July 10, 2023
Why value is the key to product market fit
Many founders start companies because they want to get rich. Honestly, that’s what I did. Unfortunately, only caring about making money often leads to bad startup ideas. Focus on value instead.
Another observation... seed stage VCs are called “investors”, just like hedgefund managers or stock pickers. It’s a poor choice of words. Finding seed VCs to back you is less about finding “investors” and more about finding “believers”.
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Before I started, I thought I'd go on like a bit of a tangent here. I was thinking, driving and thinking actually the other day, like why are we doing all this, right? Like, why are we investing so much time, you know, me and you the person listening, why are we investing so much time into this? What are we really getting at? And I think what I realized is we are studying deeper than anyone else. We're studying product market fit. That concept concept, which is critical really for any early stage founder. Whether you're a first time founder or repeat founder because most repeat founders, maybe you've done it once, maybe twice. You know, we've now done what, 40 or so interviews. So all of them focused on product market fit. And now with these little segments, like what's the point of these segments is to spend the extra time going through the interviews and really pulling out the observations, right? All the key observations. And they're really that like, they're not advice because I think it's impossible to give advice without all of the context. And frankly, I just don't like giving advice. I don't like, I mean, not that I don't like getting advice, I like getting advice, but I just remember as a founder, you get so much advice , the last thing you need is another piece of advice. So it's really just observations. But I think at the end of the day, you wanna be really good at something, you have to become an expert at it. And for any early stage founder trying to build something, they all know just how hard zero to one really is. And if you wanna get really good at it, you gotta study it. And that's really what we're doing here. We're studying it deeper then anywhere else. So that said, you know, I went through the, the last episode with Martin CEO E of apply board . Amazing, amazing episode. I mean, the founder, like Martin has accomplished so much in like seven or eight years. It's incredible as you check out the episode. But you know, let me highlight kind of some of the, some of the observations I guess that came outta that. So think back to like before you started your first startup ever, like what was your mindset? If it was anything like mine, you didn't know anything about product market fit. And for whatever reason, like one reason or another, you decided at some point that you wanted to start a business, you wanted to be a founder. And I would assume if you're anything like me, that one of the big reasons was you wanted to make money. Like let's be honest, that's a lot of the times the driving factor, at least the the initial one is like just wanting to make way more money, being in control, all those things, right? And it's kind of like that, that Jay-Z quote, right? Like money over everything. And I think that's how like a lot of founders, certainly how I started out. So in the next step is like, okay, how do I make money, right? Like what ideas could start a business? What will be baked businesses, what could make money, right? And that's where your mind starts to go again. Like there's exceptions to everything, but frankly tends to come up. That tends lead to some terrible ideas. And I had like so many bad ideas. I remember one of my
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First ideas was this thing called like Solaris. And it was like this, I this like embarrassing to even talk about. It was like in order to have more lights in buildings, right? So thing like commercial buildings or whatever, these things that you would put and they actually exist , it's a real thing, but just this ridiculous business idea. You put these like mirror things outside of the window so that lines shines on those things and then projects onto the ceiling and adds more light to the building. Like that was one idea we had. We had so many terrible ideas. And the reason we had all these bad ideas honestly, was because we were just focused on getting money. And so anything that came into our heads that was like, oh, this could be a thing that somebody would buy and would make money, you know, all of a sudden we started working on it and building business plans and all this stupid stuff and took me a long time to realize it. But this episode really brings it to home, which is when you're a founder, right? When you're going to zero from zero to one, the key thing is not money over everything, it's value over everything. If you, if you don't provide incredible value, you're never gonna g get anywhere. And the opposite of that is totally true. If you provide incredible value, everything will take care of itself. Everything will take care of itself. You can make so many mistakes, but if you're providing incredible value, everything tends to take care of itself. Think about it with a ply board . So ply board , think about the value that he's bringing and that's what one of the reasons where like you, you actually hear the story and one of the parts that's almost like, I , I dunno about unsettling, but it's a little frustrating, almost like, man, this is so easy, like what? Everything just worked. And