How to Come up with an Idea | Ray Reddy, Founder of Ritual

Ray (Guest) 0:00 I think the thing that people don't give enough attention to, it is a lot of work. You better be really passionate because no matter how compelling something is or how much money you could make, if you are not immensely passionate about that space or about that idea, I think it will be torturous. Intro 0:18 Welcome to the Product Market Fit show, brought to you by Mistral, a seed stage firm based in Canada. I'm Pablo, I'm a founder turned VC . My goal is to help early-stage founders like you find product-market fit. Pablo (Host) 0:29 Today we have Ray, the co-founder and CEO of Ritual, a social ordering app that enables easy pickup and more than 15,000 restaurants, worldwide. Ritual is based in Toronto, they have over 150 employees and have raised more than $130 million. Ray, it's great to have you on the show. Ray (Guest) 0:49 Thanks for having me, Pablo. Pablo (Host) 0:50 The topic of today's episode is how to come up with an idea. And we're now in this post-COVID era, and so, I know things have changed, but for this episode, we're going to go back to the beginning. And if I just set that context up a little bit, you started Ritual kind of summer 2014. I believe prior to that, you'd started PushLife. It was bought by Google and you spent three years or so working at Google. While you were working at Google, did you know that at some point you go back to being a founder, or how are you thinking about starting another one? Ray (Guest) 1:23 I think I really enjoyed the experience of building a company. I wasn't sure. I think a part of me felt it was something I wanted to do again, in a sort of bigger and better way. I think I made a ton of mistakes. You always make a ton of mistakes, but an egregious number of them in your first company, I think. And then you learn a bunch, and you hope you can do it a lot better the second time around. I really enjoyed my experience at Google. To be honest, I could see myself working for Google again, they're an awesome company. Working for big companies, you've got a lot of resources, a lot of things are easier, but you've got the weight and the slowness of a big company. Small companies have the opposite problem, but you can move really fast. And so, I don't know that there's necessarily a right or wrong answer. But I thought about it a lot, and in the end I decided that for what I was trying to do, starting out smaller and approaching it the way, just connecting it back with local. I think one of the biggest challenges with local is that you have to go really deep into neighbourhoods and into cities to build a useful product in local. And it is very difficult to go deep and broad at the same time. It can be like boiling the ocean. And I think one of the reasons why most big companies have not done well with local and the reason why you don't see a ton of digital, up until very recently, and it's taken almost a decade to get here. Large companies have not been the innovators in local because their global footprint prevents them from building local solutions. So, if you're Google, it's very difficult to rationalize how you could build a product that works in, forget about one city, just even one country, that seems absurd, and it's hard to rationalize. And so, people at large companies can't really wrap their heads around, quote-unquote, a very small opportunity of one city or one country or one region, in fact. It's one of the weird problems with size, which is, size means that you almost preclude opportunities that aren't immediately of global sort of size and approach. So, I think it was one of the big reasons why local has not been cracked by large companies. They're just talking really set up to. Origin Story Pablo (Host) 3:35 That makes a lot of sense. And so, back then, in 2014, where does the idea for Ritual, how does that come about, and what's kind of the origin story there? Ray (Guest) 3:46 I'm not the type of person that's been able to one day say, "I'm looking to come up with an entrepreneurial idea," and then work through it. I think it's just a lot of natural curiosity. And by the way, this isn't just even the initial idea of Ritual, this is every innovative product thing we've built ever since then. When I meet people who, I think, are creative thinkers, they just tend to be insatiably curious. They're always thinking about, "Why are things this way? Could they be different? Could they be better?" And they almost can't help themselves, they're not even trying. And so for me, I've always been very curious about the way that technology and digital impacts our lives and its ability to change our world. And so, I think normally ideas like this, it doesn't happen in an instant. I think that you build conviction through a series of thoughts and conversations, et cetera, et cetera. And I think what happens is, it's a slow process of building conviction in something. And by the way, for many people and for me, there are many ideas that you could solve. Many problems to solve in the world, and many ideas you can do. This idea that there's one thing, that's just not true. So, I think it really comes down to... I think most people and most entrepreneurs, before they have started a company, could say, "Here are five problems that I perceived or that I saw that were interesting." And at the end of the day, how you narrow it down to the one that you want to pursue. I think the thing that people don't give enough attention to, it is a lot of work. You better be really passionate because no matter how compelling something is or how much money you could make, if you're not immensely passionate about that space or about that idea, I think it will be torturous. Talkers vs Doers Pablo (Host) 5:33 This curiosity piece that you're mentioning, are you the type... I had a co-founder, and one of the differences I saw between him and I is he always had ideas. It was, as you say, natural. He was always seeing problems that could be solved. And frankly, some of the ideas were