Buy Right.

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Bill Sahlman and Joe Lassiter deserve to be enshrined at Harvard Business School. Choose any entrepreneur or VC across the country and ask if they know one of the two - if he went to HBS odds are that he does and that he sought out advice from one of the two at one point or another. Bill and Joe helped bring the education of entrepreneurial finance to a generation of graduates. For those lucky enough to take their classes, it informed decisions for decades.

Despite the fact that I think about their lessons in entrepreneurial management regularly, one idiom echoes in my head more than any other. Every day, I find myself repeating - "Buy Right, Operate Right, Sell Right."

I remember the first time I heard it. Joe Lassiter was finishing up a class on raising and managing a Search Fund (a financing vehicle that would help young operators find, acquire, and ultimately operate businesses). The case used to teach the class was about the acquisition of an industrial company that made components used in military trucks. Despite the business being operationally complex and traditionally low margin, the entrepreneurs in question managed to buy the company for a fairly low price prior to the 2001. After the US entered Afghanistan and Iraq, volume grew enormously, helping the company make a pretty penny for shareholders.

After chronicling all the challenges in the industry, all of the trials and tribulations of the former operator, I remember Joe Lassiter telling us that we always needed to “Buy right. Operate Right. Sell Right.” And he went on to say that the only thing we could control at the beginning of an entrepreneurial journey was buying right. The two alumni who had started the search fund in question did that. They bought at a low price and rode a tailwind upmarket.

In Silicon Valley, we don’t spend a lot of time talking about industrial businesses. But despite our obsession with rapidly scaling software businesses, those unsexy, lower growth, businesses offer some critical insights. In this case it was that investing in businesses is a actually a fairly rational thing. You can plan for all the synergies in the world. You can forecast out incredible growth. You can model out any number of exit scenarios. But when it comes to investing in businesses, the only thing you can be certain of at the beginning of the journey is your entry price. If you control it well, the benefits are enormous.

Despite the strange economics of software, this dynamic is always in play. Angels can make a pretty penny on an early acquisition if they buy right. Early employees can get screwed on options if they don’t. Buying wrong is what lets investors assemble funds full of big name logos but still yield negative returns for their LPs.

And although you can always grow into a valuation, if you buy right, you don’t necessarily have to.

Algorithmic Intelligence & Market Resillience

Every day the machines are getting smarter. Better tools for collecting, normalizing, and synthesizing insights from information are emerging everywhere. A decade ago, I remember thinking that recommendation panes on ecommerce sites were novel; the sign of an advanced player in the market. Now simple recommendations are easy to make and we constantly rely on software to make much more complex ones.

The promise of these prescriptions is that every task in the world becomes slightly more efficient. Algorithmic prescriptions are designed to help us make better decisions about where to save our money, what materials to use when we build things, who to hire, how to interact with each other - the list goes on.

But even as a devout supporter of the gains that computer aided decisions will bring, it's important to look for some of the risks. Recently, I've been thinking about one in particular; risks to resilience.

Our situations come about based on a complex system of actions. When we walk into a grocery store, the price we see for a basic food is the result of many farmers looking at weather and soil data and interpreting it differently. Some farmers will vary their crop varietal, others will choose different seeds for the same crop, and still other will manage their use of chemicals and fertilizers differently. At the end of the whole process, the best interpreter of information will likely make the best decisions (and therefore the most profit) in the market. But what we see when we walk into the store is a result of all that chaos.

In this world of disparate predictions, any individual participant might stand to benefit from behaving like the best forecaster in the market. Everyone wants to pick stocks as well as Warren Buffet. And the promise of algorithmic intelligence is empowering each and everyone of us to make decisions as well as the best in our markets. The risk, however, is that everyone will be making the “optimal” decision based on imperfect information.

Unfortunately, in a world of unknown information, it’s impossible to make the “right” decision all the time. The world will throw curve-balls your way. It could be an asteroid, a new disease, or something as simple as a cold snap. Invariably, the best forecasters are wrong. And it’s those situations where we’re thankful we had other people making different decisions based on similar information.

Consider this example. Let’s say growers discover a strain of rice that yields 50x more per acre of alternatives in 99.9% of years. Planters around the world would likely swarm towards producing that variety of rice over any number of alternatives - it has an obvious advantage. Then, imagine that a disease hits that strain. Global rice production could be devastated. Depending on how many people flocked to rice production, global food production overall could be devastated. All because farmers made a very rational decision to optimize their operations.

