The Visile - January 22
Ideas and insights from Andrew Chen, Bill Gurley, Gagan Biyani, Hamilton Helmer, Gaurav Munjal & more.
Hi and welcome to The Visile!
The Visile is a monthly newsletter focused on startup + tech podcasts. Each issue carries the key highlights from seven to 10 startup + tech podcasts, along with additional commentary and links to the transcripts, where available.
The Visile is based on an earned secret - that podcasts have the highest signal-to-noise ratio of any piece of content in the startup and tech world.
Time is at a premium in the startup world and most investors/founders are simply too busy to write long-form pieces about their insights, frameworks, or playbooks. Even those who write cannot do it as frequently as they would like to.
This is why podcasts matter. The content generation effort bar on the founder/investor is low as the podcast hosts spend considerable time preparing questions and curating conversations. This allows founders/investors to unpack significant value in just an hour on a podcast, compared to many hours on writing an essay.
Despite this, many see podcasts as a secondary content medium compared to essays, long-form writing, or Twitter threads. The Visile is an experiment to change this perception!
The Visile is co-authored by Rohit Kaul, a marketer by profession and a writer by avocation, and Sajith Pai, venture investor and an observer of the Indian startup + tech worlds.
We hope you enjoy The Visile. You can reach us anytime at <thevisilenewsletter@gmail.com>. Feedback is welcome.
- Rohit and Sajith
Podcast: The Tim Ferriss Show
Episode name: Andrew Chen - Growth Secrets from Tinder, Uber, and Twitch
Andrew Chen is a General Partner with A16Z focusing on consumer tech investments. Previously he was a member of the Growth and Product teams at Uber. He has recently published The Cold Start Problem which covers how to kickstart products/startups which have network effects, e.g., marketplaces where the value of the offering increases with more users on it. In his interview with Tim Ferris, he dives into key topics from the book, as well as his learnings over the past years.
Atomic network: All marketplaces or products with network effects need a minimum set of users to make the product work. The atomic network is the smallest network in order to set initial network effects off. For Tinder, this was about 200 - 500 people, and to get this size of the network going they threw campus parties. Once they got the first atomic network (typically in a campus), they could rinse and repeat this in other campuses too.
Interesting aside from him on how Tinder radically differed from other dating apps: “if you were like an attractive person and you used one of these apps (match.com / plenty of fish etc), you were basically doing email — you would go to work and do email all day and then you’d go home and for your dating life, you’d also do email all day. And it just wasn’t fun. And just making it visual and interesting and everything was this key. “
Additionally, he says that when you look at Tinder, or Zoom, Slack, Dropbox, etc., the means to get the cold start going early on are all distinct and ‘idiosyncratic’. He says “In some cases it’s college parties and other cases it’s putting something on Hacker News and having it take off. In other days it’s just going on Discord and trying to grow these communities. And so you have a lot of different approaches.“
How he evaluates founders: There is an interesting section on how he evaluates founders’ understanding of the product. One question he asks is how would you 10X TikTok? Or 10X Axie Infinity? Or Clubhouse? Typically he says the inexperienced or not so well-versed founders state a specific tactic or two, e.g., “you need a better invite mechanism, or you really need to fix X, Y, Z feature.” The experienced or good founder goes beyond the tactics to come up with a general organizing principle or a larger model, and using that model, Andrew says, these founders can drill deeper into product specifics and tactics to generate more ideas.
Picking the right metrics: Andrew talks about Dropbox and the challenges they faced when they got the north star metric wrong. They finally got it right, when they moved from using DAUs as the north star metric to the actions of high value users like collaboration. Andrew gives this as a compelling example of how much strategy and metrics are joined at the hip. He says: “People tend to pick a metric, a really simple one, and tend to say, “Okay, well let’s make that one bigger,” but then not understand what are the actual downstream ramifications of whether they’re active or not.”
Instead, he says, pick the strategy first, get clarity on your target audience, your unique value proposition, then determine what creates value for you, and then hone in your metrics so as to validate that the strategy is indeed working.
Episode/transcript: https://tim.blog/2021/12/01/andrew-chen-transcript/
Podcast: Join Colossus - Invest like the best
Episode name: Bill Gurley, Philip Rosedale - Back to the Future
In this episode, the host, Patrick talks to Philip Rosedale and Bill Gurley. Philip is the creator of Second Life, a virtual 3D world where people take different avatars, transact and live a parallel life. Bill is an investor with Benchmark capital who had invested in Second Life. Philip and Bill draw many insights from their experience and talk about how they see the metaverse shaping up.
