Know What You Believe
Or why belief is the engine that powers your startup
Uninvent is a series of essays by Gladly co-founder and Point Nine Capital Advisor Michael Wolfe.
Uninvent helps startup founders with the most important factor in their success: their team. We help founders manage their own motivation, productivity, health, and relationships with co-founders. We’ll discuss hiring and managing great people, building a strong culture, and keeping people aligned and working on the right things. You can follow the full series at www.uninvent.co.
In this chapter we’ll talk about how every founder starts their startup based on a set of beliefs about their market, their product, their teams and themselves. You can build a great startup if those beliefs are correct and if they compel others to come along on the ride with you.
“The architect must be a prophet, a prophet in the true sense of the term. If he can’t see at least ten years ahead, don’t call him an architect.”
— Frank Lloyd Wright
“The first principle is that you must not fool yourself — and you are the easiest person to fool.”
— Richard Feynman
“It’s hard to do a really good job on anything you don’t think about in the shower.”
— Paul Graham, YCombinator Co-founder
On shaky ground
You knew that founding a company would mean hustling your way to the top, but you didn’t know you’d have to start so close to the bottom.¹
You have an idea for artificial intelligence software to help finance departments run their corporate planning process.² You’ve talked to finance managers at several small companies and got vaguely positive feedback on the idea.
But you can’t turn those prospects into customers until you have a product. You can’t build a product until you find a technical co-founder. You can’t find a co-founder willing to work for free. And you can’t raise funding until you have customers, a product, and a co-founder.
Your startup seems logically impossible to start.
You do believe in your idea, though, so you start networking. You ask a colleague who owes you a favor to introduce you to two of his friends. One is an engineer who could be a potential co-founder. The other is an angel investor who can tell you what it will take to raise money from investors like him.
You head to Philz Coffee and sit for back-to-back pitches with each of them. You explain why once you build this product, a finance team at any well-run company would want to use it. You feel good after both meetings. You think the product’s value is obvious, and the grins and nods you got from each of them suggest that they agreed.
The next day, you check with your colleague to see what feedback her friends gave her. The verdict: meh.
They both said the same thing: they didn’t get it. They weren’t sure if this was an urgent problem for customers, and if it was, why those customers hadn’t already bought a solution. They didn’t know if other startups have already tried to solve this, whether it worked, and why you’ll succeed where they failed. They didn’t get how you’d find customers, win the market, or even if it was a market worth winning.
You drop off the Zoom and try to steady yourself. No, you didn’t expect them to drop their lives and jump on board your cause after one meeting. You are realistic that most pitches go nowhere, and you’ll need lots of meetings like these to get a few hits.
You are still frustrated by the feedback. You think you described an important problem and a powerful solution and provided examples of prospects who agree. The investor and the engineer didn’t even understand the pitch well enough to ask good questions. You console yourself that not everyone has the brainpower and curiosity to process new ideas. Not everyone is a believer.
But the problem is probably you, not them. Even if you think you do, you probably don’t know what you believe.
Testify, sisters and brothers!
Before a startup has a product, customers, a team, and revenue, its only assets are its founders and their beliefs. They have to believe in themselves and their ideas enough to take on the hard work and risk of starting a startup. They have to believe they’ll be one of the few startups that break through and find a path to build a big business. These are the kinds of founders we try to back at Point Nine.
Then they have to create more believers by convincing early employees to join, investors to invest, and customers to take a chance on a product from a new company they haven’t heard of and that could run out of money and disappear.
Their beliefs shape the product they build, what customers to focus on, how to reach them, whether to raise money, and how to operate the company.
Their beliefs about their market and the value proposition drive the messages they use to find prospects and attract their interest. They will likely go through a positioning and messaging exercise or create a pitch using a framework like Raskin, which are essential exercises to transfer beliefs from their heads into their customers’.³
Belief keeps founders from quitting when things get hard, which they always do. Belief drives them to push a little harder when a customer says no. It pushes them to polish a product design just a bit more, believing their solution matters enough to justify perfection.
Listen to the strategies and values communicated by legendary companies like Southwest Airlines or Costco, and you’ll see a direct line from today back to the beliefs that drove the founders to start those companies decades ago.
The belief stack
But it doesn’t follow that “all you need is to believe.” The world is full of startup founders who failed despite believing in what they were doing. You probably have already had the experience of evangelizing your startup to someone only to watch their eyes glaze over.
This is because it’s not enough for founders to believe in themselves and their ideas. They need belief at several levels of a “belief stack.”
Each level could be the subject of its own book, so we won’t do each topic justice here. We’ll cover a few of these in later chapters and provide links to many other resources that go deeper than we ever could.
