#unfiltered #66 Humans and Nonlinear Thinking

Humans are terrible at understanding percentages. I’m one of them. An investor I had the opportunity to work with on multiple occasions once told me. People can’t tell better; people can only tell different. It’s something I wrestle with all the time when I hear founder pitches. Everyone claims they’re better than the incumbent solution. Whatever is on the market now. Then founders tell me they improve team efficiency by 30% or that their platform helps you close 20% more leads per month. And I know, I know… that they have numbers to back it up. Or at least the better founders do. But most investors and customers can’t tell. Everything looks great on paper, but what do they mean?

When the world’s wrapped in percentages, and 73.6% of all statistics are made up, you have to be magnitudes better than the competition, not just 10%, 20%, 30% better. In fact, as Sarah Tavel puts it, you have to be 10x better (and cheaper). And to be that much better, you have to be different.

And keep it simple. As Steve Jobs famously said that if the Mac needed an instruction manual, they would have failed in design. Your value-add should be simple. Concise. “We all have busy lives, we have jobs, we have interests, and some of us have children. Everyone’s lives are just getting busier, not less busy, in this busy society. You just don’t have time to learn this stuff, and everything’s getting more complicated… We both don’t have a lot of time to learn how to use a washing machine or a phone.”

If you need someone to learn and sit down – listen, read, or watch you do something, you’ve lost yourself in complexity.

“Big-check” sales is a game of telephone. For enterprise sales or if you’re working with healthcare providers, the sales cycle is long. Six to nine months, maybe a year. The person you end up convincing has to shop the deal with the management team, the finance team, and other constituents.

For most VCs writing checks north of a million, they need to bring it to the partnership meeting. Persuade the other partners on the product and the vision you sold them.

And so if your product isn’t different and simple, it’ll get lost in translation. Think of it this way. Every new person in the food chain who needs to be convinced will retain 90% of what the person before them told them. A 10% packet loss. The tighter you keep your value prop, the more effective it’ll be. The longer you need to spend explaining it with buzzwords and percentages, the more likely the final decision maker will have no idea why you’re better.


Humans are terrible at tracking nonlinearities. While we think we can, we never fully comprehend the power law. Equally so, sometimes I find it hard to wrap my hear around the fact that 20% of my work lead to 80% of the results. While oddly enough, 80% of my inputs will only account for 20% of my results. The latter often feels inefficient. Like wasted energy. Why bother with most work if it isn’t going to lead to a high return on investment.

Yet at the same time, it’s so far to tell what will go viral and what won’t. Time, energy, capital investments that we expect to perform end up not. While every once in a while, a small project will come out of left field and make all the work leading up to it worth it.

When I came out with my blogpost on the 99 pieces of unsolicited advice for founders last month, I had an assumption this would be a topic that my readers and the wider world would be interested in. At best, performing twice as well than my last “viral” blogpost.

Cup of Zhou readership as of April 2022

Needless to say, it blew my socks off and then some. My initial 99 “secrets”, as my friends would call it, accounted for 90% of the rightmost bar in the above graph. And the week after, I published my 99 “secrets” for investors. While it achieved some modest readership in the venture community and heartwarmingly enough was well-received by investors I respected, readership was within expectations of my previous blogposts.

My second piece wasn’t necessarily better or worse in the quality of its content, but it wasn’t different. While I wanted to leverage the momentum of the first, it just didn’t catch the wave like I expected it to.

Of course, as you might imagine, I’m not alone. Nikita Bier‘s tbh grew from zero to five million downloads in nine weeks. And sold to Facebook for $100 million. tbh literally seemed like an overnight success. Little do most of the public know that, Nikita and his team at Midnight Labs failed 14 times to create apps people wanted over seven years.

When Bessemer first invested in Shopify, they thought the best possible outcome for the company would be an exit value of $400 million. While not necessarily the best performing public stock, its market cap, as of the time I’m writing this blogpost, is still $42 billion. A 100 times bigger than the biggest possible outcome Bessemer could imagine.


