A few weeks ago, around the time I published Am I At My Best Right Now?, I started noticing more and more that my friends, colleagues, and people that I’ve met since were going through tough times. Two lost a family member. Some were laid off. Two were forced to leave this land I call home. Four broke up. Three burned out. Countless more told me they were stressed and/or depressed, and didn’t know how to escape this limbo. After I published that post, another handful of people also reached out and courageously shared the troubles they are going through now. How it’s been so hard to share with others. And yesterday, while editing this blog post, I found out that one of my high school friends had passed.
Inspiration and Frustration
During this time, I had a thought: Frustration is the absence of inspiration. There were many times in my own life when I was beating myself up because I couldn’t think of a solution. And a small percent of those times, I didn’t even bother to think of a solution since I was so engrossed in my frustration with myself.
In these unprecedented times and inspired by the conversations around me, I decided to show that we’re not alone. So, I asked people who I deeply respect and who could shed light as to what it means to be human. I asked just two questions, but they were only allowed to answer one of them:
What is the one thing that inspires you so much that it makes everything else in life much easier to bear?
What is stressing/frustrating you so much right now that it seems to invalidate everything else you’re doing?
In turn, they responded via email, text, or on a phone call. Of the 49 I asked, so far, 31 responded with their answers. 4 politely turned me down due to their busy schedules. Another one turned me down because she didn’t feel like she could offer value in her answer.
26 responded with what inspires them. 5 with what frustrates them. All of whom I know has been through adversity and back.
Admittedly, the hardest part about this study was how I was going to organize all these responses. Unlike the one about time allocation I did over a month ago, where I knew exactly how to organize the data before I even got all the responses, this one, I really didn’t know how to best illustrate the candor everyone shared. In fact, I would be doing a disservice to them, if reduced their honesty and courage to be vulnerable to mere numbers. So, in the end, below, I let everyone speak for themselves. Sometimes, simplicity is the best.
Thank you to everyone who contributed to making this blog post happen, including Brad Feld, Mars Aguirre, Shayan Mehdi, Thomas Owen, Chris Lyons, Mark Leon, Jamarr Lampart, Christen Nino De Guzman, Louis Q Tran, Sam Marelich, Dr. Kris Marsh, Quincy Huynh, DJ Welch, Jimmy Yue, and many, many more heroes who helped me and the world around us behind the curtains.
I was raised a swimmer. From 4 years old, my parents sent me to take swimming classes for 2 primary reasons:
Learn how to not drown.
If we (my parents) are ever going to drown, you’re going to save us.*
*Note: I’d like to point out the irony is that both of parents know how to swim themselves. Not at a competitive stage, but enough to survive from drowning.
Oddly enough, I learned how to swim by drowning. Over the years, like many other children around me, on top of swimming, I also played ball in its various sizes and ran. And I learned that swimming and running are of the 2 purest forms of athleticism and exercise out there. There’s very little margin for error, if any. A tenth of a second is the difference between Olympic gold and not even qualifying for the semifinals. Because of that, in swimming, we’re taught to be efficient. We learned to maximize for our distance per stroke (DPS). And I believe in running, it’s distance per stride.
Efficiency. The ability to do more with less.
The market of efficiency
These days, getting from point A to B isn’t as difficult as it used to be. Cars made travelling miles easier. Planes, for hundreds to thousands of miles. Bikes and scooters, for last mile transportation – distances too close to drive, but take twice as long to walk. Outside of transportation, career development, information and skill acquisition have all seen massive developments not only in the last hundred years, but especially in the last 10 years. Online platforms, like Coursera, Masterclass, Google, and Wikipedia, helped us all shave off months, years, even generations of legwork and information acquisition. They made so many things more accessible.
Accessibility
Accessibility is platformitizing and democratizing information. What Yellow Pages did for services. Reddit for knowledge acquisition. Amazon for shopping. Google for information. And Food Network and food media did for cooks. The average person today is more knowledgeable about the culinary process and its accessories than someone two decades back. Laughable now, but 8 years ago, it’s how I learned not to burn frozen pizza. I could go on and on.
But, in the next ten years, accessibility may not be enough. Though there are many populations in this world who still have yet to access the knowledge I can readily find on my laptop, accessibility provides people with the tools, but not the means to use those tools effectively.
Ease
Ease does. Lower the barriers to entry and bundle the entire knowledge acquisition, or otherwise, what I would call onboarding, in an intuitive manner. Like what WordPress did for websites. Instagram for photos. Opendoor for home-buying/selling. TurboTax for, well, tax.
