Podcast Summary
Approaching investing as a biologist: Grimshaw's adaptive approach to investing allows him to make successful investments across various categories in the tech industry
Miles Grimshaw, a general partner at Benchmark, approaches investing as a biologist rather than a physicist. He sees himself as constantly exploring new environments and looking for adaptations and evolutions in companies, rather than following strict rules or axioms. TEGIS, a platform that streamlines investing research, is an example of a company that has evolved and adapted to the changing investment landscape, making it a valuable resource for investors. Grimshaw's approach allows him to make successful investments across various categories and adapt to the ever-changing environment of the tech industry. For listeners interested in learning more about successful entrepreneurs, the Founders podcast is a great resource.
Approach new companies with curiosity, not preconceived notions: Investing requires balancing founders' vision and market signals, even if signals are early and not fully understood
When engaging with a new company or product, it's essential to approach it with a sense of wonder and curiosity instead of trying to fit it into a pre-existing mold. The best companies aim to be the best versions of themselves, not just the next best version of something that has come before. For instance, Benchling, which started as a tool used in academia, could have been dismissed as a smaller version of Veeva. However, by approaching it with curiosity and considering its unique potential, it became clear that Benchling could serve a different market and nurture a distinct motion. Successful investments require a balance between the founders' compelling vision and clear market signals, even if those signals are early and not fully understood.
Navigating the early stages of a startup's journey: Identify problem area, unique team qualities, and potential feedback loops. Choose the right customers and evaluate business genetics for long-term success. Desirable genetics include low gross churn rate and network effect.
Identifying the right direction for a startup's journey involves considering the problem area, the team's unique qualities, and the potential feedback loops in the market. Early on, it's essential to position the company and team for better odds of excellence and adaptation to change. Choosing the right customers can help push the future forward and pull the startup along with them. Additionally, evaluating the business genetics, or the underlying factors that contribute to a company's success, can be challenging for young startups. It's more of a feel, but understanding the business model and the potential challenges that may come can help determine if the company has good genetics for long-term success. For example, a low gross churn rate and a network effect are desirable business genetics that can contribute to a company's long-term growth.
Unique characteristics of software businesses: half-life of data and compounding ability: Investors should consider a software company's unique characteristics, such as the half-life of the data it manages and its ability to compound inside customers and in the market, to evaluate its growth potential and long-term success.
When evaluating potential investments in software companies, it's essential to consider the "genetics" or unique characteristics of each business. One such genetic marker is the half-life of the data the application manages and the organization it can touch. For instance, recruiting data in HR software has a shorter half-life compared to performance management data. Understanding these factors can help investors reason about a company's growth potential, monetization challenges, and overall stickiness. Another critical genetic marker is the ability to compound inside a customer, externally in the market, and layer product potential. Companies that can grow with their customers, build an ecosystem around them, and continue adding value through new product offerings are more likely to be successful in the long run. Additionally, considering a company's ability to survive periods of reevaluation and maintain low gross churn is crucial. Overall, evaluating these genetic markers can help investors make informed decisions and identify companies with strong potential for growth and long-term success.
Factors for low gross churn: Reevaluation process and platform capacity: Focusing on factors contributing to low gross churn involves considering the reevaluation process and natural progression of a business, as well as the capacity of a platform or ecosystem to create value for customers.
For a company to survive and thrive during periods of reevaluation and potential "graduation moments," it's essential to focus on factors that contribute to low gross churn. In the first genetic bucket, this means considering the reevaluation process itself and the natural progression of an organization, particularly in relation to the question of upmarket versus broad growth. When a company reaches a certain size or stage, executives may come in and look to upgrade tools or software to accommodate growth. Instead of trying to prevent this transition, it may be more effective to build for the period leading up to it and anticipate the eventual graduation. In the second genetic bucket, the capacity for a platform or ecosystem is crucial. Companies with strong integration potential and a large ecosystem of tools and consultants can create significant value for their customers. This can be particularly important in vertical market SaaS or other industries where integrations are key. However, it's essential to remember that not all businesses fit neatly into these categories, and there is often more art than science when it comes to assessing a company's genetic makeup. Ultimately, being aware of these factors and considering how they apply to a specific business can help inform strategic decisions and contribute to long-term success.
Elevating end users' careers and reputations: Facilitating a dense network of users and partners can lead to career growth and reputation boost for end users, increasing the value of a platform business.
