Mike Maples: Pattern Breakers

Mike Maples is a pioneering Silicon Valley investor who founded Floodgate Ventures in 2005, introducing the concept of seed investing. He achieved major successes with early investments in Twitter, Twitch, and Lyft.

His curiosity about what it takes to create a world-changing startup led him to explore how revolutionary ideas often appear crazy at first. This journey inspired his new book, "Pattern Breakers," where he delves into the dynamics of breakthrough startups shaping the future.

Transcript

Intro: [00:00:00] From Silicon Valley, the heart of startup land, it's Getting2Alpha. The show about creating innovative, compelling experiences that people love. And now, here's your host, game designer, entrepreneur, and startup coach, Amy Jo Kim.

Amy Jo: Mike Maples Jr. is a Silicon Valley investor who pioneered the concept of seed investing when he co founded Floodgate Ventures in 2005. His big wins included investing early in Twitter, Twitch, and Lyft. But he passed on Airbnb because it looked too crazy. 

And that got him curious about what it takes to create a world changing startup. After all, if an idea is truly revolutionary, it's gonna look kind of nuts. 

Mike: I look at deals I passed on, like at the time, air bed and breakfast, and I can tell you, It looked crazy at the time you had to decide, it's Brian Chesky in a room full of cereal boxes. Can't get the demo to work. At the time, the host of the guests stay in the apartment together and [00:01:00] they feed the person pop tarts in the morning for breakfast. And so it bothers me when people tell the story of a success as if it fit together in some neat way, because that's just not my experience at all. 

Amy Jo: Join us as we follow Mike on his quest to understand how breakthrough startups shape the future and talk about his new book, Pattern Breakers. Let's get into it.

Welcome everyone. I'm here with Mike Maples. Couldn't be more excited.

Mike: Thanks for having me.

Amy Jo: I want to set up your background that led you to be here in Silicon Valley talking to these amazing founding teams and having written this book.

I know that you have some experience before as a person who worked in startups, but what's your overall background? What'd you study in school and what did you learn that set you up to be doing what you're doing today? 

Mike: Yeah. So I was a child of the [00:02:00] PC revolution. So I got interested in it in high school and wrote video games.

And so I've learned that you could make money writing software. And had a little side hustle when I was at Stanford and then started to work at Silicon Graphics in the early nineties. Focused on helping Silicon Graphics succeed in video effects in Hollywood. And then I went to business school and then after that spent about 10 years in Austin, Texas.

In two startups, one called Tivoli Systems and then the other one was one I helped start called motive and then early two thousands, about 2004 came back to Silicon Valley when Web 2.0 started to take off. And then I switched roles and became a full-time investor in 2005. 

Amy Jo: So you were fully an operator.

Mike: Yeah. And depending on how one defines operator, I was probably much more of a startup capitalist than, than an executive in the conventional sense, right? I don't think of myself as necessarily the best manager in the world. And one of [00:03:00] the, one of the benefits of getting into the investing business was I didn't have to manage a lot of people.

I don't think that it's necessarily my strong suit. 

Amy Jo: Yep. I've pulled quite a few quotes from your book. By the way, full disclosure, I've read your entire book twice now. 

Mike: Thanks. 

Amy Jo: And I am truly a fan. There's so much value per chapter. That's meaningful and actionable to me. And I also think to my audience.

So thank you, first of all. 

Mike: Oh thanks for the kind words., I'm not trying to get rich being an author. And so it was definitely a labor of love and it was intended to help founders because it's a pretty lonely job being a founder. 

Amy Jo: So it's really written for founders. 

Mike: Yeah. What I found was that I would work with startup founders or meet founders. And there were two types of things that I saw that were problematic. One is some ideas that seem bad. And maybe even are bad or sometimes worth pursuing, right?

Like [00:04:00] Justin.tv became twitch. And sometimes you've got to be willing to protect the ideas that everybody calls stupid, because there's something brilliant underneath it that makes it a future worth pursuing. And, but then on the other hand, you have some ideas that sound plausibly good that aren't that good.

And those are the worst because what happens, I saw it time and again, is a founder would be three years into a startup, and now they're not excited about it like they once were. Now they're like, knowing what I know now, I wouldn't have done this idea. I'd like to go after a bigger idea. And to me, that's the real failure, is to lose your time.

And so I saw time and again, these founders who I thought were great, but they're pursuing their startup idea more out of obligation than passion now. They had investors, they had employees, they'd committed themselves to it. And they didn't even realize over time how much they were committing to it.

They thought they were just taking a risk. Maybe they win, maybe they lose. But before they knew it, they'd crossed the Rubicon and they were fully committed and they couldn't turn back. 

Amy Jo: And that's so [00:05:00] painful. 

Mike: Yeah. Yeah. When I work with a founder, I tell them I would rather make a very risky bet on a massive upside future. Because then if you fail quickly, you get your time back. The only thing that a founder will never get back is their time. And so to me, the only real way to in a startup is to be pursuing a startup idea you no longer want to pursue. Because now your ergs of energy and your life force is being applied to something that you're doing for other people rather than for the difference that you want to make in the world.

Amy Jo: One of the things I love about your approach is you start right off with saying, I was pretty surprised to learn that lots of conventional wisdom was just wrong at predicting results. 

Mike: Yes, for sure.

Amy Jo: And that's, that sounds like it's part of what precipitated this book is having that holy shit moment.

Mike: Yeah. So here's another thing I've seen is like a lot of books on investing, there's this tendency for [00:06:00] the author to say, I'm coming down from the mountain and I'm sharing all these amazing secrets that I have cause I'm so smart. And my experience of startups is totally the opposite.

It's, it's wild. It's like completely messed up and chaotic. And it's hard to make any sense of what's happening if you're being honest about it. So I look at deals I passed on, like at the time, air bed and breakfast, and I can tell you, it looked crazy at the time you had to decide. It's Brian Chesky in a room full of cereal boxes. Can't get the demo to work. At the time, the host of the guests stay in the apartment together and they feed the person pop tarts in the morning for breakfast. They sleep on an air mattress. It was like crazy. And so it bothers me when people tell the story of a success as if it fit together in some neat way, because that's just not my experience at all. And so when I started to work on this book, it was more, should I retire before I get exposed for just being lucky? Or is there something going on here that's worth understanding [00:07:00] that would help me as an investor, but would also help founders figure out which ideas are worthy of their attention and time, which ones aren't.

