Creating Product Stickiness

How should we think about competitive moats for companies like Spotify that aren’t quite marketplaces yet still have data and multiple parties involved? Is defensibility (or lack thereof) inherent to the market structure, or can you create stickiness out of thin air? Is there another category of defensive strategy yet to be fully explored?

For Spotify, the traditional network effects model doesn’t quite work as it would for Facebook or Twitch. Sure, you have consumers on one end that incentivize labels to add more content to the platform. You can also add original content, or build things like playlists that are mildly high-friction to transfer.

But labels can raise prices until they capture most of the value. Competing platforms can offer the same content at a different price. And switching-cost fundamentally doesn’t get stronger with scale. In fact, product friction often incurs a tradeoff between usability and stickiness.

Spotify ultimately leans heavily on product design, branding, loyalty, and other forms of “weak moats”.

But I think there’s a whole set of stickiness strategies that companies big and small can exploit to raise switching costs and slowly eat more and more of the user stack.

Example 1: “blank slating”

We’ll stay with music streaming products for now.

The data you generate when playing music can only be so useful: Spotify can personalize playlists to fit your tastes, but Apple Music can easily do so too, especially if you import your playlists. Both companies have large data sets to make recommendation engines good. As much as you think you’re a musical snowflake, most people’s tastes aren’t actually that unique.

But what Apple Music will never have is the list of songs you have saved but have not listened to in a while. So Spotify can always hand you a radio station full of “favorites you haven’t listened to since last year” that perpetually surfaces novel yet nostalgic content.

This relies on data that cannot carry over between competing products. It’s a tree rooted within the bounds of the walled garden. If you switch services, that entire set of data insights becomes a blank slate.

Example 2: “stored data”

Literally every talking point I’ve heard about Superhuman relates to 1) speed, 2) keyboard shortcuts, or 3) the “luxury software” effect.

You may assume that I’m another VC Superhuman evangelist, but I’m surprisingly lukewarm user. Many apps like Spark have plenty of keyboard shortcuts and add-on features. I find myself spamming the ESC key more than I should, and I really wish I could have all accounts in one view like I can with other apps.

But this post isn’t about the pros and cons of different email clients. It’s about untangling which features actually contribute to a business model that’s unbeatable in the long-run.

The most salient elements of Superhuman’s moat are the ease of use, favorable aesthetic/UI, counterparty profile panel, and handy features like read receipts, reminders, and send later.

Unfortunately speed, aesthetic, and simple features are not very defensible. Spark is already ahead on half these dimensions, plus they have team functionality.

What is defensible, though, is the long list of emails you’d like to be reminded about and the emails you currently have queued to send at a future date. Followups and executing planned outbound are both very important.

“Stored data” must be painstakingly carried over to another service. Or slowly transitioned over time. In either case, the user just doesn’t want to make a switch.

If I were on the product team at Superhuman, I’d be doing everything I could to make Reminders and Send Later first-class citizens. Both in the typical email use-case, but also in the “Note-to-self On Steroids” use case.

The beauty of this stickiness-driver is that it’s pulled out of thin air. There’s no trade-off to be made.

(At this point you might be thinking “wait, what about the exclusivity? The invite system! The elusive prestige of a private product!” Sure. The status/signaling element is valuable right now. Just as it was for Facebook when FB only existed at Ivy League schools. But that sort of moat is more of a growth-hack than a form of long-term defensibility. Nobody thinks FB is elite or exclusive anymore. It’s the opposite.)

Lessons learned

I’ve had a tough time coming up with original examples above. At the concept’s core: there are sometimes small niches where you can increase product stickiness without making a friction/usability tradeoff. That’s what contributes to defensibility where there is otherwise not much.

Facebook might inherently be a network-effects driven social product. Spotify and Superhuman have to work a little bit for it. But it can be built!

Whether it’s the “blank slating” approach, the “stored data” approach, or something else entirely, your job as a founder or PM is to find subtle ways to create product-driven stickiness out of thin air.