terrible, but they were plentiful . Are you that kind of person? Do you find yourself, probably even through Ritual, just naturally coming up with potential product or problems to solve? Ray (Guest) 6:03 Totally. But I think this is where the difference between people who like to talk about ideas and entrepreneurs is to discipline, to put a filter, and came down to noise. Because I think that when you're that curious, and you can see a lot of problems, the noise can become overwhelming in your head. I think people who actually do stuff, they can contain the noise, and they can focus on something. One of the things you have to be able to do, and again, the challenge with people who are very curious and come up with a lot of ideas is their own challenges, how do you build conviction in the one that you want to pursue? It's this weird balance of curiosity, but discipline when it's needed. I think that's everything. Pablo (Host) 6:46 Today, especially, being a founder was such a cool thing. There's just so much hype around it that you have a lot of people that would say, "I'd love to be a founder on one day," but they don't have any ideas. What do you think of that? In other words, unless you're the type of person that's having constantly seeing problems that are worth solving, then maybe you just shouldn't be founder? Or..? Ray (Guest) 7:05 No, not at all, not at all. I think the founders can have many different skill sets. And I think oftentimes you'll find that someone who is more visionary and is able to see the world in a different way, people like that, that's their strength, their weaknesses often execution. And so, you tend to see them pairing up with people who are much more disciplined, are not the visionary types, but are equally important to turn an idea from an idea to reality. Because that's ultimately the difference between an idea and a start. I think that anyone could get that. I think probably the only thing that under shared common, there are a lot of differences, but I think that that's in common, immense hard work, a lot of determination, and a lot of resilience There is no AHA moment Pablo (Host) 7:49 Makes sense. Okay. So diving back to the kind of main storyline and to your point of, it wasn't necessarily one time, one day you woke up with the epiphany of Ritual, it was a series of thoughts that you built conviction. Ray (Guest) 8:01 Yeah. And so, I think it would be both conviction on was not really Ritual, I think it was that... and it's funny that we're talking about this post COVID because a lot of what has played out over the last 18 months was how we talked about the opportunity in 2014. Our belief was that local was somewhat untouched because it's really difficult. You've got entrepreneurs who go on restaurants and offered retail businesses, they tend to be less tech-savvy than e-commerce operators. Consumers spent a lot of time and effort transacting and interfacing with locals. And it was one of the, from what we saw, biggest areas of call it daily use almost, especially if you look at, people going to offices in the workday. What surprised us was when we were looking at some of the data around it was that for many people, this was an everyday habit. And there's very few things that are an everyday habits for people. This is one of those areas that is almost a DAU, by nature, but very little tech, and very little... the natural benefits of digital had not really been applied. I don't mean fancy stuff, I mean, the very basics like, shouldn't a local business have a CRM? Should they know who their customers are? Shouldn't they be able to market to them? Shouldn't they be able to think through loyalty and campaigns and user acquisition? Here's a crazy one. The average restaurant a few years ago, that was a local business unit, probably today, they couldn't tell you what a customer's worth. That's what we saw as the big opportunity was the digital transformation of local. Pablo (Host) 9:39 A few Small Data vs Big Data Pablo (Host) 9:40 questions on that. The first one is as far as uncovering these insights, what was the mix of small data, just you, going about your day and seeing the fact that your coworkers or, going out and getting lunch or whatever every single day, and how much of it was, traditional market research, reading reports and looking at trends and this sort of thing? Ray (Guest) 10:00 My belief on these things is that for the most part, you start with intuition, and then you try to back it up using data , using market data. I think going through the reverse way can just be very noisy. Data in and of itself is hard to prove or disprove anything. I think that data around a story or a narrative is what matters. If you have a story or a narrative that you're trying to prove, and then use data to try to help support and build conviction, I think that's right. I think it's pretty difficult to start from market research reports. You're not going to spot problems and trends on market research reports. I think it's both. Pablo (Host) 10:40 In one sense, I think about a lot of the big ideas and one thing they share in common, and this might be kind of the hindsight 20/20 problem , but they seem really simple. And if you think about local's really big, local hasn't been digitized. It needs, as you said, fundamentals of digitization, you think, "Well, yeah." But it's kind of simple. And then the flip side of it is, well, if it's that simple, everybody should be doing it, and there's a reason why it hasn't been done. How do you think about all of that? A- Do you think that it was simple? Do you think that a lot of the great ideas are simple? Only simple problems are worth solving Ray (Guest) 11:13 This is how I describe it to people. I think that the problem you're trying to solve has to be... you have to be able to state it in simple terms. You have to be able to explain it. An elevator pitch, it more applies to the problem than the solution. The solution can be very complex. And by the way, to make something simple often requires the immense