The Exchanges

Q So we can now roll forward. You've had a lot of successes in the business. What was your thought process that led to writing this book?

A I'm very interested in these startup frameworks, customer development, lean startups, business model canvas, all these types of things. And I would promote those to the companies I worked with, and companies would use them sometimes, sometimes they wouldn't. But I started to notice that I couldn't explain the success of the wins that we'd had with these best practices very well. So you look at Twitter, they couldn't decide who the CEO should be. The servers were down a lot with the fail whale. There were a lot of internal strife and difficulties. Lyft had started out as Zimride, and we had just launched an illegal service that had blown up in San Francisco. Twitch has started as justin.tv. And so I would find that. 80 to 85% of our exit profits had come from pivots. And conversely, there were a lot of founders who I would have put on the most likely to succeed list. And simultaneous to these big outcomes, I'd be helping these founders shut down their company after they'd been in the wilderness for many years, never finding product market fit, or even worse, just having these five year slogs where It wasn't an obvious success, but it wasn't an obvious failure either. It was just in this in between zone. And the founder felt like they were pursuing it more out of obligation than out of passion, but they had commitments. They had employees and investors felt like they had to keep …

AI assessment note: “That was the genesis of the book. I didn't even think I was going to”

Q This idea of repeat founders, as you described with Justin, there is an idea that if you have a founder that's success, they've learned a lot, there's a lot that they demonstrate, and yet, in this case, it was almost like the motivation was misaligned. How do you think about repeat founders?

A So first of all, I think repeat founders do have better odds. So a lot of people say very few people could do it again. That's true, but very few people could do it at all. Very few people ever have a breakthrough. And so why are some founders able to do it? I think it does come back to founder future fit. So for example, Elon Musk, he doesn't start any companies anymore that don't take on grand challenges that most people think are impossible. And because of that, he goes after a certain type of problem that most people won't go after, and he's able to attract certain types of people. Very often, he can even monopolize the expertise in a certain field because there's no other meaningful company trying to do something that meaningful in that field. And so I would say that Elon is an example of someone who does it multiple times, but partly because he pursues ideas for which he has great authenticity as a founder. And that was the mistake that Justin made as he Pursued an idea that would endow him with prestige as a founder more than it would represent the type of future that he was intrinsically motivated to pursue. So Elon is also unique in that a lot of founders, once they get rich having a breakthrough, do they really want to get on a plane to Germany to solve the problem for the angry customer? Well, when you're poor entrepreneur scraping by and you're desperate, that's one…

AI assessment note: “I think repeat founders do have better odds... it does come back to founder future fit.”

Q So we can now roll forward. You've had a lot of successes in the business. What was your thought process that led to writing this book?

A I'm very interested in these startup frameworks, customer development, lean startups, business model canvas, all these types of things. And I would promote those to the companies I worked with, and companies would use them sometimes, sometimes they wouldn't. But I started to notice that I couldn't explain the success of the wins that we'd had with these best practices very well. So you look at Twitter, they couldn't decide who the CEO should be. The servers were down a lot with the fail whale. There were a lot of internal strife and difficulties. Lyft had started out as Zimride, and we had just launched an illegal service that had blown up in San Francisco. Twitch has started as justin.tv. And so I would find that. 80 to 85% of our exit profits had come from pivots. And conversely, there were a lot of founders who I would have put on the most likely to succeed list. And simultaneous to these big outcomes, I'd be helping these founders shut down their company after they'd been in the wilderness for many years, never finding product market fit, or even worse, just having these five year slogs where It wasn't an obvious success, but it wasn't an obvious failure either. It was just in this in between zone. And the founder felt like they were pursuing it more out of obligation than out of passion, but they had commitments. They had employees and investors felt like they had to keep …

AI assessment note: “That was the genesis of the book. I didn't even think I was going”

Q So you mentioned the shipping of the GPS chip inside the iPhone as an inflection. That's technological breakthrough. What are the different forms of inflections that can create those radically different futures?

