5-Bit Friday’s (#5): Weekly snacks from the startup/tech universe
On how to understand problems better, nailing distribution using math, a taxonomy of moats, how to 10X your thinking, and a great template for GTM planning
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 engines look like.
+ every Friday — I 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! 🍻
For all of you in the US who are celebrating — I hope you had a great Thanksgiving.
I’m still stuffed and will probably be immobile for the rest of the day. Yet, I’m already thinking about that leftover sandwich 👀
Anyway, let’s get straight into the 5 takeaways from this week!
How to understand problems better
Earlier on this week, I found myself thinking about a customer problem that I want my team and I to solve next year. I got excited about an idea I had and quickly went in solution-space mode. Luckily I caught myself doing that and realized in my excitement (maybe holiday brain?), I failed to ask myself a few important questions first.
This reminded me of an old essay I wrote, and today I thought I’d share it. It’s about key analytical problem solving skills, systems thinking, asking better questions, and communicating your decision frameworks.
What are analytical skills?
The foundation of analytical problem solving is the pursuit of understanding. It’s about being curious, avoiding intellectual laziness, and socratically questioning problems, data, and ideas until you understand — an understanding of why something is the way it is and how it works, so you can decide what needs to be done about it.
It’s the ability to examine information or a situation at the right level of detail in order to see what’s most important, see the strengths and weaknesses of different elements, and use these in a systematic way to come up with a persuasive argument, drive a decision, make recommendations or solve a problem.
It’s not about having the answer. It’s about a structured approach to solving problems. People who have good analytical problem solving skills are not expected to have answers and insights readily available, and they often are very candid and humble about saying they don’t know right now. The key skill is knowing what you don’t know, knowing what sort of decision needs to be made, and having a framework for getting you there.
Create structure where there isn’t
As a Product Manager or founder, you’re going to face a lot of ambiguity across many aspects of the job, and the more senior you become, the more things you deal with will be undefined. This can appear overwhelming, and it will be if you don’t have awareness and a plan in place, however it’s also one of the most exciting and rewarding parts of the job.
Having the skill of identifying when you have an ambiguous problem and knowing how to apply structure to it is essential, because without it you can end up wasting a lot of your own time, feeling anxious and stuck, and deferring responsibility to other people.
Autonomy is one of the three core pillars of climbing the PM career ladder (Autonomy, Scope, Impact), and creating structure where there is none is a big part of that.
Think about the system
Think about the following scenarios:
You are proposing a product with the goal to bring in new revenue
You want to remove friction at the top of the funnel with the goal to get more signups
You want to make changes to user profiles based on feedback with the goal of better meeting customer expectations
You want to switch to a new payment provider to manage subscription with the goal of saving on fees and making future dev work easier.
You want to redesign a heavily-used feature with the goal of making it more user friendly
These seem like obvious wins at first glance. We’ll return to these in a second.
Systems thinking is when you consider things holistically — or the whole rather than the part. Most of the decisions that you make and the things that you work are not siloed, and have an influence and impact on other things too.
Shifting your thinking from linear to circular is a valuable problem skill because it nudges you to ask better questions, think of the edge-cases and risks, and ultimately better understand the context and trade-offs. This all puts you in a much better position to make informed choices.
Returning back to those scenarios above and applying a systems mindset, we might ask.
If that new product is successful, could it (i.e decreased usage, people willing to pay for it)
cannibalize our main product?
If we make it easier for more people to join, could we be getting lower quality users?
If we make changes here, what functional impact does it have on other components like search?
How are existing subscribers and renewals going to be affected?
If we make this change, how might users who are very familiar respond, and could this increase the load on customer support?
The key skill of systems thinking is knowing there is interconnectedness, and seeing the implications and repercussions of a decision.
Here is a visualization that shows what happens when you apply a systems mindset to problems. As you can see, the right hand side looks a lot more useful.
Be curious and and ask questions
The answer is what might seem most valuable, but the question is really what uncovers the most insight. It’s more than ok to not know or understand something, as long as you’re willing to be curious and ask. Especially in group settings, people are less likely to ask something out of fear of appearing stupid, thinking it’s obvious and everyone else gets it (often not the case).
Asking a question usually always gives the entire room more insight that can lead to much more productive conversations.
