🌱 5-Bit Fridays: When your TAM is nonsense, letting good things die, why growth models fail, the shadow or rituals, and more
#56
👋 Welcome to this week’s edition of 5-Bit Fridays. Your weekly roundup of 5 snackable—and actionable—summaries from the best operators and experts, bringing you concrete advice on how to build and grow a product.
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Happy Friday, everyone!
In case you missed it this week:
OpenAI announced Sora, an AI model for creating video from text. As you know, that announcement quickly and predictably went viral. One tech reporter wondered if it could be AI’s “holy shit” moment, many called it “amazing” or “completely insane.” And perhaps it is indeed the end of reality as we know it. Even more so when you consider this…
What if you could describe a sound and generate it with AI? Well, Eleven Labs (the text to voice AI startup) announced an upcoming release that does just that. AI Sound Effects. Watch this video of their AI sound effects applied over Sora’s generated video. It’s wild. (p.s I believe they saw the OpenAI announcement and decided to make their own announcement early, hopping on the bandwagon. Well played indeed.
Related to AI, Masayoshi Son, founder of Softbank, is looking to to raise up to $100 billion to build a new semiconductor company. TLDR, he’s aiming to supplement Softbank’s existing investment into ARM with another semiconductor company that can compete with NVIDIA to produce and supply critical chips for AI applications.
Reddit are reserving IPO shares for up 75K top users. A cool move to reward power users.
Apple released a sports app for the iPhone. The free app, obviously called Apple Sports, will show real-time scores, stats, and betting lines supplied by DraftKings. The goal, no doubt, is to push fans to AppleTV+ where the company has been investing billions of dollars in live sports rights.
Today at a glance:
Your "TAM" is why I have trust issues
Process is not the product: the shadow of rituals
To let a good thing die — Closing down a company
Why growth models fail
My pitch framework
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(#1) Your "TAM" is why I have trust issues
TAM, or Total Addressable Market = your startups market and revenue opportunity.
It’s an important number when going out and raising money, but as tech CFO,
, says, “I trust your TAM as far as I can throw it.”Key quote
Companies come in and tell me I have this massive TAM.
I immediately zone out.
And then I say, let’s deconstruct this. What are you really saying?
Once you deconstruct truth, you realize it’s not the real TAM.
— Tony Kim, Head of Technology Investments at Blackrock (via
)
Insight
Here are the most common problems CJ points out about TAM analyses:
a) Lack of credibility: Can you show how you got to your number? In other words, top down TAM numbers, especially those that come from others research (like a market report), are lazy and junk. You gotta know your numbers and what’s behind them.
I hear these TAMs - we are attacking a $30B TAM. OK, that’s great. But where did that number come from? The single biggest company that exists already in what you define as your category is a $2B company. So where is the other $28B? Where are these numbers coming from?
— Tony Kim, Head of Technology Investments at Blackrock
b) Doing the big number thing: Don’t just pick a big number and multiply it by a small %
c) Taking credit for someone else’s TAM: Don’t claim a market you aren’t actually competing in. Building on top of an existing market, or next to an existing market, is not the same thing as competing head on. Your TAM needs to be unique based on numbers you can stand by for your business and economics.
Take action 🛠️
TAM is not finding a number on Google, as tempting as it is to search “X market size”. Yes, we’ve all done it before. (Sorry CJ).
It really boils down to TAM = Price x Quantity.
Price is easy because you choose it. Quantity is much harder to find, because you have to bottoms-up show how many people want and will pay for what you’re selling.
If you can figure out your Q though, you’re in business.
p.s If this peaks your interest, I’d read how CJ suggests you deconstruct the truth of TAM.
(#2) Process is not the product: the shadow of rituals
As
says, rituals and process surrounding work have a knack for confusing what real work is.Key quote
As a PM, I think it’s easy to fall into [the] trap. You write a great doc that everyone agrees upon. You lead a great brainstorm that gets everyone excited. You make it through a tough product review to get the team aligned. That’s all really important. And it’s great to feel a sense of pride when part of the process has been executed well. But, it’s not shipping... Progress in the process should not be confused with getting valuable improvements in the hands of customers.