Reinventing the Wheel

Every once in a while, Silicon Valley is ridiculed for reinventing the wheel. You’d think there are only so many wheels left to reinvent, but apparently we’re still in the first-bite phase of software eating the world.

There are plenty of examples. Dropbox famously reinvented FTP servers. Lyft reinvented public transportation. Kindle reinvented libraries. Soylent reinvented, well… Soylent. People-free this time.

Why do pessimists think this way? Of course there’s general ignorance. But the pattern of criticism seems too specific to be random. It’s also lazy to assume that Valley outsiders “just don’t get it.”

So what subtleties are lie behind the curtain? There are a handful of relevant things I can imagine:

  • Aversion to changing norms
  • Dispersion of existing power hierarchies
  • Setting precedent, e.g. about public vs private services
  • Cost of switching platforms/infrastructure

As I’ll mention later, each of these can be reverse-engineered to find ways to solve problems and capture value. But first, let’s walk through some examples of these ulterior motives playing out.

Lambda School is the most recent and striking example of such criticisms. Check out this hit piece published by none other than The Guardian.

It’s so interesting because there’s some grain of truth to each gripe, even if it’s not coherently argued by the journalists covering it.

On changing norms: LS is guilty of the same crime as the Thiel Fellowship. Normalizing alternative career paths and dropping out is scary to a lot of people. Although it can be a positive signal in the Valley, it’s rightfully a strong anti-signal elsewhere.

On dispersion of power hierarchies: not only are universities and modern hiring pipelines vulnerable to LS-style disruption, literally everyone with a college degree stands to lose out too because such credentials are largely (but not entirely) zero sum. Read Bryan Caplan’s excellent book The Case Against Education for more on this. Even if its title is gratuitously provocative.

On setting precedent: LS, much like Airbnb and Lyft, is a lightning rod for statist vs individualist conflict. It’s the charter schools debate playing out at the college level. You’d be reasonable to assume that LS-style thinking will seep into many parts of society, and that could be very good or very bad depending on your viewpoint. For one of those groups, it’s best to explain this away as “nothing new here — ISAs already exists in state-run form in Germany.”

On switching cost: If you’re enrolled in college or sourcing talent based on university talent or credentials, your life simply gets harder. Either you switch to LS which incurs sunk-cost and hassle, or you don’t and you might be on a suboptimal path.

My point is that both operators and investors should think more deeply about the “reinventing the wheel” trope. It’s a hint about the structure of underlying incentives.

I don’t think any of this is intrinsically good or bad. I do however think it’s perfectly natural.

There are a couple different lessons you could draw from this post. On the surface level, visceral gut-reactions are probably more rational than you’d otherwise think. That’s important to consider when building and communicating a product.

Taking it one step further, you can follow these patterns to find wheels actually worth reinventing (meaningful startup ideas). This framework can help you filter through such ideas. Otherwise you’d just waste your time tearing down Chesterton’s fence everywhere you look.


Addendum: The Pessimists Archive is an excellent podcast that dovetails well with these themes.

Analyzing Venture Opportunities Part 2: Thinking About People

This is a followup post. See Part 1: the Product and Market!

“Founders matter most” is one of the most prolific philosophies in early stage VC. Most investors agree that the best companies are started by incredible people with ideas that aren’t so exciting at first glance.

Airbnb is one of the canonical examples here. Notice that most rejections cited the product or market. It’s possible that Team was the issue and some investors lied to not burn bridges, but I don’t think that’s likely given PG’s recommendations and the team’s storytelling ability.

So how should we think about early-stage teams when the product or market haven’t proved themselves yet? Here are a few things I look for. You can use this as a scorecard or checklist:

Deliberate learning. How does a founder take feedback? Are they coachable? Will they adjust to feedback in real-time? Best of all, do they aggressively seek out feedback when none is offered?