Questions help you uncover what is true. Don’t always take things at face value, dig deeper. At the least, you learn a bit more and understand. At most, you can totally save the direction of something.
Questions give insight into the way people think and what drove a decision. Especially as you become more senior and work with more people, it’s important to understand the people that you work with and how they approached something. This puts you in a much better position to share your ideas and feedback.
Questions are one of the most powerful tools at your disposal. In your career, PM or not, and in your personal life.
Your role as a PM is to be able to answer the Why, What, How, When types of questions, which means you have to be asking them and figuring them out before anyone else.
Questions are clearly very important, and there are two frameworks for becoming better at asking good ones.
a) Socratic questioning
Socratic questioning is a way for you to gain a deeper understanding of a thought, idea, system, problem, situation and logical implication or something by following a disciplined and intentional line of questioning.
It’s really just asking and answering questions to stimulate critical thinking and to draw out ideas and underlying presuppositions, where at the end of it everyone involved has more insight and lands at a more logical conclusion.
Socratic questioning is also a highly-effective leadership and management tool. This is because it helps you understand and assess the thinking of other people.
Say for instance someone from another team brings you an idea for a new feature that you believe is based on a problem that isn’t true, and think would be a waste of resources. Remember, you’re the gateway other teams usually have to get through to get their ideas worked on, so this is very common. You’d have two philosophical approaches to dealing with this scenario.
You could just shut it down. This is fast and easy, but the downside is you’re bashing the morale of your team member who trusted bringing you something. This risks hurting your relationship with them and not getting other feedback brought to you in the future.
You invest some time in socratic questioning with them. By asking them questions and pursuing a better understanding of their assumptions, steps and viewpoints towards them seeing their own thoughts differently,
you’re not forcing a decision upon them, rather they can come to the more accurate conclusion themselves through your guided questions.Or, together, you both end up at a different conclusion than you expected through the conversation that’s more meaningful than the first.
At a high-level, this type of questioning can help you:
Raise basic issues
Dig beneath the surface of things
Pursue problematic areas of thought
Help other people uncover the structure of their own thought
Analyze thinking — its
purpose, assumptions, questions, points of view, information, inferences, concepts and implications.
There are 6 types of socratic questions, below is a summary table of each and examples of questions to ask.
b) The Five Whys
The Five Whys is a method of analyzing the root cause of an issue. Essentially, you ask a question around a problem that’s already occurred, get an answer, ask Why, and keep asking Why to the subsequent answers until you’ve found what the real cause of the issue is.
You can use 5 Whys for troubleshooting, quality improvement, and problem solving, but it is most effective when used to resolve simple or moderately difficult problems, and in retrospect (i.e it’s already happened).
The 5 Whys framework:
First: Define the problem 🪨
Why is it happening? ⛏️
Why is it happening? ⛏️
Why is it happening? ⛏️
Why is it happening? ⛏️
Why is it happening? ⛏️
[This is the root cause 💎 ]
Nailing distribution with math: f(p,t) = channel
While starting a company has never been easier, and building a great product has become table stakes, getting your product in front of the right people efficiently—getting people to even know you exist—is increasingly what separates the haves from the have-nots.
As Peter Thiel once put it, “Poor distribution—not product—is the number one cause of failure.”
— Lenny Rachitsky, Finding your distribution advantage
I couldn’t agree more, so I did some digging on distribution and found a great essay by Ben Horowitz from a16z, where he gives a mathematical opinion around this and argues that ”if you want to build a successful company, your distribution strategy must be a function of your product and your target market.”
A properly designed sales channel is a function of the product that you have built and the target — i.e., customers or market — that you wish to pursue. In mathematical notation, think of your channel (c) as the output of your distribution design (f) with product (p) and your target (t) as inputs, or:
f(p,t) = c
Note that this function accepts only one product and one target as input, so if you have multiple products and/or targets, you might need multiple sales channels.
— Ben Horowitz, Distribution
So, (f) is your channel function design. With product (p), there are two things to consider. How does the product need to be delivered, and how much help do customers (t) need to get setup.