— Lane Shackleton, via
Insight
Don’t get too caught up in the weeds of planning and execution. It’s can be tempting to spend more time than necessary this space and be fooled into thinking meetings and fancy decks are moving things along.
Red flag: meetings to discuss meetings.
Process is not product. It matters for sure, but don’t let is distract you from the real thing.
Take action 🛠️
You should always feel a sense of urgency toward getting the feature, the improvement, the new copy for the page, whatever it is—in the hands of customers. When in doubt, run toward making a customer happy.
What’s one thing you can do today to improve the product, that actual product, for someone?
Or, in general, what’s one thing you keep talking about doing, that you can just go do?
(#3) To let a good thing die — Closing down a company
In a vulnerable and candid post, expert operator
shares her experience of closing down (well, at the last minute she sold it) her board game business. The reason why is often one not given enough attention.Key quote
The emotional toll a business can have on you is not tied to the amount of revenue it makes. Stress is stress. I didn’t take the challenges in the business as seriously as I should have simply because it was not generating a lot of revenue compared to what I earned in my day job.
While I always had a tight grip over company financials and how something runs in detail, I made a mistake many founders make with time:
I lost my way on why I started it and unnecessarily burnt the bridges to a passion while keeping my eyes on the financial metrics only
I could have probably protected the business by cutting out the stuff that annoyed me and cutting in a co-founder who’s good in those areas and still would enjoy going there till today.
— Leah Tharin, via
Insight
To repeat: The emotional toll a business can have on you is not tied to the amount of revenue it makes.
Spot on. When we look at fail stories, we often see classic fingerprints that led to poor business performance and shut doors.
But in Leah’s case, her business actually performing better highlighted her emotional burnout. What she set out to build became something she didn’t enjoy anymore.
Revenue can be a shiny object in this case that traps you in. But passion is passion. Fun is fun. And if you lose it and don’t want to do something anymore—why should you?
As she put it: “No amount of Gross Margin will keep a business running once the fire is out.”
Joy, as
said in the comments, is the biggest (unsaid) risk to entrepreneurship.Take action 🛠️
Make joy a key metric. And not just personally, but if you’re a leader, for your team.
Simply ask, are you (and your teammates) having fun? Of course work and side projects are not always playground and fun isn’t on the menu all the time, but it should be enough of the time.
If not, life’s too short to do shit you don’t care about.
Read the full piece by Leah Tharin.
(#4) Why growth models fail
Two weeks ago we spoke about how growth models can help you find your next (perhaps boring) opportunity.
As a reminder, growth models = spreadsheets that unpack your business equation.
In theory—which is basically what they are—it’s a powerful tool for understanding how a business works and where to allocate resources to inflect growth. Sounds good.
But
raises an excellent point.Key quote
Here is the dirty secret: growth models usually don’t get used. It is often a useful exercise for the person building it, but they are rarely adopted broadly within a company.
And…
Growth models are a helpful tool alongside the other ways that you understand your business, like talking to customers, understanding the market, and bottoms-up goal setting. They aren’t a magic solution that invalidates your need for those other things.
All models are wrong, some are useful. Focus on making yours useful.
— both via Dan Hock's Essays
Insight & action
Dan goes into five of the most common pitfalls that cause growth modeling efforts to fail. I’ll share the two big takeaways that resonated most with me, and combine them with our “take action” bit.
Using a growth model to forecast your business. There are just too many (hard to predict) assumptions that make this a tool for accurate predictions.
Avoid by: Using the growth model for making relative tradeoff decisions. i.e Will focusing on activation rates from social, or conversion rates of referrals, have a better ROI? That’s what the spreadsheet is good at answering.
Pitching the model for the model’s sake. Nobody cares that you built a fancy spreadsheet. The only thing they care about is growing the business.
Avoid by: Not selling the benefits of why growth models are great. Rather, make one and then use it to pitch them on one thing they should do differently as a result of your interpretation of the model.
Read the full piece by Dan Hockenmaier.
