5-Bit Friday’s: #2
5 snack-able takeaways from the startup/tech universe! ⇒ On the problem with the binge model, how to pick the right market for a startup, tactical startup lessons, and more...
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 now also bring you 5 short-form insights from the startup/tech universe. (this!)
If you haven’t subscribed yet, join the other folks interested in growing a company by subscribing here:
Happy Friday, friends! 🍻
Last week I launched 5-Bit Friday’s — a new weekly piece of content that I write alongside this newsletter’s main deep dives. I asked what you thought, and 100% of you said “This was great - keep doing it!”.
I’m very glad, because I love the name and spent more time than I should have in Canva coming up with branding for it. It would have been a shame if I was given the boot. 🥾
For those of you that are new:
5-Bit Friday’s are 5 interesting takeaways from the week.
They are short, they are informative (I hope), and they are unrelated to each other.
I go through a lot of content while I research these companies, as well as just in general. So, why not jot down some interesting point or thought from someone smarter than me when I find it.
My goal? If I can bring you 5 bits of information, and you learn just one new thing from it a week — that’s a win.
— Me, last week
So, what have we got this week?
1. How Netflix disrupted its own success + WTF is skeuomorphic design?
I read this piece called “Binge & Purge” a while ago. I think I’ve spoken about it countless times, and it makes me feel very smart when I do. So, today, I’m writing about it. 👀
I’ll start off by answering the question, WTF is skeuomorphic design.
Basically, it’s about designing a UI that mimics a real world “user interface”. For example, your digital calendar looks like a classic paper calendar you once-upon-a-time would have stuck on your fridge. Same story with your calculator.
That’s the core idea behind skeuomorphic design — “mimicking the real world in a virtual space.”
This is analogous to the “here’s a common thing, but on the internet” which essentially drove the majority of Web1 and Web2 ideas. AKA, the early internet was largely driven by skeuomorphic design.
Early Amazon— “A bookstore, but on the internet.”
PayPal — “Paying people, but on the internet”
Now, not to pick on Netflix, but we all know they’ve struggled this year. And with all the new streaming sites — they’re no longer in their hay-day of being an all-conquering behemoth.
DanT from Technopoptimism has a great opinion:
Netflix disrupted what didn’t need disrupting.
Skeuomorphic design helps explain why. 👇
Netflix started as “Blockbuster, but on the internet”. A great idea that saved so much time and hassle. Netflix’s problem came in 2013, when they released their first original series, House of Cards directly onto their platform. This was unprecedented, you could watch the entire thing in one day.
This was Netflix’s disruptive model — on-demand binge watching of original, unscheduled, content.
Netflix essentially said: No more scheduled programming, no more talking with friends about the latest episode, no more eagerly waiting along with everyone else for the next episode.
This was no longer the skeuomorphism of “Blockbuster, but on the internet.” This was a new, internet native way of (1) producing, (2) releasing and (3) consuming content.
Hat’s off to Netflix.
But, as DanT so brilliantly says — it was probably a bad idea.
It started out great. Netflix rode hits like House of Cards, Orange is the New Black, and Stranger Things.
All their competitors copied it. But then, slowly, people stopped copying it. As the flaws of this system appeared – with all content becoming disposable content, endless cancellations, a need for constant content churn, quickly dying buzz, and the hell of spoilers – competitors went back to the old way.
When the content titan Disney needed to launch their own streaming service, they had a signature show that fit the general concept: a short, serialized series telling one main story. But instead of releasing The Mandalorian all out once into a world where the IP was at its nadir and hoping for the best, they did it the old fashion way.
That’s the way things work in entertainment. There’s a reason that things ramp up into becoming hits — because consuming entertainment, even if done privately, is communal. “It provides us social currency. The binge model destroyed that.”
Forgetting humans are social animals is never a good business strategy.
Lastly, the problem with their binge model is that they need way more content to keep people gripped. But good content is expensive. Stranger Things is amazing, but I can watch the entire thing over a weekend. Meaning, I could technically subscribe to Netflix for a month, watch Stranger Things, cancel, and then in 10 years when the next season comes out subscribe for another month.
Netflix produces great stuff, but they also produce loads of rubbish. And they have to, because they need to fill that void and try keep people watching.
Compare that to HBO. If I want to watch Succession, I need to stay subscribed for 10 weeks.
That’s way more mileage per original production — and it’s why nobody else drops everything at once.
Television did not need disruption. It’s an addiction because it works.
What it needed was a complement. Netflix tried to deliver television in an entirely new manner – native to the internet.
