Social Spaces on the Internet

Update: I made a video explaining these trends in more detail!

From The Palace to League of Legends, social spaces on the internet are defined in part by the technology supporting the medium. There are a number of trends that will reshape online social spaces in the next several years:

  • Everyone now has phones in their pockets at all times
  • Voice and facial recognition is becoming more mainstream
  • AR and 5G will enable more content rich apps
  • Norms around IRL interaction are changing (e.g. Pokemon Go. More on that here.)
  • Better batteries and graphic chips make mobile streaming and gaming more reasonable
  • Infrastructure and dev tools for mobile apps, streaming, and games are getting much better at all levels of the stack

We’re seeing early hints of these coming together with Fortnite, for example.

We can take a look at Fortnite’s predecessors to better understand how things have changed. Call of Duty, Halo, Battlefield, etc. had very similar features. 5-10 yrs ago, friendships were forged remotely over private lobbies, zombies, boosting, team-based S&D, deathmatch, co-op story mode, etc. You’d go home from school alone (or with one friend for split-screen) and rendezvous with everyone else online. Fortnite’s ‘hangout spot’ effect is really nothing new. But it is special, in my view, for three reasons:

1) Seamless cross-platform functionality. I don’t know how Fortnite was built, specifically. But it’s amazingly scalable. The ability to play on your computer, Xbox, or iPad removes location/situation as a barrier. Plus you don’t have to deal with the entry costs of a full console. This means there’s no bifurcation between Xbox Live and PSN, or more generally, mobile and console. In the past, you couldn’t play with friends unless they were on the same ecosystem — try convincing mom to buy you a whole new console. Fortnite overcomes this large barrier by working well everywhere by default.

2) Relatively simple mechanics. First Person Shooters are usually super complex. The cartoon-like mechanics lower the computational load (good for cross-platform engineering!) and soften the learning curve. Reducing hardware constraints and making the theme more mass-appealing grows the addressable market. Plus a larger segment of the market can actually compete from day one. This bumps retention and virality.

3) Better customization with skins, emotes, etc. The OG FPS games had basic customizations like 4-letter “Clan Tags” that let you identify with a group or “Clan” of players. There was limited ability to make your gun a different color or your character look different. This was a brilliant yet nascent way to encourage and support “hangout spot” socialization. Fortnite takes this to another level with the numerous skins, weapons, and emotes you can earn or buy. You’re not just using the gun or clan-tag your friends have as you would in the OG FPS games. In Fortnite, you’re expressing yourself with an individual aesthetic that you design. That’s a powerful way to build engagement.

I think Fortnite is a great example of distilling the best of past titles into one simple, focused game. The monetization and design is eerily reminiscent of pure-mobile games too. Adding an in-game currency (V-Bucks) that distances USD from in-game goods is a classic mobile revenue strategy. In the past, console and mobile were pretty distinct ecosystems with hugely different economics and distribution systems. It looks like the two will begin to merge. I expect Fortnite to be one of the first, but not the last!

But Fortnite is just one example. There are a lot of levers to pull when it comes to online spaces: accessibility, identity, ease-of-use, social norms, the possibilities of the medium, the focus created by a central activity/goal, and the things you can signal can all influence the way that users interact online.

I expect the traditional and mobile distribution and monetization models to continue merging, and new or underused (e.g. Houseparty or group FaceTime) social spaces to continue picking up users. That’s partly why I’m so bullish on tools like Discord — some media don’t support “social space functionality” but are still great to build community around. Discord adds that social space layer.

I wonder whether we’ll converge into one unified, app-enabled social space a la the Facebook/Oculus/Snow Crash vision. The trends listed above makes me think that we’ll tend towards a variety of smaller single-purpose spaces with richer content. This is supported by the current social media landscape. Each big social space — Reddit, Twitter, Snapchat, Facebook, iMessage, FaceTime, Instagram — owns a unique “job to be done.” Current fragmentation is a feature, not a bug. More context on that concept here. We haven’t converged into the single unified platform that some thought we would 20+ years ago, and I don’t see anything that will change that going forward.

Getting Good at Startups

Given that I spend most of my time nowadays working with first-time founders and students interested in venture, I figured I’d write a post covering my common advice on getting really good. If anything, this serves as an exploration of trade-offs I’ve dealt with at one point or another.

Although I learned the most exciting and nuanced tips and tricks from talking to great people, there’s still a ton that you can do on your own. I’m constantly amazed at how young some top startup nerds are. There’s so much content out there that you can get learn surprisingly fast if you separate the signal from the noise. Apologies in advance if this turns into a sales pitch on joining a startup and focusing on getting really good at one thing.

Principles

As is true in everything, there are many different ways to be really good. In general, I think we bias towards covering our weaknesses and being well-rounded. Especially if you have a strong deliberate practice/growth mindset. But if you want to be really good, it often helps to be the absolute best at one or two things, and merely acceptable at the rest. You could spend most of your time building a great network. Or becoming a top-tier salesperson. Or learning the detailed history of Silicon Valley and the empirical results of what works when building startups. It doesn’t really matter what you choose. But it’s incredibly hard to do everything when so young.