Team
Founders must believe that their team has the insight, talent, and tenacity to find the right market, build the right product, attract customers, convince others to join them, and beat the competition. Much of Uninvent’s focus is on giving founders tools to help them do just that. But a great team is a waste unless they work on the right:
Problem and Solution
Every startup is in business to solve a problem. The founders need to have insight into the problem, a passion for solving it, and the technical and leadership skills to build a solution.
Some founders start with the problem and then experiment with potential solutions. Others start with a piece of technology and then look for problems that technology could solve. In either case, problem + solution is the starting point for most startups, but they only make sense in the context of a specific:
Market
Products are bought and used by people. Those people behave in certain ways, value certain things, can be found in certain places, and are willing to pay a certain price. They will compare you to competitors, alternatives, or the status quo: buying nothing. This is your market.
Founders need to know their market well enough to reach buyers, educate them on the problem, show how their product is different and better, and get them to pay enough to make this all worthwhile. They also need high levels of passion, insight, and aptitude about their market, often called “Founder/Market fit.” ⁴
Team + Problem + Solution + Market is a powerful equation, and startups that score high on all these are off to a great start, but many still go nowhere unless they hit the right:
Timing
Startups rarely solve genuinely new problems. Fifty years ago, businesses wanted to grow revenue and lower expenses. Consumers wanted to be entertained, shop, and find a date for Saturday night. Fifty years from now, they still will.
This is why it’s not enough to simply find a problem that customers want solved. You have to answer, “Why now?” What is it about the problem, your solution, and your market that makes right now the right time to solve this problem in the way you are proposing? Are products like yours already on the market? If they are, are customers adopting them? If yes, why will they adopt yours instead? If not, was there a previous generation of startups that tried to solve the same problem and failed? What pitfalls did they hit, and how will you avoid the same fate?
The startup that wins a market doesn’t always have the most talent or raise the most money. It’s often the one that starts at the right time. A startup that starts too early fails because customers aren’t ready to buy or because the technology is not available to build a great solution. A startup that starts too late has too much competition and has to fight for scraps in a cluttered market. A quick scan of the early 2000s dot-com blowups reveals a set of failed startups, like the notorious Webvan or Pets.com, that were rebooted by different founders into successful companies just a few years later.⁵
The answer to “Why now?” is usually driven by:
Waves
If something valuable hasn’t already been done, it’s almost never because no one else was smart enough to think of it or capable enough to build it. It’s usually because of an enabling technology that either made the solution possible to build or made the problem more urgent to solve. We’ve just lived through back-to-back waves (Internet, cloud, software-as-a-service, mobile, blockchain, AI), each of which launched thousands of successful startups.
Distribution
Understanding a market means learning how customers in that market find solutions like yours, what criteria they use to evaluate them, and what process they use to buy them. You need to know how they budget for solutions like yours, how much they will pay, what roles or personas purchase solutions like yours, and what kind of people you need in your company to run the playbooks to close them.
If you do crack distribution, you are starting to approach an elite level on the belief stack, but you can still fall short of building a great company if you can’t address a market of sufficient:
Size
No startup can win more than 100% of its market, so the absolute limit to your growth is how large a market you can eventually address.
Some startups tackle a market that is already large, usually by focusing on a niche in that market, grabbing a foothold, and then expanding to the broader market. Other startups tackle nascent markets, grab an early lead, and then ride the market up as it grows. Both can work, but you need to know which of those two games you are playing since they require different people, funding, and strategies.
Market size is hard to predict, especially for the new, fast-growing markets that often create the best startups. You won’t find a definitive piece of market research that will give you a definitive answer. You often need to do more of a bottoms-up analysis, where you ask how many people or companies in the world could be buyers of your product, how many you can reach, what you can charge, and whether you can add more products over time.
We are now at the top of the stack and need to believe one more thing:
Value
Selling a product valued by a large number of customers is a prerequisite to startup success, but generating value for customers doesn’t guarantee you build a valuable company. You have to keep some of that value. Otherwise, you may as well stand on the street corner selling dollar bills for 90 cents each.
You must see a path to building a profitable company, even if those profits lie far down the road. This means selling the product for more than it takes to provide it (gross margins) and then, down the road, building a profitable company (net margins).⁶
You then need to maintain those profits. Profits naturally erode as capitalism works its magic and attracts competition, driving down prices, raising sales and marketing costs, and making it harder to retain customers.
The best startups build a competitive moat to slow down competitors trying to catch up to you. This might be network effects. It could be a piece of unique intellectual property you own. Or it could be that you start at the right time and execute so well that you get a lead on competitors that you never relinquish.
Belief and fundraising
If you have a nagging feeling that you’ve seen this list before, it might be because you’ve tried to raise money for a startup. If you’ve read anything about pitching investors or looked at sample fundraising decks, you saw a similar list of topics you were urged to address. Point Nine certainly hopes that founders have at least a thesis on most of these items.