The first question has two options:
(A) It can be delivered online (i.e software)
(B) It needs to be delivered offline (i.e hardware/physical good)
The second question also has three options:
(A) No assistance (i.e Slack)
(B) Minor assistance (i.e Intercom)
(C) A lot of assistance (i.e Palantir)
From here, you plot those together to create your (p)
[A,A] can be delivered online, no assistance required: (i.e Github)
[B,A] not delivered directly, no assistance required (i.e Apple Watch)
Next, we look at target decision makers; this matters because different decision making processes require different sales strategies. The key here is not so much the size of the organization, but the manner in which they make a decision.
This is a subtle, but critically important point: If a business makes a decision on a product in the exact way that a consumer makes a decision, then it’s more like a consumer. If a business has a complex purchasing process with dozens of constituents that must sign off, it starts to look more like the U.S. government.
Note that no matter how hard you may try, you will NOT be able to change your target’s decision making process, so you need to design your sales channel to meet their needs not yours.
Here are your high-level targets:
(I) Individual — a direct consumer or a single decision maker in a company
(II) Small group — a small engineering team deciding, such as with Trello
(III) Entire small company — i.e deciding on Payroll software like Justworks
(IV) Large group — multiple decision makers, with different economic and technical motivations for deciding on the product
(V) Multiple groups simultaneously — i.e sales and marketing both needing to agree on the right marketing automation solution
(VI) An entire large company — i.e deciding on an HR system like Workday
From here, you start to consider some rules of thumb for designing a channel to reach these types of people depending on the your combination of (p). Some examples here are:
Customers (I) and (II), with a [A,A] or [A,B] involve the same simple decision making process: “is this something that can help me and is worth the money and effort?” These people can be sold entirely to via marketing.
Customers (III) usually require a sales-led or sales-assisted strategy — and for [A,C] and [B,C] products, they are are typically too expensive to sell because the cost of sale typically outstrips the profit margin on the product.
He goes into a lot more detail in the essay, and lays out more rules-of-thumb around different combinations for his formula: function(product, target) = channel
💡 The main takeaway here is spend time thinking about what your distribution strategy is early on, and think about what you will do in a structured way. Don’t, as Ben says, "insist on designing your channel based on your personality, inability to handle the diversity required to mix sales people and engineers, or a lust for Drew Houston’s business model”.⛏️ Source + dig deeper: Distribution, by Ben Horowitz
A quick ad-break…
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. 🙏
Onwards!
A taxonomy of moats — protecting your value
In our last deep dive, I spoke about how Shopify created an SEO & brand moat using free tools.
We simply defined moats as a unique competitive advantage, but while researching Shopify I came across a very comprehensive piece on moats with a great visual by Jerry Neumann which I made a note to circle back to.
And here we are.
By and large, value is created through innovation. This could be 10% or 10X innovation. Either way, the unique value companies build slowly get less innovative as competition come and eat away at it.
So, a fundamental question is always, how do you preserve that value you make and keep competitors away?
You do this through moats — AKA barriers to entry, sustainable competitive advantages, secret sauces, etc.
There are many different moats, but they are all rooted in just a handful of principles.
Jerry Neumann has categorized the best-known moats by those principles, giving us a way to think about them systematically. And according to Jerry, moats draw their power to prevent imitation from one of four basic sources:
The state,
Special know-how,
Scale, or
System rigidity.
Below is a taxonomy of the most common moats, organized by these sources.
💡 Takeaway: Find your defensibility and protect your value.⛏️ Source + dig deeper: A Taxonomy of Moats, by Jerry Neumann
10x Not 10% — how to think in orders of magnitude
Let’s start with a question — why did Kodak fail?
Digital — digital cameras came onto the scene and obliterated the film market. And from there, smartphones came along and sent digital cameras on a similar trajectory to the above chart.
But, here’s the interesting part:
The world’s first digital camera was created in 1975, by Steven Sasson.
He was an engineer at Kodak, at his camera was invented in a Kodak Lab.
Ouch 🤦
Why were Kodak executives apprehensive about digital? Psychologists call this loss aversion. Kodak was nervous about losing the film market. Losing hurts more than winning feels good. It’s why we hold onto stocks as they go down, or double down on bets at a casino. Humans are loss averse, which means companies are loss averse.
Modern companies and management hierarchies are designed to avoid losses. Your boss’s job, at best, is to help you succeed. At worst, to make sure you don’t screw up. This only increases as companies get larger. As the management hierarchy increases, tolerance for risk-taking and failure subsides.