Humans are terrible at committing to progress. The average person today is more likely to take one marshmallow now than two marshmallows later.

Between TikTok and a book, many will choose the former. Between a donut and a 30-minute HIT workout, the former is more likely to win again. Repeated offences of immediate gratification lead you down a path of short-term utility optimization. Simply put, between the option of improving 1% a day and regressing 1% a day, while not explicit, most will find more comfort in the latter alternative.

James Clear has this beautiful visualization of what it means to improve 1% every day for a year. If you focus on small improvements every day for a year, you’re going to be 37 times better than you were the day you started.

While the results of improving 1% aren’t apparent in close-up, they’re superhuman in long-shot.

Source: James Clear

Photo by Thomas Park on Unsplash


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Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

Why Product-Market Fit Is Found In Strategically Boring Markets

streets, ordinary, boring

In the past decade or two, there have been a surplus of talent coming into Silicon Valley. In large part, due to the opportunities that the Bay had to offer. If you wanted to work in tech, the SF Bay Area was the number one destination. If you wanted to raise venture money, being next door neighbors to your investors on Sand Hill Road yielded astounding benefits. Barring the past few months where there have been massive exoduses leaving the Bay to Miami or NYC, there’ve been this common thread that if you want to be in:

  • Entertainment, go to LA
  • Finance and fashion, go to NYC
  • Tech/startup ecosystem, go to the Valley.

While great, your early audience – the innovators on your product adoption curve – should not be overly concentrated there. All these markets carry anomalous traits and aren’t often representative of the wider population. Instead, your beachhead markets should be representative of the distribution of demographics and customer habits in your TAM (total addressable market).

While Keith Rabois could have very much built Opendoor in Silicon Valley, where more and more people were buying homes to be close to technological hubs, he led the early team to test their assumptions in Phoenix, Arizona. On the same token, Nikita Bier started tbh, not in the attention-hungry markets of LA, but in high schools in Georgia.

“Boring” virtual real estate

Strategically boring markets aren’t limited to just physical geographies. They’re equally applicable to underestimated virtual real estate. You don’t have to build a mansion on a new plot of land. Rent an Airbnb and see if you like the weather and people there first.

As Rupa Health‘s Tara Viswanathan said in a First Round interview, “Stripping the product down to the bare bones and getting it out in front of people for their reactions is critical. It’s rare for a product not to work because it was too minimal of an MVP — it’s because the idea wasn’t strong to begin with.”

As she goes on, “If you have to ask if you’re in love, you’re probably not in love. The same goes with product/market fit — if you have to ask if you have it, you probably don’t.”

Test your market first with the minimum lovable product, as Jiaona Zhang says. You don’t have to build the sexiest app out there. It could be a blog or a spreadsheet. For example, here are a few incredible companies that started as nothing more than a…

BlogsSpreadsheets
HubSpotNerdWallet
GlossierSkyscanner
GrouponStitch Fix
MattermarkFlexiple
Ghost

The greatest incumbents to most businesses out there really happen to be some of the simplest things. Spreadsheets. Blogs. Facebook groups. And now probably, Discord and Slack groups. There are a wealth of no-code tools out there today – Notion, Airtable, Webflow, Zapier, just to name a few. So building something quick without coding experience just to test the market has been easier than ever. Use that to your advantage.

Patrick Campbell once wrote, quoting Brian Balfour, CEO of Reforge, “It’s much easier to evolve with the market if your product is shaped to fit the market. That’s why you’ll achieve much better fit between these two components if you think market first, product second.”

Think like a designer, not like an artist

The biggest alphas are generated in non-obvious markets. Markets that are overlooked and underestimated. At the end of the day, in a market teeming with information and capital and starved of attention, think like a designer, not like an artist. Start from your audience, rather than from yourself. Start from what your audience needs, rather than what you want.

