5-Bit Friday’s (#4): Weekly snacks from the startup/tech universe
On the 8 biggest mistakes founders make, the best sales deck ever, playing on Hard Mode, evaluating marketplace opportunities, and what the tech slowdown means for product.
Hi, I’m Jaryd. 👋 Every other week, I pick one company/startup you probably know, and go deep on their go-to-market strategy, how they acquired early customers, and what their current growth engine looks like.
+ every Friday — I bring you 5 short-form insights from the startup/tech universe. (this!)
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Happy Friday, friends! 🍻
Welcome to the fourth edition of our new series — 5-Bit Friday’s!
One month in already?!…flip, time flies. Well I can definitely say that I’m having a great time pulling together these insights and opinions from the experts for us.
If you enjoy getting these short-form snacks from the best entrepreneurs, writers, investors, product and growth experts, and operators — as well as discovering new sources for your information diet — consider subscribing if you haven’t yet, and perhaps suggesting How They Grow to somebody else who might enjoy these summaries each week. 🙏
And if you missed this weeks deep dive on Shopify — definitely check it out.👇
How Shopify Grows: Lessons on starting and scaling a B2B product from Shopify's $44b business-building platform.
Alrighty! Here’s what we’ve got this week:
The 8 biggest mistakes first time founders make — according to Michael Siebel
All markets are not created equal — 10 factors to consider when evaluating digital marketplaces
Facing the tech slowdown — and what it means for product teams
Let’s get to it. 🛝
The 8 biggest mistakes first time founders make — according to Michael Siebel
According to Y Combinator CEO and Partner, Michael Seibel, these are the biggest mistakes that he sees first-time founders making.
While there are of course exceptions to the rule, given how many startups he sees and works with hands-on — these give us pretty good aggregates.
[The timestamp takes you to the relevant spot in the video]
00:10 - Solving a problem you don't care about. “I see a lot of startups that fail, fail because the founders lose motivation to solve the problem. They picked a problem they thought people had, or thought would be cool to solve. But they lacked a deep connection to the problem.”
1:00 - Helping users you don't care about. This is similar to solving a problem you don’t care about. If you don’t really care about your customer, it will be hard to really empathize with them and be very customer-centric.
1:40 - Choosing co-founders you don't know well. “Starting a company is so hard. Having a pre-existing relationship helps make those tough times easier.”
2:20 - Not having transparent conversations with your co-founder. “There are very typical topics that create drama with co-founders, like performance, goals, and roles. Often times founders don’t have honest conversations about these topics and as a result, resentment builds up and the relationships degrades. You need to have open, honest, and well organized conversations.”
3:20 - Not launching. “When people think about launching, they think [of all these big events like getting press]. This makes them afraid of launching since they don’t think they are ready for this exposure. But launching is nowhere near as significant an event as it is to your users as it is to you.” The quicker you can get something in front of customers — the faster you can validate the problem you’re solving.
4:45 - Not using analytics. “We time and time again see founders not measuring what their users are doing on their product.” Having insight into user behavior is essential to building something great.
5:02 - Not knowing where your first users will come from. “If you pick a problem, you need to know who has that problem, which means you really should know where these people are.” Not knowing this shows a lack of understanding of the market, problem, and customer.
5:45 - Poor prioritization. “Often time people prioritize sizzle over steak. They focus on press instead of getting product out there in front of users. People like to pretend to be a startup, but the actual work of startups is building product, getting it into users hands, and seeing if they like it.”
⛏️ Source + dig deeper: The Biggest Mistakes First-Time Founders Make
The greatest sales deck ever — a simple 5-step framework
According to Andy Raskin, there are 5 elements to every compelling strategic story. And when you’re pitching anything to anyone, that’s exactly what you need to be doing.
Telling them a story.
A story of course can be told in many ways. If you’re like Christopher Nolan, you might start with the end first and make your way to the beginning. But, if you’re pitching a product to customers, Andy suggests we structure our narrative in exactly this order.
1. Name a big, relevant and undeniable change in the world
Don’t kick off a sales presentation by talking about your product, where your office is, who your investors are, existing customers, or anything about yourself.
Instead, the first thing you want to do is name some big and undeniable shift in the world that creates both (a) big stakes and (b) huge urgency for your prospect.
If you read the latest deep dive on Shopify — this overlaps with the why now we spoke about.
Most pitch advice tells you to start with “the problem.” But, when you assert that your prospects have a problem, you put them on the defensive. They may be unaware of the problem, or uncomfortable admitting they suffer from it, but…
“When you highlight a shift in the world, you get prospects to open up about how that shift affects them, how it scares them, and where they see opportunities. Most importantly, you grab their attention.”
2. Show there will be winners and losers because of it
Everyone suffers from what economists call “loss aversion.”
Simply, this is that we tend to avoid a possible loss by sticking to the status quo, rather than risk a possible gain by opting for change.
To combat loss aversion in your customers, you must demonstrate how that big change you cited above will create big winners and big losers. According to Andy, this means you have to show both of the following:
That adapting to the change you cited will likely result in a highly positive future for the prospect; and
That not doing so will likely result in an unacceptably negative future for the prospect
3. Tease the “Promised Land”
It’s tempting at this point to jump into the details of your product or service. Resist that urge.