Amy Jo: So in a sense, you were eating your own dog food because you really advocate for not assuming you're right and going out and figuring out what is right with kind of a humble, curious attitude. 

Mike: Totally. Because the thing about it is all breakthroughs are undiscovered by definition.

And so there can't be a recipe for one. And on some level, all breakthroughs therefore have embodied surprise in them. And so one of the, one of the other things I've seen, and it relates to what you just mentioned is, a lot of people when they experiment with their startup ideas, they're trying to validate their hypothesis.

They say, I have a hypothesis about what the customer wants. I'm going to go run an experiment. I'm going to see if they want the thing I think they want. And that makes total sense. But one of the things I learned in the course of writing the book is that most of the really great startup ideas come from a [00:08:00] surprise where the founders living in the future, and they noticed something that nobody's noticed before. And they earn the secret by following the thread of what they noticed. And, and it makes total sense when you think about it, because breakthroughs are by definition undiscovered. And so you want to be surprised, because if all you do when you experiment is validate or attempt to validate what you already know, you'll never be surprised. And the true learning comes from the surprises and savoring the surprises.

And so that was like another really important lesson I learned. And if you do that, you have to engage the world with a humble beginner's mindset, right? You have to engage the world saying, I don't have the truth yet. I'm seeking the truth.

But like the fact that I don't know is the whole point, right? The, what I'm going to be is a better learn at all. And not a better know it all, right? And I'm gonna, I'm gonna learn faster than an equivalent person in my position is going to learn, and I have to be open therefore to surprises.

Amy Jo: Love it. You have a couple of [00:09:00] chapters that are directly related to where we're focused, which is the one on the delight surprises and how you open yourself to surprises. And then tangible implementation, how you find out if you're wrong by putting something concrete in front of people, right?

And it's like that one-two punch. And we're going to dig into that in a moment, but I want to do a bit of a helicopter view because there's so much valuable insight in this book. First of all, there's a quote that you shared on Lenny's podcast that I think sums up a lot and connects to what you just talked about, which is pursue opportunities where the odds are massively in your favor.

Mike: Yes. Yeah. 

Amy Jo: And so I feel like so much of the book is untangling that thread. 

Mike: I think so. Here's what I came to understand is that business is never a fair fight. [00:10:00] And so the only question is who gets to fight unfair. And so the default is that the present is going to fight unfair. The incumbents are going to fight unfair because they have all the advantages of the incumbency. They have customers, they have a brand, they have a supply chains, they have partners, they have, they are persistently compounding value every day. And we have nothing is the startup. And so the question is, how do we want to show up in the world in such a way that the incumbents are like, Oh my gosh, how do I deal with this wildly disruptive thing from left field? If all the incumbents are dinosaurs, we want to be like an asteroid that hits the earth. And now the only thing that's left is mammals, and we're the mammals. And what I started to realize was that there are forces that the startup founder can harness, and in the book I call them inflections, insights, and then founder-future fit.

And what I've learned is that it's better to pursue an uncertain future, but that embodies those traits [00:11:00] and counting on the dots to forward connect. That's a more likely path to a breakthrough than an overly deterministic approach. So what conventional entrepreneurship classes will say is you should go do a market assessment, go find a big market, find unserved customers with unserved needs, and then go build a product that fulfills those unserved needs.

But the problem with that approach is it buys into a context which is, the rules of the incumbent are the rules. 

Amy Jo: If that's brand, that's how you do brand extension. 

Mike: Exactly. That's how, so I like to say that you can look at the future in two ways. You can look at the future as a forward extension of the present. But it's going to be an incremental improvement on the present. But that kind of a future, the incumbents have all the advantages because they define the rules and they have momentum and they have moats and all these other things. What we want to do as a startup is we want to say, no, we only want to pursue futures that are by definition, not an extension of the present, right? We don't want to forecast. We want to go from the future backward. We want to back cast. We want [00:12:00] to back cast from radically different futures that can't be reconciled with today's present. And it's those futures that give the startup the unfair advantage. And, but in order to pursue those futures we have to tolerate the ambiguity that we're going to experience in finding the breakthroughs and finding the surprises.

So then which ones are worth pursuing? I believe that the ones that are worth pursuing are the ones that, that embody these really powerful inflections that have massive empowerment and the ability to, empower people in new ways that would give them radical improvements over what's already in existence.

Amy Jo: Let's dig into inflections. That's one of the most differentiated ideas in this book, I think for a lot of founders. So you say inflection is an event that creates the potential for radical change in how people think, feel, and behave. 

Mike: Yes. And so first of all, before I get jump into it, just thanks for reading the book.

It, It means a lot to me that you engaged with it and because you like you write this stuff and you have no idea if you're [00:13:00] just it's going to go into the ether and disappear, right? Yeah, so that so the inflections basically, if the inflections are the way that the startup wages asymmetric warfare on the present. So a startup needs to have a weapon to fight unfair. And it turns out that the weapon they have happens external to the startup. And so like Lyft, as a company we invested in my partner and did the inflection was at the iPhone for us at a GPS locator chip in it. And so all of a sudden there was a new type of empowerment available. You could locate people algorithmically within one meter, you could have been, you could have had the idea for ride sharing before the iPhone 4s and it wouldn't have mattered because you wouldn't have been able to implement a system that embodied that understanding, but now all of a sudden for the first time. And so this is why I call it like an inflection and not a trend. There was a turning point in empowerment. The day before the iPhone 4s, you couldn't have had ride sharing, but the day after, [00:14:00] the conditions now existed for the possibility of a radical breakthrough, right? And so what we, like in math, an inflection is like the turning point on a curve or like the slope changes.

And in, in voice inflection, it's like when the inflection of your voice changes. And so an inflection is a change event that marks a turning point. In empowering capabilities. And so that's the so that inflection for lift was the GPS locator. And then the insight for lift was, Oh, that means you could do Airbnb for cars, right?

