Founders as Experiment Designers
Angular Ventures Weekly Issue #218: For the week ended March 26, 2024
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Founders as experiment designers
David Peterson
A few days ago, I posted about what I think is one of the most dangerous myths in the startup world: that being successful is all about perseverance, grinding, and grit.
Now, of course, there are many moments in the life of a founder when grinding is exactly what it takes: getting a challenging fundraise over the finish line, chasing a dream hire for months on end, sending the 10th follow-up to finally break into that F500 account.
But, if you convince yourself that all it takes to win is grinding, because “that’s what successful founders do,” that can lead to wasting years of your life on something that likely won’t work.
Instead, it’s my experience that the best founders aren’t necessarily those who grind the longest, but those who are the most “greedy” with their time. Said another way, I’m constantly inspired by founders who, with limited information, quickly make the call on whether something is working or not, and then either double-down or move on.
Making quick decisions given limited information is not easy. It requires thinking in bets, which is unnatural and uncomfortable. What often happens, instead, is that founders fall in love with the initial idea, and won’t make a significant enough change even when, after years, there’s little evidence that it’s working. (Even worse is when investors, so tied to their original hypothesis on the investment, bully founders into staying the course, even when the founder’s intuition tells them to try something new.)
This is what I’m most worried about, and the idea that I want to explore.
So, for the founders out there, how do you know when to make the call on whether something is working or not?
My advice: run everything as an experiment.
Putting your product in front of a customer for the first time? Targeting a new customer segment? Launching a new feature? Testing out new positioning? No matter what you’re doing…think of it as an experiment.
What does that mean?
First, decide on a metric that matters. Early on, when you barely have a product, the metric will undoubtedly have to be a proxy for value (e.g. the number of organic shares of a social post about the problem you’re trying to solve, or the conversion rate from a cold email to a call), and you’ll have to use a lot of your own intuition to decide whether or not the result is meaningful. As time goes on, this will be less of a problem.
Second, timebox it. Most likely, this is not a “real” experiment, so there’s no need to run it until you hit statistical significance. Instead, set a time limit up front and stick to it. Keep up the momentum.
Third, make big (enough) changes. As I detailed in an old post about building a growth engineering team, the reality is that, for most startups, you have so few users that you’ll never hit statistical significance on any experiment. One way to counter that is to test out changes that you think will have a huge effect. As an example, instead of changing the color of the sign up button, change the entire landing page.
Fourth, and finally, record the results. As Richard Feynman said, “the first principle is that you must not fool yourself and you are the easiest person to fool.” It’s easy to convince yourself that something worked after the fact. Keep yourself honest. Write down what success would look like, record the results and compare. If you do this, you’ll get better at estimating the results over time as well.
I’ve come to agree with Elad Gil that things that work, tend to work quickly. That doesn’t mean you should give up on your idea. The core hypothesis may still be correct. But it could mean that a pivot is in order to figure out the path from here to there. If a pivot is needed, then do it fast.
Remember, at its core, a startup is perhaps best defined as a small group of people dedicated to testing a novel hypothesis for creating outsized value. If you’ve just raised a round of capital, you have between 12–24 months to run a series of experiments to put that hypothesis to the test. In other words, clock is ticking. So run as many experiments as you can!
David
FROM THE BLOG
A Robotic Future for Retail Grocery, Finally.
Why we invested in Finally.
A Digital Fabric for Maritime Trade
Why we invested in Portchain.
Three Keys to the Kingdom
The sometimes-competing and sometimes-aligned goals that early-stage founders must manage.
Customer-driven Entrepreneurship
Reframing the critical unlock in early-stage venture.
EUROPE AND ISRAEL FUNDING NEWS
Israel / Semiconductors. NeuReality raised $35M, led by Samsung Ventures and others, for its AI accelerator chip technology.
UK / Fintech. AccessPay raised $24M, led by True Ventures, for its payment automation & bank data transformation platform.
UK / HealthTech. Anima raised $12M, led by Molten Ventures, to accelerate the deployment of its integrated care enablement platform.
Sweden / Energy. Blixt raised €5M, led by Union Square Ventures and Energy Revolution Ventures, to build its next-gen electrical infrastructure suited for the modern age, starting with the circuit breaker.
