🌱 5-Bit Fridays: Product vision, the Strategy Canvas framework, four paths to marketplace success, 5 steps to building a community, and 18 AI tools to know about

#23

👋 Welcome to this week’s edition of 5-Bit Fridays. Your weekly roundup of 5 snackable—and actionable—takeaways from the best-in-tech, bringing you concrete advice on how to build and grow a product.

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Happy Friday, friends 🍻

Before we get started, here’s a PSA that might alone make your Friday: If you had a Facebook account between May 2007 and December 2022, you can apply for a share of the company’s $725M settlement reached in a major data privacy scandal (Cambridge Analytica). All you have to do is complete the online claim form (~2 minutes) by August 25th to be included as part of the settlement. Note: It's not yet clear how much each settlement payment will be — but who knows? 🤷

Also, if you missed this week’s deep dive, be sure to catch up: 👇

How Zillow Grows: Building The ‘Housing Super App’

What operators can learn about owning demand, supply-side strategy, the power of free tools, multiple network effects, and the essential evolution of a marketplace from aggregator to integrator

Alrighty…down to business.

Here’s what we’ve got this week:

• Creating a product vision, and what Zuckerberg can learn from Alice in Wonderland

• The Strategy Canvas: A framework for finding your uncontested market space

• Four paths to marketplace success

• A founder’s step-by-step guide to getting your first 1K community members

• Boost your productivity: An AI tool roundup

Small ask: If you enjoy today’s post and wouldn’t mind ❤️’ing (or Restacking/Sharing) it in the header above, it helps more people discover my writing. Thank you!

(#1) Creating a product vision, and what Zuckerberg can learn from Alice in Wonderland

On Wednesday, I saw this note by Ivan Ferrari 👇

For a tiny bit more context, Meta has already laid off a ton of people and is now once again on the cusp of sending another 10K people into a shitty job market.

The reason for this is basically spelled out in Zuck’s “Year of Efficiency” memo…Meta took too many big bets and wasn’t focused enough.

And this reminded me of an important conversation from Alice in Wonderland.

Now, that's a fine and exciting answer when you're broke, in your twenties, and backpacking through Thailand. But, not so much when it comes to product work. Without alignment on what people are doing and why they are doing it, you could end up with a messy product, chasing distractions, and wasting your resources.

So, you need a compass/North Star. In product, that’s vision and strategy. And looking at the classic strategy stack, this is where vision fits in.

1. Mission: What are you trying to achieve?

2. Vision: What does the world look like when you've achieved it?

3. Strategy: How will you achieve it?

4. Goals: How will you measure our progress towards it?

5. Roadmap: What do you need to build to grow and get there?

Simply, product vision is the aspirational statement about where the product hopes to go, and what your product hopes to achieve in the long term.

However, as Ami Vora (Ex WhatsApp, Facebook, Instagram, Microsoft) says:

Surprisingly, this isn’t always the most urgent thing — when I’ve been lucky enough to work on an extremely fast-growing product with a small team, sometimes what we needed most was just to keep up with users’ demands.

But over time, as products and teams scale, a clear product vision can inspire everyone on the team (from the most tenured to the brand new) and help every person understand how their work fits into the broader direction. That guides individual teams to better, more consistent decision-making — which leads to a more coherent and useful product for our users.

In an excellent post, Ami lays out a 6-step process she’s found helpful in developing a vision that people buy into.

1. Be a facilitator — ask others for input and bring people along.  There’s sometimes a mythology around product strategies — that they’re created by visionaries who lock themselves in a room and come out with a brand new direction. That might work in small, tight teams where everyone already knows and trusts one another. But in larger teams, it’s hard to ask someone to implement a fully complete strategy without them having a chance to weigh in — and you miss their insights at the same time. I try to think about myself as the facilitator of the vision, not the creator of the vision. The ideas for the vision should come from everywhere. If I’m writing a strategy, I build in steps to get input from a bunch of key people around the team, recap what I’m hearing, update the strategy, and repeat.

