The five pillars of product-market fit with Jason Rosenthal

Transcript

[Music] what I wanted to talk about now is product Market fit so this this is a topic that I've spent essentially my whole career thinking deeply about working on uh trying to figure out how to do it better and my goal today is to really share with you everything that I've learned and that I wish I knew when I was at the point in my career where career or or entrepreneurial Journey that uh all of you guys are now and so we'll talk through uh bunch of different scenarios and and uh lead with the five pillars of web three product Market fit

one of the things that I've observed is that uh there turns out that there's a lot in common between playing poker and achieving product Market fit actually any any poker players uh on our team okay so you guys will know this better than me I'm I would definitely put myself uh way on the amateur side of things but you know when you show up to a poker game what do you do you look around the table you're assessing the other players uh trying to figure out their strategies their tells their approach to the game uh you're collecting data you're counting counting cards to figure out where where in the deck you are and when you're dealt a strong hand you have this huge increase in optionality in your game right you can you can take things in the direction

that you want you can bet big you can Bluff you can pass uh you can do all kinds of things with the goal of driving the optimal outcome for the strategy that you're running and achieving product Market fit is exactly the same right and that if you can navigate your way there in a startup you have all this optionality at your fingertips you can choose to grow your company organically you can raise outside Capital as a way to get bigger better faster uh at an increased rate maybe you want to run an m&a strategy where you look at companies and products adjacent to what you're building you acquire them and by doing that you expand your product footprint increase your account control uh and and

get to the next level but I think the the big thing that we're all playing for as entrepreneurs like the the reason why so many of us choose to go down this path that is like so hard and difficult and uh full of unknowns is that every single one of us have an opportunity no matter how small to build what I what I call a once in a generation technology franchise company so think about Amazon Facebook Google in the last generation or uh maybe open AI or SpaceX or stripe uh kind of in the current generation one thing that we are highly confident of at a16z is that uh either already or in the very near

future companies in web 3 are starting that are going to really be able to occupy that mantle in this uh in this new space right uh may maybe it's one of you maybe it's someone out there but uh the seeds are definitely being planted today in terms of growing crypto and blockchain and web 3 as this massive new software uh platform so the opportunity is there it's palpable it's wide open and it's it's super super exciting I think it's helpful to to uh start with a qualitative definition of of what is product Market fit and what does it look like and the person who said it first and I think best uh is Andy rackliffe he was a founding partner at Benchmark Capital which was arguably uh the best most successful Venture Capital firm in

the late web 1 early web two days uh eBay Uber uh and many others are are uh companies were where uh Benchmark was the first investor and he was also an investor in a company that I did with with Mark andri and Ben Horowitz that I'll talk about later called loudcloud uh and the way that he put it is first to Market seldom matters rather first to product Market fit is almost always the long-term winner Time After Time the winner is the first company to deliver the food the dogs want to eat once a company has achieved product Market fit it is extremely difficult to dislodge it even with a better or less expensive product um so I think that that's a nice qualitative definition if you want to

think about it quantitatively uh I think that uh looking at it from a power law perspective is a really good vantage point so I don't know if many of you have read uh this book The Power law it's written by Sebastian malaby who was a longtime reporter for The Economist and the Washington Post and it's it's probably the best history of venture capital uh that exists it's really really interesting in terms of tracing the origins of the of the industry back to the 1960s through through present day and and one big takeaway of the book is if you look at all venture funds over all time uh returns within a given fund and for firms are not driven by being great at making you know lots of 3x 5x