As ed-tech investor John Danner of Dunce Capital and board member at Lambda School, once wrote, “[the founders’] job is to find the absolute maximum demand in the space they are exploring. The best cadence is to run a new uncorrelated experiment every day. While demanding, the likelihood that you miss the point of highest demand with this approach is quite small. It is incredibly easy to abandon this kind of rigor and delayed gratification, eat the marshmallow and take a good idea and execute on it. Great founders resist that, and great investors do too.”

Spend more time researching and talking to your potential market, rather than focusing on where, how, and what you want your platform to look like. Obsess over split testing. Be scrappy.

Don’t fail the marshmallow test

We’re in a hype cycle now. Speed is the name of the game. And it’s become harder to differentiate signal from noise. Many founders instantly jump to geographically sexy markets. Anomalous markets like Silicon Valley and LA. But I believe what’ll set the winners from the losers in the long run is founder discipline. Discipline to spend time discovering signs of early virality, rather than scale.

For instance, if you’re operating a marketplace, your startup is more likely than not supply-constrained. To cite Brian Rothenberg, former VP of Growth at Eventbrite, focus on early growth loops where demand converts to supply. Ask your supply, “How did you hear about our product?” And watch for references of them being on the demand side before.

Don’t spend money to increase the rate of conversion until you see early signs of this growth dynamic. It doesn’t matter if it’s 5% or even 0.5%. Have the discipline to wait for organic conversion. It’s far easier to spend money to grow than to discover. Which is why startup life cycles are often broken down into two phases:

  • Zero to one, and
  • One to infinity

Nail the zero to one.

In an increasingly competitive world of ideas, many founders have failed the marshmallow test to rush to scale. As Patrick Campbell shared in the same afore-mentioned essay, “Product first, market second mentality meant that they had a solution, and then they were searching for the problem. This made it much, much more difficult to identify the market that really needed a solution and was willing to pay for the product.”

The more time you spend finding maximum demand for a big problem, the greater your TAM will be. The greater your market, the greater the value your company can provide. So, while building in anomalous markets with sexy apps will help you achieve quick early growth, it’s, unfortunately, unsustainable as you reach the early majority and the late majority of the adoption curve.

Photo by rawkkim on Unsplash


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Losing is Winning w/ Jeep Kline, General Partner at Translational Partners and Venture Partner at MrPink VC

“I was a swimmer since I was very young and, you know, I never won. I never won.”

You’re probably assuming this is how the opening scene of a movie about a future world-champion swimmer begins. The beginning of the world’s most amazing underdog story. And you’re wrong. Well, not completely wrong. This isn’t a story about the world’s next biggest Olympic swimmer. Although it might be well-timed with the Tokyo Olympics around the corner. This… is a story, in my humble opinion, of one of the world’s next biggest venture capitalists. A story of a young Bangkok girl who became a VC from learning how to lose.

I’ve never been the smartest kid on the block. At least in the IQ department. So I make it my mission to hang out with folks who are smarter and more driven than I am. Jeep is no exception. I met her last month. And as if going from a World Bank economist to Intel leadership to startup advisor and investor to lecturing at UC Berkeley’s Haas School of Business was not enough, in our first conversation, she shared an incredible set of contrarian insights. So earlier this month, I had to jump into another conversation with her.

Something about going long

If you’re a long-time fan of this blog, you know one of my favorite Bezos-isms is, “If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that.”

Jeep is that same kind of superhuman.

“I started as a competitive swimmer since I was seven, and I swam so much and so hard, like three kilometers a day. It’s just a lot of practicing. I never even won a medal. And I kept doing it. And that was hard.

“Because other kids they got medals in different styles. So I learned early on in life what losing actually meant. And I think that’s very important because a lot of smart kids, they never learn how to fail early on in their life. And it’s kind of like a winner’s curse because you know, when they’re the best at everything, since they were young, throughout college , once they come out, and they realize that the world is hard, they are doing things or want to pursue a career that their parents cannot help them, they become risk averse. Meaning they don’t want to try new things.

