I love thinking about new ideas and evaluating new markets. These are a few frameworks I use to help founders think through their ideas.
Painful, but not frequent = Rich Barton playbook
Activities like buying a house, getting a job, estate planning, or booking travels are painful to do at times but are not a regular activity for the average person. Usually, these activities end up being cash and time expensive due to a low frequency of use.
Often there is someone in the middle who holds the key to the information that the customer desires. Rich Barton, founder of Zillow, Expedia, and Glassdoor frames this thesis as “*Power to People*.” Essentially, getting the users to generate information to create data loops which later helps aggregate the consumer demand quickly and matching it with suppliers. Interesting businesses are suited to be built here where there is information asymmetry or information gatekeepers that can be disbanded with user-generated content.
If you are in this quadrant as a company, there is a known playbook of how to execute against it. Kevin Kwok has done an incredible job unpacking it over here. I would highly recommend everyone to read it and I wish he wrote more analyses!
I used to believe this quadrant had high Customer Aquisition Cost (CAC) and Life Time Value (LTV), however, using Barton’s playbook, one can decrease the CAC while keeping the LTV relatively high. That is the beauty of this quadrant, which I misunderstood for a long time. When you give power to the people, magic tends to happen.
Painful and frequent = Usually a holy grail in startups*
A lot of startup gospels tell founders to be in this quadrant. I think that is usually a big fallacy (not always but most of the time). This is the most obvious path and often attracts relentless competition, and as Peter Theil says, competition is for losers.
Chart this path only if you know a secret in an industry and you are one of the few people in the world to solve the problem with a known superpower to circumvent competition. That equation will create a holy grail company.
Not painful but frequent = Schlep blindness
In my opinion, mediocre investors and founders shy away from here because there is no apparent “hair on fire” problem to solve.
This quadrant attracts resilient, product-focused founders that execute with long term horizon. They relentlessly believe in this future; akin to an artist, who is creating a beautiful piece of art.
I tend to qualify companies here that improve on an existing behavior 10x like Monzo, Zoom, and SuperHuman
Creating something that we didn’t know we wanted like iPhone and Airbnb. Both of these are activities that didn’t seem painful but were frequent resulted in massive impact and return.
This quadrant is also counter-intuitive. Humans are used to what they already know but aren’t the best at imagining the future. One can’t just be a performer, but an artist as well. Performers fizzle out, artists keep creating new things. Artists set the trends, performers jump on the hype.
I believe the best products of our generation are created here, by artists… iPhone, Airbnb, Stripe, Facebook, Monzo, Zoom, Uber, etc.
@Paulg has written an incredible post about Schlep blindness here.
From a unit economics perspective, the CAC can be relatively high here initially; however, with a world-class product execution, one tends to create a high word of mouth growth trajectory.
You can only tell if you are in this quadrant if everyone you talk to tends to say “you’re crazy, this is not going to work” OR “this is already a solved problem, why are you spending your time here?
Not painful and not frequent = Luxury brands.
A lot of luxury brands, such as Louis Vuitton, fall in this quadrant. Not the most interesting to me personally, but exceptionally hard to build something meaningful and big here. I admire all the founders that thrive here — a lot to learn from people like Amancio (founder of Zara), Bernard Arnault, and Virgil Abloh.
I would be hesitant to qualify D2C brands in this quadrant. I use the frequency of product used (disposability) and loyalty to brands to help assess those ideas. Web does incredible job unpacking D2C brands and I would follow him for those insights.
Consensus Framework — Howard Marks
As Howard Marks puts it:
“To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don’t, see things differently or do a better job of analyzing them — ideally all three.”
Crazy and right = 2–3 year head start
This is the best quadrant for a venture-backed startup. This is where Uber, Airbnb, WeWork, Ritual, Opendoor, and all the great crazy companies of our time tend to be in.
Someone sleeping on my couch? Are you crazy? No one will do that.
Call a black car with a button? That is only for the rich. Also, taxi medallion won’t let that happen. There are countless stories out there. This quadrant tends to have a big return profile for investors and hence, VC’s love these type of companies.
Tread this quadrant consciously though. Just because you have apparent Product-Market Fit, doesn’t always equate to good business in its current form factor and can fast turn into “Crazy and wrong”.
Crazy and wrong = failure
People can pivot out and create exciting unit economics if the company has some PMF. In my personal experience, there usually is a binary PMF with crazy-type companies. Either people and VC’s care enough for you to keep iterating, or they don’t.
One interesting example where there is a product market fit (PMF) of Right and Crazy but almost impossible to monetize at a venture level is the anonymous feedback apps. We have all seen Whisper, Secret, and Yikyak trending in the top 10 on the app store. Whisper is the only one that has somewhat monetized this market. I wonder if the YOLO Q&A will survive long enough to find a way to make money. All of these turn into Crazy and Wrong.
Consensus and right = immediate and relentless competition
All companies that have PMF with attractive unit economics end up in this quadrant. While these companies were non-consensus and right in the beginning, they end accumulating 2–3 years headstart to their competitors.
The Samweer brothers of Rocket Internet are famous for taking advantage of companies that found product-market fit in crazy ideas and relentlessly copied those in the European market. China used to be notorious for copying ideas too; however, we are seeing a transition from copy cats to brilliant ideas getting spawned from China with North America doing the copies. Fascinating time to be alive.
Consensus and wrong = failure
I would argue that companies who raise large financing rounds with negative unit economics like Ofo, Blue Apron, and YikYak end up being in this quadrant.
A lot of investors get bullish on a model/founder and start to stockpile money into these companies, believing growth over everything. As the company grows, they recognize that the fundamental unit economics beneath the business won’t improve with scale or product iterations. This leads to a bust.
I believe this is still good for an ecosystem in contained doses without ballooning into a bubble. A healthy amount of experiments and risk-taking derives new ideas, builds people’s risk appetite and trains talent. Usually hard to tell in the beginning that your company will be crazy and right, so taking a risk to build something unusual should be encouraged.
Ultimately, your idea is a starting point and often not the end destination. A lot of companies aren’t what the original idea started out as.
Most importantly, the best framework is to get paying customers or customers that love your product. End of the day, your customers (or lack of) will tell you if your idea is valuable or not.
So go out there, build something people will love. Create products that bring them joy, happiness, and create value!
Message me @alizhd, if you need help with your idea! Don’t be afraid or scared that I won’t message you back. I will (if it’s not a bot or a troll) :). Happy building!
Thanks to Adam McNamara for helping me think through this framework.
P.S. very open to feedback. On a journey to improve my communication skills!