In the real world, we very rarely see these types of situations where one choice is so much better than another. The example is hyperbole at its best. But it's indicative of a significant point: Variety adds to resilience. And optimization reduces variety.

My worry is that even as we become better at accurately forecasting the world’s future state, our attempts at optimization could decrease our resilience. We get more data about the world by connecting up our devices, monitoring our production output, and measuring everything in between. But at the end of the day, we don’t have perfect information. Which means our predictions can’t possibly be perfect. 

But if human decision makers are all entrusting operations to similar data science, we will rationally turn towards similar behavior. Not the ideal position to be in when things go wrong. In this future, will we be less resilient than before? I’m definitely not one to spend money on bomb shelters, hoard canned food, or even learn to hunt. But if there ever is some sort of disaster, I’d be glad someone had made that decision. And in that case, I'd certainly be disappointed if the algorithms made all those bomb shelters and food stores disappear.

For those of us helping guide the world toward a data driven future, these are important questions to keep in mind. How to we help direct our customers the right way and still ensure their markets benefit from the resilience they’ve had in the past? I don’t know the answer, but I do know it’s a question worth grappling with.


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The Difference Between Value and Valuable

A few weeks ago, Fred Wilson mentioned that Google was the most important company in the world. He caveated that Google may not be the most valuable company in the world, but that doesn’t preclude them from being the most important. Since that time, I’ve been thinking about the distinction.

The more I consider it, the more important the distinction seems.

Google is a business worth more than 400 billion dollars. In that sense, it’s valuable. The financial worth of the organization today is derived primarily from its advertising business. And while we all enjoy being prompted with recommendations before we even realize we need them, many of us derive the most value from activities that don’t make the company significantly more valuable. Google creates value in the world by extending productivity software at near zero costs through Google Documents. Google creates value in the world by supporting ubiquitous internet access. Google creates value in the world by investing in driverless cars, modular phones, and novel medical technologies.

Even if Google never turns its ancillary activities into businesses that generate significant cash flows for its investors, they will have created enormous value.

As a venture investor and former founder, this difference between value and valuable couldn’t seem any more striking. Every day I meet with hungry entrepreneurs - the vast majority of whom are truly passionate about making a dent in the world through the companies that they’re building. All of them are dedicated to creating value. When I was a founder, I was one of them. The challenge on the other side of the table is respecting their drive to create value in the world and also looking for young companies that can be valuable.

Despite a desire to invest in every world changing organization, venture capital firms succeed or die based on delivering valuable portfolios back to their investors. If the impact of an investment can’t be boiled down to dollars and cents, they can’t be used to raise subsequent funds. So while VCs certainly want to invest in companies that create value, the prerequisite is that they will be “valuable” in the future. Value-ability precedes value creation.

So the question for entrepreneurs is what makes a company valuable? The short answer harkens a required text in every MBA student’s first year strategy course: competitive advantage. But what does that mean?

How to create a valuable business:

Economic theory suggests that in a world of perfect competition, no business will stay profitable for too long. The thinking is that if you - the entrepreneur - discover a new profitable way to solve a problem, others will quickly enter the market and replicate your strategy. As more people enter the market, competition will cause prices to drop or increase the level of investment to acquire customers. The thinking is that profits won’t exist at the end of the process.

You can surmise pretty quickly that we don’t live in a world of perfect competition. Google, Apple, and Microsoft are just a few examples of companies that have created and sustained advantage over an extended period of time. Sometimes building this competitive advantage comes from creating a complementary set of replicable activities inside your firm -- forcing others to recreate your business exactly in order to compete with you (the Southwest Airlines model of competition).

More often in the world of technology, building and sustaining competitive advantage comes from the characteristics of your product itself. When your business creates exceedingly strong network effects, when you maintain intellectual property, or when you have access to asymmetric information, you put yourself in a position to continue outperforming your peers over time. In the words of Brian Arthur, your business puts itself in a position for increasing, not diminishing returns. For example, Apple’s sustainable advantage comes not just from its focus on design but by getting you to put its computing device in your pocket and helping you grow accustom to an app ecosystem for its operating system. As more and more people adopt its infrastructure, it becomes more compelling for app designers, and makes it more difficult for others to enter the market and create price pressure.