It’s a messy web of information out there. As economist Herbert A. Simon puts it:
“A wealth of information creates a poverty of attention.”
Here’s an easy way to tell which industries and processes lack ease. Find where people have created hacks to solve a problem.
Using multiple tools/software to solve a single problem;
Using a “temporary” solution to solve a repetitive problem. Like a basin to catch the rainwater that leaks through the roof;
A public forum, like Reddit or a Facebook group or multiple similar questions on Quora, where people share their “life hacks”.
A How-to YouTube video that has tens/hundreds of thousands, if not millions, of views.
And to know if you hit the nail on the head, you’ve got crazy pull. Product-market fit. PMF. When you don’t even have the luxury of time to worry if you have PMF ’cause your customer success inbox/sales inbox is filled to the brim. Or you’re getting so many new users that you’re figuring out how to upgrade your servers before your servers go blank. For more on PMF, I highly recommend checking out Lenny Rachitsky‘s recent post surveying 25 of the most successful companies on when they realized they had PMF.
In closing
Tools and platforms that make it easier for an individual to go the distance, to be more efficient, carry 2 traits: accessibility and ease. With each stroke, with each action one takes, they can go further. They can do more. With less. Technology, in the incoming years, will further do so.
And as a VC scout, I look for, what I call – distance per action. Or DPA, for short. So, if you’re working on something that will enable people to have higher and greater DPAs, I wanna talk.
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“Hey, y’all wanna hear a joke?” one of my teammates in my lane asks during warm-up. If there was the equivalent of a class clown in the pool, that’d be him.
“Why not?” the rest of us answer, hoping to spice up the impending 2-hour practice.
“So, there’s this guy who’s about to ask this girl out to the school dance. But to do so, he’s gotta ask her out on Valentine’s Day. So the day before, he goes to buy a Valentine’s gram during lunch. Turns out – there’s a long, long line.”
Our coach blows the whistle, and we sprint off. When we touch again, he goes on, “And there’s a separate line to buy the roses. So, he heads over, and turns out – there’s a long, long line.”
Again, the whistle goes off, and upon return, “So, he finishes buying his gram and roses. On the fateful day, she gets it all and says yes. Super excited, the guy prepares for the school dance. First he goes to buy his tux. When he arrives at the tailor-“. He pauses, beckoning us to finish his sentence.
“There’s a long, long line,” we chime in. In the distance we hear, “Lane 1. Stop talking!” Whistle blows, and we go…
And return. “He gets his suit tailored. Now he goes to Office Depot to buy his cue cards and markers to ask her out. But when he gets to the cash register…”
“There’s a long, long line.” And a kickboard comes flying in and smacks two of us in the face. “Quiet!” a distant shout.
“Day of the ask, he assembles all his friends, lines them up for a dramatic prom ask. And what do you know?”
“There’s a long, long line.” Another one of us feels the sting of hard foam across our face.
“The girl says yes. And now, finally the day of the prom arrives, and he picks her up. Together, they take pictures with everyone else, in a-“
“Long, long line.”
“Then they all drive to the destination of prom. But turns out they’re not the first ones there. Ahead-“
“There’s a long, long line.” At this point we were too vested in the joke. Each of us with bruises across our face – just short of our coach dragging us out of the water to discipline us.
“So the boy and girl finally make it into the dance hall, and while they’re waiting for the dance floor to open up, the boy asks us the girl, ‘Can I get you something to drink?’ And she says, ‘Sure.’ So, he goes over to where the fruit punch is. And, turns out…”
“There’s a long, long-“
“Nope, there’s no punch line.”
The bigger picture
I hear so many founders tell me they’re pursuing this billion dollar market. Or even a trillion dollar one with a capital T. And how they plan to capture 10% of this huge market in 5 years. I mean, c’mon, how awesome would 10% of this billion dollar market sound for our returns?
For an investment of anywhere between $1 and $10 million, let’s say $1 million (’cause this is usually something people raising a pre-seed/seed say), 10% of $100B market is $10B. And for the ease of calculation, let’s say by the time the founders exit, we still have 10%, 10% of $10B is $1B. For only $1M invested, $1B is a 1000x return. Wowza!
The true let-down happens when they finally share what their solution is. And it turns out to only address a small fraction of their total addressable market (TAM). Here’s a hypothetical example. A team is tackling a TAM for events of $1.1 trillion (2018 number). They talk about how awesome a CAGR of over 10% is. And how virtual events are the new trend and might accelerate that number even more. I’m thinking, “Hell ya, this’ll be epic.”