HBO and Disney delivered television in a skeuomorphic fashion, but with the convenience of on demand and ability to get caught up. It kept the model where they can keep you hooked for months off one show – building buzz in the process – but they lowered the barrier to entry to try that first hit. They took a time-tested way of doing something and used modern technology to improve its flaws. Just like how Jeff Bezos killed having to go to the bookstore – not the concept of buying books.
⛏️ Source + dig deeper: DanT from Technopoptimism, Binge and Purge
2. The importance of picking the right market + how can you tell if your market is a good one?
“The #1 company-killer is lack of market” — Andy Rachleff
When there isn’t a market, the quality of the team and product don’t matter — and on the flip side, when your market is booming and customers are banging down your door, it’s really hard to screw things up.
Andy Rachleff, formerly of Benchmark Capital, gives us this “law to startup success”.
When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.
— Andy Rachleff
Marc Andreesen (from a16z) has also said:
In a great market—a market with lots of real potential customers—the market pulls product out of the startup.
The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along. The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.
Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn’t matter—you’re going to fail.
You’ll break your pick for years trying to find customers who don’t exist for your marvelous product, and your wonderful team will eventually get demoralized and quit, and your startup will die.
— Marc Andreesen
The number one goal of a startup should be to get to product/market fit. A good place to start is figuring out if the market you’re thinking about is a good one.
Okay, but how?
Elad Gil wrote a great piece providing several questions to ask yourself about a market..a market evaluation framework, if you will.
And they are…
What has changed? Why now? Good markets typically have something changing in them that allows new players to enter, like:
Costs have fallen or price points risen dramatically
A new distribution channel has opened up
A new technology emerges
A new source of customers or demand appears
Is a growing customer base being dramatically underserved? While an overall market may be mature, certain segments of customers may be ignored by the incumbent(s). The key is this user base needs to be the growing part of the market, or the early adopters.
Is the industry growing rapidly? “A rising tide floats all boats”, and this is never more true than in the business world.
What is the market structure? Basically, are there enough customers to sell to? Some markets are just tiny and will remain so for many years to come.
Is there a lot of hype or interest in the market?
Building a company to go after a small opportunity is just as hard as it is to build for a large opportunity. So, to get the most out of your time — go identify something big and go after it.
And there’s nothing wrong with starting off with a small part of a big market and to "think small” as long as you keep the big picture in mind.
This insight is a blend of two pieces:
⛏️ Source + dig deeper #1: Marc Andreesen, The only thing that matters
⛏️ Source + dig deeper #2: Elad Gil, How Can You Tell If Your Market Is A Good One?
3. Opportunities in generative AI
You might have heard that in September, an AI-generated piece of art won a significant prize in the art community.
One entrant, Jason M. Allen of Pueblo West, Colo., didn’t make his entry with a brush or a lump of clay. He created it with Midjourney, an artificial intelligence program that turns lines of text into hyper-realistic graphics.
[…] making it one of the first A.I.-generated pieces to win such a prize, and setting off a fierce backlash from artists who accused him of, essentially, cheating.
I find that fascinating, and a great example of the use cases of generative AI and an important evolutionary milestone of this type of tech.
What’s generative AI?
In layman’s terms, it’s an AI program that can generate some output content, such as text, image, video, speech, or code from some input. For example, I was able to generate the picture below by typing ‘A robot writing on a computer with a dog, sitting in a garden, green, oil painting’ in Midjourney, a text-to-image AI program
— Leo Luo, Consumer Startups
AKA — generative AI can create something new based on a deep learning model.
While generative AI has a history going back to the 80s, the models driving this type of creativity are still very much in the early days. But, in the last 2ish years, we’re seeing more startups get their feet wet here by working on their own models and/or applications using this tech.
Why are they doing this now?
It’s cheaper than ever to train and use large generative models due to lower computing costs. “[Some models] further lower the hardware requirements to run the model such that everyone can do it with their personal computers.”
The AI models available are very high quality. “These large-scale generative models, like GPT-3, perform very well across a wide range of tasks; some can even perform previously unimaginable tasks, such as creating an AI-generated podcast between Joe Rogan and Steve Jobs.”
Getting access to these models and putting them to use is super easy. “Since these large-scale generative models are pre-trained and are for general purposes, they can be used straight out of the box. Model users only have to run the model by supplying inputs to the model, which can be achieved with a handful of lines of code.”
As soon as good tech can be played with on a home computer at accessible prices — that’s a huge sign that it’s going to take off.
I was taking a look at the Midjourney Discord server — and saw a thread were someone was creating a collection of puzzles (with commercial license) by just typing in prompts. How flipping cool is this?!