A My favorite does remain technology, because I think that technology usually gives the startup the best chance to win. But another type of inflection could be a regulatory change. A shelter in place during COVID, a law was passed that allowed telemedicine visits to occur across state lines for the first time, and for them to be reimbursed by the healthcare system. And so that's an inflection because it meets the definitions of one. If you think about it, it's a new thing. It's a specific new thing. It provides empowerment because it allows patients to interact with doctors that they couldn't have interacted with before for free, and it allows doctors to interact with patients they couldn't have interacted with before and get reimbursed for it, and so it was empowering for the patients and the doctors. It was a new thing. Then the question becomes, Will those conditions continue to be met? Would the law get reverted back to the old law, or will it persist as a permanent new law? And it looks so far like it will. So that's an example of an inflection. Another inflection might be a belief inflection. So, for example, before COVID, probably not as many people thought it was reasonable to spend a couple or three days a week working from home using Zoom, but now that's the permanent change. I'm not in the office as much as I was before COVID, and that's a permanent shift in my style o…

AI assessment note: “another type of inflection could be a regulatory change. A shelter in place during COVID”

Q What are some of those other examples of forcing a choice compared to a comparison?

A The way I like to say it is you need at least a Delta IV experience, and so if taxis in San Francisco were three out of 10 good, ride sharing needed to be at least seven out of 10 good. Because if it's seven out of 10 good, then they think you can't compare the two things. I've transcended taxis rather than outperformed taxis. And the other reason you want Delta IV is that when people have a Delta IV experience, they go tell all their friends. They shout it from the rooftops. They get status with their peer group. Startups don't have money to spend on marketing, and so they need a bunch of people singing the praises of this new thing that's radically superior. What you want is in a world where everybody's an apple. Don't say I'm a better apple. You want to say I'm the world's first banana. You can't reconcile what I do with apples that you may not want bananas. That's okay. Go keep eating apples. But if banana-ness is something you value, I'm the only guy that's got it. And so that's where you want to be as a startup. Nobody after seeing a banana says, how does that compare to an apple? And nobody after Lyft said, how does that compare to taxis? And nobody after the cyber truck says, how does that compare to an F one 50? So if the answer to your product idea as a startup is, how does that compare to X? You're doing something wrong. You're either not different enough, or you're …

AI assessment note: “nobody after Lyft said, how does that compare to taxis? And nobody after the cyber truck”

Q What are some of the surprises you've encountered in challenges to inflection theory?

A Zoom was one of them. So I looked at Zoom, and I was like, I can't convince myself that this thing harnessed inflections. I think Eric just had a bunch of guys in China and throughout the world, and anytime there was something that didn't work or wasn't efficient, he just put that code in there, too, and just brute forced it. Now, I suppose you could say that the insight was that that inflection wasn't as valid as brute forcing it, but I just don't think you could have known that at the time. I think even if you could ex-post say that, I just don't think you could have known it at the time. I don't think the theory would have been useful to you at the time. So the part of the theory that would have been useful would have been this founder future fit, I think. So I do think it happens. The other thing that happens is sometimes you have a startup where it gets acquired for a really big price. Michael Birch, I guess, had Bebo, this social network that got bought by AOL for the gigantic price, and it ended up going to zero. Tumblr got bought by Yahoo for a giant price that went to zero. Well, not zero, but pretty small. So sometimes a startup gets lucky. It gets acquired by A dumb buyer who overpays. There are definitely exceptions. But what I say to founders is, what odds do you want to play by? I can't promise you that if you harness inflection, you'll have a breakthrough. I can'…

AI assessment note: “Zoom was one of them. So I looked at Zoom”

Q So let's turn over to the investment side. So you came at it with this healthy skepticism that you'd be able to be successful and an interest in what was going on in Silicon Valley. So what happened from there?