Consider the expressions we use: under-promise and over-deliver, slow and steady wins the race, a bird in the hand, nobody ever got fired for buying IBM
Most companies are more enthralled with growing by 10% than by 10x.
As Ken says — “Kodak was a 10% company, but they needed to be 10.”
10x is an order of magnitude improvement. If you’re only thinking incrementally (10%), you’re taking the obvious path that everyone else is on. 10x requires a whole new mentality. If Kodak executives had asked what it would take for the world to snap one trillion photos a year, a new understanding would have emerged. Perhaps they would have listened to Steven.
[Steve Sasson holding his digital camera]
Of course, there are tons of other cases like this. So, Ken Norton wrote an essay with some advice on how we can set ourselves up to think in orders of magnitude. He wrote this really to help founders/CEOs/managers promote 10x thinking — but advice can be extracted as an individual contributor too.
Failure must be an option. To succeed wildly means being comfortable with failing dismally. As Larry Page says, “It’s natural for people to want to work on things that they know aren’t going to fail. But incremental improvement is guaranteed to be obsolete over time. Especially in technology, where you know there’s going to be non-incremental change.” Trying something huge requires failure, and failure is learning.
People want to do great work, let them. People usually do their best when they get to work on problems that interest them — so when creating a culture, allow for mobility. It’s also important to have a culture where making mistakes is okay, that’s how people feel comfortable pushing themselves.
Use data, not opinions. Jim Barksdale, former CEO of Netscape once famously said, “If you have facts, present them and we’ll use them. But if you have opinions, we’re gonna use mine.” Probably the biggest opponent of 10x thinking is someone saying “that will never work.” If you rely on opinions, that’s the end of the story. If you use data, you can prove them wrong.
Measure impact, not effort. If we know in advance what effort is required, it’s probably by definition not going to give us 10x. Instead, measure the outcome you want to have. “We will have accomplished this” vs “we need to do that.”
Be bothered by limitations. “Too often we surrender to external impediments. The computer doesn’t have enough memory. The user’s internet connection is too slow. The CPU isn’t fast enough. It costs too much. It takes too long. We bump into these walls, and we walk away. Great 10x thinkers don’t surrender to limitations, they get bothered by them.”
Bet on trends. Look out for big, seismic, trends (i.e digital cameras). These are not just tech trends, but anything macro that’s changing (i.e cultural). This involves lifting your head and making space to not miss the forest for the trees.
Let’s wrap up with a quote from Ken.
In 1977, the designers Charles and Ray Eames made a film called Powers of Ten. If you haven’t seen it, I encourage you to do so now. It’s only nine minutes long.
The video begins with a couple enjoying a lakeside picnic. Slowly the camera pans back, zooming out by a power of ten every ten seconds. Soon we see the whole lake, then the countryside, then the entire continent. Within minutes we’re leaving the solar system and watching our entire galaxy shrink in size. It’s a marvelous way to wrap your head around orders of magnitude.
I mention this film because it was the inspiration for a technique you can take with you today, one that will help you remember to think 10x. The film is subtitled “The Effect of Adding Another Zero.” That’s what I want you to do: add zeros. If you’re building a car, ask how it could go 500 mph instead of 50 mph. How might we reach a billion users instead of one million? Could we get our cost down not to a dollar, but to a penny? What would it take to use only 1% of the energy?
I love that!
💡 Takeaway: To think big, practice adding a 0 to the impact you want to have.⛏️ Source + dig deeper: 10x Not 10%, by Ken Norton
Getting to GTM Nirvana — a comprehensive deck
Working on a go-to-market (GTM) strategy?
Check out this great presentation on how to scale out your GTM, by Caroline Clark.
GTM strategy is like legos that form a whole. This deck focuses on the legos.
— Caroline Clark
It’s primarily for founders who are figuring out their go-to-market for B2B companies, and the deck is not only informative but also acts as a worksheet to help answer key questions.
It will help you figure out:
Who your ideal customer is (Buyer personas)
How you are going to reach them (Acquisition/Distribution channels) — you can put that f(p,t)=c formula to use 😎
How you are going to scale
If you enjoyed this piece, hit the little heart button below so more people can find it and learn something from these smart folks!
See you on Wednesday for the next deep dive — it’s going to be a good one!
— Jaryd ✌️