One useful strategy here is to prioritize the skills with a strong snowball or halo effect. If you get very knowledgeable about one specific vertical, you can be known as “the X guy/girl” for your X of choice. Then you have an excuse to talk to people and build cool things. Or if you focus on building a network of smart, like-minded people, it’ll get much easier as time goes on. Having an already strong network makes future networking easier and frees up time for other pursuits.

I think there’s not much choice to be had in your comparative advantage. You should do what you do enjoy the most. I can’t stand “networking” so I focus on what I do best: reading, learning, and expressing interesting viewpoints to friends. Building a reputation around knowing a little about everything has made the other relevant startup/venture skills easier to get.

Read the right materials

I’m a big fan of Semil Shah’s post about context as a tool for having good ideas and operating effectively. Most knowledge is subtle and not specifically written down.

The best way to get context is to follow current and historical thought. I’d read through all the classics: Paul Graham, YC, a16z, First Search, Founders at Work, Hacker News, tech Twitter, AVC, Above the Crowd, Chris Dixon, Brad Feld, Elad Gil, 20 Minute VC, and many other that I’m forgetting.

The raw volume of freely available content is humbling. I used to be bummed that I got rejected from MIT, but there’s a silver lining that I’m extremely grateful for: I have a huge amount of time to focus on stuff beyond coursework. Of course CS@Illinois is no walk in the park but I have a lot more flexibility to sit down and consume whatever info I want. Being careful about 1) minimizing “gen ed” time sinks that could be replaced with short books and 2) cutting out extracurriculars I’m not in love with has made a huge difference in productivity and happiness.

With a small number of brillant exceptions (Jason Lemkin on Quora, Vitalik Buterin on Medium, to name a couple), everything on Hackernoon, Quora, CNET, Business Insider, etc. isn’t worth the time. I find that Techcrunch, WSJ, Recode, etc. are fine for keeping track of big picture stuff, but you don’t learn much from them. Newsletters like LAUNCH ticker, Term Sheet, and StrictlyVC are better.

I’m a staunch supporter of learning things completely outside of your field. Not just “tech, but in a different vertical.” Really out there. Think political science, biology, military history, ethics, law, and comedy. More on the importance of this here.

Starting something

This is definitely the best way to learn every skill you need in entrepreneurship and venture. I’ve always known that I have more of an investor personality, but literally all of my mentors told me not to go straight into venture. I was nearly stubborn enough to ignore them but luckily I found the ideal startup internship and jumped on that opportunity.

Let me say: I’m amazed at how much I learned in just three months. It really is the fastest way to learn. I’d try to go as late-stage as possible as long as you can do a little bit of everything. The startup I was at had 7 people. I’m very fortunate to have done everyone’s job at some point.

To take a step beyond my own personal experience, there are a few specific characteristics to unpack from the generic term “startup.”

The speed of execution helps keep things challenging and interesting. There’s more room to experiment, the feedback loops are tighter, and you’re forced to overcome perfectionism and ship quickly.

The extra responsibility of a startup role adds a very qualitative sense of purpose or necessity. At a big tech company, you don’t need to worry about most of the little details, but those tiny parts of the business add up quickly. The utter lack of a safety net or acceptable “not my problem” scenario is a forcing function. You’ll have to think hard about asking the right questions and prioritizing.

Finally, there’s an enormous value to working on small teams that don’t build narratives. Outside of a company, all you know are the stories. It really is mind-blowing how revisionist or over-simplified most info is. Part of this is to build prestige among outsiders. It sounds better if the challenges you overcame were scary and hairy. It’s also because some things like interpersonal conflict and doubt of the company mission can’t be shared externally. That’d violate norms or expose confidential info. By being on the inside of the machine, you know all the juicy details of what’s happening. That was much more valuable than I had anticipated.

If you want to start something of your own, working at a startup is a no-brainer. Hop between startups each summer (and each semester part-time!) If you want to go into venture, I do think the empathy and tactics you learn are worth the time doing something other than your eventual goal. The street-cred doesn’t hurt either.

Investing

One of my major learnings over the past couple years at Contrary has been the value of getting as much real practice as possible. If you’re asking yourself “is this founder in the top 10%, 1%, or 0.01% in terms of clarity of vision?” you need to have enough data points to draw a normal distribution in your head and decide how much of an outlier the founder is.

This also applies to metrics. Is a 5% week over week growth rate good or bad? Is there a big difference in benchmarks between verticals? What CAC is reasonable for this sort of product? The answers to these questions depend on experience and are hard to observe from the outside of the decision-making room.

Talking to a very large number of founders also helps you understand the edge-cases that pattern matching and percentile-ranking don’t cover. What if a founder is a management consultant who taught themselves to code, and is building a social app which has historically been a questionable category? How do you begin to reason from first principles if you don’t have much info to go off of? You develop a valuable intuition for different situations by talking to as many people as possible.