obviously, you know, you dig in and, and there's gonna be trials and tribulations just like anybody else and there's gonna be problems and all this stuff. But it's true. A lot of this stuff took care of itself because the pull was so incredible cuz the value was so incredible. He was changing people's lives period . Like literally going to people that live in countries where they don't wanna live the rest of their lives in, for them being able to come study abroad, studying Canada study in the US , whatever is literally a life-changing event. Like they're 20 something and the rest of their lives, they're planning to live in this other country and this is a way for them to get there and get a job there. It's absolutely life-changing and it's not just for them, it actually affects their entire families. So they had entire families consumed with this application process. It was the number one top of mind thing for every single person in those families. He was changing their lives, the ROI was immeasurable and at first he was charging for it and people were, you know, happy to pay. But then when he, when he actually uncovered talk later, like he uncovered this, the agent piece plus the university piece, which bottom line just made, made it free for students. It was just through the roof. I mean like who doesn't want this right? But transformational value. And again, on the flip side, because he was selling to schools, he was effectively selling fully applied students like these international students, by the time a school paid apply board , they've already fully applied, they're already enrolled, like they're already accepted I should say. And the school pays them like let's say a thousand dollars or $2,000, but they make like 10 or $20,000 on these students. So there's literally a 10 x ROI that's not just like saying 10 x because it sounds cool, like literally providing 10 x roi . So when you're providing that much value, you get insane pull . And I'm not saying every single company like that is gonna get the , you know, billion dollar status, but it will tell you you won't get the billion dollar status without that type of pull . And it's so worth it in the early days just doing a lot of groundwork early on until you find something that you can honestly say to yourself in front of a mirror, I'm providing incredible value to my customers. I'm an absolute must-have. Here's another thing that happens, like in the really early days, right? In this kind of pre-product market fit days, she says , you know, you have an idea, you go out, you launch or whatever, you get some traction and at some point it's time to fundraise and you feel like you know what you've built and what you're building and your vision is so unique, so awesome. Bcs are gonna love it . Like bcs are going to love it, they're gonna eat it up. And inevitably we go out and you start pitching VCs after VCs and the majority of early stage gatherers , even to be clear, the ones that end up being really big successes, you face the same thing, which is VCs pass if they keep passing and they keep passing and it's extremely frustrating. Notice a few things and , and this coming out of the , the apply board episode, the first part is cuz this is exactly what ply board had like between 20 15, 20 18, he couldn't raise, he literally could not fundraise a meaningful amount, certainly not from VCs. The first thing you need to realize is that in many cases, many, many, many cases customers get it before VCs do. In fact, I would take that a a step further, which is like, in the really early days, the only people that you need to pay attention to are your ICPs. So first thing is like, are you an icp? Are you an id ? Do you fit my ideal customer profile? If yes, I'm really interested in what you think. If no, you're probably irrelevant. And most VCs aren't ICPs and so they will not get it as , as fast as your customers. Your customers are gonna get it first. That's the first thing that happened to ply board . Like he had students on day one, like he made a sale the first day he put a planning page, he had incredible traction . VCs still didn't get it right. VCs at that time, like they wanted recurring SaaS revenue. They didn't like that it was transactional. They didn't understand how big it could get. They didn't see the opportunity. That's common. Like I'm not even blaming the bcs back then. I might have passed . Like at the end of the day, BCS often take longer to get it than customers do. So that's the first thing is like, if that's happening, I'm not , you know, ignore it , don't ignore it, whatever, but it just doesn't mean that much. The second thing, and this is something that, that uh, that Martin really saw is in the early days, like seed stage VCs are less investors than they are believers. And so when, when you're out there trying to find somebody to fund some VC to fund your, your seed stage startup, it's not like you're out there se selling a bond, right? Or selling like a house where you can, you know, showcase very clearly the the kind of cashflow that that asset's gonna produce and therefore what it's worth. And you have investors but you don't, you're out there pitching some vision, pitching some story with a little bit of like signal, a little bit of traction. And what you're out there looking for are the best fit believers. Our VCs on the other side who believe what you believe. And that's just hard to find. That's why 99% of VCs are gonna say no cause they just don't believe what you believe. In his case, he said was, you know, he was focused on, on immigrants, he