A Yeah. And what's interesting is in hindsight, I now realize that I'd accidentally stumbled into like a portal where I was living in the future. And so I was seeing a bunch of people who were at the groundswell of what came to be called the lean startup movement. And so I started hanging out with Steve Blank and Eric Reese. I started seeing founders pitch me who would say, everybody wants to invest five million dollars into my company. And I can't even imagine how I'd spend more than a million dollars. And I just saw this happen over and over again, and I also found that I was really resonating and connecting with these founders because I could identify with their problems, and I was excited about what they were doing, and so I just came about it almost by accident. I like to say that the best startup ideas come from living in the future and building what's missing in the future, and so the idea to do an institutional seed fund Really was born of the fact that that's just what the entrepreneurs needed. I was hanging out with a set of people who had those needs that they weren't being met, and so I was just trying to build what was missing for them, and so that was the kickstart of it all. Steve Blank, it just so happened that he taught the motive case at Berkeley in his business school class, and so when I reached out and said, hey, I'd like to introduce myself. I hear you're re…

AI assessment note: “the idea to do an institutional seed fund Really was born of the fact”

Q So let's break down each of those pieces. You start with inflections. What is an inflection?

A An inflection is a new event. So something new gets introduced that has a set of new empowerments that can radically alter human capacities and behaviors. So a good example of an inflection is the iPhone four S shipped with a GPS chip in it. Now the inflection happens external to the startup. In order to make the inflection useful, you need an insight. So like in the case of Lyft, the insight was, oh, that means you could do Airbnb for cars. You could treat riders and drivers in the same way Airbnb treated hosts and guests. So that had to come from the creativity of the entrepreneur, but the inflection is worth double clicking on because The inflection is the thing that allows the startup founder to wage asymmetric warfare on the present. The inflection provides the force multiplier that allows the startup to show up out of left field and not compete by being better, but by changing the subject. What we want to do is the incumbents Think in terms of forecasting. They believe that the future should be an extension of the present. It should be a new and improved version of the present. A great startup founder needs to say, it's by definition bad for me to compete that way. What I need to do is assume that the future must be radically different and work backwards from those radically different futures. I back cast rather than forecast. And the way that I backcast is I use inflecti…

AI assessment note: “An inflection is a new event. So something new gets introduced”

Q You mentioned at the onset that 80% of these big winners had pivoted. What is it that makes a pivot work in this framework of talking about inflections and insights?

A I think I finally understand how that works now. I'm a big fan of the Warriors and basketball, Steph Curry and all those guys. And the metaphor of pivot comes from basketball. So the way a pivot works, you stay on your pivot foot and you move your body. And in startups, metaphorically, your insight is your pivot foot. And that's what you want to hold fixed. When you have an insight, you have to have an implementation of that insight. So the first implementation of Lyft's insight was Zimride. It was a corporate ride sharing service. So when you have this insight, you can vary your implementation, or you can vary your audience. But what you're trying to do is achieve product market fit. And product market fit answers a specific, but profound and hard question, which is, What can we uniquely offer that people are desperate for? And so if we have an insight, we have our uniqueness. So we want to keep that fixed. Now we need to understand who's desperate and how do I offer this insight in a form of an implementation that will trigger their desperation. If I show my initial idea to customers and I'm getting lukewarm feedback, one of two things is true. Let's assume that my insight's right, because if we don't have an insight, we don't have a startup. But if my insight is right, if I still believe that, I have to do one of two things, or both. I either have to modify my implementation…

AI assessment note: “in startups, metaphorically, your insight is your pivot foot. And that's what you want to hold fixed.”

Q What are some of the ways you've seen companies go off the rails?

A Oh, there's so many. I'd say the number one way That people go off the rails is their idea of what the customer wants is just not true. Paul Graham from Y Combinator once said that his first startup, he put art galleries online and thought that people were going to want that. And it turns out nobody did. And he realized in hindsight that he had a mental model of how the world should be that just wasn't true for most people. This is the biggest problem that startups have is they solve a problem that only exists in the minds of the founders and nobody else. This comes back to desperation as well, why it's so important. One of the things I'll tease out when I was an entrepreneur, if I wanted to find desperation, I would ask, what has the customer already done to try to solve this problem before? Because if they've tried to solve the problem before, I know one thing for sure, and that is that they believe the problem exists. If they haven't tried to solve the problem before, on what basis can I assume that they believe the problem exists? If they were desperate to solve it, they would have tried somehow. And then you show up with a way to solve it, where for the first time they believe it's possible. And that's why they'll tolerate your half-finished product. Because they have no alternative way to solve it, and they want to solve it. That's the main reason startups fail. There's a…

AI assessment note: “number one way That people go off the rails is their idea of what the customer wants”

Q So let's turn over to the investment side. So you came at it with this healthy skepticism that you'd be able to be successful and an interest in what was going on in Silicon Valley. So what happened from there?