Another thing to optimize for is the “legitness” of the investing you’re doing. Other founders/investors have suggested building a Fantasy Portfolio where you choose startups you know about and pretend that you invested. This is fairly popular in the public markets. It works better there because you have access to much of the same information as other investors, and you always have the option of investing in public markets. A Fantasy Portfolio helps prove that you can find companies, but convincing them to take your money is a different ballgame.

Through a handful clubs or nationwide student organizations, you can give out grants or invest small sums of ~20k. While these are a good way to build a network and meet founders, you can’t learn as much on the decision-making or value-add side. Working on a returns-driven team with larger check sizes (ideally over 6 figures) forces rigor. Just as exams force you to study and thoroughly learn the material in a way that lectures and homework can’t.

Of course I’m biased, but I think Contrary is the best way to do that while still in school. It’s much better than working remotely for a venture fund doing diligence work, in my opinion. Joining a VC in the summer would be best, but I don’t think it outweighs the opportunity cost of joining a startup when school’s out.

 

3 Questions on Tech Companies

I was recently given a few interesting questions on big-picture tech and investing principles. Here are some thoughts:

On big tech co defensibility

I think many investors over-weight for the theoretical aspects of a moat and under-weight practical ones. To be fair, good investors use mental-models to understand and generalize concepts. But it’s very difficult to discount an idea that is conceptually elegant though flawed in detail.

Network effects are the top-of-mind example here. In my view, Facebook — the poster-child of network effects — isn’t nearly as defensible as other tech giants that have ecosystem effects (Google search is much better partly because of data harvested from peripheral businesses like Android and Gmail) or brand equity (Coca Cola is otherwise indistinguishable from Pepsi).

A trite, tweet-sized rebuttal to FB’s moat would sound something like “how did MySpace’s network effects turn out? Or AOL’s, or Yahoo’s?” While NFX are great when you have them, they disappear just as fast once the flywheel starts spinning in the other direction.

I can imagine FB’s core social utility being split off into a number of separate products. We saw this with Instagram before FB acquired them. We saw Snap fill the private/ephemeral need, and not even FB’s massive network effect could save Poke from massive failure.

I also think FB is acutely aware of this: they’re investing more in video streaming to lock content-creators to the platform. They’re also drawing inspiration from WeChat with Messenger by tying in tools to make it a platform rather than a social network feature.

Mark Zuckerberg is one of the last people I’d want to bet against. But I can say the same for Bezos, Page, Brin, etc.

On the most important characteristics of founding teams:

Of course the ability to attract talented hires and being hard-working are useful traits. Solving a burning problem in a large and growing market is great too. Just as being tall is useful to a pro basketball player. I view these more as prerequisites, not forward-looking predictors of success.

Many investors and operators alike seem to favor category creators — companies that build something totally new. Zero to One, as Thiel would say.

But historically, many of the best companies were not the first to the punch. Going by market cap: Apple did not build the first computer or smartphone, Amazon was not the first to sell things online, Microsoft wasn’t the first to make an OS, Google was just a clone of Alta Vista, and Facebook was like MySpace or Friendster.

Even smaller companies like Flexport or Quora can be glibly described as “freight forwarding, but with software” or “Yahoo answers, but with good content.”

To be clear: this does not (and should not!) diminish the achievements or impact of any tech companies. I’m actually humbled by how transformative incremental changes can be. I see this as a testament to the power of pure focus and insightful iteration on the learnings of others.

There are probably other characteristics higher on the list of greatness principal-components. But this is one of the most underrated and misunderstood in my opinion.

On evaluating teams:

First, I look for something wrong with the team. Not to find a reason to pass, rather to make sure that they’re not “too perfect” or cookie-cutter. At risk of sounding like an armchair philosopher, founders with a vision for something truly innovative will look a little strange or contrarian. Founders simply following trends generally opt for more traditional or “prestigious” career paths before starting a company. As a quick aside, I think this is what tech people get at when they use the “don’t hire people who went to business school” mantra as a shorthand for describing outsider-ist tech culture.

Second, I try to understand how the team will continue to attract stellar people both inside and outside of their current areas of expertise. There are a lot of potential levers to pull here. Perhaps everyone is super cool or brilliant (or both!) and other great people will want to just be around the team. Or maybe the founders are respected engineers who only have street cred with other engineers, for example. Then how will they recruit and retain salespeople?

Third, I want the team to be thoughtful about the cultural diversity vs tribalism paradox. Especially in the early stages, teams need to be able to move quickly, be agile, and have laser-focus on the vision. To get through the early-stage grind where you spend all your time with the same people, it helps to be “like-minded.” As you grow, however, that can incubate serious problems (Uber) and you’ll have a harder time cultivating different viewpoints and skill-sets. Ideally founders have thought through this and will be able to handle the team culture through different stages of the company lifecycle. You could even generalize this to being deliberate about scale and knowing how to learn about management.