Then their product – the punchline… an app that streamlines coffee service at events in 2020. While this may or may not be an exaggeration, many startups find their pitches in a similar format. On one end, as a founder, you want to tackle the biggest market you can – to attract investors hoping to make large returns. On the other end, you want to be realistic with your expectations, as well as your investors’. Often times, it’s a fine line. I get it, which is why I suggest approaching market-sizing from the angle of pragmatic optimism.
The GTM strategy
After you share such a lofty goal, the inevitable question comes along: “What is your go-to-market (GTM) strategy?” The usual answer is some permutation of the below:
Google/Facebook/other ads,
Get it on the App Store (and/or Play Store),
(Pay for) SEO,
Hire a C_O (fill in the blank)
Hire a growth hacker,
Or more engineers, or for that matter, anyone,
We were hoping you (the investor) could help us with that, once you fund us. 🙁
But who are we kidding? No one. While none of the above answers are unilaterally incorrect, all the above show characteristics of someone who isn’t a hustler, who isn’t scrappy, and who probably isn’t one to scale a business. A pitch deck is designed to be short. I get it. There’s a lot you can’t fit on to it. But I’m not alone when I say this, we want to see the why and the how behind the what. A bit of Simon Sinek‘s two cents – start with why.
Why are you hiring more people? To do what?
Why did you choose Google over Facebook ads? Over Reddit, Instagram, Tiktok, you-name-it ads? Over traditional billboards?
What is the end goal?
What is the core metric you’re optimizing for? In the near term? In the long term? Before your next fundraise?
Just to be clear, just because a founder approaches market analysis from a top-down approach doesn’t instantly disqualify him/her. But it is a red flag. That’s why I’m a huge proponent of bottoms-up market-sizing.
Bottoms-up… and Cheers!
How many customers do you plan to have by the end of this year? By the end of next year? The year after?
How much do you plan to sell your product/service for? How will customer acquisition cost (CAC) get cheaper over the next few years? What will you need to do for CAC to get cheaper?
Eventually, you build out this road map of what the next few quarters and years will look like. You, effectively, plot out, here are the next few milestones we need to hit as a team. And those milestones are quantifiable and actionable – a clear sense of direction for your team and for your investors. Of course, as any road map goes, all subject to change depending on the situation.
In closing
Just like a great joke, you, the founder, need to be capable of delivering the punchline in your pitch deck. The build-up is the problem in the market and the world-class team you’ve assembled, as well as why it means so much to you. The punchline is the solution you’re building. Always, make sure your punchline delivers.
It’s relevant to the rest of the (comedic) routine.
When it hits , it’s at the minimum, satisfying, as a climax. At the maximum, like a world-class punch, it knocks the wind out of your audience.
In the words of Robert McKee, a Fullbright Scholar who’s coached over 60 Academy Award winners, 170 Emmy recipients, among numerous others,
“At story climax, you must deliver a scene beyond which the audience can imagine no other.”
Your punchline, your product, by the time you deliver your pitch’s climax, must deliver a utopia beyond which your investors can imagine no other.
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There’s a saying in venture that: “A-players hire A-players; B-players hire C-players.” Your ability to grow a business is often closely correlated with your ability to attract and acquire talent. But what does it mean to attract and hire world-class talent? Especially for functions you, as a founder, yourself may not be an expert in.
“A-players hire A-players; B-players hire C-players.”
How does a first-time founder how to vet a seasoned sales executive? Or on the flip side, how does a non-technical founder learn to differentiate a good AI engineer from a great AI engineer?
While even the best founders, leaders, and managers make hiring mistakes, hopefully this post can act as a reference point as to what to look for. And while I have yet to master the craft, I’ll borrow 5 lessons from some of the best that has served as a guiding principle for me and for some of the founders I’ve worked with.
5 Lessons from 4 of the Greatest
Hire passion; train skill.
Desire/obsession > passion.
And, the ephemeral nature of passion.
Hire VPs who can hire.
Attract and hire intentionally.
On building trust.
On scaling yourself.
To hire your best complements, ask people in your network 2 questions.
I hear so many founders in their pitch decks say: As soon as they raise funding, [blank] will happen. [blank] could be: hiring that CTO or lead developer or an operations lead, getting to X0,000 users, or going “all in” on growth (often heard as Facebook and/or Google ads). That line by itself really doesn’t mean much. So I always follow up, with: “How do you plan to achieve [blank] milestone after you extend your runway/receive venture backing?”
Then this is when I start thinking, “Oh no!”, especially as soon as I hear, after I partner with X investor, they will help me do Y, or worse, they will do Y for me.
And I’m not alone. So, what signals does that response give investors?
Alright, Investor A, I’m planning for you to do the legwork for growing my business.