A Yeah. And what's interesting is in hindsight, I now realize that I'd accidentally stumbled into like a portal where I was living in the future. And so I was seeing a bunch of people who were at the groundswell of what came to be called the lean startup movement. And so I started hanging out with Steve Blank and Eric Reese. I started seeing founders pitch me who would say, everybody wants to invest five million dollars into my company. And I can't even imagine how I'd spend more than a million dollars. And I just saw this happen over and over again, and I also found that I was really resonating and connecting with these founders because I could identify with their problems, and I was excited about what they were doing, and so I just came about it almost by accident. I like to say that the best startup ideas come from living in the future and building what's missing in the future, and so the idea to do an institutional seed fund Really was born of the fact that that's just what the entrepreneurs needed. I was hanging out with a set of people who had those needs that they weren't being met, and so I was just trying to build what was missing for them, and so that was the kickstart of it all. Steve Blank, it just so happened that he taught the motive case at Berkeley in his business school class, and so when I reached out and said, hey, I'd like to introduce myself. I hear you're re…

AI assessment note: “the idea to do an institutional seed fund Really was born of the fact”

Q So let's break down each of those pieces. You start with inflections. What is an inflection?

A An inflection is a new event. So something new gets introduced that has a set of new empowerments that can radically alter human capacities and behaviors. So a good example of an inflection is the iPhone four S shipped with a GPS chip in it. Now the inflection happens external to the startup. In order to make the inflection useful, you need an insight. So like in the case of Lyft, the insight was, oh, that means you could do Airbnb for cars. You could treat riders and drivers in the same way Airbnb treated hosts and guests. So that had to come from the creativity of the entrepreneur, but the inflection is worth double clicking on because The inflection is the thing that allows the startup founder to wage asymmetric warfare on the present. The inflection provides the force multiplier that allows the startup to show up out of left field and not compete by being better, but by changing the subject. What we want to do is the incumbents Think in terms of forecasting. They believe that the future should be an extension of the present. It should be a new and improved version of the present. A great startup founder needs to say, it's by definition bad for me to compete that way. What I need to do is assume that the future must be radically different and work backwards from those radically different futures. I back cast rather than forecast. And the way that I backcast is I use inflecti…

AI assessment note: “An inflection is a new event. So something new gets introduced”

Q You mentioned at the onset that 80% of these big winners had pivoted. What is it that makes a pivot work in this framework of talking about inflections and insights?

A I think I finally understand how that works now. I'm a big fan of the Warriors and basketball, Steph Curry and all those guys. And the metaphor of pivot comes from basketball. So the way a pivot works, you stay on your pivot foot and you move your body. And in startups, metaphorically, your insight is your pivot foot. And that's what you want to hold fixed. When you have an insight, you have to have an implementation of that insight. So the first implementation of Lyft's insight was Zimride. It was a corporate ride sharing service. So when you have this insight, you can vary your implementation, or you can vary your audience. But what you're trying to do is achieve product market fit. And product market fit answers a specific, but profound and hard question, which is, What can we uniquely offer that people are desperate for? And so if we have an insight, we have our uniqueness. So we want to keep that fixed. Now we need to understand who's desperate and how do I offer this insight in a form of an implementation that will trigger their desperation. If I show my initial idea to customers and I'm getting lukewarm feedback, one of two things is true. Let's assume that my insight's right, because if we don't have an insight, we don't have a startup. But if my insight is right, if I still believe that, I have to do one of two things, or both. I either have to modify my implementation…

AI assessment note: “in startups, metaphorically, your insight is your pivot foot. And that's what you want to hold fixed.”

Q What have you seen of that impact on entrepreneurs?