complexity that went into making it that simple. I would say simple problems don't need simple solutions. The way I think of it as if you are trying to explain a problem and people can't understand what you're talking about, that perhaps is not a real problem to be solved. And a good example of what we're living through right now is like Bitcoin and the crypto world. It's not necessarily that it's very complex. I think that you're just kind of going against the tide, and a lot of people aren't really sure what to make of it. And so, people who get in early will make a lot of money. And so, I think that if you're, maybe they were just contrarians. And I think that when a new technology that's very disruptive emerges, it tends to be contrarian. And if you take an early position, those are the only times that I've seen very simple things turn into very big things because you didn't win on complexity, you won on being contrarian when the whole world was unaware that this might actually be a really big thing. But I think the moment where the internet is today, it's not contrarian. And so, I think that the simple and obvious problems have mostly been solved. Well, I shouldn't say that, I should say the solutions, that are easy to deliver to provide value like, "Why don't we just buy all the dot.com domain names?" Those things, those obvious low-hanging fruit type things have mostly been solved, I think. Now you've got to roll up your sleeves and be prepared to do some real work if you want to create value. The main thing that we focused on was, was actually just that. Because I think the way that we approached it was, let's first pick a problem space that we have immense conviction. And that problem space was that what we thought was inevitable - and when I say inevitable, what I mean by that is if we didn't do this, someone else would, there is no way that this isn't happening. It's a question of by who, how exactly, but what I like to start with is do we have conviction that this will happen with or without us . We started with local is going to transform into digital, it will look very similar to the retail transformation to eCommerce . And then the next question was, well, okay, what is the role we can play? What is the right entry point? I think that an entry point really matters for these types of big problems because by the way, there are many people in many companies who have the exact same idea, and who've had the same idea, frankly, years before we started. So, now the next thing is the entry point in the approach. Most people are not wildly wrong about the larger idea because again, so long as your idea tends to be that technology or this product will somehow help people in the space, those tend to be right. The only way forward is progress and things getting more digitized, et cetera, et cetera. So, there's an infinite number of ways to approach the problem in terms of the right product, who are you going to build for? Where do you start? How do you start? How do you get a win? How do you use that to fuel going into an adjacent segment, and knocking the dominoes down one by one by one by one? And I think for a lot of people things don't work out because they try a few different approaches. And by the way, you're unlikely to be successful on your first one, I think that's more luck than skill if the very first thing you tried works. I think what most people didn't realize was that what they tended to focus on was building snazzy features in an app, as opposed to realizing that if I...it's kind of imagine there was an e-commerce site, but it only sold four products. It doesn't matter how wizbang and fast the e-commerce website is. It's like. "You only sell four things. That's not really useful." Well, that's easy to understand. What's interesting is when it got applied to local because local is fundamentally bounded by a walk distance or something like that, most people thought of it as, "Let's go sign up a thousand restaurants across the country." But the problem for any user is, no one's going across an entire country buying burgers and coffee, they're relegated to, often a five-minute walk radius around where they live or work. So, while you talk about large aggregate numbers, the average user has zero or one spot near them that they could use the product. So, your product is basically useless but, even though you've got a very nice app. And so, we took the exact opposite approach. Test with an MVP Ray (Guest) 15:57 We said, "Lets." because again, to this point, it almost seems too obvious. You're, well, it's so obvious. You must be wrong because this is so obvious that someone should have done it in this way. And so, I think that the way we approached this, we said, "Look, this is the crucial nugget of our insight" It's that people have gotten wrong by prioritizing UX over, the word we use is coverage. Basically, the amount of assortment you have in a neighbourhood. And we said, "Let's go the opposite way. Let's show that the crappiest app you could build... let's just build something in three weeks, 30 days. Who cares what it looks like." Because what we're trying to prove is that the value comes from the fact that I can access my entire neighbourhood. The vast majority of my neighbourhood is now digitally accessible, and that should be so powerful and so amazing for people who work or live there, that they should be willing to tolerate a very crappy app UI . And so we did. And I actually think our innovation was not in the idea, it was in the fact that we proved our thesis in 60 days, and we proved it by taking a very large idea and breaking it down into a very, very small idea. This is basically, what is the term, reduction in math? How do you take a super complex problem, narrow it down to a very simple problem, and believe that if you solve the simple problem, you've effectively solved the complex problem. And so, that's kind of what we did. What we did was we basically ran a controlled experiment. We said, "Let's pick our office building" that had a few hundred people