If you introduce product/service details too soon, prospects won’t yet have enough context for why those details are important, and they’ll tune out.
Instead, first present a “teaser” vision of the happily-ever-after that your product/service will help the prospect achieve—what I call the Promised Land.
Your Promised Land should be both desirable (obviously) and difficult for the prospect to achieve without outside help. Otherwise, why does your company exist?
— Andy Raskin
He goes on to reenforce that this “Promised Land” is a new future state, not your product or service. And that it’s the Promised Land that you want people to remember and talk about as a top priority because it makes the relevancy of your product memorable.
4. Position your features as “magic gifts” for overcoming obstacles to get into the “Promised Land”
If it’s not clear by now, successful sales decks follow the same narrative structure as epic films and fairy tales. Your prospect is Luke, and you’re Obi Wan, furnishing a lightsaber to help him defeat the Empire. Your prospect is Frodo, and you’re Gandalf, wielding wizardry to help him destroy the ring. Your prospect is Cinderella, and you’re the fairy godmother, casting spells to get her to the ball.
When you introduce your product or service, do so by positioning its capabilities like the lightsaber, wizardry and spells—as “magic gifts” for helping your main character (prospect) reach that much-desired Promised Land.
Positioned in the context of transitioning from an “old world” to a “new world,” it helps you show why it’s so hard for you customers to reach the Promised Land with traditional solutions.
5. Present your best evidence that you can make the story come true
In telling the sales narrative this way, you’re making a commitment to prospects: If they go with you, you’ll get them to the Promised Land.
But the road to the Promised Land is, by definition, littered with obstacles, so prospects are rightly skeptical of your ability to deliver. The last piece of the pitch, then, is the best evidence you can offer that you can make the story you’re telling come true.
And since you’re talking to prospects, the best thing you can show is social proof from other people like them that your product has taken to this Promised Land.
💡 Takeaway:
Everybody is human, and humans love hearing stories. Creating a narrative is exciting and memorable — that’s why books and movies are so successful.
I think people often feel that in a business setting — i.e pitching to an enterprise client — that things need to be done a certain way.
Sure, certain details need to be covered. But if you don’t get people interested first, the details will be far less effective.
⛏️ Source + dig deeper: The Greatest Sales Deck I’ve Ever Seen
Playing on Hard Mode — online travel agents vs Airbnb
I came across a great essay recently that goes deep on how business models can be either on “easy mode” or “hard mode”.
I’ll briefly summarize:
Easy mode = layering the internet on top of a real world business (i.e online travel agents).
"Instead of calling up a travel agent and being inherently limited to their knowledge and connections, [with online travel agents] customers could access search engines that aggregated every flight and every hotel, displaying them in a way that was easy to compare and contrast."
Hard mode = taking a core differentiator of a real world business, and digitizing it (i.e Airbnb) "This is what it takes to succeed in hard mode: Airbnb took a core differentiator of hotels — trust, a differentiator that online travel agents (OTAs) depended on — and digitized it. But, critically, that digitization and resultant commoditization happened only on Airbnb, and was thus captured exclusively by the company. This, by extension, is what the comparison to OTAs miss: Airbnb is not riding the same wave that Booking.com (and others) did a decade ago, but are instead undertaking something far more ambitious: creating their own wave where none previously existed.”
In many industries, you can still choose to play on easy mode. The problem is anyone can play (i.e Google taking a share of OTAs) and you may well have to give up all of your margin and spend it on CAC.
Hard mode creates unique value (for Airbnb, this was unique supply) and makes your business far more defensible.
This is a very simplified summary. To dig more into this op-ed by Ben Thompson, follow the link below.
⛏️ Source + dig deeper: Playing on hard mode
All markets are not created equal — 10 factors to consider when evaluating digital marketplaces
If anyone knows about consumer marketplaces — it’s Bill Gurley.
Back in 2012, he wrote an essay that has a bunch of gems for founders and operators that are launching or scaling a marketplace. It was posted almost 10 years ago to the day, and given how it’s become such a classic, I thought I’d share this with you all today.
I’ll let Bill get us started…
Following our investment in Ebay, we have been fortunate enough to invest in several companies that link consumers and suppliers through a successful online marketplace. Companies such as OpenTable, Yelp, Zillow, oDesk, GrubHub, 1stdibs, UShip, and Uber have all reached significant scale within their respective markets. But we have also invested in several companies that we thought had marketplace opportunities that simply did not play out as expected. Simply put, some industries are much more susceptible to the arrival and success of online marketplaces than others.
A true marketplace needs natural pull on both the consumer and supplier side of the market. Aggregating suppliers is a necessary, but insufficient step on its own. You must also organically aggregate demand. With each step, it should get easier to acquire the incremental consumer AS WELL AS the incremental supplier. Highly liquid marketplaces naturally “tip” towards becoming a clearinghouse where neither the consumer nor the supplier would favor an alternative. That only happens if your momentum is increasing, and both consumers and suppliers are sensing an increasing importance of your place in the world. Much easier said than done.