You could do the same thing for riders and drivers that Airbnb is doing for hosts and guests. And so that required the founders to be creative, required the founders to understand the implications. And so what we say is that the inflection happens all around us. And what I find inspiring about inflections is they're happening all the time.

They're right around us. Like most of us don't know that the thing that's in our pocket has a new empowering set of capabilities that [00:15:00] could change the future. But occasionally a founder is an outlier, and they do understand that, and they implement a system that embodies an insight that takes full advantage of that inflection, then brings a set of new empowering capabilities that are radically superior to anything anybody's seen.

Amy Jo: So you have you package this up into something you call inflection theory. It's early in your book. And one of the stories that you tell that I think explains this so well is Twitch versus YouTube. Quibi. Is that how you say it? Because I think a lot of people looked at both of those and said, what?

And that, and when you view it through the lens of inflection theory, it's crystal clear. So maybe, could you share that story? 

Mike: Yeah. So first of all, Justin.tv is one of the worst business ideas I've ever heard. The way it happened, I'm sitting in a coffee shop and the Weebly guys were pitching me.

It's probably the most profitable two hours of my investing career, but so the [00:16:00] Weebly guys were, were wrapping up the meeting and this guy walks into the coffee shop and he's got a baseball cap and a camera and wires going into his backpack. And I'm like, man, that's weird. I wonder what's up with that?

And I had no idea that he's walking to our table and the Weebly guys say, Hey did you get your email? I'm like, what are you talking about? They said, Hey, this is Justin Conn. We think he should pitch you. I think you'd like him. So he sits down and I'm on his laptop and he's live casting his life.

And because his baseball cap camera is pointing at me, I'm on his laptop. And he goes, I'm going to do a 24-hour reality show of my life on the internet. I'm going to stream it live. And I was like, Justin, that's the dumbest thing I ever heard, right? Like you're, this isn't even reality TV. That's not how it even works.

You condense a week into 20 minutes. Nobody wants to see your life all the time. And so, he's you're supposed to be a seed investor. Why are you crapping on my idea? That's not how this meeting is supposed to work but like what it had in it that was going for it was a set of inflections.

And the CDNs were getting better, the [00:17:00] broadband was getting better. The person of the year the prior year had been YouTube. It was you and it was user generated content. And Justin Kahn was living in the future. Justin wanted to be an influencer before there was a term for influencers.

And so he was building the thing that he wanted to get attention to be internet famous. He was very intrigued with this idea that anybody can be famous. And so he built the product that he wanted for himself. He and Kyle Vogt, and Michael and Emmett. And some ideas sound really bad on the surface, but because they embody these inflections, the founder has the opportunity to navigate it to a better implementation in the future which is what they did.

It became Twitch ultimately, which was a great idea. It was a great implementation that embodied the inflections that they had. Quibi, the problem that they had was that they were just trying to harness a bunch of trends. Everybody says, video is hot. Short-form is hot. Look at TikTok, look at YouTube everybody's mobile.

And Quibi was like, how [00:18:00] you do a startup if you thought of it like a Hollywood script? We need it. We need a startup that has all the hot new things that those young people like, like mobile and short-form and all this stuff. But there was nothing, there were no inflections that were harnessed with Quibi that hadn't been harnessed already by somebody else. 

And so they had nothing new to say. And so they show up with this thing and no, nobody has a reason to feel a radical sense of new empowerment. It was, so they were treating a startup, like it's a small version of a big company.

And they weren't they weren't acting like startup capitalists. They weren't changing the subject. They weren't changing the rules. They were trying to embrace the current rules, but act like a startup, and you can't do both at the same time. You could try, but you won't succeed.

Amy Jo: All right. It's so fascinating to look at the history of startups through this lens. It explains so much, and in the gaming industry, these inflections [00:19:00] are really central, like Doom. Doom was all about being able to do that with graphics chips. 

Mike: Yes, exactly. 

Amy Jo: And you keep seeing it. So I think for everyone listening, just, it's not just about you and your idea.

It's about the moment in time and the shifts occurring in the much larger cultural landscape. 

Mike: That's right. And so what, one of the things that I wanted to do with the book was to say, okay. It's one thing to say your idea needs to have an inflection. It's another thing to say, okay, if you buy into that theory, how would I stress test my idea specifically?

And so like when I talk to founders now, because I'm investing before product market fit, I'm investing when there's no proof yet. What I say to the founder is, okay, what inflections does your idea embody? And if, and the way we can stress test that is we can say, What is the specific new thing that happened in the world that you're harnessing and it can't be Phone cameras are getting better.

It can't be [00:20:00] dna sequencing is getting cheaper. What i'm looking for is the specific new thing, right? So... 

Amy Jo: The open source LLM models.

Mike: LLMs are getting better, right? Like what I'm looking for is this specific new thing that was introduced right iPhone for us as a GPS locator chip and then what we want to know is after that.

Okay. What form of empowerment does it offer? That's radical. Okay. GPS locator chip in a smartphone means any app can locate people within one meter. And is that empowering? Potentially yes. Who does it empower? A whole lot of people because a whole lot of people are buying smartphones. And so then the third thing in the stress test is what I call the empowerment conditions, and this is, I stole this idea from Annie Duke and thinking in bets. And Annie Duke says when you're dealing with uncertainty, you can't be deterministic in your decision making.

You have to be, you have to think in bets. And so thinking in bets around an inflection is to say, under what [00:21:00] conditions will this empowerment happen? And under what conditions might it not happen? If the government outlaws GPS locator chips, might not happen. If users won't share their location info in their apps, might not happen.

And sometimes, just because you have an empowerment doesn't mean you can take advantage of it. We haven't built nuclear power plants in 50 years, even though nuclear energy is available as an empowerment capability. And so the empowerment conditions must be met. And so when I talk to the founders, I ask, what's the specific new thing?

What is the specific type of empowerment? Who's empowered? How will that change over time? And then under what conditions will the empowerment be realized under what conditions would the empowerment not be realized? And we were hoping that the bet goes our way. But we want to ask those questions so that we're being thoughtful about, are we pursuing something with the potential for radical empowerment?

And the reason I do that is, what I don't want to do is say to the founder, hey, have you thought about this idea [00:22:00] instead? It's not my point, it's not my purpose to have ideas, it's my purpose to ask penetrating questions to help the founder decide whether their idea is worth pursuing or not.

