If you’ve seen this 90’s Apple ad, you’ll be familiar with the saying that “people who think they’re crazy enough to change the world are the ones that do.”
As investors, we hear a lot of crazy ideas. While some crazy ideas are quite brilliant, some are just… crazy. *Cue the Bacon Alarm Clock*
I was hoping to share an investor’s perspective on crazy, disruptive ideas and how we try to apply some logic to them. This is some general, high-level thinking. We’re not getting into the nitty-gritty of how companies necessarily work today.
Value and Other Incentives
What’s the value proposition for the product you’re offering your customers? Is it genuinely impactful? There are two common sayings I use for a gut-check on the value offered by a new product.
- Is it better, faster, cheaper?
- Is it oxygen, aspirin, or jewelry?
The second one is likely the only one that needs explanation — you’ve probably heard the first before. This saying gets entrepreneurs or investors to think deeply about the true level of need customers have for a product. For jewelry, the product may be something you like or enjoy, but could certainly do without. For aspirin, the product genuinely alleviates a pain point, but again isn’t 100% necessary for your day-to-day. For oxygen, you quite literally need this product — you couldn’t imagine your life without this product. I like to think of this as if it’s more of a spectrum rather than a sheer categorization; if you ever figure out how to make a business out of selling oxygen, call me.
There are many blog posts out there about how to think about value, but not enough to think about the other part of the equation: the resistors.
The value offered by a product must be great enough to overcome the opportunity cost of the customers time, money, and, if they’re switching from a previous product, the entire value of that previous product. When you dig into the neuroeconomics of how a customer makes this decision, it’s quite obvious that people don’t really like change — as nice as that would be. Brand loyalty is a very powerful thing, all thanks to the croc brain.
Bill Gross has quite a popular Ted Talk on how timing is likely the most important factor for startups — and it’s true! However, doesn’t that sound a little vague? What does that really mean? Well, it means a lot of things, and frankly, it’s pretty complicated. I’ll try and explain it in a simple way. Let’s consider these factors, also known as PESTLE analysis:
This analysis is meant to be up for interpretation, so I’m not going to break every factor down in great detail. I’m just going to really focus on two: Social and Technological.
Social speaks to people’s behavior. If your product requires people to drastically change their daily lives, and that change is unwanted, it might be a bad call. Take traffic, for example. There are a lot of solutions out there today to “solve traffic” (e.g., MagLev, the Boring Company, Autonomous Vehicles, Scooters, etc.). If your solution is to have people work remotely, perhaps they don’t want that. Perhaps they like going to work and being with their coworkers. Perhaps they get more work done there. Your product has to fit with the customer’s life, not cause an unwanted dramatic change in it.
Technology is a bit of an easier subject. I mean, ask yourself, is this idea technologically feasible? Can we even build it?
However, sometimes it can get a bit more complicated or indirect. A great example I like to use here is Instagram. Instagram is likely one of the best timing stories. Instagram would have never worked if it were not for the smartphone. As a website, it would have been a total, painful failure, which is likely why the website has limited features. The ability to quickly take a high-quality photo and upload it to social media was a really powerful thing. It was something that was wanted, people already owned smartphones and were taking pictures, Instagram simply provided a place to share them. The supporting technology was already in the palms of all the users, and folks were starting to take more pictures already because of their always handy camera.
So, now that we’ve gotten here ask yourself: is my product really valuable? Is the market ready?
If you answered yes to both those questions, go build the damn thing.