Podcast Summary
Trusting your instincts in investment decisions: Trusting your instincts can lead to unique learning experiences and successful investments. Nico Wittenborn, founder of Adjacent, shares how this approach helped him make investments in Calm, PhotoRoom, and Oura Ring.
Sharpening your intuition and trusting your instincts as an investor can lead to valuable learning experiences and the development of a unique perspective. Nico Wittenborn, founder of Adjacent, shared a lesson he learned from Brian Singerman about trusting one's instincts in investment decisions. This approach allows investors to take ownership of their decisions and gain valuable insights that they may not have gained by relying on external advice. Additionally, Nico's venture firm, Adjacent, is named after the concept of the adjacent possible, which describes how the next step in evolution is often a combination of the possibilities that are available today. This concept inspires Nico to look for opportunities in markets that are adjacent to current trends, such as the consumer subscription market. By trusting his instincts and focusing on the adjacent possible, Nico has made successful investments in companies like Calm, PhotoRoom, and Oura Ring.
Exploring adjacent possibilities for unique investments: Stay curious and open to new possibilities to discover unique investment opportunities in adjacent areas, which can lead to significant innovations and new categories.
Successful investments often come from identifying and capitalizing on adjacent possibilities, which are the ingredients of what's possible at a specific point in time. These opportunities may not be immediately obvious and can be easily dismissed due to uncertainty around market size or the novelty of the area. However, they can lead to significant innovations and new categories when the time is right. The key is to explore these possibilities, keep up with new developments, and adapt and evolve the investment thesis over time. This approach can lead to unique and successful investments, as opposed to following well-trodden paths. The adjacent possible can be discovered through personal curiosity and exploration, as well as through collaboration with entrepreneurs and their innovative ideas. Examples include the advent of smartphones, the evolution of gaming into streaming services, and the integration of LiDAR scanners into phones. By staying curious and open to new possibilities, investors can uncover the next big thing.
Learning from adjacent opportunities and spaces: Seeking out adjacent opportunities and learning from founders and spaces around them can lead to deep understanding and investment in uncertain but potentially high-growth areas, like consumer subscription.
Successful investing and business building involves actively seeking out adjacent opportunities and learning from the founders and spaces around them. This approach, which the speaker calls the "adjacent cascade," allows for a deep understanding of a space and the ability to identify and invest in companies that may be uncertain or risky but have the potential for enormous growth. One such area of interest for the speaker is consumer subscription, which they became interested in through their early adoption of the iPhone and exposure to enterprise software investing. The shift from physical to digital content and the recurring revenue model of SaaS provided a blueprint for consumer subscription businesses, which have since seen significant growth with the willingness of consumers to pay for digital products. The speaker's investment thesis around consumer subscription is evolving, but they believe that the high-margin, recurring revenue model and the ability to self-fund growth make it an attractive space for investment.
The Shift Towards Subscription Business Models: Subscription models have proven successful across various industries and are driven by consumer willingness to pay and monetization potential. Founders should monetize early and gather retention data to optimize pricing.
Consumer subscription models have evolved significantly over the years, and they can be applied to various types of businesses, not just content-based ones. The shift towards subscriptions has been driven by the willingness to pay and the ability to monetize even if a business doesn't reach breakout potential. However, founders often undercharge due to insecurity about market response, and it's crucial to monetize early and gather data on retention. The subscription model has proven successful in enterprise SaaS, consumer businesses, and even industries like renewable energy. As technology advances, particularly in areas like AI, the subscription business model will continue to evolve and adapt to new innovations.
Understanding Consumer Behavior with Subscriptions: Monetizing early with subscriptions reveals consumer behavior, predicts retention, optimizes pricing, and aligns with consumer trends. However, consider the product's suitability and build a valuable product for a smooth transition to a paid model.
Monetizing a product early and implementing a subscription model can provide valuable insights into consumer behavior and help businesses reach cash positivity more quickly. The engagement in the third or sixth month is a good predictor of retention after the first year, making it essential to understand the value of the product to consumers through paid subscriptions. Starting with a lower annual subscription price and gradually increasing it over time can help businesses optimize pricing based on the product's value to consumers. The trend towards consumers being willing to pay for digital assets is increasing, and businesses should adapt to this trend by monetizing their products effectively. However, it's crucial to consider the type of product and ensure that a subscription model aligns with its purpose. Forcing a subscription on products that are not suitable for this business model can negatively impact both retention and conversions. Additionally, it's important to remember that switching users from a perceived free product to a paid one can be challenging, and businesses should focus on building a product that consumers feel confident in paying for. Common mistakes include attempting to force a subscription model on products that are not suitable for it and neglecting the importance of the product's foundation in determining the appropriate business model.
Hardware and Software Combination: The Future of Consumer Companies: Successful consumer companies may combine hardware and software for a cohesive experience, financing free users through paid subscriptions, improving products, creating compelling consumer experiences, and leading to strong retention rates and potentially profitable business models.