Recruiting ability. There are many ways that you can build a “recruiting unique value prop.” People like Saku are smart enough that I’d work for them to access novel, interesting ideas at the office. Other founders (think Steve Jobs) sell a magnetic vision. Some have a track record or network that makes success seem certain. Many strategies work. It’s a question of whether or not the founder is exceptional enough at whatever strategy fits them and the business.

Urgency/GSD/raw energy. Smart people can fall into the trap of being too intellectual rather than action-driven. Making the right decisions for the right reasons is obviously important, but at the end of the day, founders need to push hard and go fast for years.

Being very blunt or forward. It’s always a “no” when you don’t ask. Blunt and forward personalities tend to get straight to the core issue, put more shots on goal, and find common ground more quickly in my experience.

Making use of tools. Does the founder use software or people to be relentlessly resourceful? Have they hacked anything to their advantage? Do they use a relationship manager to be amazing at followups? Do they send over a link to mystartup.com/deck instead of a 40 character long Google Drive link? Have they automated energy-draining activities by scraping websites for sales leads? Reinventing the wheel indicates many many bad things like inflexibility and lack of prioritization. Founders should focus on their comparative advantage.

Being good (but not necessarily great) at everything. Hiring for “spikiness” is common advice. I think looking for what’s exceptional about someone and evaluating them on that dimension generally works well assuming they meet the minimum hustle/culture bar. But founders quickly become “editors” more so than “writers” as their companies scale. A strong intuition across all fields helps identify talent and align the company’s various specialists. This is partially why having a complementary cofounder is so important. (To be clear: founders should still be spiky, but those spikes should ideally be additive rather than trade-offs with other traits.)

Founder-market fit. People aren’t blank slates. What experience and personality traits are best for this business and team? Marketplaces may need hustlers, for example. Does the founder understand this and consider it in team-building plans? One big challenge is determining whether this company is the right fit or whether the founder is just a hammer that sees a nail. (E.g. I know the music space really well and I like math so I’m gonna start a music analytics company. Is this good, or is it just the random-chance combo of the things they happen to know best?

Are the cofounders ready to marry each other? This was alluded to above, but team dynamics matter a lot. Is there a complementarity? What happens if they get a divorce? A surprising number of companies have done very well despite cofounder relationships ending.

Do I want to partner with this person for 10 years? Investors (hopefully) spend a lot of time working with founders as a sounding board, advice-giver, and connector. If you’d have a hard time working with a founder for whatever reason, it’s probably not worth making the commitment.

What did I forget to mention? What metrics or litmus tests do you use to think about founding teams? Say hi! Email/Twitter on homepage.

Why Ownership Graphs Matter

This is a post about the surprising absence of policy in politics and the complexity of seemingly straightforward policy.

As the 2018 midterms came and went, there was a lot of talk about tax, corporations, and visions for a more prosperous society. I think the most interesting policy discussions aren’t actually about policy as much as the rhetoric, coalition-building, and choice of landmark-issue: one debate that caught my eye was over SF Proposition C. Perhaps the most salient point made by supporters of the tax was that it only affects the biggest billionaire-owned businesses in the city. Normal people won’t get taxed.

Implementation (gross receipts instead of something like net income?) and assumptions (what does everyone’s responsibility mean?) aside, the idea that taxes on big businesses actually tax wealthy people is surprisingly unclear.

Let’s assume that we want to tax rich people who own large companies. A quick Google search shows that Marc Benioff only owns 4% of Salesforce. So only $0.04 of every tax dollar is taken from the pocket of Marc. Where does the rest go?

Huge chunks of publicly traded companies are owned by asset managers like BlackRock, Vanguard, and StateStreet. In fact, the “Big 3” are the largest shareholder in almost 90% of S&P 500 corporations. And that’s only looking at a few firms: going back to the Salesforce example, 83% of Salesforce is owned by some sort of institution! So most of the tax burden falls on asset managers.