“So I never won in [any] swimming competitions. Until I got into college. When I got into college, at the time I already quit swimming. I quit in high school. So, I didn’t swim competitively anymore since I didn’t have time to practice. I picked up other activities like piano, which I came to love. In college, one of my friends asked me, ‘Hey Jeep, why don’t you come back to the competition?’ And she knew I never won. We were in the same race at so many events. And I said, ‘I don’t know. Let me try.’ So I tried again.

“So I got back to the practice routine. Adjust my strokes a little bit. And then I won. I got gold and silver medals for a college swimming competition. And I was like, ‘This is a joke. How could I win?’

I never won ever, like for ten some years. And I joke with my friend, ‘You know why, because everybody else quit!’ They quit about the same age in high school.

I just went for it. And that was one of the moments in life that I realized that it’s all about grit. You do what you love and you don’t quit. There will be a moment that you win.”

The analogy extends further

“Failure is the mother of success.” It’s an ancient Chinese proverb that my mom used to tell me again and again growing up. Every time I “failed.” Scored low on a test. Embarrassed myself on stage for a school musical. Placed fourth, right off the podium for multiple competitions. It’s funny thinking about it in retrospect since she turned out to be the exact antithesis of a stereotypical Asian parent. And I love it!

Take tbh, an app where you send your friends anonymous compliments, as an example. It launched back in late 2017. 73 days after its launch, it went from zero to 2.5 million daily active users, which subsequently led to a $100M acquisition by Facebook. To many, tbh looked like an overnight success. But it wasn’t. Nikita Bier, co-founder of tbh, and his team spent seven years with 15 failed products before they arrived at tbh. And with each iteration, they learned and compounded their lessons from their previous failure.

Clubhouse’s Paul Davison and Rohan Seth is another example of a seemingly overnight success. From Talkshow to Highlight (acq. Pinterest), the pair went through at least nine failed apps before they arrive at Clubhouse – last reported to have passed 10 million users. And valued at $4 billion. Their lead investor, Andrew Chen at a16z, spent eight years getting to know Paul.

One of my junior swim teammates told me years ago when I was at my prime, “David, I don’t think I can beat you as you are now. But I promise you I will beat you one day, even if that means after you retire.” At the time, I dismissed it as just another snarky comment, which athletes are prone to make from time to time. But now that I’m a bit wiser than I was in high school, I find that same comment incredibly prescient. It just so happened that a few years ago, we raced each other again. Both of us had long exited the competitive arena, and he won.

In closing

Near the end of our conversation, Jeep cited something Soichiro Honda, the namesake for the Honda Motor Company, once said. “Success can be achieved only through repeated failure and introspection. In fact, success represents 1% of your work which results only from the 99% that is called failure. Many people dream of success. To me success can be achieved only through repeated failure and introspection. In fact, success represents 1% of your work which results only from the 99% that is called failure.”

She further elaborated, “For people who grew up in a society, in a culture that does not easily accept failure, I want them to know that it’s actually not a bad thing to try and hear rejection. But along the way, they have to make sure that they learn.

“It’s the same thing when I teach UC-Berkeley students. I told my brilliant graduate MBA students that there is, for me – and it’s true – there is no stupid question. If other people think your question is stupid, but at least you learn. If you learn, there’s no stupid question. Do not ask good questions, if it means you don’t learn anything.”

In a way, I’m reminded of a peculiar quote by Karl Popper, “Good tests kill flawed theories; we remain alive to guess again.” While Popper was known to be quite the contrarian thinker of his day, the same seems to hold for questions. Good questions kill flawed theories. We remain alive to learn again. After all, speaking from personal experience, I often find myself burning the midnight oil to ask the perfect question. But in the pursuit of asking the “perfect question”, I’ve forgone the adventures I would have had to arrive at the answer I thought I sought.

We learn when we fail. We learn, to one day succeed. The greatest are the greatest because they have a higher propensity to fail than the average person. As the great Winston Churchill said, “Success consists of going from failure to failure without loss of enthusiasm.”

And as Jeep said, “Winning is actually losing, but learning along the way.”


Thanks Jeep for helping with earlier draft edits!


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