They compared Second Life to Minecraft and Roblox, both more successful than Second Life. Key insights here:
If you are building a platform that aims to be a virtual universe, keep the on-ramp and tools for creation as simple as possible to get more people trying out creating new things.
Design for a TG, then land and expand. Minecraft and Roblox designed their platforms and tools for kids, and kids do not mind the pixel block look & feel of Minecraft. Now they are expanding to adults after gaining sufficient traction among kids.
It is easier to get more engagement with the gaming heuristic layered on top of the virtual universe as games have an end goal rather than an open-ended virtual universe where people are doing stuff and creating things for the sake of creation.
Lastly, they talk about ‘emergent behavior.’ This means that people will use the tools in the virtual universe in ways that we cannot imagine right now. Hence, instead of making the universe pixel perfect, have easy-to-use tools.
Bill and Philip segregate metaverse into two separate components.
Two trends are part of the metaverse narrative. One is the trend to go from 2D to 3D, as many things are more natural in 3D. The second is the desire of human beings to interact with each other online in a more immersive manner.
The latter is about the 3rd place (outside office and home), a digital place where people meet, communicate, plan using video, audio, chat, etc. This is already happening across community-based platforms such as Discord.
They believe that 3D avatar-based metaverse is very difficult to take off (reasons below)
They share some cogent arguments on the TAM of 3D avatar-based metaverse.
If metaverse represents a 3D virtual world where anyone can be anything, it becomes a place where people come to escape from real life. Kids do this a lot as they want to role play and do things not allowed at their age. But it is not common for most adults to engage in such a form of escapism.
Players in 3D avatar-based alternate worlds like Minecraft don’t have to worry about their behavior and consequences. This makes such alternate worlds a place to escape. When they represent themselves in a situation where they want to build new relationships, such as a social get-together, official meetings, or family gatherings, they are not looking for places to escape but places to connect.
They make a super important distinction between the rise of the internet and the rise of crypto. In the case of the internet, people knew what they could use it for, even early on. However, in the case of crypto, there are many big ideas, but the immediate utility is not clear to everyone.
“the thing that was really different in comparing say crypto and the internet was we actually all knew what the internet was for. There was a strong sense of urgency. We had to have email addresses because you get calls from people or you get emails from people. And we had to put up websites about what our companies did. There was a very real, like let's get this party started sort of a thing because there was a utility function that was obvious around broadcasting information and crypto doesn't yet. It's anchored to a couple of big ideas, some of the same ones that were in Second Life, but those ideas as yet have no immediate utility.”
Episode/transcript: https://www.joincolossus.com/episodes/43447310/gurley-back-to-the-future?tab=blocks
Podcast: Moonshot
Episode name: To Create Iconic Products, Set Iconic Goals
This is a talk between Gaurav Munjal, cofounder & CEO of Unacademy, and Shailendra Singh of Sequoia that took place for the learnings of the latest cohort of founders of Surge, Sequoia’s ‘rapid scale up program for early-stage startups’ Sequoia released it as an episode of their Moonshot podcast.
Unacademy is India’s second most valued edtech company, and Gaurav Munjal is known for his product and growth obsession. In this podcast, Gaurav covers a range of topics including founder and team productivity, investor management, structuring new product teams, etc. Here is a brief look at what I found interesting. (a longer list is here)
When to set up new product teams: Gaurav suggests the following heuristic for deciding if you need to set up a separate team for chasing new products
If there is a 70% to 80% overlap of the new product with the core business, then he suggests that the core team work on the product. This will be a product extension or addition to the core.
If it is entirely different, say the overlap is 20-30% a la divisions like Relevel and Graphy then he advises separate teams focused on those exclusively. He says: “if you are doing new projects as a part of your core team, your core team’s priority will always be what’s bringing in revenue. Make a team of five to ten people, give them the budget. Don’t give them targets for the first few months, until they hit PMF. Just let them continue to experiment. Once they continue to experiment, figure out a way on how you will integrate it.
Gaurav suggests that a good time to start on new initiatives is at least two years ahead of the core business maturing; he says “it will take two years for the other project to be relevant.”
On Productivity: There are some excellent passages on productivity. Two points stood out
He recommends adopting the Ivy Lee method (set out 6 items you will do every day, ideally the most important) or the Needle Moving Initiatives method, where every Sunday, you decide the 10 needle moving tasks you have to do in the week. He suggests this to his team and ensures they follow it too. Else he says everyone will be reactive. People will be busy but that will not mean the right outcomes
He has a person who he calls his reading guy - that person reads and summarizes books in 10 pages and he will read those 10 pages to keep up with what is new.
