Link to Episode
- Fake growth emphasizes growth optics over reality - funding round sizes, PR, is my valuation bigger - trying to make numbers in a spreadsheet look good
- People start trying to grow before they’re ready to go
- Most valuable companies focused on real growth from the beginning - MSFT, AMZN, GOOG, etc...
- Four stages of a company: Value-first, Growth-first, Profit-first, Company-first
- Value-First
- 0 to 1 mode
- Discovering the truth of your value prop before you start growing
- Have to get product-market fit
- Founders have to do this, be like McGyver
- Patient for time but hawkish for burn
- Metrics - palpable feeling when you have it, customers pulling products out of you
- Convert assumptions or questions into insights or earned secrets
- Early customers are buying because they believe what you believe
- Then they ask for features that make sense
- Startup starts laying tracks in front of the train
- Need validated understanding about customers
- Revenue at this stage is a way to prove to yourself that this is valuable
- What can you uniquely do that people are desperate for?
- Better to have a small number of passionate people
- Know what your advantage is, find people who value that advantage and don’t worry about anyone else
- How do you become a "crocodile in a puddle?"
- Go after a very small niche / market of people who desperately want your product and focus maniacally on that
- A combination of deliberate and emergent strategy in this phase
- Pivoting and shifting here is OK, but you should figure out the product before moving to growth-first phase
- Then you shift to Growth-first
- 1 to x
- Most companies pivot to growth-first too quickly, and once you do, it’s hard to go back - you’ve hired people, spending too much, wasted credibility bullet
- Try to 10x your business in certain time frame
- Value agenda:
- ex: go from $1mm in ARR to $10mm in ARR in 18 months with $9 million
- Needs all three: goal, time, money
- Then ask, is it realistic?
- Then pick who is responsible for each metric
- Customer success, marketing, sales are gears in a machine that produce the value agenda when they're operating in harmony
- Have predictable value creation agenda
- Knowing that you’re ready to grow is being willing to bet you can 10x the company in the certain amount of time with certain amount of money
- Need to have experts in predictable growth
- Add marketing, sales, customer success
- Growth-hacking: “I need to science the shit out of this.”
- Revenue chasing happens when a startup says "I need to hit this number" and will take any customer to hit that number
- Build features that aren't core, or chase expensive customers, or customers who will churn
- Slows you down in the long-run
- Real growth is defined as the accelerated accumulation of attractive customers
- In the growth-hacking phase, you need to hire professionals instead of doing it yourself, and need to stick with something instead of pivoting all the time, or else you lose credibility with your team and become a bottleneck
- Failure modes:
- Wait too long to hire
- Hire overpriced people from big companies who haven't built
- What mistakes do people make around unit economics?
- Not having them?
- Having "happy ears" on about how they can improve
- Then go to profit-first
- Most companies try to transition to profit-first too quickly
- Then you’re a company that has a mix of V, G and P
- If you have a high iteration cycle, it almost doesn’t matter what your original idea is
- Justin.tv vs an autonomous vehicle
- What’s the right iteration tempo?
- When your value hacking / iteration tempo is lower, you need to have more expertise because you get fewer iterations
- In early days, high iteration tempo should be applied to making sure you know what customers value
- Do you agree with Thiel that you should go after a small niche or Rabois that you should go after a big market, vertically integrate, and go fast?
- Both - depends on whether you're creating a new market (Thiel) or going after a big existing market with a low NPS (Rabois)
- When it's clear you have product-market fit
- Early Twitter had a ton of internal problems
- Maples' daughter's friend's mom came up to him at a party and said "Is it true that you invested in Twitter? I heard about them on Oprah."
- He realized that despite his focus on the problems, they had achieved product-market fit
- Thunder-lizard metaphor: https://fi.co/insight/what-it-takes-to-be-1-in-your-industry
- In VC, study the things that did work and ask "what could go right?"
- Sometimes, the bets you take don't work, but that's part of the game
- Very different for PE
- Pivots can work if in the process of failing at one thing, you earn a secret that helps you succeed in the next thing
- BRBN learned that people used photo feature most and pivoted to Instagram
- Skeptical about pivots in which you just start over
- I don't need to know exactly what's going to happen, I just need to believe that there are multiple paths to success
- "Nobody awesome ever fails to raise," so figure out what it takes to be awesome by spending time with customers
- Biggest mistake people make: listening to too many different investors on their product / business
- The absolute number of really great entrepreneurs hasn't changed, even with all of the new money and new companies
- Artificially low interest rates has attracted too much money to Silicon Valley
- Capital floods the sector, companies staying private too long, in large part due to Sarbanes-Oxley
- Bad for the investing public
- Back in the day, you could invest in MSFT and make 100x in public markets, but even in Facebook, public market investors can only make 5-10x
- People who make money are private investors