The future of successful consumer companies may lie in the combination of hardware and software, creating a cohesive experience that benefits both free and paid users. This model, as seen in investments like Calm and Aura, allows for the financing of free users through paid subscriptions while also improving the product through ongoing software development. The integration of hardware and software not only creates a more compelling consumer experience but also leads to strong retention rates, making it a potentially profitable business model. Despite initial challenges, such as high acquisition costs and consumer churn, this model can lead to stable or even growing revenue in the long term. The success of this model relies on the ability of these companies to create a loyal user base and continuously develop their software offerings.
Investing in the unexpected: Quirky businesses with big potential: Investing in seemingly insignificant businesses can lead to significant returns. Bird Buddy, a digital birdhouse, and Speechify, a reading assistance tool, are examples of underestimated market sizes and untapped potential.
Underrated businesses with quirky or seemingly insignificant products can have immense potential if investors take the time to look beyond initial impressions. The discussion highlighted the example of Bird Buddy, a digital birdhouse with a high hit rate in an adjacent fund. Despite initial dismissal due to its seemingly trivial product, Bird Buddy has the potential to expand beyond its initial offering and become a platform for increasing biodiversity and even combating climate change. Similarly, businesses like Speechify, which aim to help individuals with reading difficulties, can have a much larger impact than expected by bridging the gap between humanity's written knowledge and those who struggle to access it. As an early stage investor, it's essential to consider the potential of a business, even if not all pieces are in place yet. The market size for seemingly niche products can be vastly underestimated, and the contrast between initial expectations and reality can lead to exciting opportunities.
Understanding user needs and focusing on simplicity: Invest in products that solve specific problems, understand user needs, and prioritize simplicity to build a successful business.
Great products are simple, effective, and reflect the thoughtfulness and diligence of their founders. The speaker emphasizes the importance of doing a few things well, and the value of understanding the specific use case and user group for a product. He also shares his personal preference for being deeply involved in all aspects of the investment process, rather than relying on outsourced information. The speaker values simplicity and authenticity in both products and founders, and believes that starting small and focusing on a specific demographic is key to building a successful product. He also reflects on the difference between working independently and being part of a larger organization, noting that while both approaches can be effective, he personally finds greater fulfillment in touching all aspects of the work. Ultimately, the speaker's insights highlight the importance of clarity, focus, and authenticity in both product development and investment decision-making.
Understanding all aspects of venture capital: Holistic perspective leads to unique approach, building strong relationships with founders is essential for success in venture capital.
Understanding all aspects of venture capital, from investment to supporting entrepreneurs, is crucial for those looking to start their own firm. This holistic perspective allows for a unique approach to serving founders with a high-touch, service-oriented model. Greatness, according to the speaker, comes from looking inward and building on one's own experiences, enabling individuals to see opportunities that others may not. This idea applies to both founders and investors, as being in the "adjacent possible" and developing unique perspectives can lead to breakthroughs and extreme upside. Ultimately, controlling the experience and building strong relationships with founders is essential for success in the venture capital industry.
Rise of Individual Investors Running Scaled-Up Firms: Individual investors with massive capital are increasingly running scaled-up firms, offering an alternative to larger, corporate-structured VC firms with their authenticity, quick decision-making, and personal approach.
The venture capital industry has seen a significant shift with the rise of individuals allocating massive amounts of capital into various companies, often operating under their own name. This trend, which has led to individuals effectively running scaled-up investing firms by themselves, is an interesting development in the ecosystem. Early venture capital firms, which initially underestimated the potential size of company outcomes, have since scaled up to manage larger assets and gravitated towards later-stage investing. In response, a new class of investors, known for their name and acting as a merger of angel and institutional managers, has emerged. These individuals offer an alternative to the larger, corporate-structured firms, appealing to founders with their authenticity, quick decision-making, and personal approach. This trend is expected to persist as founders continue to value the underdog and individuals who can make decisions quickly and efficiently.
Unique Perspective and Specialization in Venture Capital: Investors succeed by focusing on specific opportunities, asking powerful questions, monitoring key trends, and building adaptable products.
Finding a unique perspective and specialization is crucial for success in the world of venture capital. The rise of individual firms allows investors to focus on specific opportunities and adjacent possibilities, leading to differentiated views and potentially higher returns. The best investors ask powerful questions to founders, such as what was their initial hypothesis and how much they've had to iterate, to understand their authentic connection to the opportunity and their ability to adapt. The most interesting changes in the world landscape, such as AI, should be closely monitored by companies to stay competitive. Smaller funds, with their higher return potential, are increasingly attractive to Limited Partners seeking alpha. The ability to adapt quickly and build opinionated, simple products that evolve with the market is a valuable trait for founders.
Identifying underrated opportunities in AI for businesses: Businesses can use AI to inform product decisions, add features, and reduce costs. Agile companies that adopt new technologies quickly and have an open mind to innovation are more likely to benefit. Emerging technologies like VisionPRO offer potential, but staying curious and exposed to optionality is crucial.
