"Quiet yourself so that you can listen"
Yesterday I was talking with someone who works in a healing profession.
She said the most important thing she had learned was how to "quiet myself so that I could listen to another person's body."
That phrase struck me as wise.
If I were to rephrase it for a founder, I'd say: "Quiet yourself so that you can listen to another person's struggle."
Startup founders engage in a cycle of conjecture and criticism. That is, they have ideas and they test them against the world. The second part of the cycle involves listening, and listening hard.
One of the biggest obstacles people have to listening well is their own internally generated noise. The thing they want to be true. Their big vision. This leads to all kinds of wishful thinking when users don't buy, and all kinds of dismissive reactions when they're told that what they've built is not what's needed.
Listening hard is a superpower that is both underrated and under-discussed. It's not as heroic as building, but it's equally necessary, and usually comes first in the iterated cycle. That is, how do you know what to build if you didn't somehow encounter a problem?
An important part of listening is hearing both what's said and what's not said.
In venture, many investors will tell you no, but they won't tell you why. They may even give you polite reasons for their rejection which are not the real reasons; e.g. they don't think you are a good fit for the problem you're solving, or maybe that you've chosen a co-founder who doesn't make sense.
In screenwriting, writers are given notes to modify their script. But the best ones listen for "the note behind the note", meaning the reasons or intent which suggest that your creative direction has diverged from, say, the producer, the director or the star. What do they really want but can't express? Get ahead of the puck and build that.
There are a lot of reasons why criticism is not always explicit and direct:
- People are conflict averse, and know from past experience that criticism just leads to fruitless debate
- People don't have time to invest all the context necessary in a collaborator; they need someone who "just gets it". They prefer the ease of low-information delegation. Telling people exactly what they should be doing just gives them a chance to hack the test, when what most gatekeepers really want is someone who operates by principles that will lead them to perform without hand-holding.
- People don't exactly know what they want -- they are bad predictors of their own future behavior -- they just know that what you gave them is not it.
The best way I can describe this kind of listening is to call it outward-focused. You're no longer selling someone hard on what you've built. You are trying to build the clearest and most empathetic mental model of their lives, goals, workflows, needs and struggles.
That becomes the north star that gives direction to what you build.
Anti-Network Effects
Everyone's heard of network effects. They are one of tech's most important flywheels. The more users join a network, the more valuable it becomes. This is true of social networks, email, telephone systems, and before that the telegraph. It's true of ride-hailing companies like Uber, service marketplaces like Thumbtack, payment systems like PayPal, and video conferencing platforms like Zoom. One person with a phone has a worthless device; a million people with phones each have a world at their fingertips.
So what happens with anti-network effects? Instead of the positive feedback loop of a network effect, you get a negative feedback loop. That is, with each additional user, the network is a little less valuable. Tools purporting to give stock trading tips are like this. The more people who have access to them, the less any given user obtains an edge. That's why Bloomberg charges so much for its terminals. The company implemented an effective chat network in 1990, but their ideal network size is pretty small.
This is true of many marketplaces that suffer from imbalance or bad actors:
- Dating apps (more men than women, misaligned goals)
- Service or labor marketplaces (when supply vastly outstrips demand, every new entrant makes the other vendors struggle more to be seen)
- Traffic apps and congestion: when Waze sends too many people down the same alternative route, Waze users have lost their edge. This applies to any app where users are routed through a shared resource with limited bandwidth.
Imagine a restaurant you used to like that was discovered by tourists. "Nobody goes there anymore -- it's too crowded." That's an anti-network effect.
Other expressions of anti-network effect are:
- Gresham's Law: "The bad money drives out the good." Which happens to be true of group chats as much as currency.
- Eternal September: That moment in Autumn 1993 when AOL started giving its users access to Usenet, flooding what was a cozy club of computer nerds with an endless stream of new users who didn't know the rules.
This is important because if you're a founder building a network, you need to know how to manage anti-network effects. They are not mutually exclusive with network effects. You can see both happening at the same time; i.e., "Yay I can chat with my friends, and boo I'm a target of spam."
As the Bloomberg example shows, you can build a massive business managing network effects and figuring out where to draw the line with your pricing. Every totally open club ends up imploding under the weight of strangers and the repercussions of distrust and confusion. The trick is to know where to draw the line.
