have to own one unique skill. And in this day in age, there aren’t that many individually unique skills out there that haven’t been ‘discovered’ yet. Rather than search for the singularly unique skill that you can acquire, I’d place a larger bet on a combination of skill sets that can make you unique. As a founder, test your ideas early with writing. If there’s evidence of it sticking, build it with code. And it doesn’t just to be just writing and code, whatever set of skills you can acquire more quickly and deeper with the circumstances and experiences you have. Even better if there’s a positive flywheel effect between your skills.
In closing
There’s a Chinese proverb that goes something along the lines of, “The best time to plant a tree was 20 years ago. The second best time is now.” And it circles back to Reid’s quote that Max cited, “If you’re not embarrassed by the first version of your product, you’ve launched too late.” As an entrepreneur, or as an emerging fund manager, it’s a given you’re going to mess things up. But all the time fretting around at the starting line is time better spent stumbling and standing back up.
I followed up with Shuo after our call, and she elaborated a bit more, “In all honesty, you can argue now is a good time (a lot of capital available for good managers) or a bad time (valuations are frothy), but in the long-term, these variables even out and it’s how you add value as an investor that’s most important.”
If I were to liken that same insight to aspiring entrepreneurs… Yes, investors look for timing. And yes, understanding the timing of the market is important, when you’re launching a product that will revolutionize the way we live in a fundamental way. But that boils down to which idea you plan to pursue. But if you’re looking to be a founder, it’s finding that overlap in the 3-way Venn diagram between (1) what the market needs and (2) where you, as the founder, can provide the most value. And (3) where your competitors are not maximizing their potential in.
For many aspiring founders, that first step can be practicing the art of writing. Writing for clarity. Writing to practice selling. Learning to ship early and embracing imperfection. Frankly, it’s also something I need to get better at myself.
Though I’m not a religious fellow, I’m reminded of a quote from Jesus’ teaching, which I first found in Jerry Colonna’s book, Reboot. “If you bring forth what is in you, what is in you will save you. If you do not bring forth what is in you, what is in you will destroy you.” Writing is that act of bringing forth what is in you. And well, if you’re like me, I often find my greatest regrets come from a lack of action rather than in taking action.
Thank you Shuo and Max for reviewing early drafts of this essay.
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Not long ago, there was this massive TikTok craze on sea shanties. And while I don’t have a TikTok account, the ripple effects have reached me as well. What started as a shower thought after a founder recommended I gamify my advice to founders fundraising, well… turned into this. To the tune of Soon May the Wellerman Come:
There once was a team that put to sea The name of that team was Friends ‘N Me The winds blew hard, but growth tipped up O’, burn that midnight oil (huh)
Soon may the investor fund To bring us money and help and some One day, when the term sheet’s done We’ll take the dough to grow
She had not been two years from start When push became the pull we sought The founder called all hands and wrought The product to scale now (huh)
Soon may the investor fund To bring us money and help and some One day, when the term sheet’s done We’ll take the dough to grow
The servers’ now a right real mess We had to call the AWS They had us pay for more bandwidth But that’s okay with us (huh)
Soon may the investor fund To bring us money and help and some One day, when the term sheet’s done We’ll take the dough to grow
We’ve tripled our growth last year, oh yus With dollar retention as one cause When we were asked what it was We said ’twas one twenty (huh)
Soon may the investor fund To bring us money and help and some One day, when the term sheet’s done We’ll take the dough to grow
We’ve ten cust’mers that five of which Are referenceable you’ll find on pitch That one of which is kinda rich They’re paying hundy K (huh)
Soon may the investor fund To bring us money and help and some One day, when the term sheet’s done We’ll take the dough to grow
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost). Who knows? The possibilities are endless.
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Over the years, the silver screen sure has mythologized the dropout founder – from Steve Jobs to Bill Gates to Mark Zuckerberg. While students who choose to dropout will continue to wow the world, and I believe it (otherwise, I wouldn’t be working with Danielle and Mike at 1517 Fund, if I didn’t), reality isn’t nearly as black and white. A Quora user requested my answer to this question recently. Why do business schools not make world class entrepreneurs? It presumed that great academic institutions, mainly B-schools, were no longer capable of minting world-class founders. Admittedly, it’s neither the first, nor will it be the last time I see or hear of it.