While AI is a promising area for businesses, especially consumer companies due to their large customer base and data, the competition is intense. Instead of trying to compete with tier 1 funds, it's essential to identify underrated opportunities. AI can bring significant growth by informing product decisions, adding features, and reducing costs. Additionally, companies that are agile, adopt new technologies quickly, and have an open mind to innovation are more likely to benefit from the advancements in AI and other technologies. As for emerging technologies, the VisionPRO, despite its incredible capabilities, has not yet reached mainstream appeal. However, companies that start building for it now, particularly those in the mobile ecosystem, are in a prime position to benefit when it eventually reaches the mass market. The technology frontier is always evolving, and staying curious and exposed to optionality is crucial for identifying potential investments.
Expanding Thesis to Adjacent Areas: Identify founders with authentic commitment and passion to their vision, even if it's in an unfamiliar area, as they're likely to innovate for decades.
Successful investing often involves expanding one's thesis to adjacent areas, even if it means stepping outside of one's comfort zone. The speaker shares his experience of investing in a company that applies chip design technology to real estate planning, which is an ambitious and harder-to-understand concept compared to his initial investing focus on consumer subscription models. However, he recognizes the potential of this new area and the founder's passion and commitment to the vision. Another example he gives is his investment in Chainalysis, which was an analytics company for crypto transactions in a small market that he understood through his SaaS investing framework. The key is to identify founders who are authentically committed to their vision and passionate about their work, as they are likely to continue innovating in their respective fields for decades to come.
Investing in the intersection of satellite technology and cell phone capabilities: The potential benefits of combining satellite technology and cell phone capabilities are significant, with potential disruption in communications and new revenue streams through subscriptions, on-demand services, and partnerships.
The intersection of satellite technology and cell phone capabilities presents an intriguing investment opportunity. Traditional virtual phone providers may not have been successful investments in the past, but the potential benefits of combining these technologies are significant. The speaker is excited about this space because of the potential disruption in communications, the possibilities unlocked by SpaceX, and the founder's consumer sense and reflection in building the product. The speaker's approach is to invest in founders who can explore new spaces and has found success by looking for proxies to markets that excite him but that he may not be able to enter himself. The pricing and value curve for consumer subscriptions is still being explored, and there is potential for premium products and luxury positioning. The speaker is interested in companies that can monetize users in new ways, such as through subscriptions, on-demand services, and partnerships. The App Store's trajectory from free apps to premium subscriptions shows that there is potential for companies to charge more and find new revenue streams. The speaker's investment strategy is to stay open-minded and be in the space where new things are developing all the time.
Expanding Beyond a Product's Natural Ceiling: Focus on building a scalable technology, plan for expansion early, and create value for customers to allow market growth.
Successful companies often reach a natural ceiling with their initial product and must expand into new areas to continue growing. This expansion can come in the form of new products, acquisitions, or pivots. Founders should focus on building a strong underlying technology that can be scaled across different platforms and use cases. It's important to start planning for this expansion early on, even when the company is still growing rapidly in its initial offering. Additionally, founders should aim to have their companies "pulled" rather than just pushing themselves. This means focusing on creating value for customers and allowing the market to drive growth, rather than relying solely on aggressive marketing or competition. When looking for investment opportunities, investors should look for companies that show signs of the potential for expansion and have a strong underlying technology.
Identifying unique opportunities for high growth: Find trends, build on experiences, and take calculated risks to identify unique opportunities for high growth. Examples include Typeform and the iPhone.
Finding success in business involves understanding your unique perspective, self-selecting out of competitive markets, and taking calculated risks based on your convictions. The speaker, who has experience in both enterprise software and consumer companies, emphasizes the importance of identifying opportunities that are less understood and have the potential for high growth. This requires a willingness to accept uncertainty and learn through experience. A beautiful example of a product that exemplifies this principle is Typeform, which is not only visually appealing but also designed to increase conversions and distribute itself through its user experience. Another influential product is the iPhone, which disrupted the market and set a new standard for innovation. Overall, the key to success is to identify trends, build on your experiences, and have the confidence to take calculated risks.
Great technology makes our lives easier by decreasing friction to interaction: The iPhone's intuitive interface and the Oura ring's data insights are examples of technology decreasing friction for consumers.
Great technology makes our lives easier by decreasing the friction to interaction with digital products. The iPhone is a prime example of this, with its intuitive interface making it accessible to even young children. Another example is the Oura ring, which may not seem like a technological product due to its lack of screens, but is actually packed with technology that becomes more powerful when used in conjunction with a smartphone. Decreasing the friction to getting valuable data and insights is a major theme in creating successful consumer products. Niko, who has a diverse portfolio, shared a personal story about how Pavel from 0.9 gave him an opportunity to learn about venture capital during his university days, which was a pivotal moment in his career. On a personal level, he expressed his gratitude for his wife and family, and on a spiritual level, he believes in a higher power looking out for him and feels a sense of responsibility to give back.
