Feb 11
Believability Weighting Decision Making
Believability Weighting Decision Making
One of the lessons I regularly reflect on and try to implement from my Shoes of Prey experience is who to take advice from.
In Ray Dalio’s book Principles he recommends to “Believability weight your decision making”.
“The most believable opinions are those from people who 1) have repeatedly and successfully accomplished the thing in question, and 2) have demonstrated that they can logically explain the cause-effect relationships behind their conclusions.”
Ray summarises this in a LinkedIn post here.
One of my biggest regrets in the last couple of years of the Shoes of Prey journey was not doing this correctly. I was convinced we were approaching product market fit and crossing the chasm from our beachhead niche customers into the mass fashion market and that we should go hard at this. This was against the advice of some of our most experienced investors and we, and they, paid the price. We failed to cross the chasm and after having thrown everything at it, sold the Shoes of Prey assets for tenths of pennies in the dollar.
My email to Vinod Khosla and the Khosla Ventures team, one of our major investors, shortly afterwards summarises my learnings and regrets:
“Hi Vinod and David, as well as Ben, Kevin and Keith at their new addresses.
I just wanted to write to you firstly to apologize for not being able to return Khosla’s capital let alone earn a return on top, and secondly to let you know there are two things you suggested I do which in hindsight I wish I’d done:
In our partner update 2 years ago Vinod, you said words to the effect of: “You haven’t hit product market fit yet and while one at a time manufacturing has benefits your unit costs are too high compared to mass produced shoes. You should find a buyer for the company now.” With the benefit of hindsight I now wish I’d followed that advice.
If we weren’t going to go down that path you all pointed out we needed to cut our burn dramatically and as far as possible to give us the most time and best chance of finding product market fit. We cut burn to the point we thought was our maximum. Then under even more pressure we cut burn further again 6 months later. I wish we’d made those maximum cuts at the first point in time. You highlighted entrepreneurs fall into this trap of thinking they’ve cut as far as possible when they can actually cut further, I wish I’d been able to fully accept that advice at the time.
Thanks for what in hindsight I realize was excellent advice and sorry I didn’t follow it correctly.”
Keith Rabois shared this chart on Twitter recently which made me reflect on this learning:
At the top of this chart sits Khosla Ventures and Founders Fund (Keith was at Khosla while they were Shoes of Prey investors and is now at Founders Fund).
The chart is an excellent reminder that the advice I received (and regretfully didn’t follow) came directly from multiple people who have:
- Founded unicorn and even decacorn businesses themselves;
- Been senior executives at unicorn and decacorn businesses through key growth periods;
- And most important for the advice they were giving, every one of those people have invested in many businesses that have very successfully found product market fit and crossed the chasm we were attempting to cross, as well as even more businesses that haven’t found that product market fit nor crossed the chasm.
These experiences have provided them with exactly what Ray Dalio says make people believable when offering advice — 1) they’ve done it themselves and 2) the pattern recognition and insights gained from seeing businesses succeed and fail at the point Shoes of Prey was at enables them to “logically explain the cause-effect relationships behind their conclusions”.
I learnt this lesson the hard way, the plus side is the lesson has stuck.
Feel free to finish reading here, or if you’re interested in how I’ve been applying the lesson read on.
Applying this lesson
I now seek to believability weight my decision making. At Fable our mission is to end industrial animal agriculture and we do this by making delicious meaty food from mushrooms and healthy, minimally processed, natural ingredients. To help us achieve this mission we’ve sought out believable experts for Fable in two ways:
- Our team — we’ve built a team that includes people who’ve had success and can logically explain why in our core business areas of mycology/mushrooms, manufacturing/operations/logistics and sales/marketing/PR. We’re relatively early stage, so we’ve aimed to overlap those skills with people who’ve had experience through the product/market fit phase of startups and also have experience thinking differently and disrupting the industries they’ve worked in.
