Startup fundamentals

Startup ideas

• B2B > B2C.

• It's better to face execution risk than market risk. It's easier to create a significantly better solution in an existing market where people already spend money and have allocated budgets than try to invent a new category. If you have to ask a company to create budget for your product, you're making it too hard for yourself.

• The lower your price the closer/tighter you need to be to product/market fit. Said differently, startups can be further away from product/market fit up-market.

• Start with the problem first, the market, the go-to-market strategy, and then the product.

• Always test your hypotheses.

• It's fine to start off as a point solution or tool, but over time you should aim to be a true and complete solution that helps run your customer's business. Something that the customer uses daily or weekly and is a control point in their tech stack. The system should be essential, acting as a backbone for data and workflows. Think Stripe (financial data), Salesforce (customer data) or Ironclad (legal data). Later, the ability to expand the product offering into adjacent areas is also important. Think Toast: it may have started as a point of sale (PoS) system, but it expanded to facilitate online ordering, inventory management, workforce management, payroll, and more. Finally, this should extend through the value chain. Not only will the software be valuable for the initial target market, but it will also have the potential to add value to the whole ecosystem, from suppliers to customers, or maybe even acting as a marketplace for the ecosystem.

• AI is usually a feature, not a business. Try to think about defensability in your business. Are there network effects or high switching costs?

• When taking on a large incumbent, simplicity often wins. Going deeper and better on a few things that really matter is always more powerful.

• Try to target teams over individuals. Multiplayer mode is better than single-player mode.

• Don’t worry about your product being “unique.” Do worry about it being special. A nice design? This one great feature? Your attitude and opinion? A small community around it? A nice pricing model? The combination of a few nice special things 𝘪𝘴 unique.

Running a startup

• A founder should be an extremely good communicator. Be clear and explain your thoughts logically without fancy language.

• In the early days, you should only do four things: exercise, talk to users, acquire more users, and build the product.

• Define and track a handful of metrics. These are usually retention, growth rate, monthly burn rate, net dollar retention and NPS.

• First time founders care about product, second time founders care about distribution and third time founders care about retention.

• The goal is to get to PMF. Use First Minute Capital's PMF Framework to help get you there.

• Startups don't have a lot of advantages in the early stages except speed. Ship as fast as you can.

• Defining your core ICP will be one of the most important things you will do for your business.

• Language-market fit and copywriting is underrated. It's better to have good copy and bad design than good design and bad copy.

• Raise as little money as possible until you have PMF.

• You'll most likely have to pivot. It's extremely rare that your first hypothesis is the correct one. Traction is usually found in adjacent markets.

• Keep the company as small as possible. Fewer employees = less costs, and less need to turn into a manager.

• You’ll most likely fail because you don’t speak to your users enough.

• Competition is overrated. As a startup, you're competing with indifference and people giving a shit.

• Start off with a small market first and expand into adjacent markets. Think Facebook: it started off with Harvard, later spread to other universities, then the rest of the world.

• Product-market fit has three steps: (i) Will people buy or use your product based on your promise? (promise-market fit) (ii) Do they come back? (iterate until your product fulfills the promise) (iii) Can you scale efficiently? (scalability).

• There is a staging between product and business. You don't have a business until you have a product that a lot of people want (PMF). Until you have this, time spent building the business around the product is pointless. At best, you'll have 20, 50, 75 people in your company, and you may sell your product to a few customers every year, but you'll never get anywhere. You won't go public, you won't get bought, and you'll slowly die a long, painful death.

• Stay small until you’ve figured out what’s working. Steve Blank, who teaches at Stanford and started Epiphany among many other companies, defines a startup very nicely. He says a startup is a search for a scalable and repeatable business model. And so what you’re really doing is you’re searching, and until you’ve found that business model that you can repeat and you can scale, you should stay very, very small and very, very cheap.

Distribution

• Find 1-2 distribution channels that really work for your startup. It's better to find one channel that works than many that sort of work.

• Use the Bullseye Framework to find the distribution channel that moves the needle for your business.

• In the early stages, focus on sales first, not marketing. You need the raw qualitative feedback from sales rather than the data points from marketing.

• Product-market fit is not virality, it's high user retention with great compounding growth.

• Your competitors are running ads, fine-tuning their UX, building trust, and locking down contracts with clients who might otherwise choose you. In this relentless world of startups, each delay can mean giving away market share that could’ve belonged to you.

Product

• The best products are incredibly simple to use. Minimize the clicks needed for users to reach their "aha" moment.

• Design a product with a great product hook.

• The lean startup approach is outdated. Today’s MVP is about crafting a superior version of an idea, not just validating a new concept. You need to build a high-quality product from day one. The best way to achieve this is by keeping the scope focused while developing deeply valuable, effective features.

• A high time to value is extremely important. New users expect to receive the value they have paid for in a timely manner—the quicker the better.

• It’s better to have 100 customers that love you than a million customers that just sort of like you.