Knowing how a business will build increasing returns is critical for figuring out how valuable a business might be. Investors are constantly asking questions about defensibility, cost of customer acquisition, network effects, and switching costs to glean exactly how all this works. It’s not enough to create value for your customers. Because if it’s easy to replicate your model for creating value for your customers, you won’t have much bargaining power when it comes to price and profit. To create a valuable business, you need to solve a big problem in a market where there are buyers waiting - but you also need to do it in a way that is defensible over time.

Why building a valuable business isn’t necessarily the goal:

As an investor, I’m constantly looking for companies that can be extremely valuable. But as a resident on planet Earth, I’m constantly hoping that startups and big companies alike find ways to create real value. Traditional venture funds might not be structured to invest in moonshots, but I’m enthusiastic every time I hear about a new project in the vein.

There are certainly companies that are both creating value and becoming valuable. Facebook is investing in ubiquitous connectivity through drones. LinkedIn is helping to solve unemployment issues amongst veterans. SpaceX is trying to get us to Mars. But creating value at the expense of being as valuable as possible might require making tough decisions. SpaceX is trying to stay private in order to execute on its mission of getting us to Mars, despite its strong profitability. It could IPO, but it’s shareholders would likely push to minimize Mars research. Personally, I’d rather have those brilliant minds focused on the audacious goal of getting to Mars. If population growth continues to push us toward the inevitability of becoming a spacefaring people, the whole planet will look back with gratitude towards the team regardless of how valuable SpaceX becomes. But that’s a question of creating value, not becoming valuable.

Investing in valuable businesses is the goal of investors who’ve signed up to steward capital from people’s retirement accounts. But it’s important that innovators remember that building a valuable business isn’t necessarily their goal. The Bill and Melinda Gates Foundation might not be an investable institution for most people, but it is more important to the world than any startup in the valley at the moment.

Building a valuable business is not the goal in and of itself. I hope people continue to do the bold, audacious, things that create value - even in the absence of becoming “valuable.” The world would be a better place for it. And that’s important to remember.

The Era in which Everyone Builds the Same Thing

Today, the WSJ featured an article on Slack and Facebook each delivering software that would deliver a semblance of artificial intelligence for use in productivity applications in the office. The article highlighted two companies - but Google, Microsoft, Apple, and IBM are all investing heavily in similar platforms.

Much like the wave of companies investing in autonomous vehicles, the winners in AI will be able to transform a plethora of markets. The implications are vast once software is capable of understanding your situation, your desires, and how to drive outcomes.

It's no surprise that tech companies are investing in the area. But what is interesting is the sheer number of tech companies investing in the space. While there is a great deal of speculation surrounding drones, virtual reality, and 3D printing, there is far less capital being deployed by the big guys. When it comes to artificial intelligence, CTOs are voting with their manpower.

This brute force being used by the world's tech titan's to crack the AI puzzle seems like the best indicator we have that AI is on its way - and that it will be transformative. When we figure it out, hopefully we use it well.

The Possibility for Outrageous Failure

The startup industry is highly insular. Even if you ignore the homogenous composition of IT (mostly affluent, white, educated, men), the conversation inside the industry often sounds like an echo chamber for the key buzzwords of the day. This much should be clear even to those that only dance around the periphery of the market. 90% of the companies investors are talking about these days have the same key descriptors; they’re marketplaces, on-demand services, SaaS, mobile first, etc.

Over the past few weeks, I’ve been traveling. I disconnected from the startup scene and was able to retreat into a number of books on business history. Not about information technology, but books about the evolution of other major industries. Agriculture. Transportation. Global Logistics.

Their histories are all quite different. But one striking similarity stood out among them all. The most dynamic changes within each stemmed from entrepreneurs and investors setting out to accomplish something, despite an enormous possibility for outrageous failure.

The innovations that reshaped industries weren’t clear cut. Rational human beings could easily question the decisions. And because they could be so easily objected to - the biggest winners required crazy, bold, audacious investments of time, capital, and human intellect.

It makes sense. If everyone is running towards one opportunity, it’s not poised for out-sized returns in that space.

Warren Buffet has famously stressed for folks to be greedy when others are fearful. Clay Christensen has cautioned that profitable markets face the greatest pressure towards commoditization. Even inside today’s tech landscape, we have Peter Thiel appropriately pointing out that there is only likely to be one Google, one Salesforce, one Facebook, one Uber, and so on. The next conquerors of industry are likely to arise in surprising spaces where there isn’t a clear opportunity.