2. Get a diverse range of inputs to inform the strategy.  Some of my go-tos:

   1. Data: Trends and insights specific to the product, broadly about global trends, and what competitors are doing. Who has been using our products? What features are most popular? How is usage changing? What are competitors doing, and what do their users most appreciate? What’s changing in the world — economic changes, device availability, internet availability, etc — that will create more opportunities or challenges?

   2. Research: What do our users say they love about our products or competitors’ products? What do they find lacking? How do those relate to our strategic goals?

   3. Leadership opinion: I once ran a survey to my leadership team asking for their opinions on the product and world, with questions like “In 5 years, what % of our revenue will come from large businesses?” or “In 5 years, what devices will the median person carry?” Whenever this disparate group universally agreed, I treated it as a “likely outcome” that could anchor the product strategy. When we disagreed, I knew I needed to explore more deeply.

   4. My own opinion: What is my personal experience from using the products and talking with users? How does that fit in with all these data points? What are the outcomes we need to avoid at all costs? What do I think we should definitely do, and what do I think we should only try if we’re prepared to take big risks?

3. Outline a range of full ideas, including the most extreme I can think of that still works for the data points I have. Which one feels most true? Which one feels scary and risky? What elements of that risky one illustrates a gap for us today? Naming and fleshing out the extreme ideas helps me understand the full spectrum of ideas, and ensures that we’re not accidentally pursuing low-risk ideas out of inertia.

4. Write a short, provocative draft recommendation. All these exercises help me hone in on a recommendation. I try to keep this short enough that someone can read and internalize it rapidly, and provocative enough that every reader will have some kind of reaction. I can always walk it back to a more neutral position, but being a little extreme in outlining big bets and what we’d need to deprioritize to get there helps people give me pointed feedback.

5. Get feedback on my recommendation. I try to involve a mix of long-tenured folks and people with fresher eyes. That way we don’t just do what we always did, but we also don’t jump into a future that feels disconnected from what got us here. That feedback helps me build a more complete (and slightly more neutral) vision, while still maintaining a strong perspective on what we should and shouldn’t do.

6. Write it to appeal to the entire team. A key goal of the product vision is motivating and inspiring the entire team. Of course, everyone finds motivation in different points. So I try to outline different angles for each major point:

   1. The user story — X user in Y country asked us for this because it would simplify their life in Z way

   2. The compelling data — in 3 years, X% of people will be carrying Y devices

   3. The challenge — to do this, we’ll need to figure out how to support X device at Y reliability

   4. How it fits in — building this will let us support users as they go about X task every day alongside Y other products we build

And this process is all working towards crafting a statement that is:

• Short & simple.

• Memorable.

• Unique.

• Actionable.

• Relevant.

• Durable.

• Inspiring

Here are some examples:

• Google: To provide access to the world’s information with one click.

• Instagram: To capture and share the world’s moments.

• Airbnb: To create a world where people can belong anywhere and can live a place instead of just traveling to it.

And I’ll leave you with this quote:

If you want to build a ship, don't drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea.

— Antoine de Saint Exupery

Further reading:

1. The Magic of Thinking Big 

2. How to build a breakthrough 

3. A founder’s guide to coming up with vision and strategy 

(#2) The Strategy Canvas: A framework for finding your uncontested market space

While we’re talking about vision…

Once you know what you want your product to be when it’s all grown up — the next step is creating your product strategy for how you’ll actually get there. And a super helpful framework for doing that is the Strategy Canvas.

Coined by Chan Kim and Renée Mauborgne in 2004, it’s a tool that stems from their Blue Ocean Strategy theory. If you’re unfamiliar with that, here’s a quick primer.

• The market universe is broken up into two categories: red and blue oceans.

• Red oceans represent all the industries that exist. It’s the known market space where companies in it are trying to win through incremental differences. Competition is ruthless. If your product enters a red ocean, you’re trying to get a piece of the same pie as everyone else.

• A blue ocean represents an unknown market space. Unexplored by incumbents with no/minimal startup activity. AKA, there’s no competition yet and it’s full of opportunity and room for profitable growth.

Obviously, I don’t need to ask which ocean you’d prefer to swim in.

So, to address this largely untapped demand, operators need to make sure they’re shifting their focus from competing to a focus on creating innovative value to unlock new demand.

