January 2021
A case for thinking like an investor at times, for founders.
Over the last two decades, a way of thinking about starting companies has become dogma. Talk to users, make something people want, do things that don't scale, default alive, etc.. What I find interesting about this set of heuristics is how it seems to take the following as sacred: Creating anything that is somewhat valuable to other people is the outcome to strive for. And as profane: dying creating something you believe in that no one else values.
This is actually a great set of heuristics for a known-to-be valuable, unexplored space. The truth is that in 2007, if you were a software engineer who could master the above set of heuristics -- you could fairly predictably create something really valuable. As the space becomes more explored -- this formula begins to degrade (except globally, and in laggard adopting markets). Sure, people will create things that are somewhat valuable to people -- but the impact and associated value of the things they create will degrade.
Another way of thinking about this is that process heuristics are at a premium when there is a known search space to exploit. On the other hand, vision and courage are at a premium when we don't know what we should be searching for.
Investors, though much caricatured by this same culture, tend to ask much harder questions about the businesses and technologies founders are working with than the founders themselves. An investor’s job is to essentially simulate the company from its starting point, and to ask "what might stop this simulation from running to a very impactful outcome"?
Why is this happening now? How big could it get? What is the path from the initial target market to something larger? Why will customers adopt this?
While investors can react to something someone is working on by asking hard questions like these -- investors tend not to be generative or creative in applying this thinking to things that no one is working on. If you ask an investor what the future is, they'll generally give you an extrapolation of what the founders they've recently been excited about are working on.
The ideal, then, is a sort of dialectical synthesis of these two mindsets. The founder mindset is the creative, generating new hypotheses, and the investor mindset is the discriminator - refining and cutting hypotheses that won't lead to a convincing outcome.