Amy Jo: And as you point out, most of what ends up being successful is not the first idea. It's a pivot off that based on learning. 

Mike: A hundred percent. And this is another really important finding is that more radical the future is that you're bringing to the world, the more uncertain it is, the more ambiguous it is.

And so what we want to do is we care less about probability and more about expected value. So my, I'm in the business of investing in underpriced wild asymmetric upside risky futures. And so what I believe is that those futures are underpriced because most people, conventional thinkers think of ambiguity.

As they confuse ambiguity and uncertainty with risk, but just because you're going down an uncertain future path doesn't mean you're not going down [00:23:00] one with a high expected value doesn't mean you're not going down one where you can navigate an ambiguous path into something great. And so you're trying to you're trying to dig for treasure.

In the best places to dig. That's the goal, right? And so even though you don't know for a fact exactly where it is. And that's what we're really looking for is these underpriced, high potential, risky futures. And the less ambiguous it is. The more likely your idea doesn't depart from the consensus, the more likely you're going to encounter mindless competition, the more likely the incumbents are going to do something to react to what you're doing.

And that was an important unlock for me in understanding this. 

Amy Jo: Say a little more when you say about ambiguity and specificity. 

Mike: So when Justin was doing Justin.tv, it was a bad idea. But he had a first mover advantage into the future. And he's in the future now, and he's experimenting with expressing yourself on live on the internet, [00:24:00] taking advantage of CDNs, taking advantage of integrating cellular with CDNs and live streaming and internet software.

Nobody's learning as much about that future as he is, while he does that. Because he's there, he's living in that future. And while everybody else is not living in it. And so when you're a founder, if you're living in a valid future, if you have a valid insight and you're not getting product market fit, one of two things could be true, your implementation may not be the best implementation that's what happened with Twitch, right?

So Justin.tv was a less powerful. implementation of their insight than Twitch was. And, Chegg is another example. So I worked with a company called Chegg. They started out as classifieds for college students and they pivoted to textbook rentals. Their insight was still the same, right?

That students wanted to save money, that they were getting ripped off, there were certain things that they are required purchases that could be handled better using the internet, but their implementation of the insight textbook rentals was a [00:25:00] better implementation, certainly more lucrative.

And so one thing that could be wrong is your implementation. The other possibility is you're talking to the wrong audience, and so you want to be talking to people who are living in that same future with you, right? And if you're talking to people who live in the present, they'll give you bad input on the future you're pursuing.

And but it's like you're I like to say when you have an insight, it's like you're, and this is how it relates to pivot, it's like your pivot foot in basketball. And pivots are meant you pivot around your insight. You keep your insight persistent and you pivot, you move your body. Like in a basketball game, you move your body by either modifying the implementation or modifying the audience that you focus on or both at the same time and product Martin market fit is the art and science of moving those two things toward the desperate. So you're, product market fit is what could we uniquely offer that people are desperate for? Your insight is where the uniqueness comes from and your goal, your job and getting product market fit as the founder is to [00:26:00] navigate the insight to the desperate and to have an implementation of the insight that triggers their desperation so that they can't live without it. They can't unsee it.

And that's what Emmett got right. When he pivoted Justin.tv to Twitch. 

Amy Jo: And one of the things I love about that story is that when they pivoted, gaming wasn't their biggest cohort, but it was their most engaged. 

Mike: That's right. And it was like... 

Amy Jo: It's so interesting. 

Mike: And it's such a great example of the power of noticing.

And so like Emmett noticed that gamers, first of all, he was a gamer himself, but he, but when he started to talk to gamers, they were like I'm using it to have friends watch me do this, but I'd love, I'd like to have a way to engage my audience better. I'd like to have a way to monetize it.

There's like a few things that I'm trying to do, but I'm just hacking it together, cobbling it together. And Emmett was like, of course, that's what we should be doing. And so he started to add those features into Twitch. And it's such a great example of noticing. It's a great example [00:27:00] of, savoring these surprises.

And, but it's funny, almost every example of a company that I've worked with that did well, there's a story like that along the way that happened. There's this eureka moment where it's holy crap, this is the big idea. And it's if we were too focused and too, going down our path exactly how we think it should go, if we were too stubborn minded, we would have never noticed it.

We would have just gone right past it and just kept pursuing our deliberate strategy. 

Amy Jo: And it always comes from something that your audience needs. Not from like standing in front of a whiteboard. 

Mike: That's right. And it's funny because the consumer I find is a little less this way, but this was especially true in B2B software.

I used to say when I was a founder, I used to say that business software is the art of showing the customer what you want to build so they can tell you what you should build and every great feature we had in our business software. Was that, [00:28:00] but but you're engaging the right people with the right insight. And so it triggers a conversation about the future where, if you're noticing filter is on volume 11. You're likely to gain a fractal of understanding that opens that nobody's seen before, and now all of a sudden you earn the secret, right? You earn these secrets about the future by doing that.

Amy Jo: I love that idea. So that really leads into your ideas around tangible implementations. Yeah. And I want to read a quote to set this up. I also want to connect it. So we've ended up hyper specializing on low fidelity prototypes that give you huge insights about if people want something. And a lot of it is no, not like this, when they tell you.

And so when I saw that this was something that you had delved into, you had some great stories about. How some of your teams that you've helped showed, really early or ugly things and just got [00:29:00] huge value out of it. So you say the aim is to quickly validate if there's genuine demand for your idea, engaging with potential users early and often with tangible implementation ideas speeds this up.

Mike: Yes. So there's a couple of, there's a couple of thoughts embedded in this. So what I learned is that founders, when they do their minimum viable product, they often cross the Rubicon without realizing it. So they crossing the con is okay, I'm raising a seed round. And so they raise a seed round.

They start working on their MVP. They get a little bit of office space. They named their conference rooms and they start cranking. And only later do they realize they're fucked because they don't, that the idea now. Doesn't embody enough powers for, to be worthy of pursuing. But the problem is once you cross the Rubicon, Todd McKinnon once said to me, sometimes you have to believe even when you don't believe, right?