Founders usually do a good job articulating belief at the bottom of the stack as they pitch their team and product, but their answers can get sketchier as they try to climb the levels. Founders are often frustrated when they feel like they’ve pitched a good opportunity, but then investors ask questions about distribution, waves, timing, or moats that convince founders that the investors “just don’t get it.”
Some founder think the reason to develop and articulate beliefs is that investors will ask about them, and if they want to raise money, they need to play the game. This is backward.
Investors won’t ask you anything you shouldn’t already be asking yourself. Even if you never raised money, you’d need to answer all of the same questions. Your beliefs drive everything about how you run the company and even help answer whether the startup is worth starting in the first place.
Building belief is challenging in a company’s early phases. You have limited information and a compressed time frame, and you don’t have a crystal ball to see the future. So, how do you get started?
Don’t expect to have all of the answers
You won’t have a high-conviction and fully-validated belief at every level of the stack in the early days of your startup. No one would start a company if that were a prerequisite. When Mark Zuckerberg was hacking The Facebook in his dorm room, he probably wasn’t thinking about gross margins and competitive moats.
Think of it as a journey where you gradually develop and support your beliefs as you work with customers, get the product in front of them, make adjustments, and watch how your market develops. You’ll have various levels of belief at different phases of your startup, and your goal is to keep moving your beliefs to a higher level of conviction:
Testing your beliefs and adjusting based on what you learn is what it means to be a startup. It’s what a startup does. If these questions were all answered, you wouldn’t need belief, you’d just be a regular company executing a predictable and optimized plan.
You can build conviction for some of your beliefs early, like your ability to build a product and get some customers to pay for it. Other beliefs, like how you can build a competitive advantage or how large your market grows, might take years to play out.
But you still need a hypothesis about each belief, and you’ll need it earlier than you think. Those beliefs drive the product you build, the people you hire, the customers you target, whether you raise money, and how you run the company. Have at least a working assumption for your beliefs, then set out to validate and develop them.
Find case studies
One way to become literate in this framework is to look at the founding stories of other startups. Think of a few startups that you admire, and ask yourself, in their early days, what beliefs drove the founders. Ask yourself how you would have pitched Uber’s market size or the wave that created Instagram (hint: mobile, duh).⁷
Go through a dozen pitch decks from both successful and failed startups. Watch demo day videos and pitch competitions.⁸ See what beliefs drove the founders to start their startups and how those beliefs evolved. You also might gain some confidence when you see how undeveloped or plain wrong many of those beliefs were at first and how many pivots the founders needed to get onto the right track.
Find lightweight ways to validate your beliefs
Your job as a founder isn’t to land on your beliefs and defend them to the death. Your job is to develop beliefs that are right.
Too many founders think that after they come up with an idea, they’ll just raise money, hire a team, build the product, and watch the cash roll in. Technical founders, who identify as builders, are particularly prone to rushing to build the product before validating the problem, solution, and market. They are willing to spend thousands of hours writing code but claim they are “too busy” to spend a few weeks asking customers if they should build the product in the first place.
Your beliefs start as educated guesses, or “hypotheses.” As you test those hypotheses against the real world, some will hold up, and others won’t, requiring you to adjust, or “pivot,” aspects of your business. The first few years at a startup are spent in that test/adjust loop, and you want to get through it as quickly and cheaply as possible.
You can test your beliefs much earlier and much cheaper than you think by getting your ideas in front of customers and getting feedback, even before you build your product. The Lean Startup and Customer Development ⁹ methodologies provide tools to validate your problem, solution, and market as early, quickly, and cheaply as possible.
Even after you get product/market fit, you’ll constantly adjust your feature set, how you price and sell your product, and how you define your market. This is the “idea maze” ¹⁰, where you embark on a multi-year journey of experimentation, dead-ends, and the occasional triumph as you discover what works and what doesn’t for your business.
Study those who came before you
You probably haven’t come up with an idea that someone hasn’t tried before. Other startups may have attacked your market and failed to gain traction. Larger companies may have launched products and abandoned them. You may be trying to dislodge incumbents who sell what you claim are obsolete solutions.
Whichever of these plays you are running, your job is to be an expert in your market, including its history. Find companies that tried to solve the same problems for the same customers, even if they are out of business now. Find out what worked and what didn’t work. If no one has successfully built a company doing what you are doing, find out why. Ask buyers if they’ve heard your pitch in the past and why they didn’t buy. Has the problem or the market changed? Has a new technology wave made it possible for you to build a better solution than the last generation?
The history of a startup idea can be a source of friction between founders and investors. Many founders are convinced they have an original idea, only to face a jaded investor who says, “I’ve seen this pitch every year for the last ten years. Tell me why this is the one that will finally work.” You need to find a great answer to that question, and not to appease cranky investors. You have to solve the problems that those now-dead startups didn’t solve.