A It's interesting to see the language get adopted. It's only been out for a brief amount of time, but I'll get pitches now where they say, here's the inflection, or I stress tested it this way, or they'll, somebody will tweet out their stress test for other people to respond to. And I'm like, wow, that's really cool. I knew Eric Reese's ideas were starting to win when people started to say, well, we're going to build our minimum viable product by this date. They were adopting his language to describe it, and so if people start to adopt our language to describe what a great startup is, yeah, some people will benefit from that that aren't us, one of the other 2000 seed funds in the world, but I think that overall we'll be better off if we're associated with that set of thinking.

AI assessment note: “I'll get pitches now where they say, here's the inflection”

Q So you mentioned the shipping of the GPS chip inside the iPhone as an inflection. That's technological breakthrough. What are the different forms of inflections that can create those radically different futures?

A My favorite does remain technology, because I think that technology usually gives the startup the best chance to win. But another type of inflection could be a regulatory change. A shelter in place during COVID, a law was passed that allowed telemedicine visits to occur across state lines for the first time, and for them to be reimbursed by the healthcare system. And so that's an inflection because it meets the definitions of one. If you think about it, it's a new thing. It's a specific new thing. It provides empowerment because it allows patients to interact with doctors that they couldn't have interacted with before for free, and it allows doctors to interact with patients they couldn't have interacted with before and get reimbursed for it, and so it was empowering for the patients and the doctors. It was a new thing. Then the question becomes, Will those conditions continue to be met? Would the law get reverted back to the old law, or will it persist as a permanent new law? And it looks so far like it will. So that's an example of an inflection. Another inflection might be a belief inflection. So, for example, before COVID, probably not as many people thought it was reasonable to spend a couple or three days a week working from home using Zoom, but now that's the permanent change. I'm not in the office as much as I was before COVID, and that's a permanent shift in my style o…

AI assessment note: “another type of inflection could be a regulatory change. A shelter in place during COVID”

Q What are some of those other examples of forcing a choice compared to a comparison?

A The way I like to say it is you need at least a Delta IV experience, and so if taxis in San Francisco were three out of 10 good, ride sharing needed to be at least seven out of 10 good. Because if it's seven out of 10 good, then they think you can't compare the two things. I've transcended taxis rather than outperformed taxis. And the other reason you want Delta IV is that when people have a Delta IV experience, they go tell all their friends. They shout it from the rooftops. They get status with their peer group. Startups don't have money to spend on marketing, and so they need a bunch of people singing the praises of this new thing that's radically superior. What you want is in a world where everybody's an apple. Don't say I'm a better apple. You want to say I'm the world's first banana. You can't reconcile what I do with apples that you may not want bananas. That's okay. Go keep eating apples. But if banana-ness is something you value, I'm the only guy that's got it. And so that's where you want to be as a startup. Nobody after seeing a banana says, how does that compare to an apple? And nobody after Lyft said, how does that compare to taxis? And nobody after the cyber truck says, how does that compare to an F one 50? So if the answer to your product idea as a startup is, how does that compare to X? You're doing something wrong. You're either not different enough, or you're …

AI assessment note: “nobody after Lyft said, how does that compare to taxis? And nobody after the cyber truck”

Q This idea of repeat founders, as you described with Justin, there is an idea that if you have a founder that's success, they've learned a lot, there's a lot that they demonstrate, and yet, in this case, it was almost like the motivation was misaligned. How do you think about repeat founders?

A So first of all, I think repeat founders do have better odds. So a lot of people say very few people could do it again. That's true, but very few people could do it at all. Very few people ever have a breakthrough. And so why are some founders able to do it? I think it does come back to founder future fit. So for example, Elon Musk, he doesn't start any companies anymore that don't take on grand challenges that most people think are impossible. And because of that, he goes after a certain type of problem that most people won't go after, and he's able to attract certain types of people. Very often, he can even monopolize the expertise in a certain field because there's no other meaningful company trying to do something that meaningful in that field. And so I would say that Elon is an example of someone who does it multiple times, but partly because he pursues ideas for which he has great authenticity as a founder. And that was the mistake that Justin made as he Pursued an idea that would endow him with prestige as a founder more than it would represent the type of future that he was intrinsically motivated to pursue. So Elon is also unique in that a lot of founders, once they get rich having a breakthrough, do they really want to get on a plane to Germany to solve the problem for the angry customer? Well, when you're poor entrepreneur scraping by and you're desperate, that's one…

AI assessment note: “first of all, I think repeat founders do have better odds.”