Next, one might argue that by taxing institutional investors, you’re taxing a different set of rich people which is fine… Except that the asset managers usually make money by charging a small percentage of AUM. The actual gains or losses are passed on to individuals, pension funds, endowment funds, 401(k)s and anyone else letting institutions manage their money. Keep tracing that back and you end up taxing individuals.

This is almost vacuously true for any tax, I’m merely observing that this concept doesn’t make its way into policy discussion.

So then who are those individuals? What’s particularly interesting is where they’re located: big businesses that fall under Prop C are mostly owned by people outside of SF. The city is effectively taxing people who live elsewhere! This would actually be very clever if it were intentional.

I wish I knew more about the precedent this sets and how lawmakers think about this. It would be absurd to impose a sales tax for someone in another city, example.

If anything, then, it should be the other way around: tax small local businesses-owners, and not big external business-owners. They’re the ones that actually live in SF. It’s hard to continue down this rabbit hole without regressing into some sort of unsupported speculation on tax policy. To be clear: I don’t actually think we should only tax small local businesses. The point is that even simple policy ideas have counterintuitive real-world effects.

Imagine that we had a complete ownership graph of whoever owned a big business. What could you do with that? Might you tax only the individuals in SF who own a share of a Vanguard index fund that owns a share of [insert big SF business]? Are there other creative governance or tax structures you could invent?

Is the complexity of such a graph a feature or a bug? (E.g. does it hedge financial risk or dangerously pool risk in a way we don’t understand?)

This puts aside the practical issue of how you could actually build such a graph. Would mandating the publication of relevant info prevent good things from happening such as the hostile takeover of poorly managed companies? How far can you get with info you could gather as a private party? Does BlackRock have interesting internal research based on their client data?

If you have ideas on any of the above, shoot me a tweet, email, or text! There are certainly more unique and interesting ideas related to ownership graphs.

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.

The 21st Century’s Greatest Innovation

Here’s an interesting question: what is the single most impactful innovation of the 21st Century? Take a second to think about it.

Most of my friends say something like the internet or mobile phones. The problem is that most of what we think of as “technology” is really a composition many of individual inventions. The internet was made possible by great innovations at every level of the stack, from physical infra up through applications. Plus some new tech was simply made possible by cost curves falling to a certain level — that’s not quite a specific invention if you ask me.

To take a step back, what do we value when assessing impact? In my view, there are a few different “impact categories.” Specifically, most of what affects the world can be attributed to economic growth, political power, and side-effects like environmental changes or social norms.

How should we think about impact that derives from multiple technologies?

My unpopular opinion is that the most impactful technology of the 21st Century has nothing to do with software, hardware, or the traditional tech sector. I think shale oil extraction has been the most useful invention by a wide margin.

Let’s explore some of the ways that shale oil extraction makes a dent in the way the world works:

Economic: US oil production doubled in just 10 years, between 2007 and 2017. As you can probably guess, oil prices plummeted. (To be fair, this was partly due to increased Saudi production.) This played a role in the global recession recovery, and adds an estimated 0.5% to 1% to global GDP growth. Considering that economists left and right complain that growth in the developed world is so slow,  a 0.5-1% bump is incredible. I struggle to find any recent innovation that comes close to that. (Public-key encryption or perhaps relational databases may have made the cut 50 years ago.)

Geopolitical: The US has large shale rock formations. Tapping into them unlocks a huge amount of oil. But the process of shale extraction is more involved and expensive than traditional drilling so it’s only profitable when oil hits a certain price point in the market. When that price point is hit, however, we have as much oil as we need. This effectively caps the global price of oil at $70-90 per barrel which is below the break-even line for the budgets of the major oil production-dependent nations. This means that the US has much more economic and political leverage over the OPEC members. Since the other top oil producers — Saudi Arabia, Iran, Iraq, Kuwait, Libya, Russia, etc. — are all notorious for illiberal geopolitics and egregious human rights violations, the shale oil pricing dynamic gives American liberalism more power on the global stage. That’s rather impactful if you ask me!

