This seems a counter-intuitive starting point for a VC blog, but bear with me. I’m not talking about the amount of money we are putting to work, but rather the bias we have towards wanting to believe and wanting to agree that the next pivot or change of direction is the one that will unlock the next wave of growth or progress.
We all have bias in the decisions we make, and it’s probably impossible to avoid those completely, so the starting point is to understand that is the case and then to put in place controls or processes to mitigate those.
For example – we may have the tendency to put more weight onto the input of people who agree with us, we may favour decisions that maintain a status quo, we might put more emphasis on bad news than good, or good news rather than bad.
As Darren Hitchcock would say “Stop smelling your own perfume” – i.e. we know you know the technology is good but listen to what others are saying in sessions and in market and get your head out of the honey pot!
Alway review what you heard in market against everything else; a constant self-validation program that keeps development and education at the top of the tree. – Darren Hitchcock.
In our work with early stage investments we are walking a tightrope between success and failure. And the earlier the company is, i.e. pre-revenue, pre-product market fit, pre-problem validation then the harder that is and the more critical. We all know about the failure rate from seed investment to series A. More than 90% will fail and the start-up death clock is always ticking.
We endeavor to set a drum beat or cadence with these companies that is focused on a process of constant learning and evolution. We focus on four critical areas:-
- What problem do you solve? This sounds trite, but it is for us the essence of every major break through our founders make. Are they solving an industry defining problem or is it just a nice to have, ho-hum, a bit ‘meh’.
- What product are you building to solve that problem? Pretty obvious.
- Which customers do you intend to serve? Again sounds trite, but alongside problem definition this is critical – we want an uncomfortably narrow market focus.
- What is the model? How will you reach them / engage them / charge them?
This is how the narrative goes. Every 6 to 8 weeks we meet. And this is what we ask:-
- What have you learned about the problem you solve, the product you are developing, the customers you are targeting and the model you will use to each them?
- How has what you’ve learned changed the way you think about your problem, product, customers or model?
- What are you going to (differently) do over the next 6-8 weeks?
That’s it. So far so good, but still so what.
Here’s the thing. I’m an optimist, I want to believe, I want to agree. And I really like and admire the founders we have invested in. The breakthrough came through a few months ago in conversations with Notion investment partner Chris Tottman.
We need every session with our companies to be fully optimal. If these companies have 18 months of runway and we only meet every 8 weeks then we have at best nine opportunities to find the answers to these questions and demonstrate strong evidence of a new investment hypothesis before the death clock runs down to zero. – Chris Tottman.
The value of “open strategy”
Chris and I reflected on a number of previous sessions we had run together which had created some incredible insights such as early workshops with Triptease which had resulted in incredible insights and following value creation. What made those sessions different is that we had invited identified external experts to participate – Chatham House rules apply – and had landed on something very interesting.
The value of the proxy. What in effect we had done in those most successful session was to invite people to attend who could act as proxies:-
- Proxies for the ideal customer
- Proxies for a partner
- Proxies for a competitor
The first is obvious and invaluable. The second unlocks doors and different ways in. The third takes getting used to as few of us our prepared to be open in front of someone who we deem to be in direct or even oblique competition.
As an early-stage business, we’re constantly reassessing our market and our positioning. We often talk about learnings at board meetings and in addition to the regular meetings, Notion nudged us towards having a couple of deep-dives with industry experts who had an oblique link to our business. A day spent kicking the tyres on our mental-model of the market helped us re-shape the strategy identify gaps in our thinking. – Charlie Osmond, Co-Founder at Triptease.
Increasingly this is now our modus operandi. Ensuring every interaction with our companies is fully optimised by introducing trusted 3rd parties into the dialogue. Having open and honest discussions on progress. Empowering those 3rd parties to be arseholes if necessary, to ask “so what” or “why” repeatedly.
I truly enjoyed participating in this process and being a ‘devil’s advocate’ for Notion Capital. We’re all enamoured by the start-ups we represent and/or invest in. It’s easy to drink the Kool Aid though and become fascinated with shiny objects, but miss the core elements that can determine success or failure. The team at Notion Capital recognize that tough questions have to be asked and outside perspectives are often needed to help validate the original hypothesis or make a change. Scott Allison, CEO of Allison+Partners.
As we grow this process does introduce challenges of scale. Growing pains mostly associated with one finding the right people and those people actually being available and interested in participating.
Returning to the original theme this isn’t about us abdicating responsibility. Decisions are made by the founders, with our support, rather it is taking steps to improve the quality of those decisions through the distillation of a number of different, often contrary opinions.
Posted by Stephen Millard, Chief Platform Officer, Notion Capital.