The biggest victories in our industry have illustrated this style of counter-intuitive thesis. Emergence Capital is a firm built on investments in cloud software during an era of complete disillusionment with the cloud. Y-Combinator is an institution built on a bold bet that mentorship and education would provide much greater value in the early stages of startup life cycles in the future. Founders Fund has returned its investors capital by investing in spaceships and electric cars. All highly questionable theses at their onset. But all theses that have shaped today’s landscape as they proved true.

But still, 90% of the conversation in technology focuses on known buzzwords in proven markets. Seems like a strong indicator that 90% of these conversations are irrelevant.

Wouldn’t it be nice if, instead of a constant fear of being wrong, people started articulating bold and counter-intuitive positions about the future? Speculating on a future that might be wrong… but could be right. It seems that conversation would help us hone in on the world changing propositions a lot faster.

Two Questions that Separate Seed and Venture Investing

This evening, I had a conversation with a close friend building a great business. We were talking about his growth and the company’s current operations.

My friend’s business is growing efficiently but slowly. He’s keeping his burn low and avoiding unnecessary costs as he demonstrates that he can build something pretty phenomenal, using the customers he already has. Unfortunately, when he goes and speaks with venture capitalists about upcoming rounds, they’re skeptical. They’d like to see him demonstrate that he can make some maneuvers to grow even more rapidly.

It’s a more common complaint then you’d imagine. Early in your business’ lifecycle, all you care about is building something that can last. Your early investors harp on you about product-market fit and your constantly terrified of running out of cash. Then, all of a sudden, when you’ve found your product market fit, you start getting asked about growth. People start worrying that the business isn’t scaling as fast as they’d like.

As someone who has bridged seed stage and venture investing (however briefly!), this is an issue I can identify with. When I deal with seed stage businesses, I am often thinking about their viability. Is there a market for them to exist at all? When I am dealing with businesses that figured out there is a market for them to attack, I start thinking about whether they can capture it. One is a theoretical question. The other operational.

For entrepreneurs, the best way to identify with investors is by understanding how they are approaching issues. When you’re early, your investors are asking:

Can you build something people want?

Building something that people want is not a question of efficient use of capital and timing. Assuming that a problem goes unsolved, and your solution is good enough to drive adoption of a new “thing,” then building something people want is rather binary. Either you deliver something great or you don’t. Early stage investors often get involved with businesses before this is established. In order to succeed, they need their entrepreneurs to create great product.

Not running out of cash is an important thing. But running out of cash is inevitable. And growing rapidly is a luxury their entrepreneurs can only afford once they deliver product that is truly differentiated.

If a team is in the right market, with compelling technology, just executing on the building something that people are willing to buy is good enough at the earliest stage of investments.

When you’ve established that you are building a product that could see some real adoption, the biggest risk to your business comes from an inability to execute. The biggest question becomes:

Can you grow the business that provides things people want?

Growing a business is a very different challenge that building something that people want. Growing a business means competing with all the other folks who will copy you. It means spending capital effectively and judiciously, but knowing when to turn the burn up to capture growth efficiently. It means dealing with people issues, negotiating partnerships, and dealing with the mundane reality of things like accounting, legal, and financing.

Once you’ve proven that you have something people want, investors immediately identify these risks as those that pose the biggest challenge to your business. Can you actually overcome the barriers in front of you. At this point, your business is no longer binary. It’s worth something - you’ve proven that. But it’s only worth a lot if you can take it and scale. The faster you can build something big, the more it’s worth to investors. The faster you can build something big, the more likely you’ll see returns in the short run.

It’s here that a lot of early entrepreneurs fall down. After months or years of being questioned on the merits of your idea, this is the point where people start questioning you about things like scaling more rapidly. To your investors, all of a sudden, it makes a difference that you’re growing 6% a month instead of 12% a month. It seems crazy to you at first... but when you dig into the numbers you might realize that change makes the difference between building your revenues by ~4x and ~8x in 2 years. When you’re investing in a real product, those differences matter. And testing that your entrepreneurs can deliver against those slightly higher numbers is critical.

Once you’ve de-risked your business from a product market fit perspective, this becomes a big deal fast. As entrepreneurs, at this point it becomes your job to back solve into the numbers you need to deliver and figure you how you can create a plan to get there.