Okay, so puzzles aside, what other opportunities are there in this space for startups?👇
Leo Luo from Consumer Startups has some great ideas:
With generative text (i.e give a short prompt ⇒ get a bunch or writing back)
Marketer: AI-generated articles with different marketing focus/optimizations (e.g. SEO optimized articles)
Writer: vertically optimized writing assistance focusing on niche use cases such as homework assistance/correction, blogging, creative writing, grant writing, and more. [Jacob Jolibois wrote a great piece on this specifically earlier this week]
Entertainment: script/story writing, interactive and fully customized storyline for each audience
Knowledge assistant: summarize knowledge, generate new knowledge, automatic knowledge map builder…
With generative images (i.e give a short prompt ⇒ get visuals back)
Product designers: AI version of Dribbble. Tools or plugins that help product designers to find design ideas for their features
Graphic designers: AI asset creation and editing tool. Making it easy to create, edit, and create variants of a specific icon or image asset.
Photographers: AI-powered image editing platform to reduce the time it takes to edit professional-grade photos.
Creators: cover image generator. Generate a cover image based on an article.
Marketers: 10x easier ways to create social media assets
With generative speech (i.e give a short prompt ⇒ get spoken audio back)
Real-time audio translation: make it easier to have audio conversations in different languages in real time. Language is no longer a barrier, no matter where you live.
Podcast generation: generate a podcast from an essay. It can be especially useful for newsletter writers or bloggers who are looking to expand distribution channels but don’t have the bandwidth.
Nostalgic chatbot: exchange audio messages with a bot that sounds like a late family member.
Language buddy bot: the best way to learn a language is to speak it. It would be cool to practice a language by exchanging audio messages with a language buddy bot.
With generative video (i.e give a short prompt ⇒ get video files back)
Marketers: create videos that optimize your marketing objectives and metrics, e.g. virality, clickthrough, …
Entertainment: huge opportunities in the entertainment industry once computers can generate hyper-realistic videos, e.g. generate movies/shows
To learn more about the landscape, risks, and go deeper — follow the link below.
⛏️ Source + dig deeper: Leo Luo, Opportunities in generative AI
4. Things I’d do differently as a second-time founder — tactical lessons from Ankur Nagpal
Ankur Nagpal — who founded Teachable (acquired), angel invests, and just started Ocho.com recently spoke about the things that he’ll be doing differently as a second time founder.
Lessons from people who’ve been in the trenches, won, and are going back in, are the best ones you can get.
So, here’s his tactical advice:
Use a single @AngelList RUV to consolidate all small check investors
Spend zero money on traditional paid marketing for as long as possible (potentially years)
Have a simple financial model & sanity check cashflow breakeven goals
Good corporate counsel is 100% worth the $$$, not the place to skimp
Buying a premium domain name upfront (He just bought ocho.com for $45K)
The most important tax exemption for startups is QSBS (qualified small business stock)
Use more contractors (vs employees) for all non-critical business functions
Things I will not spend money on until product-market fit: Brand agency, PR, conferences/travel, expensive office, non-healthcare benefits
Gold! For the full thread with more expanded details, follow the link below and give Ankur a follow.
⛏️ Source + dig deeper: Ankur Nagal, Twitter
5. The racecar growth framework
Lenny Rachitsky (along with Dan Hockenmaier) have summarized all their research (too much to imagine) and understanding of go-to-market motions and growth strategy in this single visualization of a racecar. For the F1 fans (which isn’t me) — this might be your new favorite image.
[💡You can click/tap that image to enlarge it]
This image includes not just the components of how your startup grows, but also the most popular tactics within each component. I encourage you to use this as a source of inspiration for your growth ideation. When you’re developing a new growth strategy, or struggling to come up with tactical ideas, start here.
Generally, here’s when to focus on each component:
When you’re just starting out, focus your energy on Kickstarts, and maybe a few Turbo boosts, until your Growth engine begins to drive the majority of your growth. Here’s a template to help you plan your GTM.
Once you have a working Growth engine, invest in Lubricants to help it run more efficiently, and the occasional Turbo boost to boost growth.
Once you’re at a meaningful scale, explore one or two Mid-stage accelerants.
Before your primary engine asymptotes, experiment with and kickstart an additional Growth engine, while continuing to Lubricate your existing growth engine(s).
If you want to dig more into that — which I highly encourage — follow the link below.
⛏️ Source + dig deeper: Lenny Rachitsky, The Racecar Growth Framework — expanded
And that’s all for this week folks — I hope you have a great weekend! 🥂
Oops — and if you liked this, consider subscribing, hitting the heart below, or doing any of that other good stuff like telling your friends ❤️
— Jaryd ✌️