Creating a platform business isn't just about providing a service or product, but also about elevating the careers and reputations of your end users within their organizations. Figma, for instance, not only sped up collaboration but also made design more visible and valued in companies, giving designers a platform to showcase their work and potentially boost their careers. This "agglomeration effect" can be harnessed by facilitating a dense network of users and partners who can benefit from each other's presence and success. User conferences can be a powerful tool for bringing these users together and celebrating their achievements. Additionally, a company's "good genetics" extend beyond its initial offering, and the strategic decision to pursue a second product or market can lead to new opportunities and growth. Ultimately, focusing solely on one aspect of a platform business may limit its potential impact and value.
Exploring new opportunities early on: Early curiosity and willingness to expand beyond initial offerings can lead to significant market engagement, differentiation, and the creation of new value propositions. Launching a less-than-perfect product that addresses a market need can be more valuable in the long run than waiting for a perfect solution.
Starting to explore new opportunities and asking "what else we can do?" early in a company's growth process can lead to significant market engagement and differentiation. This curiosity and willingness to expand beyond initial offerings can help companies build valuable new products and services, even if they start as less polished solutions. The examples given, from Veeva and Segment to Lattice, illustrate how focusing on market needs and asking the right questions early on can lead to successful pivots and the creation of new value propositions. While product quality is important, it doesn't always guarantee business success. In some cases, launching a less-than-perfect product that addresses a market need can be more valuable in the long run than waiting for a perfect solution. The key is to strike a balance between product development and market engagement, and to remain adaptable and curious as a company grows.
Fear of imperfection can hinder growth: Adopt agile development, expand beyond offerings, and recognize uniqueness to prioritize innovation over perfection.
Prioritizing perfection over innovation can hinder a company's ability to reinvent and grow, even for successful businesses. In the context of product development, launching a subpar version of a high-performance product can lead to significant consequences, such as lost revenue or customer dissatisfaction. However, it's essential not to let the fear of imperfection stifle the innovation process, especially as a company grows. One way to avoid this is by adopting a faster, more agile development process, such as frequent product reviews and iterations. Companies like Stripe and HubSpot have successfully employed this approach, launching alpha versions and continuously refining them before making them available to a broader audience. Additionally, it's crucial not to copy the successes of others blindly but instead focus on expanding beyond existing offerings. In the business context, this means recognizing that every company and product is unique and requires its own approach to change management and cross-functional collaboration. By taking ownership of the complexities that come with product innovation, companies can build excellence and ensure long-term success.
Focusing on unique value propositions: Companies that deviate from industry templates and focus on their unique value propositions can improve customer engagement and revenue growth.
Deviating from industry templates and focusing on unique value propositions can significantly impact a business. In the case of a CDP company, they initially modeled themselves after API companies but later realized the importance of professional services, support, and implementation for their customers. This shift led to better customer engagement and revenue growth. However, the market's perception of API businesses versus database companies raises questions about the potential success of pure API businesses. Despite the lower gross margins, the stickiness of customer relationships and the potential for new initiatives suggest that there is value in this business model. Ultimately, it's crucial for companies to understand their unique value proposition and focus on it, rather than blindly following industry trends.
Understanding Business Model, Complexity, and Go-To-Market Strategy: Success in business depends on factors like business model, complexity, and go-to-market strategy. Each business category requires a unique approach, and understanding these factors can lead to significant growth.
The success of a business, particularly in the tech industry, depends on various factors such as business model, complexity, and go-to-market strategy. Regarding stock-based compensation, while some view it as a cash expense, others argue that it's an investment in the company's future. The decision to build or buy new initiatives depends on the business's complexity and the potential for graduation risk. In the case of Stripe, its complex guts make it a strong contender for building, while simpler businesses like Twilio might opt for buying. When it comes to different business categories like vertical market software, horizontal market software, and consumer businesses, each requires a unique approach. Vertical markets, for instance, demand a deep understanding of the customer and a tight feedback loop, while horizontal markets require early systems design and market segmentation. Consumer businesses, on the other hand, necessitate motivating user behavior and creating a network effect. In summary, understanding the business model, complexity, and go-to-market strategy are crucial for the success of a business. Each business category presents its unique challenges and opportunities, and adopting the right mindset and approach can lead to significant growth.
Choosing the right customers for a business's success: Identifying innovative customers who push the market forward is crucial for a company's growth and success. Establishing feedback loops and letting go of unfit customers can optimize business operations.