Building investor mindshare: He applies the same content marketing techniques that have paid them rich dividends for investor marketing too. About three months before every fundraise, he creates a Whatsapp broadcast list of 100 or so investors and sends out content consistently thereby creating awareness and excitement around his numbers. The idea is to drive top-of-mind recall, he says, and it always pays off. He describes it as “Your product is that your numbers are growing, and you want to sell that product to investors. But then marketing is that you are talking about that growing number to a series of investors.”
Episode/transcript: https://india.sequoiacap.com/build/unacademy-to-create-iconic-products-set-iconic-goals/
Podcast: Acquired
Episode name: 7 Powers with Hamilton Helmer
David and Ben hosted Hamilton Helmer, the author of one of the best books on strategy ‘7 Powers’. Helmer is one of the leading business strategy thinkers of our times, and his framework of 7 powers provides a roadmap for companies to make sustained profits in competitive markets.
One of the powers is counter positioning, where a company creates a superior business model, which the incumbent does not mimic due to anticipated immediate damage to their existing business. The key question in counter positioning is knowing when a tech start-up can disrupt an incumbent. This depends on whether the start-up offers a tech-enabled product or a tech product.
Tech-enabled product: The start-up uses technology to enable the business models that already exist in the industry. Due to this, the incumbents can respond by copying start-up's technology and upgrading their processes. It is not easy, but it is possible.
Tech product: Company’s business model is based on a software product, and its value prop is the benefit provided by the software. Chances of incumbent successfully responding to start-ups are lesser as an incumbent will need to completely overhaul its business, which threatens its short-term financials. The classic case is Netflix vs. Blockbuster.
Another type of power is network effects. Helmer talks about two key characteristics of network effects.
A company with strong network effects may still not be profitable. The market may have characteristics where more than one company can achieve network effects at scale. Due to this, the difference between the strengths of network effects may be negligible. A good example is Uber and Lyft, where Lyft is a strong No. 2 in most markets, making Uber’s network effects less profitable.
Another important consideration is if the network effect is directly monetizable. For instance, Facebook monetizes by showing ads as part of the feed, making the ads a node in the network effects. This improves monetizability. In the case of Snap, the network is built on sending disappearing messages to friends and bringing them on the app. Then this traffic is monetized using ads, but the network effects are not monetized directly.
Switching costs is another power where the customer cannot change the supplier due to the significant effort/cost involved in switching. Helmer points out two critical insights:
Switching costs itself does not lead to revenue. The company needs to continue to sell to the customer to generate revenue. That’s why ERP companies constantly acquire more companies/tools to sell more to their customers who are locked in due to high switching costs. Also, this power works well for SaaS due to continuous monetization.
High CAC can arbitrage out any benefits from switching costs. Products with high switching costs are assumed to provide future cash flows, and companies often overestimate these cashflows. Such companies signup free customers at high acquisition costs often to realize later than the high CAC is not supported by the monetization from switching costs, leading to a weak business model.
Episode/transcript: https://www.acquired.fm/episodes/7-powers-with-hamilton-helmer
Podcast: Forcing Function Hour
Episode name: Gagan Biyani - Minimum Viable Testing
Forcing Function Hour, from poker pro turned life coach Chris Sparks’ org Forcing Function, is not a typical startup podcast. It has poker players, productivity gurus but also the occasional Silicon Valley types. This episode featured Gagan Biyani, cofounder of edtech co Udemy, and now Maven, which helps creators set up and offer cohort-based courses. Gagan talks about Minimum Viable Testing, a framework for validating startup ideas, that he envisions as a precursor to the Minimum Viable Product.
MVPs and MVTs: The Minimum Viable Product or MVP emerged through the Lean Startup movement as a quick and dirty way to test out the basic idea and its reception. Gagan says, well before the MVP, which will take anywhere from two weeks to three months to create and launch, and they are far more at the evaluation end of the spectrum versus the discovery end, there is an opportunity to do what he calls Minimum Viable Testing or MVT.
Pressure test the key assumptions: The idea of the MVT is not to test the product, but rather the key assumptions or hypotheses underlying the product. Each business, Gagan says has five to ten assumptions that underpin it. If these assumptions hold, then you will end up building something massive. If so, he recommends taking each of those assumptions and creating a test, or at the least get feedback on these. By doing these MVTs, and iterating on the product features and business model you end up building a better MVP, he says.