Request for Startups

There just isn’t enough enough time in the day to take advantage of every opportunity. Below I’ve listed some ideas that I wish I could start in another life. I’d invest in all of them if the right team is committed. Let me know what you think! I could dig into these ideas for hours.

A dating app for hyper-targeted Reddit-style subcommunities

There are two competing trends I’ve observed in the dating space: 1) an absurd number of niche dating services have small communities, and 2) it’s difficult to filter for what you actually care about on the popular platforms like Tinder or OkCupid. Match Group, the owner of Tinder, Match.com, and OkCupid, has tried to cover the major user segments at the brand level. Is there a way to cover more user segments and give users more choice at the app level?

Nearly all new dating startups are cookie-cutter and terrible. I’m interested in a platform that solves the filtering problem by offering a marketplace of user-generated subcommunities, a la Reddit. There would be an “everyone pool” or master-list of profiles to sift through, paired with the option to “join a circle” such as tall people or neoliberals who enjoy the theatre. I’m skeptical of top-down data science that matches people together based on survey questions — I think letting users generate their own taxonomy could lead to interesting results and potentially form a lasting differentiation. The default “all” list helps users join the platform, and the unique subcommunities lock users in.

A usable prediction market

I don’t understand why there aren’t more prediction markets (primer on the concept here). The prediction markets that do exist — the financial markets — are incredibly impactful and employ millions of people. Interesting PM use cases include prediction-based corporate governance structures, better predictions of real-world events, and more accurate securitization of private risk.

I was excited by the launch of Augur, but nobody really uses it. I haven’t worked out why Augur — or a centralized service for that matter — hasn’t caught on. Sports betting is a technically a form of prediction markets and that’s a huge industry. I see no reason people wouldn’t enjoy on similar real-life events (will Kanye run for president and get more than 500k votes?) I think that a prediction market with a Robinhood-esque ease-of-use or social features could get big. (Perhaps this is something that Robinhood should just build on their own!)

This could take the form of a consumer-focused product, or a toolkit for companies to integrate prediction markets into their own products. (Beware, this is a slippery slope leading to Futarchy. Kidding.)

Better tools for remote teams

Zoom, Slack, and G-Suite have made managing remote teams much easier over the past several years. I can’t imagine leading Contrary without such convenient ways to work and communicate. But there are still unsolved problems. Documenting everything for your team through a wiki or messenger is slow and painful enough to not get done most of the time. And you can’t look over at someone’s desk to see if they have a minute to chat. We need better information collection (some companies have attempted auto-transcription of meetings) and less ambiguous/distracting ways to get someone’s attention remotely.

The holy grail of remote tech is feeling like you’re with someone IRL. No matter how much time I spend with Contrary’s venture partners over calls or text, the friendships don’t feel quite right until we meet in person. When seeing someone in-person I’ll feel like we’ve been friends for a while. But in-person interaction is that final stepping stone. This seems to be an artifact of how we’re built as humans. Getting around that somehow would be huge since team culture is so important.

Online mega church

Senior citizens are often lonely, immobile, and religious. They’re also very loyal customers. You can read more of my learnings about seniors here.

Think of how successful some televangelists have been. And they just sell videos. Now that seniors are quickly adopting mobile devices, you can layer on Netflix-like content selection, social features to build community (and network effects!), on-demand streaming, interactive components, in-app donations, etc. Just as middle schoolers can practically live their social lives in Fortnite teams or CoD lobbies, on online religious gathering place could be the killer app for seniors.

Tools or a platform for job offer negotiation

Most college kids don’t negotiate their job offers. I think that’s a colossal mistake because 1) wages tend to be sticky so a marginal difference in starting salary will add up over a career, and 2) an extra few thousand dollars saved now will compound into 5x that by the time the students’ future kids are growing up. Every little bit of cash matters early on in life.

I think there are a couple causes of this problem. College students may not know that they can negotiate offers, or they may be too timid or anxious about risking their offer. Even though in reality, nothing ever happens to the offer and employers won’t think less of you as long as you’re not overtly greedy. Or maybe students are just burned out after 4 years of hoop jumping and want to put the job search behind them.

I don’t know what the best model would be. Career coaching is available to most students, but nobody uses it and it’s got a mediocre reputation. The school cares about getting you in a job, not optimizing those little comp details (similar to the real estate agent incentive problem). There are a couple product angles you could take. First, you could offer an end-to-end job hunting service that closely coaches you on what to say to recruiters (don’t be the first to name a salary number! Blame a family member for needing time to think and compare!). You’d charge a percentage of bonuses you can negotiate to de-risk from the user’s perspective. Second, you could create a library of example emails, Glassdoor-like negotiation benchmarks (some companies are more flexible than others), and a community for navigating the post-offer process which is crowded out by resources for the job-seeking process. Paid access to such a library would be clearly ROI-positive from a user perspective in theory, but I bet it’d be hard to market in practice.

