1/15: One topic that’s come up in various interviews and podcasts recently is what I believe to be one of the most difficult skills a world class VC needs to hone (especially in the early stage #startup world). Unpacked:
2/15: The Twitterverse seemed to like the story I told in my last Tweetstorm so I thought I’d share another one that hopefully anchors a concept I think of as “The Tyranny of the Or”.
3/15: Once upon a time, the Board of a large international shoe manufacturer challenged its CEO to find new growth opportunities. After looking around the globe for expansion opportunities, the CEO decided to send two salesmen to Africa to investigate its market potential.
4/15: The first salesman reported back, "There’s no potential here – nobody wears shoes."
5/15: The second salesman reported back, "There’s massive potential here – nobody wears shoes."
6/15: I find this simple story very insightful because it describes what I see as a difficult challenge that VCs face when evaluating #startups. Each salesman came back with the same observation but they drew vastly different conclusions from the data.
7/15: The first salesman interpreted the data through the lens of “the market has spoken and therefore we’d be crazy to try to sell into limited demand.”
8/15: The “skeptical perspective” is essential in evaluating a startup because markets and competitors are smart and democratizing a product/service that consumers are already buying is easier than selling them something new.
9/15: The second salesman interpreted the data through the lens of “the market is broken and is overlooking an obvious opportunity that we can profitably serve.”
10/15: The “optimistic perspective” is essential in evaluating a startup because new products and services are constantly emerging in markets and displacing less desirable options and/or serving previously unserved populations.
11/15: Talented VCs can create frameworks that allow for these perspectives to be consistent with each other. Understanding why incumbents have left an opportunity untouched isn’t inconsistent with believing in what could be built if a new entrant were to attack the problem.
12/15: I’ve witnessed VCs jump to the conclusion that only one perspective is possible. Bad VCs routinely fall “The Tyranny of the Or” mental trap. They insist that A OR B has to be correct. They don’t have comfort or skill to conclude that A AND B might both be correct.
13/15: Opportunities might be rational to chase for one company and completely irrational for a different company. I’ll assert that this marketplace/opportunity dynamic is true more times than not.
14/15: The beauty of an “And” framework is that it helps explain why a market gap exists and surfaces important details about how a new business needs to be configured to make attacking it a rational choice for a particular company/team.