Dec 22, 2020
When I advise or invest in early stage startups, I first consider the team, then the market, and only after that the product
I didn't start that way. I used to start with the product. What does it do? What new technologies does it use? How well designed is it?
My first job in the tech industry was as a product manager at Google. Google's PM culture reinforced this thinking, and I naturally extended it to startups.
I realized the initial product doesn't matter as much as I thought while working on my first startup, Teller, a financial assistant to help people increase their savings.
Teller's first product helped users track spending. It aggregated a user's purchases, sorted them into categories like "concerts" or "groceries", and calculated personalized budgets.
It turned out that users didn't care for it. Many users were excited to try it, but most didn't use it a second time.
At the core of that first product was an assumption that users want to see where their money is going more easily. For the vast majority of people, this assumption turned out to be untrue. When we talked to the (few) users who used Teller again, we realized what they actually wanted was a better way to monitor their bank account balance.
We re-focused the product to display bank account balances from and center. But again, users rarely came back to the product.
When we talked to users again, we began to understand that what they actually wanted was a better way to save. We built a new version of the product that automatically redirected money from users' checking accounts to savings accounts. Users ended up using this version of Teller over and over again.
I'm sharing this story to illustrate the numerous faulty assumptions our products were built on (especially the first one). But, we kept iterating until those product assumptions became validated. We were able to iterate only after getting ample feedback from users. And we were only able to get that feedback because many people were dissatisfied with their financial situation.
In other words, the market for consumer financial products was large. The sheer size of the market and our team's ability to navigate it gave us enough leeway to iterate towards a good product.
After Teller I thought markets (their size, growth rate, and distribution channels) were the most important aspect of early stage startups. After all, the initial product would likely change multiple times because it was likely built on faulty assumptions.
I kept this in mind while working on my second startup, GameSnacks, a gaming platform for new internet users in Asia.
GameSnacks's first product was quite different. It was an HQ Trivia-inspired mobile game show targeting younger Americans. Like HQ Trivia, every day at 6 PM, users would tune in play a game live against other players and compete for a cash prize. Unlike HQ Trivia, the game would change every day. It might be a puzzle game one day, arcade game another day, and so on.
We loved building the product. Unfortunately, we couldn't figure out how to grow it without spending boatloads on marketing or cracking elusive viral growth.
We could've continued down a similar path that we went down with Teller. Talk to the users using the product, figure out what they really wanted, and iterate.
But instead, we realized there might be another audience for what we built: YouTube creators. Video creators could host game shows for their audiences using our platform, and we could grow through their existing user base.
So rather than pivoting the product, we pivoted the market.
We pursued this game show platform route for nearly a year, and although we got decent adoption we couldn't figure out a viable business model for creators.
Again at this point we could've talked to the creators using our product, figured out what their problems really were, and iterated. After all, YouTube creators (and online creators more broadly) make up a large and growing market.
Instead, we realized two things.
First, we admitted to ourselves that we weren't excited about solving problems for YouTube creators. We respected creators deeply and knew they faced lots of problems worth solving. But, we wanted to build something more consumer-facing.
Second, a small but growing portion of our user base was coming from India. People who discovered our website and played our games, either by themselves or with friends. Nothing to do with YouTube creators.
We decided to investigate what was happening in India. After talking to some of our Indian users, we learned users played our games because they loaded faster than games elsewhere. Data in India is much more expensive than in Western countries. And many users in India are on older, lower-powered phones. Since our games were built as web applications, they were often much smaller than games available on the App Store or Play Store.
We had unexpectedly stumbled onto a massive opportunity: building a gaming platform for billions of users coming online to the internet for the time across India, Indonesia, Brazil, Nigeria, Mexico, and other emerging markets. We've been focused on that ever since.
Twice, we pivoted the market (and the product accordingly) until we found a viable business.
This was only possible because we had a great team. Beyond having the requisite skills to actually build a business, what does that mean?
First, aligning on goals. My co-founder and I didn't just want to tinker with the latest technology or build a particular product. We wanted to build a successful consumer business. This gave us simple criteria to gauge whether an idea was worth pursuing. Did it serve end consumers? Did the business model make sense?
Second, communicating candidly. We looked at key metrics every day. We shifted away from verbal conservations and towards written memos when debating strategy and reviewing decisions. These practices prevented us from deluding ourselves and each other for too long when something wasn't working.
Third, thinking probabilistically. We assigned probability weights to different possible outcomes for various experiments and product ideas we had. This allowed us to develop a shared understanding of risk and align on priorities. Thinking in Bets by Annie Duke is a fantastic read for this.
And fourth, having fun! We knew it'd be a slog. Without enjoying the journey we wouldn't have persisted. We joked around, hosted fun events, and made fun of ourselves constantly. Of course, working in gaming helped here.
This isn't an all-encompassing list, but I hope you get the point.
I've come to realize the team matters above all sense. You can (and almost certainly will) change the product. You might even change what market you're serving. But you're unlikely to change the dynamics of the team. The only way to really do that is to shuffle up the founding team. It's always an option, but it's crushing to the morale of the company and significantly increases the chances of failure.
So, now, when I meet with early stage startups, I spend almost all of my time focusing on the early team. Why did the founders start the company? What criteria do they use to make tough decisions? How do they decide who to hire? How open are they with themselves and others about what they don't know? How do they learn?
If you get the team right, given enough time, everything else will follow.
Does this match your experience? Or, do you think about it differently? Feel free to let me know either way via Twitter.