The long term vision would be to slowly eat more and more of the recruiting “stack” and eventually match users with companies. You already know how Indeed, WayUp, etc. work. I think there’s an opportunity to build lasting value-add by being a uniquely trusted brand that is on the job-seeker’s side from the start (helping with negotiations), and by having a better understanding of why employees do or do not accept an offer since you’re involved in that process.

High quality food vending machines

Consumers want 1) convenient food, 2) better quality than fast food, and 3) more unique or “local” eating experiences. The rise of fast-casual, food trucks, and single-purpose micro-shops supports these trends. But there are a couple problems you run into in the food industry that make restaurants bad fits for venture. Margins are low, the businesses are not scalable, and the moats are dependent on brand and food. I want to take the food truck craze one step further with automated vending machines that cook food within them. You’d start with simple (but restaurant-quality) foods like dumplings. The machine would have an internal steamer to cook the dumplings on the spot. To maintain freshness, you’d have a full-time employee prep ingredients and deliver them to all of the vending locations. You could expand into pizza, eggs + hashbrowns, shawarma, etc.

The key thing here is keeping quality up — most vending machine food is bad. But if customers would walk up to a machine on their morning commute and get fast-casual quality meals, you may even be able to charge a premium. Of course there would still be a cost challenge: the machines would be expensive, and you still need to hire someone to do constant maintenance and restocking. That’s mitigated by the lack of labor cost on a per-machine basis. This would be really hard to grow, but I think the market is so big that the slog would be worth it.

A robust way to signal conformity and conscientious  

I’m a fan of Bryan Caplan’s The Case Against Education. It argues a viewpoint that may seem obviously wrong or even upsetting, but is very difficult to actually find steel-man refutations of. To oversimplify one component of the book’s thesis, education signals three things: intelligence, conformity, and conscientiousness. Of course we have the SAT or IQ tests to show off intelligence. But you can’t show a potential employer that you’re conformist enough to be an obedient employee and conscientiousness enough to get the job done.

That’s a big part of why we spend tens or hundreds of thousands of dollars and 4 prime years on education. If there were a stronger, more honest signal of conformity/conscientiousness, then you could potentially skip the brute force signalling that makes up much (most?) of modern education.

(If you’re thinking “but what about everything you learn?” then I agree that’s also part of school, but go read the book. There are some incredible empirical results that may sway your viewpoint.)

I’m purposely leaving this proposal vague. There are a lot of different angles you could try. Perhaps a company should build a stronger reputation system that tracks detailed feedback across employers (hiring managers rarely call references beyond your most recent job). Or you could build a more comprehensive marshmallow test for adults. Or something totally different that I’m not alluding to here.

A socially acceptable, well-branded nootropic

I’m worried that nootropic vitamins and supplements will go the way of Google Glass, Segway, and Soylent: useful products, but something you’re a little too embarrassed to use. Cutting edge research-based companies tend to have very utilitarian marketing strategies (WTF is a ketone ester and why do I need it?) and the nootropic/supplement/IMF/biohacking space isn’t really “cool” or consumer-ready yet. I assumed that the company formerly known as Nootrobox, now HVMN, would be the ones to make it happen. Maybe timing isn’t right, or their execution was off.

Consumers seem to gladly regulate themselves using drugs (coffee, alcohol, and nicotine, specifically) so I don’t think there’s anything fundamental preventing nootropics from happening. Vitamins are common too. I can’t explain why drugs and vitamins haven’t been combined into a mainstream nootropic. It has to be the marketing. (Semi-related: Kin is a startup I’m excited about).

Competition Matters Less in Software

What is it that makes software startups so able to disrupt incumbents? Why does competition seemingly matter less in software compared to other industries?

Software companies are very maneuverable. Especially new entrants. There are relatively small CapEx requirements to maintain existing products so pivoting and expanding doesn’t require as much of a operational/financial tradeoff as compared to non-tech. You can keep your previous product running for next to nothing. Plus you can instantly push new changes to existing users.

Software can instantly scale to fill any niche or unlocked growth opportunity. The marginal cost of servicing a new user is basically zero, and it’s instant. Larger companies are held back by old processes, bureaucracy, hyper-focus on a larger revenue stream, etc.

Network effects (which many competing tech companies rely on) can be unraveled. I’ve always had the hardest time arguing this point. Friends have pushed back against me, saying that the whole point of a network effect is that it can’t come undone easily. I wasn’t quite articulate enough to counter that argument, but Marc Andreessen says it well in Elad Gil’s book:

Marc: I think network effects are great, but in a sense they’re a little overrated. The problem with network effects is they unwind just as fast. And so they’re great while they last, but when they reverse, they reverse viciously. Go ask the MySpace guys how their network effect is going. Network effects can create a very strong position, for obvious reasons. But in another sense, it’s a very weak position to be in. Because if it cracks, you just unravel. I always worry when a company thinks the answer is just network effects. How durable are they? To your point on data network effects, I would just say that we don’t see it very often. We see a lot of claims, and very little evidence. The reality is, there’s a lot of data in the world, and a lot of ways to get data. We have not seen very many data moats that actually make sense, even in science.