How to do an MVT: First, sit down and write out all your assumptions. Ask yourself, for this to succeed, what do I need to believe. What needs to go wrong for it to fail. Once you have five to ten assumptions invite your potential cofounders, investors, friends, etc., and ask them to critique it. What you are checking for, apart from the validity of the assumptions are views on whether there will be demand for the product (are you making what people want?), financial and tech feasibility, etc.
Episode/transcript: https://www.forcingfunction.com/podcast/gagan-biyani
Podcast: Join Colossus - Business Breakdown
Episode name: Bill Doyle - Novocure: Using Physics to Fight Cancer
In this episode, the host, Patrick talks to Bill Doyle, Executive Chairman of Novocure, a global MedTech company pioneering a new approach to cancer treatment called Tumor Treating Fields. I liked this episode because of two reasons:
It covers how creating a new market is very difficult, even in a research-driven field like medicine.
I am generally interested in non-software businesses that are trying to improve the quality of life of people & Novocure fits well here.
A quick primer on how Tumor Treating Fields work
The principle is based on how cells react when exposed to electrical charge and has been used to treat cardiac arrhythmias for many years. Proteins involved in cell division have strong electric charges, with negative ones on one end and positive ones on the other.
An electric field is selectively inserted into rapidly dividing cancer cells. It applies a push and pull on the proteins inside the cell, a.nd instead of rapid multiplication, the cancer cell dies during the division.
Even in research-based fields like medicine, there are significant barriers to adopting new technologies. Some of these could be helpful for investors/operators when they approach similar markets.
Educational gap: Most doctors study biology and not physics. So they don’t understand how can an electric field zap cancer cells like magic rays. Because they don't understand it, they do not want to use it.
Industrial complex: There’s usually an existing industrial complex whose incentive is in the status quo in any market. The same is true for oncology as well. The oncology industrial complex is focused on drug research, and a new way of cancer treatment can threaten their business model.
Often it needs a generational shift for some products to be widely adopted. For instance, the next generation of oncologists may have studied Tumor Treating Fields in med school and hence be more receptive to such ideas.
Investors and operators need to understand that non-software industries typically have much longer innovation cycles than the software industry. Thus, applying the software industry's philosophies and growth expectations to these industries doesn't make sense. Novocure has been around for 21 years and has invested over US$ 500 million, and is still only scratching the surface.
At the same time, it is essential to borrow whatever is relevant from the software industry to other industries. Novocure’s product did not align with any of the existing business models in med tech. Hence, they moved to a subscription model paid directly by the end-user, which is commonly seen in software.
Typical, medical devices are either selling equipment, so they're box businesses. And from a business perspective, those are usually the least valuable because once a hospital owns a box, they try and keep the box as long as possible. This is the GE medical business, you try and build a service around it.
The second business model is something that's implanted. This is the orthopedics industry. That can be a very good business because those are high quality differentiated products. This is cardiac stents, cardiac pacemakers, but at the end of the day there too, most of those businesses when the IP expires there's competition
The third med tech business model is the disposable model, and businesses bend over backwards to make their stuff, so you throw it away and you have to get another one.
the pressure there comes on the cost of the disposable.
the customer ends up not being the patient. The customer ends up being a hospital or a doctor practice.
the model that I wanted was a model that was much more drug-like
our model is essentially a subscription model
We receive a prescription from a oncologist. Then we send a technician to the patient's house. We bring the equipment. Again, the one kilogram box and the batteries and the arrays. We train the patient, which means our customers actually the patient here.
We give them 24/7 support.
we charge a monthly fee for the therapy.
Episode/transcript: https://www.joincolossus.com/episodes/59120951/doyle-novocure-using-physics-to-fight-cancer?tab=blocks
Podcast: Capital Allocators Podcast
Episode name: Manager Meetings: Chris Douvos, Ahoy Capital with Bill Trenchard, First Round Capital
Capital Allocators Podcast, by Ted Seides, is a popular podcast with the investing community. One of the popular sub podcasts is the Manager Meetings, featuring LPs or Limited Partners who provide funds to managers of Venture Capital (VC), Private Equity, and hedge funds. In this one, Chris Douvos who was earlier with Princeton’s endowment fund, and later with Venture Investment Associates before founding Ahoy. Ahoy is an LP in First Round Capital, one of the storied early-stage VC funds.