I don’t know what I’m doing, but please invest in my naivety.
I haven’t thought about that problem/milestone at all, and I’ll worry about it when I get there. So, take a big risk in me.
Why I love athletes, chefs and veterans
There is no white knight in shining armor when you’re raising a round.
This is the reason I love athletes. And for that matter, veterans and chefs, too. Each of them chose a career where they are forced to deal with adversity. Personally and collectively. To a level, most of us might call inhuman. While I’m sure I’ve missed many other industries that also sponsor such arduous growth, and yes, I know I’m generalizing here, these 3 industries seem to have a higher batting average of producing individuals who can find the internal grit to overcome almost any obstacle.
“They’ve trained themselves to be better at doing things that are hard.”
While he wasn’t necessarily talking about professional athletes, chefs, or veterans, the same is true. The people who are better than you at doing something don’t have it any easier than you do. Rather, they’ve developed a system, or mental model, that helps them conquer extremely difficult obstacles. And because it’s become muscle memory for them, it seems easier for them to accomplish these goals. At the same time, we should never discount their blood, sweat, and tears, or what some of my colleagues call scar tissue, just because we cannot see them. It’s why we in venture call startups “10-year overnight successes“.
To founders
Bringing it back full circle, a great founder (as opposed to a good or okay founder) never completely relies on an external source for the growth of their company. By the same token, a great founder also never blames the failure of their startup because of an external source. A great founder – regardless of the business’s success or failure – learns quickly to not only repeat the same mistake again, but also develop insights and skills to push their business forward. While you as the founder isn’t required to be the best in the world of a particular skill, you will need to practice and accel at it until you can find the best in the world. But to hire the best in the world, you also have to be reasonably literate in the field to differentiate the best from the second best.
The solution
Here’s what investors are looking for instead:
We’ve thought about the problem. We’ve A/B tested with these 3 strategies (and why we chose each strategy). Numbers-wise, Strategy B proves to: (a) have the most traction, and (b) is most closely aligned with our core metric – revenue.
Here are the 2-3 core milestones we plan to hit once we get this injection of capital. And we will do what it takes to get there. In order to get there, we’ve thought about hiring an expert in operational efficiency and purchasing these 5 tools to help us hit these milestones. For the former, here’s who we’ve talked to, why we think they’re a perfect fit, and what each of their responses are so far. For the latter, each tool in this short list can help us save X amount of time and Y amount of burn. Do you think we’re approaching these goals in an optimal way?
Note: The signal you’re giving here is that you and your team are results-/goals-oriented, while the process of getting to those goals are fluid and stress-tested.
In both cases, you’re showing your potential investors that you’ve done your homework already (versus a Hail Mary). But at the end of the day, you are open and willing to entertain their suggestions, which, ideally, come with years of experience in operating and/or advising other founders who have gone through a similar journey.
So, stay curious out there! Always question the seemingly unquestionable!
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The other day, I saw a post on r/venturecapital (and now you know what my Reddit handle is) asking how prospect theory relates to venture capital. Admittedly, quite thought-provoking! Ever since college, I’ve been a huge behavioral economics buff – how human psychology dictates market motions. And, prospect theory happens to fall in that category.
First developed by Daniel Kahneman and Amos Tversky, prospect theory is a behavioral model that says humans are naturally loss-averse. Oh, you might know the former Nobel Prize bugger from authoring Thinking, Fast and Slow, a book I highly recommend if you’re curious about the intricacies of how our brain understands the data around us. Simply put, we react stronger to losing something than when we gain something.
*As you can see, this graph is safe for family-friendly programming
For example, I’m more likely to feel the loss after losing my $1500 cellphone than the ephemeral gain of winning a grand and a half in the lottery. On one end, you’re probably thinking that makes sense. On the other end, you’re probably calling me a loser for spending so much on a cellphone. Well, joke’s on you. I got my phone for $250 on Black Friday. But I digress. In another instance, if you look at kids, they’re more likely to throw a tantrum if you take away a marshmallow on their plate than give you a hug for giving them an extra marshmallow.
Similarly…
As you might expect, prospect theory informs many of my investing/sourcing decisions, including:
So, you’re probably now thinking: “Gimme the deets.”
While prospect theory suggests people typically weigh the impact of their losses more than they so their wins, VCs are humans at the end of the day. Just like your amateur naive stock trader will hold on to losses, and sell their wins, many VCs tend to do the same, as a reactionary measure.
It’s counterintuitive. But the name of the game in early-stage investing is not about how many losses you’ve sustained (especially when 7 out of every 10 go out of business, 2-3 break even, and hopefully 1 makes it), but about the magnitude of the wins an investor makes.