And this is where the Strategy Canvas comes in.

In short, it’s an exercise that gives you one visualization that captures the current strategic landscape and the opportunities for your business.

The strategy canvas allows your organization to see in one simple picture all the factors an industry competes on and invests in, what buyers receive, and what the strategic profiles of the major players are. It exposes just how similar the players’ strategies look to buyers and reveals how they drive the industry toward the red ocean. Importantly, it creates a commonly owned baseline for change.

— Blue Ocean Strategy, Strategy Canvas

This is what that looks like, and how it works at a high level:

1. You map out the things that customers care about (i.e price, quality, speed, etc).

2. You plot how much or little of those things your competitors do (think direct, indirect, substitutes).

3. You hypothesize (then validate via talking to people) which factors are most important, and what people want more or less of. This leaves you with 4 elements to consider: Which factors to (1) Eliminate, (2) Reduce, (3) Raise, and (4) Create.

4. You then plot your own value curve according to that — creating your strategic differentiation.

This, according to the authors, is how you find your unique space in the market and bring value to people that they can’t get elsewhere.

To illustrate the tool in action, here’s an example from the iPhone.

The Strategy Canvas of the iPhone shows in one picture the current state of play in the handset industry in the early 2000. The horizontal axis shows key competitive factors the handset phone industry competed on. On the strategy canvas below, you can see how Apple’s value curve differs from its competitors.

Apple captured the three characteristics of a good strategy: it was focused, divergent, and had a clear and compelling tagline.

The Strategy Canvas of Apple iPhone

The value curve of Apple iPhone’s differs distinctively from those of its competitors in the strategy canvas.

Further reading:

• Four Actions Framework

• Creating a Strategy Canvas

• Other Blue Ocean tools (a super handy resource)

(#3) Four paths to marketplace success

When building a marketplace, the holy grail is if you’re able to nail all three of these elements:

• High frequency: People buy a lot

• High transaction value: People spend a lot

• High retention: People keep spending a lot, often

Running that proxy through the most recent marketplace we looked at (Zillow): They have probably the highest transaction value there is (homes), but with likely the lowest frequency (making retention almost irrelevant to measure).

The best example of a company nailing the trifecta is Amazon.

But, as you can imagine, hitting that sweet spot is exceptionally hard. Like, generation-defining hard.

Luckily, there’s more than one way to build a successful marketplace, according to Andreessen Horowitz’s annual a16z Marketplace 100 (their ranking of the largest and fastest-growing consumer-facing marketplace startups and private companies). 👇

While frequency of use and transaction size are common metrics for determining a product’s potential, the a16z Marketplace 100 revealed some interesting trends. Four segments emerge:

• The Holy Grails: These are companies that customers use multiple times per month and regularly spend substantial money on, typically more than $100 per transaction. This formula to success is exceedingly rare—so rare, in fact, that no Holy Grails currently grace the Marketplace 100. That said, growing behemoths like Instacart and Faire are fast approaching this status.

• The Everyday Necessities: These are companies that users rely on for everyday tasks like getting their kids to school (Zum), walking the dog (Wag), or picking up lunch (Snackpass). These are marketplaces that people use regularly—up to 6 for 7 times a month, in some cases—and typically have transaction values well below $100.

• The Occasional Splurges: These businesses provide a lot of value and have price tags to match, with transaction sizes sometimes topping $1,000. This category includes companies like Airbnb, Breather, and Kaiyo, which facilitate big ticket items like travel lodging, conference room bookings, and furniture purchases, respectively. Given their relatively high cost, these marketplaces are rarely used multiple times a month, or even a year, in some cases.

• The Fits and Starts: Interestingly, the majority of the Marketplace 100 lands here—companies that are both low-cost and relatively infrequently used. More than 75 percent of the companies on the Marketplace 100 list have a transaction value under $250; more than half have a transaction value that’s less than $100. Similarly, approximately 75 percent of these marketplaces average fewer than two transactions per customer, per month. This segment includes fast-growing companies like Cameo, StyleSeat, and SpotHero.