Like when you're a founder, you're going to fail if you don't believe, right? You're [00:30:00] like, you can't do the job if you're not willing to believe even when you don't believe. And so what I started to realize is, you should pursue something that you're unbelievably all in on, and that's informed intuition as to why you should be all in. And so I realize you don't actually have to have an MVP. You could have, in the book I call it an implementation prototype, but what you're trying to do Is simulate the value proposition enough so that the customer can reveal their desperation. And exactly so, it's like when you go to a car show and you see a concept car, if you open the hood, there's not actually an engine.

And if you turn on the radio, it doesn't make a sound. And if you turn the key in the ignition, it doesn't start, but that's not why they do it. They want to see if people crowd around this car, if they just walk on by and if a bunch of people crowd around the car, they're like, we should build this car.

And if a bunch of people walk on by, they say, now, don't do that. And so the implementation prototype, so like Chegg put up a fake site called textbook flicks and pretended that they had textbooks to rent, even though they [00:31:00] didn't. Why does that matter? They figured out this is what people are willing to pay to rent textbooks.

Amy Jo: They ran pricing experiments. 

Mike: Exactly. So it was patently obvious that students wanted to rent textbooks. And you could look at the only thing we worried about then was, I hope we're not too late because it is patently obvious that people want to rent textbooks. And so the reason I think that this is important is I think you want to escalate your commitments only after you increase your certainty.

And so what happens with too many startups is they raise money. And so now they're committed beyond what they realize to this thing. And what I want to do is I want to help the founders consider making Small bets at first, as small as possible. That's where you're not attached to being right.

That's where you're not even attached to pursuing it. That's where maybe you can do it as a side hustle at night or over the weekends or whatever, and only after you've found desperation. Where people are just like going to pull this product out of you. Do you cross the [00:32:00] Rubicon and say, okay, now I'm doing a startup.

Now I'm pursuing this product. But like an implementation prototype is not an MVP because it's not a product you release. It simulates the reality to draw out the desperation, but not, but nothing more than that. Even Tim Ferris did this with a four-hour work week, he would put different covers on the book and put it in Borders bookstore. As if it was a real book and he would see how many people would pick up different versions of the book with different covers. He had another title for the book too called Drug Dealing for Fun and Profit. But he didn't, he hadn't even finished the book yet. And the fact that people wanted this title, The Four-Hour Workweek, also drove a lot of his product decisions about what to emphasize in the book and what to take out of the book and so it was this iterative dance with the early believers that defined a lot of where he was going to lean in and focus on the book. 

Amy Jo: Yeah, you have some great stuff about viewing your earliest customers as your [00:33:00] co-conspirators. 

Mike: Yeah, for sure. So that's the other thing that I learned and it relates, so far what we've been talking about is how do great founders think different and and I always love the Steve Jobs think different ads, right?

And so the first half of the book is okay, how do you put think different into practice? You do that by harnessing inflections and coming up with insights that come from the future, right? Then the way you act different is what you just described, it's you find a set of people who believe in the same future that you believe in, and you start a movement. And you co-create the future with what I like to call your co-conspirators.

And so like a great startup is an optimistic conspiracy to change the future and the future is created not just by the startup, it's co-created by the startup and its early believers. And so the early believers can include early employees that can include early customers, early partners, even early investors.

And like one of the important takeaways is that. If you have a radical insight, most people aren't going to like [00:34:00] your idea. And so you're starting a movement that creates a sense of grievance. In the minority of people who are your believers against the tyranny of the majority of the status quo And so you don't want everybody to like your idea What you want is most people to not care most people to dislike it But a small subset of the world to be like, oh my gosh, where have you been all my life?

This is incredible this is amazing. I can't unsee this and so The future then is co-created by energizing those people and giving them specific calls to action to make that movement real You it's exactly like what happens in social movements, right? And I'm not saying every startup is as important as civil rights.

But what did martin luther king do? He said there's a future that's superior to the present It's that everybody is judged by the content of their character. Not the color of their skin you either believe that or you don't occupy this future with me or don't. There's no middle ground. You create a dichotomy between the world that is in the world that could be, [00:35:00] and you energize early believers to want to actualize that world that could be and in so doing they self actualize, people don't move to the future for practical reasons. People didn't believe in Martin Luther King's vision. Because they thought there was something in it for them. They believed in his vision because they believed that if that world that could be happened, it would be a better world. That's what we need to do when we're founders with our startups.

Amy Jo: Love that. A couple of things, if you want to pick up Mike's book, it's a great read, and I'm not being compensated. I just got a lot out of it. 

Mike: I'm glad that you liked it. Cause it means a lot.

Cause I had no idea if anybody was going to read it or like it, or it's really gratifying and reassuring when people get something from it. 

Amy Jo: It introduced some new ideas to me. It also big time confirmed what we do in our approach. And that was very meaningful for me because I've learned lessons from my worldview and my experiences just like you have.

And a [00:36:00] lot of the lessons overlap. And then there's this other inflection theory perspective, that's incredibly useful. It actually helped me debug why a startup, I was a VP at and had quite a bit of stock in failed? Do you remember There.com? 

Mike: Oh yeah, I do. In fact, that was the company before Eric Ries was involved with Enview, right? Will Harvey and Eric Ries. 

Amy Jo: Oh my god, the talent there was insane. Brian Singerman was an engineer, he's at Founders Fund now. So I was the VP of Social Architecture there. Eric worked for me at that company. Eric was amazing. He was just like, cruising through on to the next thing.

But the story I was going to tell is I had job offers both from Second Life and There.com because of my skill set. And I chose There.com because it was much better funded and was doing something that was higher end. And for, and there was also, there was wonderful people at both. I'm still super close to Philip [00:37:00] Rosedale, but they're both interesting.

And Second Life was wonky. And then There.com was like, Disneyland where it was very, and working with corporates and we had all these ideas, but Mike, we were a hundred percent counting on an inflection that didn't happen. 

Mike: Oh, interesting. 

Amy Jo: Yeah. And that's part of why I got so into your book.

Cause I'm like, Oh, this explains it because we were counting on PCs being good enough, both in the graphics chips and the internet speed. And this is like 2002, right? 

Mike: Yep. 

Amy Jo: Our CEO would get up and he would say, it's happening faster than any of us think what's happening.