Q What are some of the surprises you've encountered in challenges to inflection theory?

A Zoom was one of them. So I looked at Zoom, and I was like, I can't convince myself that this thing harnessed inflections. I think Eric just had a bunch of guys in China and throughout the world, and anytime there was something that didn't work or wasn't efficient, he just put that code in there, too, and just brute forced it. Now, I suppose you could say that the insight was that that inflection wasn't as valid as brute forcing it, but I just don't think you could have known that at the time. I think even if you could ex-post say that, I just don't think you could have known it at the time. I don't think the theory would have been useful to you at the time. So the part of the theory that would have been useful would have been this founder future fit, I think. So I do think it happens. The other thing that happens is sometimes you have a startup where it gets acquired for a really big price. Michael Birch, I guess, had Bebo, this social network that got bought by AOL for the gigantic price, and it ended up going to zero. Tumblr got bought by Yahoo for a giant price that went to zero. Well, not zero, but pretty small. So sometimes a startup gets lucky. It gets acquired by A dumb buyer who overpays. There are definitely exceptions. But what I say to founders is, what odds do you want to play by? I can't promise you that if you harness inflection, you'll have a breakthrough. I can'…

AI assessment note: “Zoom was one of them. So I looked at Zoom”

Q From your experience as an entrepreneur, you had a bunch of successes. What were the things when you look back that you thought made you in that top percent of operators?

A I think that I was good at the creative, intuitive side of things and good at strategy. I don't think I'm particularly good at execution. I found in business as well and operating, it's good to have a healthy sense of your own assets and liabilities and make sure that whatever you're not so good at, you don't necessarily have to make it your mission in life to be good at that thing. You're better off working with folks who are good at that thing. But one of the things I tend to believe about Business and life is that it's better to amplify your known strengths and bolster your weaknesses rather than try to turn your weaknesses into strengths out of some source of false misplaced pride.

AI assessment note: “I think that I was good at the creative, intuitive side of things and good at strategy.”

Q Well, let's talk about what you found. So you've written this book, you've kind of created a theory of what makes for a breakthrough startup. And so why don't you walk me through it?

A The thing that I came to realize is that business is never a fair fight, and the default is that the incumbents should win because they have the advantage of the incumbency. There's a lot of good books written about the powers that a corporation could have. You could read about Michael Porter and his Five Forces or Hamilton Helmer's Seven Powers, but most of it is about trying to create a persistently compounding set of advantages And a competitive advantage period that extends for a long time with a moat that's impregnable. Well, I realized that startups don't have any of those things. They don't have any moats. They don't have anything to compound their startup. All they have is the founders and the quality of the idea. What powers does a startup have then? And how's a startup fight unfair? They fight unfair by refusing the premise of the current rules and instead impose radically different rules. So startups never win by being better. Better isn't enough. Better doesn't matter. Only by being radically different can a startup make a radical difference. And so the powers that a startup can harness, first of all, on the idea side is inflections, insights, and then Ideas that have a strong amount of founder future fit, I found, tend to be the most powerful. But then the founder has to not only think different, they have to act differently as well. And the way they act differentl…

AI assessment note: “powers that a startup can harness, first of all, on the idea side”

Q What have you seen of that impact on entrepreneurs?

A It's interesting to see the language get adopted. It's only been out for a brief amount of time, but I'll get pitches now where they say, here's the inflection, or I stress tested it this way, or they'll, somebody will tweet out their stress test for other people to respond to. And I'm like, wow, that's really cool. I knew Eric Reese's ideas were starting to win when people started to say, well, we're going to build our minimum viable product by this date. They were adopting his language to describe it, and so if people start to adopt our language to describe what a great startup is, yeah, some people will benefit from that that aren't us, one of the other 2000 seed funds in the world, but I think that overall we'll be better off if we're associated with that set of thinking.