Careful customer selection is crucial for a company's success. The right customers can significantly impact the product's development and determine the business's trajectory. When advising founders on customer selection, it's essential to consider who is pushing the market forward and will benefit the most from the product. This approach can lead to successful partnerships, as seen with companies like Robinhood and Plaid, Uber and Twilio, Shopify and Stripe, and Regeneron and Benchling. Conversely, there are also potential bad customers that may not be worth the investment, such as those who are slow-moving or not particularly innovative. It's essential for founders to use their judgment to identify the best customers and establish feedback loops to optimize their business. Additionally, it's important to recognize that letting go of a customer, even a large one, can be a necessary operational decision if the company is not built to serve that market segment. Overall, the right customer selection can lead to significant growth and success for a company.
Understanding product metrics in B2B SaaS: Focus on product metrics beyond sales to understand how a B2B SaaS product is actually used within organizations, setting the business's foundation with product design, and exploring new opportunities in AI and non-AI sectors.
In the B2B SaaS context, it's crucial to be rigorous about product metrics early on, beyond just focusing on sales metrics. Product metrics help understand how the product is actually being used and realized within an organization, which may not align with stated customer preferences. The intersection of artistry and science in software development is essential, with product design playing a significant role in setting the business's genetic foundation. New opportunities in product development include emerging market segments and monetization models around software. AI is also an attractive area, but it's essential not to overlook opportunities in non-AI sectors. Founders should stay curious and adaptable, focusing on understanding their customers' needs and how their product fits into their workflows.
Adapting to new trends in business: Companies must explore new monetization models, adapt to distributed workforces, and embrace emerging technologies like AI for chatbots and design tools to stay competitive.
The business landscape is evolving rapidly, and companies need to adapt to new monetization models, distributed workforces, and emerging technologies like AI. Using the example of Toast, a company that shifted from software revenue to interchange revenue, we can see an interesting twist on monetization strategies. In the future, collaboration tools like Figma and Gong will become essential for distributed teams, facilitating better sales and design processes. AI, specifically chatbots like ChatGPT and DALL-E, is opening up new possibilities for product experiences and even replacing high-end labor. Companies should keep an open mind about these trends and explore how they can apply to their own product capabilities and experiences. The future holds exciting opportunities for reimagined solutions to jobs that didn't exist before. Additionally, the rise of distributed workforces means companies will need to adapt to new collaboration methods, making tools like Jasper and others increasingly valuable. The intersection of these trends will continue to reshape the business world, and companies that can adapt and innovate will thrive.
Reevaluating Business Assumptions and Models: Founders need to adapt to changing economic conditions by examining the necessity of functions, considering market shifts, and reevaluating confidence in core business. Adaptability is key.
Founders should reevaluate their business assumptions and models in response to the changing economic landscape. This includes examining the necessity of certain functions, such as customer support, and considering where the market may be shifting. Additionally, for later-stage companies, it's important to reassess the confidence in the core business and consider the minimum requirements for maintaining it. All of these evaluations can help founders make informed decisions about where to invest resources and where to cut costs. The discussion also touched on the idea that different markets and products can lead to vastly different business structures, such as the comparison between OnlyFans and Patreon. Overall, the key message is that in a rapidly changing economic environment, it's crucial for founders to be adaptable and open to reexamining their assumptions.
Optimally architecting a product for demand curve capture: Founders should lead pricing and packaging with a global maximizing mindset, considering the full customer journey and potential product roadmap to capture value across the entire demand curve.
Understanding the demand curve and optimally architecting a product to capture value along that curve is crucial for pricing and packaging decisions in SaaS businesses. This is particularly important for broad, horizontal businesses as they cater to various customer segments and use cases. The pricing and packaging process should be a founder-led exercise, with a global maximizing mindset to capture value across the entire demand curve. Avoiding a local optimization focus and instead considering the full customer journey and potential product roadmap is essential. Regarding investing, while there may not be cardinal sins per se, there are common mistakes such as neglecting the importance of pricing and packaging, handing it off to non-founders, or focusing solely on local optimization. A thoughtful, long-term approach to pricing and packaging is vital for the success of a SaaS business.
Seeking meaningful experiences for personal and professional growth: Look for projects that align with purpose, intersect with compelling products/problems, and have potential impact in thriving businesses. Unconditional love and support can significantly impact personal growth.
When considering opportunities for personal and professional growth, it's essential to look for projects that align with authentic purpose, intersect with a compelling product or problem, and have the potential to make a significant impact within a thriving business. Price should not be the sole deciding factor, especially in the early stages. Additionally, the speaker shared a heartfelt story about the most selfless act of unconditional love he received from his stepfather, who inspired him through his entrepreneurial spirit and joy of building and creating. This experience has taught the speaker the importance of kindness, exploration, and the power of unconditional support. Overall, the conversation emphasized the importance of seeking meaningful experiences, both personally and professionally, and the impact that unconditional love and support can have on personal growth.