— D’Arcy Coolican, Four Paths to Marketplace Success

At face value, being in the “Fits and Starts” category might sound like a death sentence…low frequency and low cost. But, as per a16z’s research, most of the startups in that section have (1) massive TAMs, (2) effective acquisition loops, and (3) solid take rates.

So, what are the takeaways here?

• First, there’s no one model that defines what success looks like.

• Which model you choose though will impact decisions, like who you hire, what metrics to track, and what your strategy→roadmap looks like.

• If your transaction value is low, efficiency and retention are key. You need to optimize across the marketplace and your distribution channels to protect your margins. Some tactics (as seen in Lyft/Uber) include using perks and rewards to engage users more frequently and having a solid email/SMS/push strategy.

• If your frequency is low, you risk being cut out and facing competition. The solution is to focus on baking significant value into the platform, beyond discovery and matching — like a SaaS tool. As we saw with Zillow, this is finding defensibility with a Market Network. The goal is to (1) remain front of mind the next time people need to buy, and (2) add incentives to stay on the platform vs bypassing you.

• If both value and frequency are low…then you need to focus on all of the above.

Further reading:

• The Hierarchy of Marketplaces

• Sequencing Business Models: The Types of Marketplaces

• Four Strategies to Win Big with Low Frequency Marketplaces

(#4) A founder’s step-by-step guide to getting your first 1K community members

Community is the new hot thing right now. And by right now, I mean it has been for the past few years.

Companies like Notion and Figma have made community-led growth an integral part of their growth strategies. And it pays huge dividends for them across things like increased loyalty (creating a moat), deeper product engagement, tighter customer feedback loops, and user-powered acquisition loops.

Simply, the customer is the most important person on your team, and because community brings them closer to you, building one helps you make better products.

And that’s why most folks are either already running a community, starting one, or thinking about how they can get in on the action.

As evidence of this trend, there are currently 87,279 open roles for a “Community Manager” in the US on LinkedIn. Compare that to the 12K “SEO Manager” roles, or 60K “Designer”, 44K “Growth Marketing Manager”, or 61K “Content Marketing Manager” roles, and it’s clear — people want community.

Yet, despite its rising popularity, there are still lots of misconceptions around community, especially in the earliest stages of a startup. For many, it’s a somewhat fuzzy concept that can be implemented in all sorts of ways— from tacking on a Slack or Discord to building a comments section somewhere, or even hosting IRL or Zoom events—and it’s usually treated as an afterthought.

But we don’t like afterthoughts, do we? 🤔

So, for anyone interested in community building, here’s a breakdown of a highly actionable interview between Knoetic founder/CEO Joseph Quan and First Round Capital. 👇

5 Steps to building community

#1: Run quick tests, do community discovery, and create a wedge

• Run the cheapest test of all. The quickest and easiest way to get validation for building a community is to send an email with a link to a waitlist (i.e with Typeform). Here’s an example:

Source: Joseph Quan

• Run “community discovery” just like customer discovery. If you want to create a community that has staying power, you need to know who your community is for (and who it’s not for) and what’s missing in the market for them. This comes from running interviews, landscaping what’s out there, and finding your differentiators. “Too often when founders build a product or a community, they aren’t sure who will be attracted to the idea. That is a mistake — be very specific about who you’re building for.”

• Bet big on a standalone app, rather than a Slack or email group. "The friction to joining a Slack community is low, but the friction to forgetting about a Slack community is also low. We wanted to build the muscle memory of logging into a new app, a distinct URL, and commit to creating a community that would justify this new habit.”

  • A tool you could use to create a no-code standalone community: Circle

#2: Spin up a scrappy MVP and build based on feedback

• Fill your MVP gaps in manually. “In the first few months, it was about creating a really valuable single-player experience. You could go into this ‘community’ and find the most timely pandemic-related resources compiled by me and other members. It had a few hundred articles, a dashboard tracking COVID cases, and all the legal guides we could find. It was very scrappy.”

• Build a hype train. Like any product, you need to warm people up to being engaged and active in your community. Think of it like you’re hosting a dinner party. It’s always a bit awkward for someone when they walk in, and a good host brings them into the convo. In a community, you can do that with nudged logins or with regular email reminders.