For instance, if you’ve invested in 100 companies, and 99 go out of business, and 1 makes 200x, you just doubled your fund. Of course, a successful fund typically makes 3-5x cash on cash multiple. Just our fancy way of saying your fund returns $3-5 for every dollar invested by a limited partner (LP). Although there are some nuances, many VC investors use cash on cash and multiple on invested capital (MOIC) quite interchangeably.
Guess for you to be counted as a successful investor, that one investment’s gotta go to 300x, at the minimum. In reality, you’re probably not going to have just one investment perform. Especially if you’re in the top quartile of VCs out there. You’re looking at a ~2.5% unicorn rate. So 2-3 investments of your 100 investments should be valued at over a billion dollars. Unless you’re Chris Sacca, who I hear returned 250x cash on cash for his first $8.4M seed fund, which included the likes of Uber, Twitter, and Instagram.
Of course, larger funds are harder to return. It’s easier to return a $10M fund than a $1B, much less a $100B. While I’m not supporting the only $100B vehicle known to date, the losses that fund sustained made the front page news a while back. And though by monetary value, they lost more than most other funds out there. Percentage-wise, they’re not alone. But in the public and media’s eyes, their losses are weighted more heavily than smaller funds.
In closing/Disclaimer
But hey, I’m no registered investment advisor. If you’re looking for which specific startups to invest in, please do consult with a professional. While I may share what startups have attracted my attention here and there, my thoughts are just my own thoughts. And, this post is merely me sharing the correlation between venture capital and prospect theory, plus a few digressions.
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Last week, my mentor/friend asked me if I knew anyone who’s stellar at storytelling and would be willing to hold a 1-hour workshop about it with his mentorship group. I connected with my buddy who earned his chops podcasting and being a brilliant customer-oriented founder, specifically on the user journey.
And it got me thinking. Hmmmm, I wonder how long people take to prep for a workshop or talk designed to inform and educate. Which eventually led me to the question… How much time allocation might many event hosts underestimate when asking a speaker to speak at their event?
Well, outside of travel, set up, rehearsal time, and of course, the length of the talk/workshop itself.
So, over the last few days, I reached out to 68 friends, mentors, and colleagues who have been on the stage before, including:
VCs – who invest out of vehicles that range from $5M to $1B (sample-specific)
Angels – investing individuals, who have over $1M in net worth
Founders – both venture-backed and bootstrapped
Executives – Fortune 500 and startup
Journalists
Influencers – YouTubers and podcasters
Consultants/Advisors
Professors
And, those who’ve been on public stages with 1000+ in live viewership.
… and asked them 2 questions:
How long, in hours, do you take to prepare for a 1-hour talk?
For the purpose of slightly limiting the scope to this question, let’s say it’s on a topic you’re extremely passionate and well-versed in, and the audience is as, if not more, passionate than you are.
And if I said this was for a high-stakes event, that may change your career trajectory, would your answer change? If so, how long would you spend prepping?
50 responded, with numerical answers, by the time I’m writing this post, with a few results I found to be quite surprising. *pushing my nerd glasses*
And I’m in complete accordance. I want to specifically underscore 2 of Michael’s sentences.
… and…
The only ‘exception’ to this ‘rule’ would be if investors themselves were the target market for the product. At the same time, I can see how the venture industry has led her and many others to believe otherwise. So I thought I’d elaborate more through this post.
I recently read Mark Suster‘s 2018 blog post about startups on “Remind me why I love you again?”. As an extremely active VC, he specifically detailed why, unfortunately, by meeting 2, 3, and so on with a founder, he may forget the context of reconnecting and why the founder/startup is so amazing. And, simply, he calls it “love decay”.
Mark Suster’s graph on ‘Love Decay’
The longer it has been since a VC/founder’s last meeting, the harder it is to recall the context of the current meeting. Though I may not be as over-saturated with deal flow as Mark is, it is an unfortunate circumstance I come across in meeting 5-10 founders and replying to 100+ emails a week.
Over the weekend, I was brewing up some mad lemonade. ‘Cause well, that’s the summer thing to do. Since I’m limited in my expeditions outdoors, it’s just watching the sun skim over the horizon, blossoming its rose petals across the evening sky, in my backyard, sipping on homemade lemonade. If you’re curious about my recipe, I’ll include it at the bottom of this post.
Thomas Keller. An individual probably best known, among many others, for his achievements with The French Laundry. Needless to say, I was enamored by his talk. But the fireworks in my head didn’t start going off until the 12:46 mark.