And he would speak the inflection language that you're speaking. It's happening is that, you saw doom and like PCs and we'll be able to do this and blah, Now there were other issues with the metaverse. that we can go and do another time. But this was an early metaverse. It worked. We had incredibly innovative social [00:38:00] actions going on in there, but the whole thing failed and we were explicitly betting on this inflection that took longer than we thought.

Mike: And it's interesting because like, I've made a ton of mistakes as a seed investor. And as I was going down this rabbit hole of trying to figure this stuff out, once I started to internalize the idea that there is a mechanism for breakthroughs, right? There's a breakthrough sequence, right?

There's the insight. Which should do two things. It should harness inflections so that it provides empowerment, and it should be non consensus and right, so it's unique and defies comparison traps, right? So then the insight, the next breakthrough I call the product breakthrough. That, this is the one everybody talks about where you get product market fit.

The insight asks, what do we know about the future that's powerful and not obvious? The product breakthrough, we ask, what could we uniquely offer that people are desperate for? And if we have a real insight, that energy gets transferred into the [00:39:00] product breakthrough because that defines our uniqueness.

And so now we navigate our uniqueness to the desperate. And then once we have desperate people, then we transition to the growth breakthrough, right? And the growth breakthrough, we ask a different question, which is how can we exponentially grow organically? Such that we dominate the category of the future.

And if we succeeded at product market fit. We don't have to spend money to overcome the gaps in our value. All we have to do is syndicate the truth because we found the truly desperate. Now, all we have to do is teach them to buy rather than persuade them to buy. And so all of them, it's like a multiplier effect, a powerful insight gives you the power.

To have a powerful product market fit strategy equation and then powerful product market fit gives you the opportunity to grow exponentially and dominate the category of the future. And that's what once I started to see that, I was like, oh crap. That's why I shouldn't have invested in this company.

And by the [00:40:00] way, I started to see a whole lot of things. Like I used to think that the search market was crowded when Google came to play and it was, there were 30 other search engines, but Google had a fundamental insight about search. And it was a failure of imagination to say there's too many search engines because the relevant question was, does Google have an insight?

Does Google have an insight about search, about how it can be done? That creates radical forms of new empowerment that would allow it to escape all comparison with prior search engines. And so what I also started to realize is that when I'm doing a seed investment, I'm not investing in the product. The product is a reference implementation of the insight.

What I care about is the insight and the authenticity of the founders to pursue that insight and their capabilities to start a movement that will make that insight real. But I have to count on their ability to navigate the insight to the correct product Over time, by noticing things and by finding surprises and integrating it into their strategy.

Amy Jo: And [00:41:00] that's exactly the problem with every aspiring entrepreneur in love with their idea. It's not about the idea. It's about these other factors and how the idea fits into that and being open to the idea changing. 

Mike: That's right. And it's, you want to be, you want to be firm about your insight, but you want to have loosely held opinions about the product, at least at first, right?

Because if it's the insight that is where the real magic happens. It's the thing that allows you to have a different conversation with a set of people who co-create the future with you. 

Amy Jo: And that's the difference between true insight that could get big. And I'm gonna jump on the AI band, bandwagon, or I'm in crypto now.

Mike: And that's the problem with most of the AI startups I see, they have inflections, but they don't have insights. They there you go. I see the product. I'm like, I could totally see why I'd want that. I can totally see why people are gonna like this, but like, why is there not gonna be 10 just like it?

Or why isn't [00:42:00] Sam Altman gonna do a demo that obsoletes it? It's not enough for us to have something that people are going to like. We have to have something that people are like, will be desperate for that only we can deliver us and only us. And so that's the place we want to be. 

Amy Jo: Yeah, that happened to one of my clients recently.

They reconnected and said, Oh, OpenAI did a demo last week and we're rethinking. So everybody make sure get the book. Here it is. And we're going to take some questions from the audience now. So here we go. Moisha asks, in the book, you define Goldilocks moments as finding a moment that's not too early because then it's a science project, and if you're too late, it will be obvious to a lot of competitors.

Can both sides, a little too early and a little too late, be hedged? Is there a strong patent portfolio, for instance, that could hedge on the late side? 

Mike: Yeah so first of all, the inflections are I think one of the hardest things to figure out in the [00:43:00] moment, right? So it's, I'd like to say that the idea of inflections hopefully clarifies but it doesn't make things abundantly clear for sure.

But here's the, if I zoom out, I would say. There's all kinds of risks in startups, I don't know if we would agree on this, I don't think we've talked about this yet, but I would say that if I were going to pick risk that I find the most difficult, it's timing. For me, timing is maybe the biggest risk by even a wide margin.

Because most of the teams I work with, they can build the thing they set out to build. Most of the teams that I work with, I believe they have the stuff, they have the passion, the gumption to do this. But we could be too early, we could be too late. Or we could be too late in the sense that everybody knows the idea and it's not going to be insightful.

So that the idea with the inflections was to say, Given that we're very uncertain, what can we do to improve our odds? And so , if we can point to a specific thing with specific [00:44:00] empowerment and the ways that specific empowerment can happen and how it can happen.

We're much more likely to get the timing right. We can't ever know exactly, right? When you're non consensus and right, you only know at first that you're non consensus. You can't know that you're right for sure without pursuing it and without testing your thought process. But that was the main thing.

 So the Goldilocks moment, emerges from understanding whether you're not too early or you're not too late, and the inflection kind of defines this event horizon where the empowerment can be unlocked within a certain window of time. 

Amy Jo: Awesome. Thank you so much. And just another note, Mike is focused on breakthrough startups, asymmetric upside, super high risk.

There's plenty of good businesses where the, these rules aren't necessarily the same. 

Mike: Yeah. And there are some businesses like say the five-hour energy drink. I don't know that it leveraged any inflection. It had an insight, right? It amazes me. They charge more than [00:45:00] a can of Coke and they take about a fifth of the liquid space.

And they're on a different shelf in the supermarket, right? So there, there was clearly a marketing insight there and product insight, but I'm not as interested in those, right? I'm interested in things that do harness technology in some way, because , that creates the massive empowerment that can result in 10 billion plus companies, right?