• Be patient and set your expectations. A community has the same cold start problem as a marketplace or any network-based product, and you should bare in mind that it could well take over 3 months from that cold start to gain traction.

#3: Nail your onboarding and identify your power uses

• Manually onboard the first 50. “I personally onboarded the first 50 members. We would hop on a call for 30 minutes and I would walk them through every single feature in the community and how to use it”. Hopping on a call with each person is top-shelf onboarding (exemplified even at scale by Superhuman), but you can also just DM each person that joins to personally welcome them and ask them what they’re looking to get out of the community. This helps you understand your members better and build relationships.

• Build an engine for continuous learning. Live onboarding gives you a chance to pick people’s brains and use the time as an interview of sorts. E.g, ask: “What’s your favorite feature, what would you cut out? What’s the one feature that would get you back in this community every single day? Let’s imagine in one year, this network ends up failing, why do you think it failed?’”

• Seed the community with content and activate your power users. With direct onboarding, you can also identify who your power users will be. And importantly, they can become valuable guests “at your dinner party” to help you get things going. This might mean asking power users to post some stuff and kickstart some things, but "When you finally get to a dozen engaged members who are posting over and over again, it actually ends up organically spurring that behavior from the rest of the community. Then you don’t have to prod people anymore — it just becomes an ingrained habit”.

• Codify your founding principles — they become the DNA of the community. “Before we even built the community, I wrote down all of the principles that I envisioned we’d live out. Every single person who joins the community has to sign a letter committing to those principles — to maintain confidentiality, to be generous with your knowledge, and be a lifelong learner.”

• Find core contributors and kindle small fires. Don't focus on how many members your community has. Instead, (1) invest time in activating core contributors who care and seed your community with new knowledge and (2) focus conversations on a few channels at first. Narrow and deep is better than wide and thin.

#4: Expand beyond your MVP

• Drive engagement. To keep engagement/retention up, use a mix of tactics like sending automated notifications, sharing curated digests of top content, and hiring a dedicated “Community Manager.”

• Co-create your roadmap with the community. A huge reason for having a community in the first place is to be closer to the customer and build your core product better. So, do the same thing for your community by tapping your members to help crystallize the roadmap for what comes next.

• Consider what would create a “seven-star” experience. For example, making sure every question posted in the community gets a response in 24 hours.

#5: Measure what matters

• Track the right metrics for the right phase of community-building.

  • Validation phase: i.e Email Open Rate, Waitlist Opt-In Rate, First-week logins

  • Growth phase. i.e MoM Growth, Weekly Active Users as % of Total

  • Engagement phase. i.e Weekly/Daily Active Users, Knowledge Created

And to cap this off…here’s some additional advice from community legend Peter Yang…aim for a slow build. 🐢

Source: Peter Yang

This hints at an important point: members who join a smaller and more niche community have a higher likelihood of finding valuable information and meeting people who share the same goals.

Further reading:

• From 6,000 to 60: Why We're Downsizing Our Community On Purpose

• Audiences versus communities

• How I Learned to Build Community and Why You Should Learn Too

• How to Apply Product Thinking to Build Online Communities

(#5) Boost your productivity: An AI tool roundup

Last one for today…just a simple picture by Zain Kahn with a ton of value.

Source: Zain Kahn

To stay on top of all the latest things in AI…I highly suggest taking a look at this post by Michael Spencer:

The Top AI Newsletters on Substack in 2023

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🌱And now, byte on this if you have time 🧠

What Do We Know About Our Minds? [Listen]

Sam Harris speaks with Paul Bloom about the state of psychological science. They discuss fiction as a window onto the mind, recent developments in AI, the tension between misinformation and free speech, bullshitting vs lying, truth vs belonging, reliance on scientific authority, the limits of reductionism, consciousness vs intelligence, Freud, behaviorism, the unconscious origins of behavior, and then some.

(Listen)

And that’s everything for this week.

Thanks so much for reading with me today, hopefully, you learned something new. If you did, I’d really appreciate it if you helped spread the word about How They Grow by hitting the like, share, or restack button. Thank you. 🙏

Otherwise, I think that’s it. Have a wonderful weekend.

Until next time.
— Jaryd ✌️