The MBA grads
I met a Fortune 100 executive last year who said that it was because of her Wharton MBA, that she catapulted her career in artificial intelligence and machine learning. Specifically, it was because of the research she did with her professor, Adam Grant, that led to opportunities and introductions down the road. On the same token, David Rogier of MasterClass met his first investor at the Stanford GSB. In fact, it was his business professor who wrote that first check, just under $500K.
Business schools are amazing institutions of learning, but admittedly most people go for the network and the brand. On the same note, I would never go as far as to say that business schools don’t mint world-class entrepreneurs. If we’re going by pure valuation, there’s a study that found a quarter of 2019’s top 50 highest valued startups had MBAs as founders.
And here are a few more founder names among many, not even including some of the most recognizable CEO names, like Satya Nadella (Microsoft), Tim Cook (Apple) and more.
Tony Xu and Evan Moore of Doordash
Michael Bloomberg of Bloomberg
Steve Hafner of Kayak
Aneel Bhusri and Dave Duffield of Workday
Jeremy Stoppelman of Yelp
Mark Pincus of Zynga
Having grit and having a business degree don’t have to be mutually exclusive. I work with founders who come from all manners of educational backgrounds: high school dropouts, college dropouts, BA/BSs, MBAs, PhDs, MDs, JDs, home schooled, and self-taught. At the end of the day, it doesn’t matter what kind of education someone has. What matters is what they do with the education.
What an Ivy League dean once told me
Back when I toured the US to decide which school to SIR (statement of intent to register) to, I met the dean of an Ivy League school. I thought he was going to spend our 20 minutes trying to convince me to come to his school. But he didn’t. Instead he said, “David, it doesn’t matter which school you choose to go to. While I would be honored to have you attend ours, what matters is what you do while you’re in school. You could choose to just take classes here or you could go to a CC, but choose to be a member of 5 clubs, 3 of which you take leadership positions in. And if I were to look at you in four years, I’d be prouder of the latter person you chose to become.”
Capping the risks you could take
When I graduated from Berkeley, I also came out with a certificate in entrepreneurship and technology. While I still believe to this day that no class can really teach one to be entrepreneurial, I learned quite a bit of the institutionalization around entrepreneurship – what exists in the ecosystem, some of the risks involved and how to hedge those bets. Yet, my greatest lessons on entrepreneurship didn’t came from a textbook. But rather, the risks I took outside the classroom. Because each time I made one, I internalized it.
To do great things, you have to first dream big and act on those big dreams. By definition, big dreams entail high degrees of risk. High risk, high reward. And with risk, you’ll make mistakes. So one of the rules I live by is that I will force myself to make mistakes – many mistakes – more than I can count. But my goal is to make each mistake at most once. Jeff Bezos once said, “If you can’t tolerate critics, don’t do anything new or interesting.”
Equally so, there’s a joke that Andy Rachleff, founder of Wealthfront and Benchmark, shares with the class he teaches at the Stanford GSB. While it pertains to VCs, I find it analogous to founders and mistakes, “What do you call a venture capitalist who’s never lost money on an investment?”
“Unemployed.”
But, what institutionalized academia does help you with is provide you a platform to make mistakes. Without the downside. Capped downsides, but it’s up to you, the student, to realize what could be the uncapped upside. Last month I chatted with a VC, who works at a top 10 firm. Our conversation eventually spiraled into her MBA at the Stanford GSB. There she took on projects that put her on the streets talking and building products for potential customers. Her professors taught her the hustle, but it was up to her to apply her learnings. While she chose the VC path after, her experience led her to become a trusted advisor to founders while she was still in school.
In closing
Similarly, world-class entrepreneurs aren’t decided by which school they go to, or lack thereof, but how and why they choose to spend the days, weeks, and years of the short time they have on Earth. And where they practice their entrepreneurial traits.
I would be pretentious to say that you should get an MBA if you want to be founder. Or that you should dropout if you want to be one. If we’re to look at the cards on the table, MBAs are expensive. A $200K investment. Almost half of what might be your pre-seed round. But I can’t tell you if it’s a great investment or not, nor should I. For an MBA, or for that matter, any higher education. I pose the two extremes – MBA (or a PhD too) and a dropout – as I presume most of our calculi’ fall somewhere in-between. Instead, I can merely pair with you with the variables and possible parameters that may be helpful towards your decision. So, I’ll pose a question: Are there rewards you seek in the process rather than just in the outcome (of an MBA/higher education)?
In other words, are there skills, relationships, gratitude, entertainment, and/or peace of mind you build in the journey that transcend the outcome of your decision on the future of your education?
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