in it. The nice thing is when you fix location to such a small area, we didn't need to sign up a hundred merchants, we needed to sign up 15 restaurants. So, we went to sign up. It's not different. Signing up a hundred is difficult. Signing up 10 to 15 is not. We were able to do that. And the one nice thing about, even the office ideas, we could test it very easily. We didn't have to worry about an app store launch or... We literally went office by office and said, "Hey, we'd like to buy you guys lunch, or we've got this service you can, by working at this building, and you have access to everything around you thought this app. Do you want to try it out?" We literally sat and helped people plug in their phones and loaded the app onto them, gave them some credits to try. But the point is we basically recruited a few hundred people in an office building with a bunch of merchants, and had a, I would call it, a barely functional app. I don't even know that the company had a name at the time, to be honest. Pablo (Host) 18:39 Was this pre-funding, by the way? Ray (Guest) 18:41 We had raised a seed round. But that is, I would say that that's because when you sold a company before, you tend to get money before, investors will take a chance on you before you have had an idea. So, but I don't think we really needed it. We had it because why not when people give it to you. But I think that w e w ere able to prove our idea in 60 days and with tens of thousands of dollars, not hundreds of thousands of dollars. This was actually one of the things that's really stuck with our DNA throughout, which is we don't focus our fight o n debating too much whether something will be good or not. I think what we debate is how fast can we test it? What we often challenge each other on is the core premise of something can often be tested much faster than people think it can. Surveys are Useless Pablo (Host) 19:43 What do you think leads you to think this way around experiments, around testing, and proving our assumptions? Because, as you said, a lot of people have this pickup idea. Ray (Guest) 19:54 I think it's because consumers are so fickle. I think that people are hard to predict. And even if you can predict behaviour in very general ways, it is hard to predict sometimes in very specific ways and in very narrow ways. And that's why some things that seem like they obviously should work don't and things that seem weird, and who would use that, can become part of the zeitgeists and weird consumer phenomenon. Some people may be savants at predicting consumer behaviour. I don't fall into that camp. My approach on it is, why don't we build a system to get really, really good at testing ideas as quickly as possible. I don't believe that you can, for the most part, survey people. The way that people answer questions of what they would do versus what they actually do, unfortunately, deviates very widely. And this is another very common first time entrepreneur mistake. You think, "Why don't I just ask 10 people? If they tell me it's a good idea, it's a good idea." And it's a really bad idea. I think that the most people tell you that it's a bad idea, it probably is a bad idea that I think there are exceptions where that's not true because it wasn't described properly. But I think in most cases where people tell you it's a good idea, it may not necessarily be a good idea. And so, I think that you are far better off figuring out how to put an MVP in front of someone, and really challenge yourself and challenge your team on what is an MVP. And the challenge is, we've all been trained on using very polished products that are post-MVP. These are large companies who sp end h undreds of millions of dollars building these products. And for a lot of people, there's just a very big disconnect between what th ey v iew as t he minimum bar of a product, and what the real minimum bar is. And the real minimum bar is way, way, way, way, way lower than your brain tells you. Once your product is pr oven in la unched, you should set a very high-powered co nsumer experience. I think the exact opposite is true when you're trying to prove an idea because the way I think about it is any effort or work spent on polishing something that is not going to turn out to work. Because by the way, you're ex tra polishing a fundamentally bad idea doesn't matter, comes at the expense of you doing the Every feature needs PMF Ray (Guest) 22:18 next thing . A lot of what I'm talking about, product-market fit is seen as a one-time problem, but by the way, there's a version of that in almost every feature you launch. So, you can actually think of it as product-market fit is just your... think of that as the very first feature you launched is the most difficult one because you're going from zero useful features to one useful feature. But then you go through a version of that in your product development cycle and sort of the same thing as always true, which is, there's a multitude of things you could do, you want to do things that generally work. And so, the idea of how do you set the lowest possible bar to reasonably prove? Because proving things beyond a reasonable doubt is very expensive. But I think that most investors, you need enough of a proof point and then a little bit of imagination. And I think that is often sufficient for them to double down and start to invest in making it nice and the experience good and everything else. And I think, for the most part, that's how we experiment and develop most of our features and ideas. Very low bar, try it out, get a data point, decide whether to invest in it. Pablo (Host) 23:23 We ended up covering a lot of ground with Ray . So, rather than drop a really long episode, we decided to split this into two. The first part, what you just heard, is about how Ray came up with the idea for Ritual. And the second part is about how he launched the marketplace. That one will drop as a bonus episode in the coming weeks. Stay tuned. Thanks so much for listening. If you want to see more content check out pmf.show.