3 Secrets To Building Billion Dollar Companies From David Sacks

Written by Christopher Lochhead, host of the Legends and Losers Podcast.

Plenty of people in Silicon Valley would pay $10,000 to sit down and chat about business with the extraordinary David Sacks.

David is one of the all-time great entrepreneurs. He’s the founder and CEO of Yammer, which sold to Microsoft for a cool $1.2 billion.

He was also on the original team at PayPal and an angel investor in Facebook, Airbnb, and SpaceX.

Now, he’s having incredible success in VC at Craft Ventures.

I recently sat down with him on my podcast, which means you get to listen in on a killer conversation.

For free.

On the episode, we covered a lot of ways to get businesses off the ground and the power of ‘going viral.’

He told me one way founders can go viral is to focus on their product hook rather than their value proposition.

So, how strong the hook — or viral attention — your company gets initially is a good barometer for how successful it will be.

David insights about how to recognize, and create, a successful business are priceless.

Here’s what he recommends:


1. Hone in on your product hook.

Just as a hit song needs a catchy chorus (Hey! Ho! Let’s go!), your product needs a hook if you want to build an extraordinary company.

Without a hook, nobody will engage with your product, and potential customers won’t get the chance to discover the value you bring.

When David’s considering whether to invest in a startup, the first thing he does is look for the product hook — a simple and repeatable transaction, flow, or behavior.

Think of it as the search box for Google, the status update for Twitter, or sending a friend request on Facebook.

The simpler and more discrete, the better.

A lot of founders layer on a bunch of complexity too early.

Think additional features, extra services, premium options.

But the problem with complicating your hook too soon is users need to be engaged with your product before they’re willing to grow with you.

Before he started Yammer, David had been bouncing around the idea to create a corporate social network for a year.

But it wasn’t until Twitter launched that he realized what the hook should be: the status update, but for the workplace.

BAM!

Once he realized what to center the product on — and, in turn, how he’d get users on board — he started Yammer.

At this time, “freemium” in the enterprise space was still pretty new as a hook.

And he is a pioneer because he used this expertly.


2. Innovate on distribution, not just product.

But it’s not enough to have an enticing product.

Really great companies also have a distribution trick.

Something to enable them to grow at an explosive rate.

David has done a genius job of managing explosive distribution with many ventures.

At PayPal, for instance, he embedded PayPal logos on eBay auctions to accelerate growth.

And you could owe money to somebody who didn’t have a PayPal account, which attracted new users.

With Yammer, he allowed individuals to sign up directly, rather than asking their company’s IT department for permission.

The electric scooter sharing startup Bird was the first check David’s venture capital fund wrote — and it also had a great distribution strategy.

When people were walking down the street or driving in their cars, they saw these scooters whizzing by and got curious.

My friend, John Bielenberg, the legendary designer, would call this distribution trick,

“Looking for the dog with a hat.”

If we’re walking down the street, there’s a thousand normal things we won’t notice — signs, pedestrians, cars.

So when there’s something unusual, like a dog with a hat, people naturally notice.

Bird scooters stationed all over a city’s sidewalks is a dog wearing a hat!

David recognized the genius of enabling anyone with a smartphone to scan the QR code and easily become a rider.

And Bird is really soaring now: it’s the fastest growing unicorn in history.


3. Design opportunities to go viral early.

A lot of founders think good marketing is the key to making a product massively successful.

But making your company go viral requires more than just the right story: you must thoughtfully build your business from the bottom up and design plenty of opportunities for virality.

David has a saying: “architecture is destiny.”

In other words, how you structure your product determines how it can grow — and it’s much easier to get it right from the beginning than to change your blueprint later.

Because he strategically designed Yammer’s software to be cloud-based from the beginning, the product won out over similar companies that had to course correct down the road.

Bird’s QR code is another example of deliberate, virally-engineered, design.

It was a fundamental part of the company from the start.

As a VC, David has realized most companies either work quickly or not all.

There’s little to no in-between.

PayPal and Yammer were both under four years old when he sold them to eBay and Microsoft, respectively.

There’s no simple recipe for creating a flourishing business, but designing your product and distribution model with the goal of going viral will set you up for success.

Now that you’ve gleaned the insights from my conversation with David, feel free enjoy the whole conversation.


About the Author

Christopher Lochhead is a top 30 business podcaster and the #1 Bestselling Amazon Author of Niche Down and Play Bigger.


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