France / ClimateTech. Pelikan Mobility raised €5M, led by Pale Blue Dot, for its software-enabled leasing platform to enable commercial fleets to go electric.
Germany / Fintech. Xaver raised €5M, led by Motive Ventures and Calvary Ventures, for its AI-powered software platform for the insurance and pension industry.
Switzerland / Fintech. nsave raised $4M, led by Sequoia Capital and TQ Ventures, to make banking in Switzerland accessible to people in countries with unstable banking sectors or facing high inflation.
WORTH READING
ENTERPRISE/TECH NEWS
Is the IPO window opening again? Following successful IPOs by Astera Labs and Reddit, there is growing excitement that the IPO window may finally be swinging open. According to CNBC, “Reddit and Astera were the first notable venture-backed tech companies to go public in the U.S. since Instacart and Klaviyo in September. Before that, there hadn’t been a significant deal since late 2021.” The Information reports that two Israeli security companies, Cato Networks and Snyk, are near the front of the line in terms of new IPOs lining up to follow Reddit. “Snyk, an Accel Partners–backed startup that sells security tools for developers, valued at $7.4 billion in 2022, has been drafting its IPO investor prospectus and could file it confidentially with regulators in the next few months, a person familiar with the matter said. Meanwhile, Cato Networks, a SoftBank-backed Israeli startup that sells network security software, plans to hire bankers by March for an IPO later this year, people familiar with the matter said. Cato was valued at $3 billion last year.”
Redis acquires SpeeDB. According to a story in Calcalist, “Redis plans to leverage Speedb to enhance real-time data processing and power low-latency user experiences.The acquisition of Speedb will enable Redis to expand beyond DRAM and deliver an offering centered on speed and scale. Taking advantage of the advancements in SSD storage and transfer rates that Speedb leverages, Redis will serve the full spectrum of performance and cost requirements for enterprise applications where DRAM is not required.”
The US moves to contain China’s AI ambitions. Bloomberg reported that “the Biden administration is considering blacklisting a number of Chinese semiconductor firms linked to Huawei Technologies Co. after the telecom giant notched a significant technological breakthrough last year, people familiar with the matter said.
Such a move would mark another escalation in a US campaign to ringfence and curtail Beijing’s AI and semiconductor ambitions. It would ratchet up the pressure on a Chinese national champion that’s made advances despite existing sanctions, including producing a smartphone processor last year that many in Washington thought beyond its capabilities….The US government is pressing allies including the Netherlands, Germany, South Korea and Japan to further tighten restrictions on China’s access to semiconductor technology. Huawei is one of the companies at the heart of that campaign, as well as Beijing’s efforts to reduce its reliance on Western technology.”
HOW TO STARTUP
A pricing framework. Daphne Tideman, who focuses mostly on D2C companies, published a great piece this week on pricing strategy. “It doesn’t matter how much you or your competitor think your product is worth; you’re not the one purchasing it. Part of that issue is understanding the value. You know the value and so you know it’s worth that much, right? If your customer doesn’t understand that value, they won’t pay for it. You need to recognize what drives value and how your customer can understand that.” She also introduces the Van Westerdorp Pricing Model and applies it to the startup world.
A series of errors. Andrew Bush, an AI entrepreneur, published a blow-by-blow account of all the mistakes he made in setting up his AI startup. “I learned (the hard way) that you’ve got to start by cozying up to the market, understanding its quirks, and then, maybe, introducing your AI to solve real headaches. But there I was, trying to fit my “square” precious AI solution into the “round” hole of market demands. Spoiler: It doesn’t work that way.”
HOW TO VENTURE
Series A still slow. Jason Lemkin of SaaStr highlighted some data originally published by Redpoint in an update to their LPs. The main takeaway for Jason is that the pace of Series A financings remains depressed, but the whole deck is worth viewing — especially the data on the potential bottoming out of software sales, which should be welcome news to many companies. Here’s the key quote from Jason’s piece: “What’s most important after a seed round is … how hard is it to raise another round? Raising a Series A is as hard as it’s been since 2018 is the answer. And it hasn’t gotten any easier since last year.”
PORTFOLIO NEWS
Portchain has achieved a major milestone, they onboarded 100 terminals globally on Portchain Connect, representing more than 20% of global container terminal capacity.
LightSolver announced general availability of its laser-based computing system.