You can G2M through many channels. Technology companies often go to market through several different hyper-focused channels. All you need to do is find one LTV/CAC positive channel and pour money into it. Non-software companies are often stuck having to do generic lifestyle marketing and branding which doesn’t easily attribute or confirm ROI.

Software is less tied to external forces like regulation, macroeconomic trends, and cultural norms. I’d argue that the whole point of some software companies is to get around or hedge against the effects of these things. Software firms compete more so on product and distribution.

Software is feature-driven. Coke and Pepsi taste the same in blind trials — their slow-changing brands and distribution drive sales. If a software company builds a better feature set, they can win customers on the basis of their product or service’s functionality .

Data is fungible. Users can switch between WordPress and Medium, for example, at will and with no cost. This is a part of what drives software companies to be platforms: if your value is the aggregation and network effect rather than the info itself, users have a cost to switching (fewer eyeballs)

Great software companies tend to be category creators. I disagree with the Thiel view that startups must go zero-to-one or have a grand secret — most amazing businesses can be reframed in incremental terms, like Netflix is just TV but online, or Facebook is MySpace but for your college friends. Most software companies simply don’t compete much on price or quality. To be fair, this point is a bit of a truism: categories tend to be defined by the most prolific companies, not vice-versa.

All I’ve done here is enumerate the some factors in play. The challenging part is figuring out how these different forces work together, in which situations they appear, and what properties of the market emerge from them.

Of course these points are simplified. Many enterprise software companies, for example, have strong lock-in effects on data. It’s very difficult to export your task management or CRM tooling into another system. Perhaps digging more into these exceptions would make for a good followup post.

Agree or disagree with anything written here? Have something to add on? Shoot me an email (will@thisdomain) or tweet (@whrobbins)!

Senior: My Summer at Umbrella

As I’m sadly nearing the end of my time at Umbrella and looking forward to my senior year of college, I wanted to write down some of the interesting things I’ve learned this summer.

I originally joined with one personal mission: add as much info as possible to my understanding of what I want to do with my life. The role was for a wear-every-hat gap-filler. And I really liked the team — I could see myself fitting in well with the culture. To be honest, I wasn’t in love with the problem space at the time, but it was new and mildly intriguing.

As the summer went on, however, I ended up becoming rather interested in senior living. Growing old creates problems in basically every part of your life, and most modern tech-enabled companies aren’t designed to work with seniors. I’m increasingly convinced that there are a truly gigantic number of opportunities and interesting problems out there.

Starting with some things about seniors in general:

The financial calculus is harder. Many seniors live on fixed income and have a lot of uncertainty surrounding how long they’ll live and whether or not they’ll have unexpected medical costs. This makes seniors reluctant to spend on anything that’s not necessary.

Word of mouth carries lots of weight. Seniors are very deliberate in evaluating their experience as customers. It can take weeks for seniors to get comfortable enough with a product to recommend it to friends — and they often have a smaller set of people they talk to. These dampen viral coefficients for a nascent single-player company like ours. It’s unknown how strong word of mouth will be for a more advanced senior-focused tech product. On the flip side, careful recommendations often have a higher impact and make friends likely to convert.

Trust and security are huge concerns. A disturbing number of Umbrella’s members have been previously scammed by unethical contractors or even had their bank accounts emptied by fraudsters. Some sales leads aren’t comfortable giving us a credit card number or basic personal info, and for good reason given the level of abuse targeting seniors. Figuring this out across marketing, sales, and product has been an interesting challenge.

Serious attention to detail. There were multiple occasions where I’d talk to a potential customer and say something like “we charge $29/month,” then after talking for another few minutes, I’d reiterate that “Umbrella only costs $30 bucks a month.” Then I’d inevitably be interrupted: “wait, I thought you said $29, not $30?” Inconsistent information over the phone and sloppy landing pages are a big turn-off.

It’s harder to consistently communicate. While most of us are available through text, email, or phone calls, seniors often only use one or two of the three. It can be tough to design a system that works when any given user might require that you use a specific channel.

You can’t take all tech product concepts for granted. Ideas like recurring subscriptions (what if I don’t use it this month?) and on-demand work (so who are these people just showing up?) are alien. Seniors usually don’t keep up with tech news that might familiarize them with companies like Uber or Netflix, so you can’t even rely on common context to build a brand image and value proposition.

Bad design is really really bad. You can’t hide much behavior (linking an address to a map application, for example.) Hamburger menus, swiping, and press-and-hold are out of the question. Animations are probably too confusing as well. Other complex products may be able to get away with those design elements, but not Umbrella. Building a crystal-clear interface that is acceptable to everyone on the seniority-spectrum is hard.

