A Product Market Fit Show | Startup Podcast for Founders
Every founder has 1 goal: find product-market fit. We interview the world's most successful startup founders on the 0 to 1 part of their journeys. We've had the founders of Reddit, Rappi, Cohere, Glean, Huntress, ID.me and many more.
We go deep with entrepreneurs & VCs to provide detailed examples you can steal. Our goal is to understand product-market fit better than anyone on the planet.
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A Product Market Fit Show | Startup Podcast for Founders
VCs give a lot of advice— & a lot of it sucks. Be careful who you listen to.
Advice is free—actioning bad advice isn't. Early-stage founders are bombarded with advice. A lot of it from investors who have never operated a business, never ran marketing, never led sales.
And yet, many founders take VCs' advice as sacrosanct. And many VCs feel like they can and should opine on everything. If many people treat you like an expert, you must be one... right?
VCs have a lot to offer founders. But, like everyone, they have circles of competence.
Be careful who you listen to.
Why you should listen
- Why power dynamics between VCs and founders can distort decision-making and advice-seeking.
- Why you should be skeptical of advice that is outside of a VC's circle of competence.
Keywords
customer needs, business problems, power dynamics, VCs, founders, advice
Pablo Srugo (00:00.184)
So the other week I had an episode with the Xquarespace CEO with Dane from Adecco and I posted about the episode online and one of the most interesting stories of what I posted about was that when Dane started Adecco, his idea was to sell software to coffee shop owners, right? And the idea was for the software to help coffee shop owners better predict future sales so that they could optimize the logistics side, the back office side, like supply chain, inventory, these sort of things.
And as he started doing that, he just, because he spent so much time with customers, he actually has a rule that he has to be in a coffee shop every single day, talk to customers every single day, even today, even after raising over $200 million. But anyways, because he was spending so much time with customers, he just realized what their day to day really looked like and what the problems truly were. And the bottom line is that this software idea sounded cool to many operators, but they
really pulling it out of his hands. He wasn't getting the demand that he was hoping to get. And the reason was they just had bigger problems. had much bigger problems. For example, in many cases, the deliveries, like their supplies weren't coming on time or they weren't coming at all. you know, there's, or there's just like things around HR. Like there's just so many other things that it takes to actually run a, a coffee shop. And so what Dane's idea was, okay, I think we just need to do much more. I think we need to solve a bigger problem.
And what he wanted to do was go from like pure B2B SaaS, high margin, high multiple, easy to scale to taking on the entire logistics backend. And the way that he framed it was he wants to give independent coffee shop owners the same sort of a supply chain experience that a franchise owner has. So basically they get all the upsides of a franchise or big corporate chain like Starbucks, but while staying totally independent with the bottom line is that that way coffee shop owners can focus on the customers, can focus on the front
And so he goes back to his VCs and he tells him this idea and his VCs, you know, hate it because they're like, no, you're going to abandon SaaS. mean, SaaS is like, holy grail. Like B2B SaaS. can't find one investor in the world that doesn't love B2B SaaS. It's recurring. It's predictable. It's high margin. She's got all of the features of a nice, rich, beautiful business model. It just wasn't working. Like in this case, customers weren't buying the thing. And
Pablo Srugo (02:15.694)
didn't realize that he just needed a different business model. Yeah, it was going to be lower margin, lower multiple, but it was actually going to work. And he ends up, know, good fat, he ends up just testing without telling his BCs. He like gets a truck and just starts testing it, figures out that there's real market pool and goes all in. And it turns out to be super good because, know, when he launches, actually goes from zero to $150 million in revenue in two years, from zero to 10 ,000 customers in two years, which is just insane. Anyways, I posted about this on LinkedIn and the CEO, this guy,
He has a comment that I love. said, it's always odd that VCs are viewed as expert business leaders, quasi entrepreneurs, when most have never actually started or run a business themselves. And that just struck because I'm like, it's just so true. There's something about the dynamics of capital allocators to those seeking capital. And it goes for everything. As VCs, for example, we raise funds. We have the same power dynamics between us and RLPs.