Environmental: The negative impact of fossil fuels is often discussed and well-documented elsewhere, so I won’t belabor this point too much. There’s actually a very compelling argument for the “growth over environment” school of thought too. See this book or its summary for more. I’m not sure which viewpoint is better, but in either case, the magnitude of impact is clearly big.

We can even try big-picture comparisons between oil and something as massive and ill-defined as “the internet.” According to this McKinsey report, the internet accounts for ~21% of GDP growth in developed countries which yields a ~0.5% boost in GDP if you assume a 2.5% growth rate. Compare this to the 0.5-1% number mentioned a few paragraphs above, and you’ll find that lower oil prices may cause more growth than the entire internet! I’d take the report with a huge grain of salt, but the orders of magnitude are most likely correct.

The point here is that the traditional tech sector is not the most important part of our economy and our lives. The most wealthy companies in the world may be tech companies, but they represent an enormous amount of concentrated value. Most of what drives real-world wealth and opportunity isn’t (yet) linked to the pixels of our screen.

The Paradox of Compound Interest

I have a nasty habit of asking myself “how much money would I have in 30 years if I didn’t buy this thing?” It’s much harder to justify a $10 omelette or a $500 plane ticket if that money would compound into $50 or $2500 by the time my future kids are growing up.

Founders have the same problem: (source)

 “Equity capital is expensive. Every time you do a raise, you dilute.”  I like to tell a story about the young company founder who told me he was very proud of his expensive new Herman Miller Aeron chairs in his conference room during the Internet bubble. He bought them with cash that had recently been invested  in his company by some new investors. When I explained to him how much the chairs would eventually cost if the company went public someday via dilution the expression on his face turned from a smile to a frown. Dilution maters. Do the math. People say Warren Buffett can tell you nearly exactly how much income you have forgone if you show him an expensive toy. It is a bit unnerving actually, since he does the math in his head. When someone shows a founder some expensive office space with a beautiful and expansive water view they should immediately think: dilution!

That new MacBook for your first employee would cost tens of thousands of dollars in equity dilution if you have a VC-acceptable exit. And it’s not like consumer goods generate much utility on a long time-horizon — a nice pair of earbuds will yield the same benefits whether you listen to them now or in 20 years.

But then the fundamental problem arises: how do you justify spending money on anything beyond the most bare-bones necessities?

Remember that personal growth also compounds.

Qualitatively, our relationships, memories, and perspectives are all valuable, gratifying things to have. Much more so than any financial asset, I’d argue. In the internet-enabled tech economy, our personal qualities are becoming more leveraged than ever. 

With that in mind, it becomes much more reasonable to spend on education, travel, friends, and vanity. But where do you draw the line? I suspect this contributes to why some people take on crushing debt to go to a higher-ranked college than they’d otherwise go to.

It also seems irresponsible to set your personal burn rate equal to your income. Should we spend more? Or less? Or spend extravagantly on the few things most conducive to growth or happiness then cut everything else entirely? This assumes, questionably, that we know how to distinguish between what does and doesn’t cause personal growth!

When starting a company, I agree with the conventional wisdom that you should focus on minimizing burn. The entire point of an early-stage startup is to figure out the potential growth rate of your product when it fits with the market. In personal matters, I tend to think we should instead focus on growth rate. We know with high certainty that (thoughtfully) spending on ourselves will lead to experiences and friendships that make us a better person over time. The point is that drawing a clear dichotomy between the two cases helps avoid a common pitfall: it’s easy to merge work and life then burn startup cash needlessly or fail to invest in yourself.

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.

Questions

Simply listing my interests doesn’t quite encapsulate everything I’d like to share. Instead, here is a list of the questions that much of my reading and thinking revolves around. Let me know what catches your interest and start a conversation with me! Tell me what questions I should be asking.