You earn a lot of goodwill, at least as far as tech companies go. Serving seniors is a strong mission that unifies potential partners, customers, and teammates. While still one hell of a challenge, BD/sales/recruiting gets 3% easier. And that can make a huge difference.

Your customers love you more than you thought was possible. One of the best parts of working at Umbrella has been the immediate and significant impact we’ve had on our members. Every week we’d get a call or note saying “I don’t know what I’d do without you,” or “Umbrella is a godsend.” It’s a lot easier to push through an intractable bug in your code when the users are so genuinely grateful for what you’re doing.

You work with lot of fascinating characters. Seniors don’t seem to care what anyone thinks of them. Between the hilarious age-gap moments, borderline-crazy 500+ word emails, and heartbreaking reminders of our own mortality, seniors are by far the most human group of customers I’ve ever served.


Thoughts on the space overall

There are a couple strong tailwinds that make me very bullish on senior-focused startups.

First, seniors are becoming more and more digital. While plenty of our members don’t have email addresses or cell phones, that’s changing — fast. You can easily Google around for trends and stats here. By the time a startup begins to scale up several years from its starting point, this will be much less of an issue. So now is a probably a great time to get rolling.

Second, unique senior-specific UX and sales challenges create a surprisingly solid moat. Think about everything I listed above — I suspect that X but for seniors will be a viable startup idea generator. We already see early hints of this from GoGoGrandparent, the Uber for seniors that went through YC. (They’re double dipping on the idea generators: Uber for X and X for seniors!)

I’m convinced there will be several $1bn+ companies out there focused on senior verticals. One of the running jokes at the office was that an online megachurch would be an insanely profitable business. While that’s not a business we would ever want to build, just remember how successful televangelists are. Add on the scale of the internet, modern phone/tablet distribution, and social-network-like community features and you’ve got something huge.

AARP is investing $40mm in senior-focused companies. I’ve also heard more non-specific but senior-related chatter recently from mainstream VCs. I’m looking forward to seeing how the space develops! Let me know if anything catches your eye.


Shoutout to Sam, Lindsay, Emma, Erin, Samra, Caroline, Megan, Manuela, and David for a summer that went by way too fast! I’ll miss you all ❤

When Insiders Were Outsiders

When you become successful, there are two stories to tell: the triumph of that success, and the struggle of getting there. There are plenty of resources on the former — winning tactical advice, motivational think-pieces, etc. are easy to find. But I think people benefit most from the latter category.

Here’s a list of great hustle stories. Use these to remember that everyone had to start somewhere, and we’re all making it up as we go along!

If you can think of similar high-quality pieces, let me know! Contact methods on my homepage.

Worldview as a Competitive Advantage

Recently I’ve been thinking about what makes a strong competitive advantage in a world where individuals and firms are increasingly leveraged and specialized. The top several dozen venture investors basically monopolize the industry. (About 20 firms — 3% of the venture universe — earn 95% of the returns.)

The common value-add or differentiating dimensions are a great network, positive signaling effects, insightful operating experience, or the willingness to invest at the highest price. But it’s not clear that the majority of investors move the needle.

These are all useful from the perspective of founders. The tough part as an investor is that there are few unfilled niches. You’ll run into tough competition on all of the above features. So what’s left? From your perspective, does value-add even matter that much when VCs still pass on many amazing deals?

I think that worldview is the most underrated and robust advantages you can have over other investors.

An interesting thread in politics and psychology these past few years has explored how people change their minds. Example: ideas from Jonathan Haidt’s The Righteous Mind and Arnold Kling’s The Three Languages of Politics have made their way into the mainstream. The core insight here is that people rarely change their minds. Opinions on different issues aren’t individual beliefs based on separate analyses — they’re products of a single underlying worldview. If an idea doesn’t fit your worldview, you’re unlikely to accept it on its merit rather than break up an otherwise consistent and unified understanding of how things work.

This makes VC hard because the best deals are, almost by definition, outliers that don’t easily fit into any worldview. So having a worldview that’s more accommodating to a wide variety of ideas should let investors make the right picks which is historically very hard (see Airbnb and Robinhood examples linked above.)

Perhaps we should focus less on building a network or thought leadership or industry experience, and more on learning worldview-expanding (or, ideally, -shattering) ideas. Less of entrepreneur Eric Reis or How To Win Friends and Influence People, more of polymath Robin Hanson or The Sovereign Individual.

That’s the core point I want to make. As a quick and currently-relevant example, different investors seem to view Tesla through different lenses. Many tech investors I follow hold a big-picture worldview more in tune with what works for VCs. If the macro-trend of electric vehicles is there and the team is right, it’s worth betting on. Other investors, often public equities and bonds people, take a more grounded approach. Tesla is likely structurally unprofitable compared to other manufacturers that are quietly waiting for the right timing, plus their financials are comparable to GM right before it went bankrupt in 2008. One portfolio manager I know called the Tesla bond issue one of the worst he’s seen in recent memory. Luckily for Tesla, more optimistic investors controlled enough capital to purchase the issue anyway.