AI assessment note: “It's interesting to see the language get adopted. It's only been out for a brief”

Q What are some of the ways you've seen companies go off the rails?

A Oh, there's so many. I'd say the number one way That people go off the rails is their idea of what the customer wants is just not true. Paul Graham from Y Combinator once said that his first startup, he put art galleries online and thought that people were going to want that. And it turns out nobody did. And he realized in hindsight that he had a mental model of how the world should be that just wasn't true for most people. This is the biggest problem that startups have is they solve a problem that only exists in the minds of the founders and nobody else. This comes back to desperation as well, why it's so important. One of the things I'll tease out when I was an entrepreneur, if I wanted to find desperation, I would ask, what has the customer already done to try to solve this problem before? Because if they've tried to solve the problem before, I know one thing for sure, and that is that they believe the problem exists. If they haven't tried to solve the problem before, on what basis can I assume that they believe the problem exists? If they were desperate to solve it, they would have tried somehow. And then you show up with a way to solve it, where for the first time they believe it's possible. And that's why they'll tolerate your half-finished product. Because they have no alternative way to solve it, and they want to solve it. That's the main reason startups fail. There's a…

AI assessment note: “the number one way That people go off the rails is their idea”

Q Well, let's talk about what you found. So you've written this book, you've kind of created a theory of what makes for a breakthrough startup. And so why don't you walk me through it?

A The thing that I came to realize is that business is never a fair fight, and the default is that the incumbents should win because they have the advantage of the incumbency. There's a lot of good books written about the powers that a corporation could have. You could read about Michael Porter and his Five Forces or Hamilton Helmer's Seven Powers, but most of it is about trying to create a persistently compounding set of advantages And a competitive advantage period that extends for a long time with a moat that's impregnable. Well, I realized that startups don't have any of those things. They don't have any moats. They don't have anything to compound their startup. All they have is the founders and the quality of the idea. What powers does a startup have then? And how's a startup fight unfair? They fight unfair by refusing the premise of the current rules and instead impose radically different rules. So startups never win by being better. Better isn't enough. Better doesn't matter. Only by being radically different can a startup make a radical difference. And so the powers that a startup can harness, first of all, on the idea side is inflections, insights, and then Ideas that have a strong amount of founder future fit, I found, tend to be the most powerful. But then the founder has to not only think different, they have to act differently as well. And the way they act differentl…

AI assessment note: “powers that a startup can harness, first of all, on the idea side”

Q From your experience as an entrepreneur, you had a bunch of successes. What were the things when you look back that you thought made you in that top percent of operators?

A I think that I was good at the creative, intuitive side of things and good at strategy. I don't think I'm particularly good at execution. I found in business as well and operating, it's good to have a healthy sense of your own assets and liabilities and make sure that whatever you're not so good at, you don't necessarily have to make it your mission in life to be good at that thing. You're better off working with folks who are good at that thing. But one of the things I tend to believe about Business and life is that it's better to amplify your known strengths and bolster your weaknesses rather than try to turn your weaknesses into strengths out of some source of false misplaced pride.

AI assessment note: “I think that I was good at the creative, intuitive side of things and good at strategy.”

Q So if you start with that co-conspirator relationship, it still has to be non-consensus at the time. How do you get from something that people don't believe in to a movement that becomes more mainstream over time?

A If you've ever seen Rudolph the Red-Nosed Reindeer, I don't think people realize this, but Rudolph is the canonical pattern breaker. He's got this red nose. He gets banished. The only place that will accept him is the Island of Misfit Toys. The Misfits come back And Rudolph saves the day at the end. But it takes time for people to come around to his provocative point of view about the value of a red nose. And so startups are like that. Usually the early people who believe in a startup come across at first like they're misfits. So your early users of personal computers were homebrew computer club alpha geeks. Nobody would have thought in the early days of the personal computer that everybody was going to have one that was fundamental to all business. People thought of it as a hobbyist toy. Even Apple didn't quite know how to market it. They were like, hey, you can store your recipes on it in the kitchen or something like that. People weren't really sure how it was going to cross over into the mainstream early on, but that didn't matter because the alpha geeks liked it because it was so empowering. It was like me when I was a teenager. That's usually how it happens at first. Then what happens is like any movement. And this happens, by the way, in social movements more often. Let's take civil rights. In the early days, Martin Luther King was viewed by many as a radical. History re…

AI assessment note: “he forces a choice and not a comparison. You either buy that vision”

Q Me too. Why don't you take me back to your path just to venture investing before we dive into the book?