- Our investors — we have some great VCs in our business and our lead investors (Blackbird and Grok Ventures) have built formidable skills through their many successes (as well as their failures). When I was first exploring the meat alternative space they provided great insights into our category and helped me confirm there was a gap in the market for meat alternatives that were clean label and minimally processed, as well as delicious. Lucie Hankin at Grok was one of the people who introduced me to my co-founders. Lucie, Nick Crocker and others on their teams have helped guide us through challenging periods and into successful ones. All of that comes with having been successful themselves, having had some failures and being able to explain the cause/effect of the difference between the two — they have strong believability. Both Blackbird and Grok were early investors in Shoes of Prey and it’s been insightful and a pleasure to witness their success, learnings and believability grow over the last decade.
We’ve also built a large list of 40+ angel investors in Fable which includes 12 angels with extensive and successful food industry experience, the founders of 4 unicorns including 3 worth $15B+ and a range of other angels who have extensive experience and believability in areas that are helpful to us — CPG, retail, manufacturing, marketing and more.
It’s very helpful to be surrounded by people with high believability in their areas of expertise, but it’s also critical to know how to get the best advice from them and to know which advice to follow.
I aim to understand where people have expertise, go to them for advice in those areas, then where advice differs, drill into the logic of why to understand it from first principles so I can come to a conclusion and make a decision.
To give an example, a question we’re constantly evaluating is how rapidly we should invest in growth.
On the scale rapidly front — capital markets are flush with cash and many smart investors and smart founders of companies in our space are deploying huge sums of money into scaling their products and businesses, often pre launch or only shortly after launch. We regularly receive advice that we should raise a large round and do the same — “A short window is open to rapidly build meat alternative businesses with sustainable competitive advantages through product IP and brand. You need to go fast or risk missing out.”
On the scale diligently front — the advice for a company at our stage is to focus on finding true product market fit in a scalable market and channel before doubling down. “Don’t scale too early or you and your key team will be focused on hiring, managing people and attempting to scale rather than what should be your core focus, achieving product market fit. Hit the gas when you’ve found product market fit.”
There are believable experts in both camps and this is a complex decision with opportunities to invest rapidly in certain areas and not others rather than something that is simple, black and white. This also happens to be a place I’ve been before with Shoes of Prey. In that case we tried to scale rapidly too early and the approach failed (though in that case my error was thinking we were getting to product market fit in a mass channel when we hadn’t and weren’t).
In this case when I weight the believability, much of the “scale rapidly now” advice comes from VCs who have raised huge funds and are incentivised to deploy that capital quickly so want to sell founders in on taking capital, and from first time founders experiencing exactly what I did with Shoes of Prey. They have enough data to indicate product market fit might be approaching, like major retailers and partners ranging the product and investors willing to bet significant sums that product market fit can be achieved, when that hasn’t been proven yet.
On the scale diligently front are unicorn and decacorn founders, industry veterans and investors who have seen multiple boom and bust cycles and succeeded through them.
Our approach at Fable in 2021 was to take the scale diligently approach and focus on finding product market fit in the mass market. While doing that we picked only the highest value R&D and marketing opportunities and placed bets on those.
We’re very pleased with how that played out last year. It allowed us to keep our team small (we’re 14 FTEs) and this allowed all our team, including our exec team and I, to focus on our product and finding product market fit. We grew revenue rapidly without paid customer acquisition, we’re confident we’ve now found product market fit and we were able to do that while approaching sustainable profitability and with minimal capital.
In this case, while it was helpful to have been in a similar position before and had the learning drilled into me through failure, Ray Dalio’s suggested 2 step approach to believability weight decision making makes it clear what the right decision was and that worked out for us.
Investor Updates
To help efficiently scale receiving helpful and believable advice from our investor group, we send out monthly business updates. We share our challenges and a list of asks. This helps investors know where we need help so they can offer relevant advice, and having up to date investors makes it easier when I call on one of them for specific advice. In the updates we also thank those who’ve helped in the last month.
On Giving Advice
When others seek my advice I aim to help them weight my believability. I’ll flag where I think I do and don’t have high believability and I’m particularly conscious of not offering confident sounding advice in areas where I don’t have believable expertise, in my experience that can be some of the most dangerous advice.
I’d love to learn from the experience of others here. Where have you made mistakes in weighting believability of advice and how do you weight the believability of the advice you receive?
