Investing Frameworks: Mike Maples
I happened upon the podcast “The Knowledge Project” by Shane Parrish that constantly blows my mind. There is no other proper way to describe its effects – each conversation with these brilliant minds broadens my perspectives.
I wanted to share this one with you, especially with those in investing fields identifying “disrupting” companies. Mike Maples is a partner at VC firm Floodgate. This is from episode #77: Mike Maples – Living in the Future.
“Startups aren’t companies; they’re a group of people living in the future. A startup is a set of founders with a set of proprietary insights that are a result of them living in the future.”
Maples identifies 3 key aspects of a “disrupting” company:
Have a breakthrough insight (“insight development”)
Have a breakthrough value proposition (“value hacking”)
Have a breakthrough killer, predictable growth strategy.
I also like his Herbie Model.
1. Insight Development
Most of the great startups come from a great insight, and a great insight usually occurs when someone is living in the future, and they notice something that’s missing.
For example, Airbnb’s founder Brian Cheski didn’t have any money but wanted to go to a design conference – he put his apartment in an air mattress up on Craigslist and he got 400-500 people saying they wanted to rent his room.
Brian took it a step further. He said, huh, that’s interesting. Why did that happen? The town was out of hotel rooms. Why was the town out of hotel rooms? There was a conference. Does this happen a lot when there’s conferences? And by the way, what’s up with the hotel business anyway? What is their business model? Why do people go to hotels? He started to realize that the main reason people go to hotels is because of trust.
He started to realize that if you could have a trust rating, perhaps you could have all the benefits of a hotel business without having to own a hotel. These are the insights Brian developed that are counterintuitive but validated his “truth-seeking work”. This involves doing work to discover something others think is non-intuitive.
2. Value Hacking
After coming up with a non-consensus-right insight, you “value hack” by figuring out what you can build that’s unique AND people are desperate for.
If your insight is powerful enough, it will naturally connect with someone desperate—you are solving an issue in a new way better than any past solution.
“Value hacking is about seeking the truth rather than selling. If the truth of your value proposition is super compelling, then growth becomes the exercise of syndicating the truth. If the truth of your value proposition isn’t present, you have to grow by throwing money at the problem…. You want the value proposition that is so strong that the customers in your target audience would be irrational not to buy if they knew the truth. And then you’re then you could scale in terms of the market’s readiness to adopt your solution, you know, kind of along the technology adoption curve.”
“Why is now the right time for your startup?” has two components:
1. Technology Inflections
Uber would not have worked if the following had not recently emerged: smartphone penetration, mobile app capabilities, mobile GPS capabilities, digital payment. Back in 2006, when the best smartphone was a Blackberry, Uber would never have worked no matter how good the idea was.
2. Adoption Inflections
For Uber again, enough people now had smartphones so that you could count on anyone who wanted to drive / ride being able to do so. Flywheel of network effects – the more riders available (demand) led to more drivers (supply) and vice verse, more friends spreading trust / recommendations, etc.
3. Killer, Predictable Growth Strategy
Mike mentioned many ideas related to this that I won’t go deeply into, but key insights that stood out for me include:
– “In startups, you’re living in the future, so on some level, there’s no market yet. There was no market for browsers in 1993, and there was no market for ridesharing in 2009. Markets in the startup world are movements, so trying to quantify the total available market is wrongheaded. It’s more about quantifying the potential energy of your insight.”
– “Markets in a startup are movements, yet to be created, of innovators in on a secret together. The market happens as a function of more people joining the movement until, someday, everybody’s in on the movement, and it’s a big market.
Four growth gears should operate in unison: “Acquisition [acquiring customers], engagement [whether or not users continue using the product], monetization, and enlistment [organic growth as users spread word of your product] turn as a set of flywheels that are integrated together. All the gears rotate at the speed of the slowest gear. You’re not only trying to make the gears go faster; you’re trying to make the slowest gear no longer be the slowest.”
Herbie Model
Finally, this was an interesting way to think about the “weakest link”. A bunch of scouts on a hike and they’re all screwed up: people are way out in front of everybody, clumped in the middle, and way in the back. The patrol leader says, “Your patrol is a mess”. It turns out that the slowest hiker is Herbie. And so what you do is you put Herbie in the front of the line – everybody hikes at the same pace behind Herbie.
So then you ask, “can we meet the goal if we’re hiking at this speed?” And if the answer is no, but you have three choices.
You could kick Herbie out of the patrol,
You can make Herbie go faster,
You can just accept that you’re not going to make the goal.
Option 2 is the best option. However, Herbie can’t hike any faster physically; but they make Herbie go faster by taking stuff out of his backpack and distributing it to other people until he’s no longer the slowest person.
In Mike’s context, instead of giving founders all sorts of advice, he asks them: “What’s your Herbie?”
Highly recommend The Knowledge Project! As always, love to hear your ideas and feedback.
Sources: PodcastNotes, The Knowledge Project