Cheap, Crude, Fast
Startup founders are economic researchers, and as such, their job is to generate and test ideas based on what they learn and observe. They follow a roughly scientific process of conjecture and criticism, where the real-world provides its critique of their hypotheses by showing a willingness to use and pay for a product, or not... This describes how a startup makes progress pre-product-market fit (PMF). The key metric is how many tests you can run before you're out of money.
How do you optimize for that? Cheap, crude, fast. You need to lower how much time and money each test takes. The way to do that is by testing crude ideas. Sophistication and complexity are your enemy, because they require more money and time to implement. So are perfection and polish.
Among smart people, including many engineers, there is a bias toward complexity and premature optimization. They want to make something impressive before they know if it's needed. They want to dream big, build something interesting, anticipate failure modes. The status gradient pushes them toward complexity and intellectual flourishes.
But that is not the way. People with hair-on-fire problems will buy imperfect products and use them in anger.
It takes real discipline to optimize for the right thing while seeking PMF. Choose the wrong metric and your company dies. The right metric is speed of learning, you learn by fast tests, and you run fast tests by building the crude thing and getting it in front of the right people. Again and again.
Return on Advice
As a VC, I end up offering a lot of advice. That sounds smug, so let me just say that it's often unsolicited and sometimes wrong!
In that act of advice giving, I think I'm rare. Most investors I know hardly ever give advice. If they do, it usually takes the indirect form of a question -- eg "how are you thinking about distribution partnerships?" -- and it doubles as due diligence.
That is, many VCs see founders making mistakes in, say, fund-raising, and they simply move on to the next company. Because the missteps are a sign the founders will fail in other ways.
Many of those investors probably started out as eager-beaver advice offerers like me, and ended up letting founders learn from their own actions.
I finally know why. It's an idea I call "return on advice."
Let's be charitable and assume everybody wants to make a difference, to help the world be a better place. That is, they care about the impact of their actions. With advice, the impact is whether or not the advisee altered their behavior because of what you said.
So "return on advice" can be gauged roughly by whether a founder took action and tried your idea; with luck, it solved their problem, and if it didn't solve anything, then at least they learned something about the situation (and by extension, so did you).
There are two failure modes in the advice economy.
1) The advisee ignores what you say. When the next conversation rolls around, they still have the same problem. This alone is a bad sign. In startups, progress means getting past one set of problems so you can arrive at the next. If your problems (and your insights about those problems) are not evolving, you're doing something wrong.
2) Maybe their lack of action means you're giving them bad advice -- also a good reason to stop!
3) You are now the go-to source for help. This is bad because you don't have time, but your do-gooder approach has prompted a form of dependence. It's like Munchhausen's for startups. As a VC, you should become less and less necessary over time as the companies you support grow beyond what you know.
So in the first case, in return for advice, you get nothing. In the second, the founder gets less than nothing. In the third, you get less than nothing. If you assume that the effort/reward ratio rules everything, then this is a situation where zero advice is the best path. And thus, the deafening silence founders sometimes hear on the other end of the call.
The ideal case is one where a small amount of advice confers a lot of leverage. As Alan Kay said: "A change of perspective is worth 80 IQ points."
The right advice can unlock a first-time founder's ambition, or show a new approach to a problem. Often, those founders have just enough skill or persistence to unpack whatever experience got bottled in advice, and translate it to their unique situation. That is, they start with a baseline of skill and energy high enough to run with what's offered.
Finding Co-Founders
I met with a really promising young founder last week. He had a clear vision for his product and the technical skills to build it. But he had heard that he should find a co-founder, and didn't know where to look.
I told him he should start building, and then talk about it with the smartest, hardest-working people he'd ever met. He's lucky, because he was a math Olympian who went on to study with a lot of amazing people in college.
The best founding teams I've seen come out of long-standing relationships. If you're in your early 20s, that probably means people you met in college or earlier. If you're mid-career, hopefully it includes people you've built things with along the way. If you think someday you'll found a company, take notes in school and at your day job. Notice who's honest, hard-working, a great communicator, a problem solver. Those are the people you should call to share your excitement when you're building something new.
The better your idea, the deeper your commitment, and the more you can prove you have all those same traits, the more likely it is you'll find people you'll want to build a great company with.
The longer you spend in communities of builders, the better your chances of finding the right co-founder. If you think about it, you probably already know them.