Of course these are total oversimplifications of each stance, but the point I’m making remains. I think investors make decisions on a case-by-case basis, but with significant bias from worldview. Or maybe worldview-veto is a more accurate descriptor of what’s going on.

There are a number of other interesting threads here such as the problem of demonstrating that you have the right subjective worldview to actually have an edge. Networks, operating experience, etc, are inherently more provable. (This relates to the Thiel contrarian philosophy: if others buy-in to your perspective, it’s not an edge.)

Another question is whether all this matters. You can’t go to an LP when fundraising and just say “I make the best decisions because I have a better wholistic model for how the world works.” The other value-add metrics also act as a positive signal. I named this blog Heuristically Speaking for a reason!

Thanks to Nathan Ju for reading a draft. Subscribe to not miss any future posts!

Degrees of Freedom

I often talk to companies that come up with complex plans involving a technical challenge, going to market, then scaling and fending off competitors. They want to do X to leverage Y, then finally become Z when the time is just right. I suspect this stems from (incorrectly) feeling like the problem they’re solving isn’t innovative enough. Perhaps we glorify different strengths of successful businesses (the product obsession of Apple, the scale of FB, the community of Airbnb, etc) and forget that no company can possibly combine all of those virtues into one perfect startup. Or maybe investors build thought leadership by constantly talking about bleeding-edge buzzwords and founders accidentally make that their default set-point.

Think back to the best startups of the past decade. They all follow fairly simple plans which essentially bet on one core thesis: taxis that you can hail with app. A site where people can rent out a room in their house. Let teens send pictures that disappear. None of these companies had a multi-phase plan from the start. They didn’t solve particularly novel engineering challenges, at least until they were already super successful and hitting scale issues. There was only one singular problem to focus all attention on. And it often sounded like a somewhat lame problem, even though it ultimately wasn’t.

When evaluating startups, I often use a mental model I call degrees-of-freedom. Count how many things need to go right for the company to survive. Each additional degree of freedom makes execution exponentially harder and more complex. (I use that word exponential in the literal mathematical sense, not in the metaphorical sense!)

If you’re dealing with regulatory uncertainty, and building on a new decentralized protocol, and introducing a new business model, sure, you’re doing something innovative. But too many things have to go right. Too many things are simply out of your control.

My advice to these ambitious founders is: don’t feel like you need to do something impressive on every front. Pick one idea to bet the company on, and don’t lose sight of it. Use simple foolproof execution strategies for everything else. Reduce the number of degrees of freedom.

Let’s all get more excited about “simple” startups!

Buying IBM

IBM is one of my favorite sales and marketing case studies. As the saying goes: nobody ever got fired for buying IBM. I had always appreciated the sales hustle, but thinking more about the “Buying IBM Effect,” I began seeing the same dynamic elsewhere:

Huge fund sizes, for example, can hurt VC returns. Deploying large amounts of capital is difficult if you’re only seeing a limited number of worthy startups. You have to choose between investing more capital per company and investing in a larger number of startups. Many investors chose the latter option. This explains some quirks of highly-saturated funding ecosystems like Stanford’s. I’ve seen companies there raise ~1mm with nothing more than an idea and a decent-but-nothing-special team. That’s not to say this strategy is impossible to pull off, but in every case I’ve seen, it’d be crazy to invest on team alone. Nobody ever lost an LP because they invested in Stanford startups, so excess capital is deployed there.

As a manager it can be too risky to hire a brilliant-yet-under-credentialed or not-well-rounded candidate. The upside is simply making the hire and your boss not realizing that you made a tough yet successful decision. The downside is that the candidate, while exceptional in one dimension, can’t cut it some other respect and drops the ball. Then you’re on the hook for bringing them on the team. Unless you’re fortunate enough to work in a managerial environment that understands the risks and rewards of making such a hire, it’s not worth it to take the risk of making the hire. Nobody ever got fired for hiring a mediocre candidate with the right background on paper. But exceptional is often what the organization needs.

Wealth managers want to provide clients with reasonable returns. Although active management and picking individual assets lets you attempt to beat the market, you’ll lose more clients by underperforming than you’ll gain by over-performing. So wealth managers usually defer to index funds which stick to average returns. (In my opinion this is the best strategy anyway, but the point I’m making is that wealth managers are forced into the passive/conservative strategy.) Nobody ever withdrew from a retirement fund because their returns were just fine.

The Buying IBM Effect is just a symptom: asymmetry between the upside and downside is the real problem.

In environments you can control, install a system that judges decisions on the swing instead of the hit. (My deepest apologies for the platitude.)

In environments you can’t control, design your product or pitch to cap the downside. Risk aversion is often an ulterior motive that you won’t uncover directly through conversation. It’s important to anticipate the structural biases of anybody you’re interfacing with and account for their internal decision making considerations.