- Bottoms Up Investing – Instead of creating a thesis based on what the future will be, focus on the present and finding companies that have achieved ‘Liquidity Quality’
- Genesis Usage – A user using a product as the starting point to any workflow similar to how Sketch is the starting point for any designer
- Product->Business Model Advantage – Dell’s customization offering that turned into an inventory efficiency advantage is an example where product offering advantage turned into business model advantage as well. More here.
Brett Bivens writes a great post around “The Merits of Bottoms Up Investing”. that led me to think a lot about the various mental models around investing, product strategy and even life in general. This triggered me to start collecting all of these mental models I come across in here so I can go back to reference it.
What I found interesting about Bottoms Up Investing is its contrarian approach to being thesis driven, and the slight nuance between predicting the future and seeing the present very clearly. So much of a VCs job is understanding the potential of a startup and seeing how big it in can get 5-10 years from the time they invest. Yet taking a bottoms up approach makes you think a lot more about what is currently happening today and why this startup can succeed today and whether or not that startup can get to Liquidity Quality today.
“I’ve come up with this phrase I use internally that I made up — so I one day, I’ll have to write a definition of it — called Liquidity Quality. And I tell entrepreneurs, I care way more about Liquidity Quality than I do how broad you are. We can use venture dollars and growth playbooks to go broad if the fire’s burning bright. So how do you get this liquidity quality high? Jeremy (Stoppelman from Yelp) doing things that don’t scale at those nightclubs in San Francisco, and people being super passionate in their reviews, frequency being high, the quality of the experience, even though is in a very small area? And so I very frequently run into entrepreneurs who think they need to expand to 10 cities really quickly to raise their A or B or whatever. And I’m like, no. If you have like incredible unit economics and growth metrics in a single city, where it’s obvious that your playbook is working and things are spinning and things are getting better, you basically have network effects. That’s way more interesting.”
The other part of this article by Brett that got me thinking was the Benchmark x Sketch post written by Sar around why Benchmark invested on Sketch really struck a chord — it immediately got me into a train of thoughts around the wedge that various startups start with and the centrality of a Saas product within an organization and the challenge Saas startups have today with gaining the attention of their users.
What’s most important in what he says is just a one word ie. genesis. If I were to bet on what got Benchmark interested in Sketch and what makes Sketch really differentiated per them, it’s that Sketch is where the design process starts. I am no designer but I have seen most of my designer friends start their work in Sketch and import their Sketch files into other tools.
My key takeaway? As important as it is to come up with our thesis of what the future could look like, understanding the present circumstances and what the driving forces of today are are just as important. And leading indicators that allow us to understand that a product is ready for today can be seen from how much centrality and density a product can gather even in a more controlled environment initially.