The challenges of operations before and after establishing product market fit are very different. But the change happens on a dime. It’s often hard to prepare for inside the company - luckily or unluckily, the investors you turn to for new rounds of financing will remind you of this fact. As an entrepreneur, it’s important not to be caught out of the blue by this. Building a great company is a marathon. As soon as you tackle one challenge, you’re off to the next. Product market fit is important. Scaling quickly and efficiently is too. Be ready to create that growth plan and execute against it. Have a hypothesis about the numbers you need to hit to be appealing in new financing rounds relative to your peers. And then make sure you create a plan to get you there.

If you don’t, you’re planning to answer one critical question, but not the other.

The Moral(e) Danger of Value Inflation

Times are frothy. No one doubts that valuations of startup companies are rising rapidly. In many cases value inflation is causing companies to see prices rising more rapidly than operations justify. But it’s a sellers’ market, and no one can fault entrepreneurs for stuffing their coffers while they can. Capital is ammunition to help attack new markets and grow rapidly. When it’s readily available it behooves you to consider reloading.

However, it’s not all as simple as that.

Recently, I’ve gotten fairly close to a few folks at a company that had raised quite a sum of cash some 18 months ago. At the time, the new investors in the deal were willing to offer an ambitious valuation. They just wanted in. They offered a valuation that the company could grow into.

The good news is that over the past 18 months, the company has grown into the valuation. The bad news is that all they did was grow into the valuation. As the company has depleted its reserves, new investors have balked at offering a meaningful step up in valuation. They’re willing to participate - but only at a marginally higher price than what was offered a year and a half ago.

Normally I wouldn’t write about fundraising during times of value inflation. It’s an over-covered topic and seems somewhat self-serving for venture capitalists. However, I do believe there is a little talked about facet of fundraising that runs the risk of derailing companies in today’s market.

Namely, a perverse incentive problem for early employees.

In public market finance, there is a pretty well known issue of generational discrimination. You and I, as fellow neighbors, might have an incentive to write other communities IOUs for decades - spending far more than we bring in. We might also die before it comes time to pay the bill. Unfortunately, in this scenario, we might have also saddled our grandchildren with insurmountable debt that they had little to do with creating. This behavior is known as generational discrimination and it’s pretty common.

Raising money on too high a valuation, too early, creates a similar problem. Early employees, founders, and investors always have an incentive to get the highest valuation as quickly as possible. If you’re going to raise 10 dollars, you’d rather raise 10 dollars for a company worth 990 (effectively selling 1%) than for a company worth 90 (effectively selling 10%). As a part owner of the business, you want to preserve your stake. You enthusiastically seek out higher and higher valuations to ensure that your dilution is minimal. And in a market like today’s, you can find those exceedingly high valuations rather easily.

The challenge is that once you’ve closed a deal, you saddle new employees with options at the current round’s valuation. If you grow phenomenally, this process works out fine.

If you just grow well after closing a round at a valuation you can’t really justify, it’s more difficult. In that situation employees will find that their hard work, great product development, and strong sales growth doesn’t translate into rising valuations. New employees become frustrated that good performance doesn’t translate into shared upside in your business. How can it? When you’ve raised on a valuation you can’t justify and can only grow into, you’ve already taken that value off the table.

The reality in that situation is that the early generation of investors and employees have preemptively captured the value yet to-be-created by your newest recruits.

In the case of the company in question, people are frustrated and defeated. Morale is low and dropping every day. If they’re not looking already, employees are thinking about leaving. Even though, from the outside, it looks like a great operation.

Great leaders ensure that when the ocean level rises it lifts all ships (old and new alike).  In today’s market, that’s harder than ever. It’s easy to track down enthusiastic investors willing to pay steep premiums to get into some rounds, paying meaningful premiums to be there. The challenge is making sure that you avoid unintentionally taxing future employees. You need your future employees to be happy and motivated. They’re going to help you build a great company. So make sure that you keep them in mind when you raise your next round.

Broad or Deep in the Shovel Business

It’s a gold rush. No doubt about it.

In the last few years, the number of people opting to build their own startup has grown dramatically. A quick cut of Crunchbase data suggests that outside of California, the number of firms starting-up and finding seed funding grew by almost 700%.