A I always liked to do startups before I even knew what startups were. So when I was in fifth grade, I started to take up calligraphy and I had a knack for it. And I found that I could charge by the job rather than the hour. And that was a pretty good way of living when you're in the fifth and sixth grade. And so I would follow my mom into town and I would find the fancy restaurants and the jewelry stores and any high end place and say, Hey, you could add a touch of elegance if you had these hand calligraphed signs. I had my little calligraphy workshop in the finished attic in the house, and so that was about the time that I discovered the personal computer. They were just starting to become a thing, and my dad was at IBM and knew a bunch of the guys on the PC team, and so I started programming a computer and, and never looked back from there. It's hard to remember what that felt like, but it was just so unbelievably empowering to be able to write your own programs and have the computer do what you wanted it to do. It was just Complete revelation for me. Then I had a little bit of a side hustle selling software. Then I did that through college. And then I started to get real jobs. So I worked at Silicon Graphics a few years and then went to business school, then was involved with a couple of startups in Austin. So I was basically a software entrepreneur until I was about mid thir…

AI assessment note: “I was basically a software entrepreneur until I was about mid thirties”

Q So if you start with that co-conspirator relationship, it still has to be non-consensus at the time. How do you get from something that people don't believe in to a movement that becomes more mainstream over time?

A If you've ever seen Rudolph the Red-Nosed Reindeer, I don't think people realize this, but Rudolph is the canonical pattern breaker. He's got this red nose. He gets banished. The only place that will accept him is the Island of Misfit Toys. The Misfits come back And Rudolph saves the day at the end. But it takes time for people to come around to his provocative point of view about the value of a red nose. And so startups are like that. Usually the early people who believe in a startup come across at first like they're misfits. So your early users of personal computers were homebrew computer club alpha geeks. Nobody would have thought in the early days of the personal computer that everybody was going to have one that was fundamental to all business. People thought of it as a hobbyist toy. Even Apple didn't quite know how to market it. They were like, hey, you can store your recipes on it in the kitchen or something like that. People weren't really sure how it was going to cross over into the mainstream early on, but that didn't matter because the alpha geeks liked it because it was so empowering. It was like me when I was a teenager. That's usually how it happens at first. Then what happens is like any movement. And this happens, by the way, in social movements more often. Let's take civil rights. In the early days, Martin Luther King was viewed by many as a radical. History re…

AI assessment note: “he forces a choice and not a comparison. You either buy that vision or don't”

Q Me too. Why don't you take me back to your path just to venture investing before we dive into the book?

A I always liked to do startups before I even knew what startups were. So when I was in fifth grade, I started to take up calligraphy and I had a knack for it. And I found that I could charge by the job rather than the hour. And that was a pretty good way of living when you're in the fifth and sixth grade. And so I would follow my mom into town and I would find the fancy restaurants and the jewelry stores and any high end place and say, Hey, you could add a touch of elegance if you had these hand calligraphed signs. I had my little calligraphy workshop in the finished attic in the house, and so that was about the time that I discovered the personal computer. They were just starting to become a thing, and my dad was at IBM and knew a bunch of the guys on the PC team, and so I started programming a computer and, and never looked back from there. It's hard to remember what that felt like, but it was just so unbelievably empowering to be able to write your own programs and have the computer do what you wanted it to do. It was just Complete revelation for me. Then I had a little bit of a side hustle selling software. Then I did that through college. And then I started to get real jobs. So I worked at Silicon Graphics a few years and then went to business school, then was involved with a couple of startups in Austin. So I was basically a software entrepreneur until I was about mid thir…

AI assessment note: “I was basically a software entrepreneur until I was about mid thirties”