(#5) My pitch framework
…well, not mine, but investor
’s.Key quote
I often get those same questions… What is a good pitch? How do you conduct one as an investor? How should you address it as an entrepreneur? There are so many things to say on the matter, I have tried to break it down into a few concrete elements, starting with some rules of thumb:
The goal of a first meeting is to trigger a second one;
Send your presentation before/after, but don’t use it to pitch;
A good investor will show you the way by asking the right questions;
A bad investor will slow you down by asking the wrong ones;
Either way, your job is to leave a good impression!
— Jean de La Rochebrochard, via
Insight
Here’s his framework with the 5 core pillars, visualized:
In short, you’ve got 1 minute to make a good first impression, 5 minutes to build credibility, and 15 minutes total to convince. And how long you talk for drives all other elements you need to nail.
For example, what you say (the pitch) needs to incrementally reveal more info about the market and the opportunity within it, what your product does to address it, and why you are the one to solve it. Ideally, with some proof of traction. All of this helps investors assess you as an entrepreneur, and the odds that your business will make them any money.
Take action 🛠️
The broader takeaway here, regardless of whether you’re a founder pitching a product or not, is clear: to make someone care about what you’re saying, and get buy-in, you need to understand the arc of interest.
If you lead with the wrong information, AKA a bad hook, you’ll lose people before you’ve even started. Say you have an idea and you want your bosses feedback. Don’t waffle on with backstory, and don’t share details about things before they get the big picture. You might get it, but they don’t yet.
So, work on your opening few sentences before hand. Write them down. Why will they care to listen to more? It’s a game of grabbing attention, and then building incremental trust that you can do whatever it is you’re suggesting you can.
Read the full piece by Jean De La Rochebrochard.
And with our main 5 bits for the week done...
Quote of the week 💡
“Look for what you notice but no one else sees.”
― Rick Rubin, The Creative Act: A Way of Being
Chart of the week 📈
To put it plainly, China is heading towards an irreversible population collapse. These two charts show how, within just 67 years, China’s population could be half.
Unfortunately, they are not alone. Besides a handful of countries (US included), most populations are declining at a bad rate, and as Peter Zeihan says, we’ve passed the point of return where it can be fixed. Bottom line…things, big things like globalization, could be over. This will have ripple effects on supply chains, and thus, life.
I am no geopolitics wiz, so I won’t say much else here besides this…you should seriously consider the below book recommendation.
Recommendation of the week ❤️
I’ve been devouring this book (even while sipping frozen drinks in Jamaica last week), and I could not recommend it enough.
The End of the World Is Just the Beginning: Mapping the Collapse of Globalization
2019 was the last great year for the world economy.
For generations, everything has been getting faster, better, and cheaper. Finally, we reached the point that almost anything you could ever want could be sent to your home within days - even hours - of when you decided you wanted it.
America made that happen, but now America has lost interest in keeping it going.
Globe-spanning supply chains are only possible with the protection of the U.S. Navy. The American dollar underpins internationalized energy and financial markets. Complex, innovative industries were created to satisfy American consumers. American security policy forced warring nations to lay down their arms. Billions of people have been fed and educated as the American-led trade system spread across the globe.
All of this was artificial. All this was temporary. All this is ending.
In The End of the World is Just the Beginning, author and geopolitical strategist Peter Zeihan maps out the next world: a world where countries or regions will have no choice but to make their own goods, grow their own food, secure their own energy, fight their own battles, and do it all with populations that are both shrinking and aging.
Question of the week 🤔
And now, byte on one of these posts 🧠
Here are some of my favorite reads from this week:
Things I Don't Know About AI, by
An inverted yield curve has always preceded a recession. Is this time different?, by
Stanley hype and Samba cringe: Why products fall in and out of style, by Michelle Wiles
And that’s everything for this week, folks!
If you learned anything new, the best way to support me and this newsletter is to give this post a share to help more folks discover HTG. Or, if you really want to go the extra mile, I’d be incredibly grateful if you considered upgrading to paid.
Until next time.
— Jaryd ✌️
Thanks for the shoutout. Always enjoy reading your posts.
..."Make joy a key metric. And not just personally, but if you’re a leader, for your team." --> how many leaders I wished would do this -- so important to the core of a company experience...