was focused on international students. And so he said he's never, he never had a problem with immigrant VCs, any immigrant VC right away. Got it. I didn't even have to tell them about the prong. They're like, oh, can I test it? Can my cousin in India use it? Right? So that's part of it. It's like find , you have to find VCs that, that really believe what you believe. And the other piece of it that I just wanted flag was like, customers will often get it before VCs do . So VCs are passing on your C state startup. It doesn't really mean all that much. Another thing we often talk about is this concept of you have to be in the market doing the market and, and it happens clearly to apply board , right? So apply board , they start off, they launch with this, this model where students have to pay for apply board to help them get into a school. And that's how it all starts. And there's traction there. I mean there's, there's students who are actually willing to pay and they're coming to the website and, and, and they're transacting and all these sort of things. And then what Martin talks about is that at one point, you know, he's been in the market for a couple of years and what he starts noticing is this weird traffic where, you know, students normally they would come in, they'd, you know, maybe do for a , you know, they would kind of research for a few hours on the ply board platform and then they leave and he was noticing some accounts I would like every single day for 2, 3, 4 hours straight do a research. And so he looked into it and what he found was these were not students but agents representing, you know, 10, 20 students each. These are agents in like Bangladesh, India, these other countries that help students, you know, move over and study in, in Canada and the US At first, he actually didn't know what to do with this. He didn't know if he should ban them, right? Because he's trying to go, he's actually trying to go direct to students. He's trying to disinter disintermediate the agents that was his original idea and build this brand that really replaces agents like the online agent. And all of a sudden agents are using it, they're like getting his online advantage for free. So his first thought is like, oh , we should, you know, find a way to block these agents. And they had several meetings actually internally about it. They didn't really know what to do about it until at one point they realized that they , they decided to do it. They decided to do it. And, and that changed history as far as ply board's concerned. Working with agents was one of the biggest tailwinds they could ever get and totally help them completely take over the market. The reality was they were never gonna disintermediate agents. Agents have a strong foothold in all these countries. They're there locally in , you know, present in person and it's just kind of status quo. So again, why fight status quo if you can build with it because it's just so much easier, so much less friction. But my point there is when you start off, you think you have the thing, and even if you have part of the thing, you don't have all of the thing , right? Like in his case, he actually had some salt something people wanted, which was help coming
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Here and studying in Canada. He thought the way to do it was going direct to students. It turns out it wasn't, it was actually working with agents, but he couldn't have figured that out without having been in the market. And so the , the kind of point of all this is you're gonna do research, you know, you're gonna identify real problems and you'll launch something. And that's the key is that just remember like the first thing isn't the thing, rarely is the thing. So I just wanted to flag that because you know, you have to be in the market to win the market. And the point there is the only way you're gonna discover the unique insights that really make your solution the perfect solution for the problem and get you true product market fit is being in the market. That's the only way you're gonna find it. Research is critical to find problems that are worth solving, but you're never gonna get the unique insights without being in the market in the first place. One quote I'll leave you with actually that he said was when it comes to hiring, and this is probably, this is the number one lesson he had actually to share, was when it comes to hiring overemphasize on the people who have drive and purpose in life and underemphasize on the knowledge and experience that that person has, the first person within six months to a year can learn what the person number two can do, but the person number two will never be able to get the drive and the passion that the first one has. I think that's totally true in the earliest early stages. The reality is the a players that are are already proven, already have experience, they're out there working at like 50 million plus a hundred million plus a r r businesses making money that you can't pay for the most part, right? Every now and then you can get a couple, but realistically those aren't the people that you're gonna, you're gonna get on the bus at this stage . What you gotta go and get is are the A players that are not proven yet, that are not identified yet, that have all the passion, have all the drive, they have intelligence. What they really have is potential and they're coming to your startup to realize that potential. And if you can identify those types of people, you can get incredible, incredible ROI .
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