How to compete in a world awash with liquidity: A fund can no longer play the capital game alone, says Trenchard. The game actually has changed. It is important to differentiate he says, as capital is a commodity now. Good founders have the power to decide who they want to work with. Hence he says differentiate yourself, say on the process (speed of decision-making) or sector (crypto, deep tech, etc.) or support (hiring), etc. He concludes “The two things I typically advise early on, are I would size your fund appropriately and think about your strategy appropriately to whatever you think will differentiate you in the market.“
How the First Round IC works: The First Round Capital team follows an interesting process to arrive at a decision. They have a very structured post-meeting review process following the founder's presentation at the IC. Once the founder leaves, they do not talk, but instead write out each person’s views on a very structured form that has space for feedback as well as rankings on aspects of the business like product, customer acquisition, growth, and also positives and negatives of the business. And then there is a moderated discussion, where there is a moderator who highlights the areas of dispersion and directs the discussion appropriately. The core idea he says is not to let the loudest voice in the room dominate the discussion. Per Trenchard, this has helped them make much better investment decisions.
On disrupting dusty industries. Dusty industries is an interesting description by Trenchard of old school industries or companies that are operating much the same way they did 20-30 years ago. They are ripe for disruption by a startup whose founder understands the innards of the industry and the key levers well. The example he gives is of Ryan Petersen of Flexport, who is disrupting freight forwarding. One of Petersen’s innovations, which sounds ordinary for us, but was revolutionary, given the context of the shipping industry, was tracking freight on the ocean, like how we use the Airway Bill number to track our parcel.
He segues from her to say that founders who attack these dusty industries have a distinct way of looking at product, distribution, and the business model. Trenchard says “It's not necessarily huge changes, but the combination of them is actually really transformative for the industry, because the incumbents can't adapt very well. They don't have the product insights or the ability to deliver great products. They can't change the pricing such that they can really compete against this new up and comer. They don't have a distribution advantage. And so, those are the things that I look for.”
Episode/transcript: https://capitalallocators.com/podcast/first-round-capital/ (Transcript is a paid feature)
Podcast: Acquired
Episode: Complexity Investing & Semiconductors (with NZS Capital)
In this episode, Ben and David host Brinton Johns and Jon Bathgate of NZS Capital. NZS Capital invests actively in public equity markets. I loved this episode as it goes deep into the investment framework used by Jon and Brinton derived from the complexity theory. They have used this to invest in public equities over the last 12 years successfully, and it provides a different lens to investing than buying growth companies or momentum investing.
What is Complexity theory?
Complex adaptive systems are all around us. That's what governs the world. That's how the world works. We don't know how the future is going to unfold because the system is interacting together and it creates what's called emergent behavior.
Emergent behavior makes predicting useless in most cases, and we can have guidelines, and heuristics and those are all helpful. As far as exact outcomes and what's going to happen in the future, those are a lot more difficult.
Jon and Brinton looked at ants as part of their study at the Santa Fe Institute and found something interesting.
They found that about half of the ants of the colony weren't doing anything. They were just sort of sitting around and then they had half the hands doing these defined jobs. That's very counterintuitive. We think of ants as sort of the ultimate productivity machines. Then it turns out ants aren't optimized around productivity. They're optimized around longevity. They're optimized around resilience, around living as long as possible, let’s say it that way.
They now take this principle and apply it to companies. Currently, all companies are optimized for quarterly earnings and analyst estimates (productivity). They started looking for companies that are oriented towards longevity. Such companies may be growing at half of the growth rate of a high-growth company, but they continue to grow over 40-50 years, providing better returns over this very long period.
Even though they invest in public equities, their approach is similar to a venture capital investor. Their portfolio has two sub-portfolios - resilience and optionality. Each has 40-50 names, and none of the companies are more than 1.5-2 % of the portfolio. When they find a company with both components, they let it bump up to 7-8% of the portfolio.
The resilient part of the business provides them with a consistent, expected rate of return.
They identify resilient companies by looking for the following competitive advantages:
Mission criticality
High switching costs
Scale economies. Especially if there are companies that can take 90-95% profit in an industry
Network-effects
The optionality part of the portfolio allows them to take part in those companies where the future is uncertain, but the return can be 100X. Most of these are early-stage public companies. Even if these companies fail, they do not bring the entire portfolio.
Interestingly they do not have Apple in their portfolio. They are looking for companies that can last for 40-50 years. One of the primary ways for companies to achieve this is to share consumer surplus with all stakeholders - employees, partners, customers, etc. In the case of Apple, they see a risk because of Apple’s practice of not leaving money on the table. Apple’s partners take it to court on commission, and white papers are written about its customer practices. They feel that Apple is extracting every last dollar from its partners and customers. This makes Apple susceptible to litigation, consumer activism, etc., making it non-resilient.
Episode/transcript: https://www.acquired.fm/episodes/complexity-investing-semiconductors-with-nzs-capital
If you enjoyed reading this issue of The Visile, you can get all future issues directly in your inbox by hitting the button below.