And so you can apply you can have insights in other domains, but in the technology domain, I think that the insights really should be powered by these inflections. 

Amy Jo: Ian Brand asks a great question. If you're running into people that don't like your idea, how do you know not to listen to them?

Maybe they're not the right audience versus this isn't what people want. How do you tease that out? 

Mike: Yeah. So I love that question. So let's assume for the sake of argument that you still think the idea is right or has the potential to be right. The way I look at it is there's like a bell curve of people in this world and most people are living in the present.

And there are [00:46:00] some people who are living in the future, a very small subset, and there's actually some people who are living in the past. And these inflections, they travel over this event horizon. And the people who are living in the future see them first. So the future's already here, it's just not evenly distributed.

There's pockets of the future visiting us right now, and some people who are in those pockets. And what we want to do is find those people. Because those are the people whose opinions we care about. Because what's happening is these inflections are traveling over an event horizon. And the people who are living in the future, A, see them first, and B, are hanging out with each other.

So not only are they seeing this stuff first, not only are they in a better position to notice these things first, But they're birds of a feather, they're talking to each other, and they're having conversations that are much more likely to be informed intuition, because they're seeing the same thing before the rest of the world sees that same thing.

And so that's what we want, right? We want to get out of the present, we want to live in a valid [00:47:00] future. And we want to notice who else is living in that valid future with us, and we want to prioritize their opinions about the future and, navigate our insight to where they feel desperate about it.

And so that's how I would answer that question. I hope that's not too abstract, the main thing is, does this person live in the future? If a consumer quite often you're solving your own problem. In the future. And in B2B quite often, you're solving the problem for Lighthouse customers, right?

So like when I was at Silicon Graphics, Industrial Light Magic was a Lighthouse customer. And I was like, if I can help them do Terminator 2 and the Abyss and Jurassic Park on films, they're going to lead us into the promised land. Like their opinions about how to do digital CGI are just more important than anybody else's opinions at that window of time.

And so I'm like, man, we solved their problem. They're just going to take us to the promised land. Because they're going to, they're going to, they're solving the thing that everybody's going to want to solve pretty soon. And so that's what you want, is to find those people living in the [00:48:00] future. 

Amy Jo: And sometimes people, you mentioned several times that experts can often get in their own way, people with a lot of knowledge.

And I think sometimes they don't, they aren't able to go there because they know too much. 

Mike: And their egos cause them to be attached to their expertise. And so they, it's, Oh, I feel that one. So what happens is they can't adopt enough of a beginner's mind.

Because their ego will not allow them the psychological possibility that their expertise is wrong. Their status quo has the word status in it, right? And a lot of experts could get a lot of status by being experts in the current thing. And so the new thing is intellectually, unsettling to them.

Amy Jo: We saw exactly this on a project I worked on recently at the intersection of AI and mental health. We had a total expert on the team and we were testing out all the newest mental health like therapy and, helpful [00:49:00] listening chatbots of which there's an explosion. We're testing them and we're like, seeing which ones are good and what models are built on.

And the expert was like, this is shit. It's so on like her judgment. was completely encapsulated into a level of performance that wasn't going to get there, but just wasn't realistic given the business model. But then we went and we found customers living in the future, exactly what you're talking about.

And we found them by looking for people that were actively seeking more mental health support, had done therapy, but were actively trying out all these chatbots. They're like out there, Trying them looking for something that can help evaluating them and the gold you get from those people It's everything you're saying like you get completely different feedback from them than your normal people But once you can find them and I think the tricky part is finding them sometimes But once you find them, it's like they are your [00:50:00] co-conspirators 

Mike: That's right.

And the other thing I've seen, and this is why I like the term desperate. I like to say that if somebody isn't desperate for the empowerment that you offer, why would they be crazy enough to work with a startup that's 80 percent likely to go out of business? And so how do we know somebody's desperate?

One way we can tell they're desperate is, have they tried to solve the problem before? Because if they've tried to solve the problem before and failed, two things are true. One is, they know the problem exists, and it's hard to argue that somebody's desperate for something if they've never tried to solve that thing that bothers them, right?

So we need to believe that they've tried hard to solve the problem, because that's only then can we know that they're truly desperate. But then the other reason that we want desperation is if they have an alternative, that's good enough, they won't go with us. So we have to be, so radically different that we meet their desperation in a way that it's never been met before.

And they [00:51:00] say, wow, that's so radically different that I'm willing to take the risk of working with a startup because nobody has offered me a credibly magic approach to solving my desperation. These are the first people to ever show up to really do something credible to address my desperation. And those people will lead you to the promised land because.

A, they know the problem exists, B, they're living in the future, and C, they understand what it takes to implement that future in their world so that they can be the hero of their own hero's journey, and they can give you the type of feedback that's gonna cause you to notice things these surprises that you get.

And much more likely to get these positive surprises from those types of people because they're already trying to build what's missing in the future. 

Amy Jo: Exactly. That's so well put. So everybody take that and embroider it on a pillow. And the thing is, a lot of people miss that, including a lot of VCs, I see, because they mistake that [00:52:00] approach for a small market.

Mike: Yes. 

Amy Jo: And they don't understand it's a wedge. It's a beachhead. 

Mike: That's right. 

Amy Jo: Not the market. 

Mike: That's right. Do you see that? All the time. And it's That's where I've been wrong time and again is failure to imagine how big the market can be. Usually the product defines the market. And if the product is sufficiently empowering for desperate people, you often end up being surprised at how big the market is.

You know how people talk about the total available market. I call it the myth of TAM. I don't want the total available market. I want the total future market. Yeah. And the future market hasn't been determined yet. There's an infinite demand for the unavailable, right? And so we don't know what the future market will be.

 And so rather than study the TAM and look for gaps in the market, what I want to do is think about total future market. And the way I do that is I start with inflections rather than markets. 

Amy Jo: Oh my God. I love this. I'm embroidering this on my pillow. So a couple of quick questions [00:53:00] and then we're going to let you go.

Selen asks, do you have any advice that would help us impress investors when we're presenting to them? 

Mike: I'll do it. 

Amy Jo: You've given a lot already today, but any like final advice to someone who's got a pitch coming up? 