There are plenty of structural reasons for this change. Over the past 25 years the internet has begun to come into a period of relative maturity. The promise of the late 90’s is finally a reality with a good deal of global infrastructure in place. Now more than 40% of the world’s population is on a relatively standard and stable communications infrastructure, allowing entrepreneurs to build digital services that can rapidly affect the lives of billions.

But the change is also cultural. Startups are cool. Entrepreneurs have displaced rock-stars in the minds of many of today’s youth. And many clamor after the pot of gold at the end of the rainbow (a fact we can derive from the swathes of Harvard MBAs heading to Silicon Valley in record numbers).


Without judging the reasons for the gold-rush or taking a position on its sustainability, its easy to agree that it’s underway.

And in any proverbial gold-rush, there is one easy way to make money; sell shovels.1

Selling shovels means delivering critical infrastructure for those attempting to strike it big. And given the massive shifts how we develop applications today, the rapid changes in our macroeconomic environment, and the proliferation of new business models, there is plenty of new infrastructure to be delivered.

Some of the beneficiaries of the second Internet-boom’s shovel selling strategy are already established. For example, AWS is growing substantially on the back of not just enterprise customers but any business looking for infrastructure at scale. Twilio is delivering the critical communications infrastructure that underpins companies like Uber and Opentable. Sendgrid is powering an ever growing array of applications that send you automated emails to confirm purchases or application registrations. But there are many others as well.

Recently, however, I’ve been doing a lot of thinking on this topic with Roy Ng over at Twilio, David Badler from SAP, and a bunch of my teammates at Sapphire Ventures.

While there are an immense number of new opportunities in shovel selling, there is also an increasing risk that the types of projects being undertaken can’t sustain meaningful scale. As many of the core pieces of digital infrastructure start to solidify, many young companies have sprung up building out much more niche solutions; services that enable a much smaller market to flourish. The risk to the entrepreneurs in these spaces is that they think they’re starting a shovel business, when they’re really delivering left-handed pickaxes optimized for miners with vertigo. Something that’s necessary for a few - but won’t support growth.

In attempting to come up with a better framework for entrepreneurs, I find it important to consider two ways a “shovel” strategy can provide the foundation for something great. By delivering something that goes broad or goes deep.


  • A service that goes broad, can deliver value in a variety of circumstances. VOIP, for instance, can be used to enable everything from call center operations to food delivery services. Many of the vendors that developers know today are broad. A developer thinks of AWS, for example, every time they build a new application.

    The challenge with breadth is that the flexibility needed to be broad often requires sacrificing personalization. AWS might be flexible, but it’s not perfect for business data - hence the success of This lack of specified capabilities results in commoditization and price pressure. Companies that win with broad “shovel” services understand this tradeoff - focusing on constantly delivering great product at competitive prices.


  • Deep services are those that deliver against critical and specific business process. Checkr, for instance, automates background checks and security screening for on-demand service vendors. If your value proposition is in providing reliable on-demand service, the decisions you make around in-sourcing or outsourcing that screeding capability become core to your business.

    This criticality makes deep services sticky, enabling entrepreneurs to wedge in additional products. For instance, Square has such incredible attention because there is a strong belief that once they’re in the door as the POS provider, Square will be able to provide a bunch of other related services to small retailers. Micros has proven that it’s not so easy to rip out your POS system.

    But the challenge to deep services is two-fold. First, not all services are really sticky. In a world of APIs, it’s easier than most think to replace commodity software. Second, vendors offering deep services to a small number of customers run the risk that those customers will decide to home-grow capabilities for even better configuration.

Since depth and breadth ultimately enable a company’s ability to grow, being thoughtful about how you stack in a shovel business is critical. Companies with broad and deep solutions are few and far between (and most of them didn’t start that way). Companies with a broad strategy need to be the rails, thoughtfully enabling a massive wave of transformation for a wide variety of customers. Companies with a deep approach to the market need to be thoughtful about how they wedge in new products. How can they land some meaningful customers and slowly add incremental services to grow their revenues in a big way.


What entrepreneurs need to avoid is building something basic solutions for a small group of gold-miners. It’s here that you might find a number of early customers, but you won’t find sustainable growth. This is the gimmick. The flash-in-the-pan. The product that won’t scale. The acqui-hire, not the acquisition.

With critical infrastructure being provided daily, the number of obvious holes to fill in are diminishing. But there are still plenty of opportunities out there these days. If you plan on taking a shovel strategy, be considerate of which path you’re traveling and make sure that you go either broad or deep. Avoid being a flash-in-the-pan. Build something great.