Take the 10,000-foot view
Successful startup founders are impressive, with high brain power, creativity, and tenacity. It’s why they win. On the other hand, if those founders never started their startups, someone else would have eventually built a successful startup based on the same insight.
If Uber had never been started, we’d still be able to summon a car on our smartphones. If Salesforce had never started, we’d still run our sales teams with software-as-a-service. Other founders would have recognized and exploited the same opportunities. It may have happened a few months later, with the products and market share playing out differently, but the ideas would have happened since the prerequisite pieces were in place, much like how Leibniz and Newton invented calculus in the same year without speaking to each other. When an idea is ready to happen, it happens.¹¹
“Someone is going to build a big company in this space, and here’s why it will be us” is a great framework for developing and pitching your beliefs. The “someone will do it” part should hold up even if you had never started your company. Imagine how you’d pitch an investor friend to find and invest in a startup tackling your market with the kind of urgency you’d have if you had found a pirate map showing a trail to a buried chest of gold.
Don’t focus on questions that have already been answered
Some of your beliefs will be unique to your team, solution, and market, but others will mirror startups similar to yours. For example, software-as-a-service companies tend to converge on one of only a few models for selling their products. They usually converge on 70–80% gross margins. Many startups can claim to have been enabled by the same waves.
Yes, validate that those assumptions apply to your business, but don’t feel pressure to come up with unique answers to questions already answered by other companies. Save your creativity for the parts of your business that are different. “Exciting product, boring business model” is just fine.
Write it down
Writing down your beliefs clarifies your thinking. It forces discussion and debate within your team to uncover and resolve differences. It crystallizes your thoughts and lets you practice communicating them.
An advantage for startups who join accelerators and pitch at demo days is that they are forced to define their beliefs and communicate them to a crowd unfamiliar with their company. It’s a valuable exercise, even for startups that don’t need to raise money.
No, don’t write a 20-page business plan, but at least create a pitch deck outlining your opportunity and update it as you refine your beliefs. You’ll find it a valuable tool to build consensus within your team. You’ll use it to pitch people you are trying to hire or partner with. Then, when you are ready to raise money, your pitch has been battle-tested because it’s a document you use to run your company, not something you hacked together the night before demo day.
Next, we’ll discuss the things you need to think about in the early days of your startup to ensure that you Start Out the Right Way.
[1] I lifted this quote from the great Roger Ebert review of Bowfinger. I have to credit Roger Ebert as the writer whom I’d most like to resemble (but whom I never will come close to.) I also like Paul Graham, Arthur Brooks, and Atul Gawande. Clearly, I’m a nonfiction guy.
[2] I don’t know if this is a real startup or not. I did not search for it so that I could keep the example entirely hypothetical. But I can almost guarantee it is, or at least will be.
[3] The Raskin Framework is a tool to articulate your beliefs about why it’s urgent for your customers to recognize the changes happening in their industry and why (naturally) your product will put them on the winning side of that change. It works especially well for B2B startups.
[4] Founder/market fit is a high predictor of startup success. It attempts to answer the question, “why is this team the right team to start this company?” When you have a good answer to that question, magic can happen.
[5] In 2000, Pets.com managed to go public and go bankrupt in the same year. The company became a running joke because of their profligate spending on Super Bowl ads and how “ridiculous” people found the idea that consumers would want 25-pound bags of dog food delivered to their doorsteps. Fifteen years later, Petsmart acquired Chewy, the descendent of Pets.com, for $3.4 billion, and trucks delivering heavy bags of dog food crisscross the nation. I think I just heard one land on my doorstep.
[6] You don’t need to be a finance expert or accountant to start a company, but you do need to learn basic financial metrics very early on. Learn the basics, including downloading and deconstructing sample financial models for companies similar to yours.
[7] Bill Gurley’s piece on Uber’s market size is a great example of how to predict the size of a market where the market itself is growing dramatically precisely because of the availability of solutions like Uber.
[8] The web is awash in videos and slides from startup pitch events, like those from YCombinator, TechStars, and TechCrunch. Watch a few, especially for the startups where you know how the story ended.
[9] For pre-product/market fit startups, Lean Startup and Four Steps to the Epiphany are still very relevant. This First Round Review piece about testing Minimal Viable Product is also very good, and you can find plenty of others like it. They give a set of frameworks and techniques for validating startup ideas as early in the journey as possible. But treat them like a set of tools, not a recipe that will spit out a successful company.
[10] See Chris Dixon’s great piece on The Idea Maze.
[11] This statement comes down firmly on the “Discovery” side of the “Discovery vs Creation” debate.