— Bill Gurley, VC at Benchmark Capital
He goes on to list 10 factors to consider when evaluating the potential success of a new marketplace opportunity:
New Experience vs. the Status Quo. Are you just aggregating a market, or are you actually create a new type of experience? i.e Uber
Economic Advantages vs. the Status Quo. Are you able to positively change the economics of an industry — i.e are you making something more accessible/cheaper, or bringing new types of revenue to people?
Opportunity for Technology to Add Value. Can the technology you’re using enhance the user experience? Take Zillow, who provide homebuyers with an abundance of data that was historically kept in proprietary systems, and have overlaid this data with maps and search technology that provide remarkable richness to the home buyer.
High Fragmentation. Are your buyers and suppliers fragmented? The harder it is for these two sides to transact today, the more value your product can provide.
Friction of Supplier Sign-Up. How easy is it to sign up suppliers? The harder it is gives you a barriers-to-entry advantage if you can make it past, but it slows you down in the early days.
Size of the Market Opportunity. Is the total market size big, and significantly, what reasonable % of supply from that TAM is qualified and able to be on an online marketplace?
Expand the Market. Is the marketplace able to expand the market size due to new price points, enhancing convenience, or usability? i.e Uber and the cab market
Frequency. How often do the two sides transact? The higher the frequency of the purchasing cycle, the better.
Payment Flow. Are you able to be part of the payment flow? The more you control payments, the easier is to charge for and justify your fees.
Network Effects. Can the marketplace provide a better experience to customer “n+1000” than it did to customer “n” directly as a function of adding 1000 more participants to the market? You can pose this question to either side of the network – demand or supply. If you have something like this in place it is magic, as you will get stronger over time not weaker.
Bill wraps up by saying:
It is unlikely that you will find a marketplace opportunity that would score ten out of ten with respect to this list. However a 7 or 8 out of 10 would imply that your opportunity of success is much, much higher than if you only match 3 or 4 out of 10.
It is also important to realize that finding a great opportunity is only a start, and this analysis could easily mislead one into underestimating the critical role that execution plays when it comes to marketplace businesses. Great marketplace execution is more nuanced and less systematic than other venture backed categories, and for every successful marketplace, you will find an amazing entrepreneur that out-executed the many others that had chosen to attack the same market.
⛏️ Source + dig deeper: All Markets Are Not Created Equal: 10 Factors To Consider When Evaluating Digital Marketplaces
Facing the tech slowdown — and what it means for product teams
At this point in the game I think we all know we’re beyond just a a tech slowdown. Stocks are down, layoffs are ongoing, hiring is frozen, and spending has contracted across major tech companies.
But, on a positive note, someone shared a podcast episode with me earlier this week where Des Traynor (co-founder and CSO at Intercom) and Paul Adams (CPO at Intercom) talk about the impact of this on product teams.
For product folks the pressure’s on to revise your roadmap and short-term strategy to account for a narrowing budget, and shifting customer priorities. Those customer interviews you did 6 months ago that informed the decisions you made for 2022? They’re quite probably outdated. The projects and the timeframe you set until the next round of funding? It’s probably no longer accurate.
— Des Traynor
Here are the takeaways from the episode on:
While short-term strategies are more in focus right now, don’t lose sight of the big picture horizon. Make sure you have a plan to emerge healthy on the other side and reap the rewards ahead.
Chances are you need to rethink your roadmap. Consider which projects will have more impact on customer satisfaction and your bottom line and adjust your priorities accordingly.
In difficult times, titles, processes, and boundaries between organizations should become more fluid. Focus on getting the right thing done, even if it’s done by the wrong person.
Everything that has gone down goes up again. To keep morale up, keep communicating the mission and vision for the company and remind people the work they’re doing is important.
In shrinking markets, you get stronger feedback and learn faster whether you have PMF, and what needs to change. Be open-minded, take the opportunity, and act on it.
Listen to the full thing here 👇
And as a bonus, here are some other fun things I came across this week if you’ve got time:
And that’s a wrap! I hope these bits of information were interesting, informative, or just fun to read.
If you enjoyed this piece, hit the little heart button below so more people can find it and learn something from these smart folks!
Have a fantastic weekend, and if you’re in the US — enjoy those Turkeys next week.
This is my fourth Thanksgiving and I haven’t quite got used to marshmallows and sweet potatoes going together.
— Jaryd ✌️
Previous deep dives:
[Most recent] How Shopify Grows: Lessons on starting and scaling a B2B product from Shopify's $44b business-building platform.
How Etsy Grows: Lessons on kickstarting and growing a marketplace from Etsy’s $14b handmade empire.
[Most popular] How Notion Grows: What we can learn about product-led and community-led growth strategies from a $10bn SaaS startup.
How Superhuman Grows: What a $2bn email startup can teach us about not launching, pricing, viral growth loops, and reverse-engineering product-market-fit.
How Intercom Grows: What we can learn about acquiring early B2B customers, jobs-based marketing, SaaS pricing strategies, and content-driven growth from Intercom.
Love all these 5-bits articles!