If you are like the hottest fund in the world, like you're a Sequoia or Andreessen, then the power dynamic shifts and you have a lot more power. If you're like the hottest unicorn founder, Mark Zuckerberg in the 2000s when he was raising the grounds, the power dynamics shift. But if you're 90 % of VCs or 90 % of founders, then this is the power dynamic. And it's one where the LPs have more power than VCs and where the VCs have more power than startups.
And I think that it's that power dynamic that leads to many founders almost putting VCs on pedestals and even worse, like many VC feeling like they ought to be on pedestal. Like I think a lot, I see this, like I sit in boards and many boards, it's just like basically a bunch of VCs and co -founders. And you look around the room and it's like these VCs, never operated a startup. They've never been a CEO themselves. And they're getting all of this advice on best practices, this best practice, that, because you know, they read it in some books because they saw other companies do
Like it's fine, know, whatever, like you're transferring knowledge across. Okay. But my point is, think as a founder, like you really have to be aware of this and just take it with, almost be dubious to any advice that isn't in the circle of confidence. I think that's one thing that really breaks when, when, when a whole class of people like VCs that I'm not like, I'm not VC myself. Like I like VCs. Like there's just an observation, honestly, it's just that when, when these power dynamics play out, I think it's really easy for VCs as a whole to start thinking.
Pablo Srugo (04:34.562)
that they know more than they do because if you constantly get sought out as an expert, you start believing in yourself and you start thinking maybe you are an expert. And if people ask you for product advice, Hey, how does this website look? How's my product look? They ask you for marketing advice on their marketing strategy. They ask you for sales advice. But guess what? You've never been to VP sales. You've never been to VP marketing. You've never done any marketing yourself. You never sold anything yourself. You never built a product. And here you are opining on it as though you're an expert. There's a problem there. Like something's broken there. And I think as a founder, you have to be very dubious of one, VCs that without
getting prompted are giving you advice on things outside of their circle of competence because when your ego gets inflated, you lose complete awareness that you even have. Like anybody, you have a circle of competence and you start just assuming that you know way more than you really do. And the second thing is when you ask VCs about things, it's fine, ask them about whatever you want, but understand their circle of competence. And if you're asking them about things that are outside of what they really know, that's just one more opinion.
I think VCs, what they really know about it is fundraise. I mean, that's the thing that we really are doing every day. We see pitches all the time. We know what a good deck is. We know what a good story is. We know what a good business model is. These are the things that we become experts on. But I think the problem is feeling like VCs are these expert business leaders that can apply in on everything. And even by the way, like just to be clear, even people who have operated businesses, the other thing to think about and going back to Dane's story is you're the expert in this situation because you're the one that's closest to customers.
And there's nothing wrong with going out and seeking other opinions and testing your ideas and seeking advice, but just be careful who you listen to and who you don't and how much emphasis you put on what they say. Because at the end of the day, even if the VCs that talked to Dan were operators, they weren't operators in that market. They hadn't spent day in, day out talking to coffee shop owners, seeing how coffee shop owners operated. That's the role of a founder. And that's
was really important. And this is the thing that Dane also pointed out is at the end of the day, your intuition, your gut, that's everything is a founder because that's the thing that you're kind of sharpening without even realizing it. When you spend so much time with customers, you start to observe and understand these deep truths that maybe you can't necessarily spell out, but it's the reason why you might have like this sixth sense about what features really going to work, what marketing position is really going to work, what sales strategy is really going to work, because you know the customer set, you know the ICP.
Pablo Srugo (06:59.414)
so intimately, at least you should, right? That's the whole goal. And that's why you should keep spending so much time as close as possible with customers in their offices, in their places of work. Because not only does that help you sharpen your instincts, which is really all you have, it also keeps feedback leaves super tight. That's really the point you're in. So you should seek advice, but don't put VCs on pedestal. Understand who knows about what and ultimately trust yourself because you're the one that's spending the time in this market. You're the
that in many cases knows best and that's why you're the founder, that's why you're the CEO.