  1. Or pick-axes in Chris Dixon’s words

A Refreshing Take on Identity

Yesterday, I had the great pleasure of attending the Azure Capital Partners CEO day in Mountain View. There were a lot of great discussions over the course of the event. However, one stood out in particular for me; a Yik Yak discussion on identity.

For those of you who don't spend much time in the social media space, Yik Yak is an application that has spread across Universities in the past couple of years like wildfire. The app allows people to communicate with members of their community who are nearby. But in a differentiated manner from other tools that offer social communications, Yik Yak built anonymity into the core offering. And for them, anonymity has worked. They've had extremely successful adoption across the university landscape, kept their conversations mostly positive and humorous, and successfully built a war chest from seasoned investors including Sequoia.

But Yik Yak's early success isn't what made the conversation so interesting to me. It was that their founders, Tyler Droll and Bruce Buffington, had a unique and refreshing take on identity.

Over the course of a 45-minute long fireside, Bruce and Tyler explained how Yik Yak emerged. They articulated a product that was designed to give everyone equal voice - and regardless of how you approached it, identity almost always impacted who had the most voice. On Facebook, your personal brand impacted how you expressed yourself and what you'd be willing to say. On Twitter, there was always the additional challenge of a unidirectional broadcast. Until you depersonalized the speaker, you couldn't equalize the contribution.

Until yesterday, I hadn't thought of the positive attributes of anonymity when it comes to conversation. Frankly, I've always seen apps that leverage anonymity instead of pseudonyms as foolish. Anonymity, in my mind, always had too high a risk of falling victim to misbehavior.

But now the wheels are turning. I actually believe that in a lot of situations, anonymity could be critical to empowering people to participate. With the right community management systems, values, and cultural norms, some powerful tools might emerge.

Start Breaking the Rules

Who was the last company that successfully out-designed Apple? The last company that out-overnighted FedEx? The last company that out-“everyday low prices” Walmart? The reality is that when a vendor pops up that outperforms a respected global business at what they do best, they are few and far between. It happens occasionally, but not often.

Why? Because it’s much more difficult to win a game when playing by the rules that the experts adhere to. It’s much easier to break the rules. The problem: too many builders expect to play by the same rules as everyone else. And when they do that they destin themselves for mediocrity.

To drive the point home, consider a more practical example. Let’s say you wake up stranded on a desert island. There is one, and only one way off the island; a bridge that will crumble after its first use. You’re there and Ussain Bolt is there. You know that whoever makes it to the bridge first just 150 meters away, will live. The other person won’t make it. Do you try to out sprint Ussain? Or do you step onto the conveniently located teleporter that will take you directly to the finish line?

Building businesses that can topple incumbents is all about playing by different rules. It requires building the teleporter. That’s the key to disruption, business model innovation, or any number of the buzz-words floating around the world of management these days. As someone setting out to do the impossible, you want to give yourself every possible advantage. You’ll never have the deep operational expertise and financial backing of the people you’re competing with -- so you need to ensure that the way in which you create value for customers is different than the way that others create value.

Often, competing differently requires walking away from valuable segments of the market. There was no way, for instance, that Amazon would have ever been able to provide the concierge experience that luxury shoppers required in the late 90’s. However, their virtually limitless selection enabled them to win the hearts and minds of budget shoppers and long-tail book lovers in a way that their incumbent competitors simply couldn’t match. For the race they entered, they broke the rules.

While we commonly associate this type of competition with digital disrupters, it’s not simply a byproduct of businesses native to the era of the Internet. Many industry stalwarts have carved their name in stone by doing things their peers believed unreasonable. Take the following list of companies that won their era by playing by different rules as an example:
  • Apple - Deeply integrated software and hardware in an era where everyone was modular
  • Southwest - Walked away from interstate travel to avoid federal regulation
  • Toyota - Abandoned I-Beam based car chassis to lower costs for small vehicles
  • Carmax - Ditched negotiated prices in a market defined by sleezy negotiations
  • Netflix - Offered unlimited rentals while their competitors sold 3-day rentals, one at a time
  • Dell - Determined that you didn’t need in-store distribution to sell an expensive computer
  • AirBnB - Rents world’s largest number of hotel rooms, without owning a hotel

If you want to do something great, break the rules. Care excessively about adding customer value, but don’t worry about industry dogma.