  • How can we use internet technology to foster “learning by observing”? I think “learning by doing” is overrated and “learning by shadowing the best” is way underrated.
  • What factors determine or create cultural influence?
  • Why are prediction markets not more common? There is only one popular PM category. (The financial markets)
  • Will we tend towards socialism as a function of wealth like Western Europe? (What makes up American exceptionalism?) What causes it? Is industrialized society a temporary exception which will revert back to forager or evolutionary-past social structures? (context)
  • Will our institutions better account for signaling? Or is it really the Hansonian elephant in the brain? In which cases will we figure out how to pretend to give people what they pretend to want, and actually give them what they actually want.
  • Does environmentalism matter given that it’s often a direct trade-off with development? Alternatively, why is growth so good?
  • What’s the best replacement for religion in a secular society?
  • How do we solve social problems (e.g. obesity, homelessness) given that interventions have historically done little compared to economic development? Which categories of problems (mental illness, potentially) will not get better because of external trends?
  • How can we describe and teach worldviews? Few debates hinge on facts — you can rationalize your way to anything. Worldview is what sets opinion on topics.
  • How much is pre-determined by personality and cognitive traits? (e.g. political worldviews, career paths, and perhaps most disturbingly, happiness levels)
  • How do we better curate information? The web has given us access to nearly everything. Markets (reputation/aggregation platforms) help surface content, but content regresses towards the mean. “Republics” and “benevolent dictators” (editors and curators) are better than democracy (platforms) in this case. How should we think about the tradeoffs of the different systems?
  • How do we better understand and detect the difference between false feelings of insight and true understanding (e.g. Feynman’s experiments with LSD)
  • Assuming that empathy and coalitional signaling are why we’re becoming more progressive (see above), what, if anything, would stop or reverse that?
  • What should we think about the half-life of knowledge?
  • What would effective unschooling look like? Can that be generalized to most of the population, or would it only be worthwhile for X% of kids?
  • Will the Sovereign Individual thesis come true, or will we centralize more (or fall victim to authoritarianism)?
  • Will we tend towards a Malthusian-style Repugnant Conclusion, or shrink to a more “normal” population?
  • Why is so little time spent on choosing what to do relative to time spent doing? How can we change that?
  • Exactly how much knowledge is lost because brilliant people are “sponge” personalities rather than people who love to create written content?
  • How can we uncover information that’s obscured by narratives, without having to learn by direct experience?
  • What views are the free will assumption not compatible with? (e.g. our justice system assumes free will, but would still be consistent with absence of free will under a utilitarian interpretation).
  • How should we think about views where our philosophical conclusions differ from our intuitive conclusions? There are opinions I can only construct rigorous philosophical arguments against, but I still side with my emotion/intuition when it comes time to make a policy “final call.”
  • Why is art, music, etc. pleasurable? There are various arguments for why these things exist (e.g. reliable trait signals) but what makes them so uniquely emotional?
  • What are all the political and rhetorical tactics that politicians, media, leaders, etc use? I should really start writing these down.
  • Where is the Paul Graham “what you can’t say” heuristic correct and wrong?
  • Where do our stated preferences diverge from revealed preferences?
  • Is the unexamined life worth living? (context)
  • What do panics, especially of the moral and financial varieties, tell us about what’s actually going on?
  • Why do we focus so much debate on trivial issues and what can we learn from infosphere’s various importance-focus differentials?
  • How should we think about the consistency of our philosophical frameworks and our intuitions? Should we try to rationalize our way to internal consistency or be pluralist and accept that intuition can go beyond pure reason? What are the implications of each viewpoint?
  • How do we separate values, policy, and culture? In what ways are they inextricably linked?
  • Can centrism be rebranded into an identity or project that can be rallied around?
  • How do we distinguish between those who are great at thinking vs those who can actually map their mental models to reality?
  • What factors influence TFR and how can TFR decline in the West be reversed?
  • More questions TBD

My friend Athena Kan wrote up some of her questions. If you do too, send them to me!