Mike: I'll do the quick version. And Lenny does a pretty good, Lenny asked me this question and we had a little bit more time to go through it.

So if people really want to drill down, we could do that. Or if we ever wanted to, we could do it like a whole session on pitching VCs, but Yes, please. Yeah so the first thing I recommend people do is do not create a Franken deck. Once you realize that it's okay if most people don't like your idea it's empowering in some ways because you start to say, my job is not to get everybody that I pitched to the idea.

My job is to identify the subset of people who are prepared to like it. And be very clear to them, they're the only opinion that matters. Because, if people are not prepared to like your idea, there's nothing you're going to say to convince them. They're not ready to move. They're not ready to [00:54:00] join your movement.

The first slide I recommend is, explain to me what you do like I know literally nothing. Don't say the example I gave was Airbnb. We're Airbnb, we're a marketplace for unused residential housing space. I don't know what that is. I don't know what that means. 

That's VC to speak, and I'm sympathetic to founders who do it because I know they get advice. Say stuff that sounds appealing to VCs right? And so they put all these buzzwords in it. Much better to say we're AirBnB, we let you rent an extra room in your house. Because like now I know what you do now. I may not think that's a big enough market But now you have a chance to explain to me why it is right like Now I understand it well enough to engage the founder in a conversation about what they do and then the second slide I recommend is What's our insight which is basically?

What do we know about the future? That's not obvious and the reason that I recommend that as a second slide is I say look If we don't agree on this insight about the future, nothing else I'm about to say is going to make sense to you. And I can even give you your time back, because nothing else is [00:55:00] going to make sense.

But if the person's prepared to agree with your insight, now all of a sudden, whenever they bring up a competitor, you return back to the insight. Now I can understand why you think that's a competitor, but keep in mind, this is our insight. Our competitor does X, we do Y. Our competitor sells apples, we sell bananas. Right? 

And that's because our insight is we're the only guy selling bananas. And you return back to your insight to counter any objection. And then the third is just what proof points, if any, do you have? Fraction, momentum, founders anything good that you can say that's objective about it.

But usually I find if you can do those three things in the first 10 minutes, the people who are prepared to believe will be leaning forward. And if they don't like it, the solution is not necessarily to say, Oh, they, now they're saying that I should have a slide on trends for millennials and housing.

And the next thing, you have a slide up front, you got five slides before you say what you do. [00:56:00] Millennials trends and housing. And you've probably seen decks like this before where you're like five slides in, I don't know what it does. And usually that happens because well intentioned people giving advice, convince the founder to create a Franken deck.

And before it, it's 30 slides trying to anticipate every possible objection and incorporate every piece of feedback. And now the person who was prepared to believe what you believe. doesn't understand what you do. And so we missed our opportunity to convince an early believer to believe because we burdened them with a Franken deck with a bunch of noise in it, rather than the signal of what our insight was.

Amy Jo: Awesome. So helpful. Thank you. So Sharon asks about, wants to dig in a bit to AI. She says, if a founder's idea for an inflection is based on a prediction of AI's maturity, say a year from now. Is that interesting to you than one that's based on today's AI? How do you think about inflections in AI? 

Mike: Yeah. So the ultimately what I like to say is [00:57:00] the founder is living in the future.

And if that founder is the only person living in that future, it's not going to be a very successful startup. And so we have to convince other people to occupy that future with us. We need to pull other people to that future of our design. Some futures are more in the here and now. So Todd and Freddie, when they started Okta, he was VP of sales force.

He knew all the early adopters of the cloud. They were telling him identity management is a hassle across cloud apps. And so that future is on the immediate event horizon. But then you got guys like Elon Musk, who's saying I'm going to blast rockets into outer space. But you could have told that secret to a hundred people.

Most people would say you're smoking weed. Nobody's going to blast, but you can't start a startup that does that. That's crazy. And so I like to say there are different types of futures. There are plausible futures and that's Okta. When you see it, like the Snowflake guys, okay. A couple of data warehouse guys from Oracle saying they're going to do it on the cloud and, pure [00:58:00] play cloud stuff.

You're like, ah, yeah, I can see that. And I could see why they would be the ones to do it. And then the other, I call possible futures. This is like Andreessen with a mosaic browser. It's like most people at the time didn't think his work was that important because they thought the digital super highway would be designed by Time Warner or by, so like the possible futures are usually bottoms up phenomenon where it's hobbyists and alpha geeks, it's Wozniak with the Apple computer. 

It's it's that kind of stuff. And then there's the other kind of features I call preposterous. And preposterous is like rockets into outer space, or I'm going to design an electric car company.

And what I say to founders is, All three types of futures are possible, but it takes a certain type of founder to actualize those different types of future, right? So it's if you want to build the next rocket company or the next car company, fine, but like you have to have the fundraising and persuasion and like willingness to deal with pain skills as Elon Musk.

And it's if you don't have those abilities, you're going to [00:59:00] struggle. to succeed, even if your view of the future is right. And so I talk about founder-future fit, this is part of what I'm getting at, right? Like I, I'll invest in something where there's an event horizon where it's going to take a long time, but that founder has to meet the criteria of the type of founder.

Who's a fit for that future. And if they're not matchable to that future it's not enough for them to have good ideas about the future. They have to have. The ability to make that future real, given what is entailed in it and given the characteristics required to actualize it. 

Amy Jo: Not just about the idea.

Mike: Yeah, for sure, for sure. If you're living in the future by yourself, it's gonna be a lonely existence. 

Amy Jo: This is so much useful and just delightful wisdom. Thank you so much for sharing this with us, Mike. 

Mike: Oh yeah. And if we ever want to do something again, let me know if we want to, explore any particular topics in depth, happy to do it.

If people ever want to have more time to call BS on this stuff, that's fine too. I don't mind being [01:00:00] challenged that's how you get the surprises is from the challenge. 

Amy Jo: Surprises for the win. Thanks everyone. 

All right. Thanks. Good to see y'all. 

Take care. Thanks for being here.

Outro: Thanks for listening to Getting2Alpha with Amy Jo Kim, the shows that help you innovate faster and smarter. Be sure to check out our website, getting2alpha.com. That's getting[number]2alpha.com for more great resources and podcast episodes.