10x return bets but by the few you know 100x thousand X or in some cases tens of thousands of X return those are the Investments that really drive and shift uh the outcome of of an entire uh fund vintage and it turns out that you can actually apply this exact same thinking down to an individual startup as it relates to product Market fit in that you know the stronger lock that you get on product Market fit will drive exponential results in terms of the value that you can create uh within your company so that that's why it's like you know being able to figure this out do it well achieve it just really dwarfs anything else that you could possibly do

and and spend your time on and so over the course of the next 10 weeks you know we have a very rich and robust curriculum and our goal is that we we are going to equip you with the skills and a and a pretty powerful toolbox to do just about anything you need to do in terms of building your company and the way you can think of it as like you should leave here with a can of Rocket Fuel uh that you can pour onto the growth of your company and go exponential um but the the hard part like I said you know before when we were talking about the power triangle this is like easy to say really hard to do the problem with product Market fit is it is like it it's the most one siiz fits one exercise you can imagine super super

specific to your product your technology your company and so we can give you um lots of ideas Frameworks we can ask you hard questions for how to do it but it turns out that navigating that journey is going to be something that uh that you guys as co-founders and teams are going to do uh largely on your own and so like if we could wave our magic wand for what you take away from this whole experience what we want is all of you to emerge from CSX with a clear plan and a set of hypotheses and assumptions that you know how to test and Market uh is a way to increasingly find your way there in terms of my background you know I've spent now over 25 years working at what at the time were were Frontier

technology just uh Frontier technology companies it's just that I've been doing this for so long uh these all seem like dated and old now but you so Netscape at the dawn of the commercial internet in the mid 90s loudcloud at the beginning of cloud computing in the late 90s a company called ning which was one of the early uh social networking and social platforming companies in the uh mid-2000s and then most recently lro which was at the intersection of AI and computational photography in 2013 I'll talk more about that one later but you know the the the way to the way that I think back on my career is it's been one long never-ending quest to find product Market fit uh in different areas of of

tech and so again I'm going to hope hope that uh you all can learn from and benefit from the massive amount of scar tissue that have developed in this in the space and so we we'll talk about for the next little bit are one what are the five pillars of product Market fit in web 3 and how are those unique from maybe how some other sectors of Tech work why Finding product Market fit in web 3 is not the same as how one would go about doing it in web two um how how will you know like really at a visceral level when you're on the cusp of achieving product Market fit the process of managing your own psychology as you're wandering through this journey and then how do you put some of this Theory into practice diving right in

five pillars of web 3 product Market fit this gentleman was my first uh CEO business hero and Crush uh he was one of the first uh as I was coming up in my career he was one of the first uh sitting CEOs that I actually got to meet and talk to and and uh you know I as a as a kid I had always loved uh Tech and business so like meeting a real life CEO was like super exciting and and energizing his name is Bob metf he was a founder of a company called 3com uh and is is co-inventor of ethernet uh and uh you guys are all too young to remember this but like ethernet was a big big deal uh when it came to networking and making lots of computers be able to uh

talk to each other using the same protocol uh and and interoperate well but but maybe more appropo to our uh conversation day uh Bob uh coined something called uh metcal that became known as Metal's law and and he was really the first deep thinker and articulator of the power of network effects and he said quite famously the value and influence of a network increases at the rate of square of the number of users of the system like so Network effects like you know you guys live it think it breathe it every day uh it's become you know in the in the 30 years since uh since metaps law came about it's become just a core part of how ecosystems grow and uh and are build

um but when it comes to web 3 right we have the best network effect Primitives and capabilities uh in in the history and so uh pillar number one is Design self-reinforcing Network effects into your protocol or product from day one what do I mean by this right so uh actually how many of you are like know that you're doing a token or thinking about doing a token or like might do a token um just so like probably probably about uh two-thirds of the group so the the the amazing thing about tokens and and in a couple weeks our CTO Eddie lazarin is going to give uh one of my favorite talks on how to think about designing your protocol and and token

right but for the first time in the history of Technology we can take all the amazing things that software lets you do uh in terms of creating and and uh building Network effects and you now have a native tool in your network that you can use to drive and incent the behavior of your community your developers your users to uh move and use and take advantage of your network in the best way possible uh so you know pillar number one uh understand what your network effects look like understand uh how having a token can improve and accelerate that and really understand that at a at a first

principal level and Lead hard into that pillar number two is what I call uh maximizing your win rate with the best projects in the space and so this is this is like particularly important uh a lot of you are building uh networks and and infrastructure uh capabilities as as we heard in the intros today and you know the the overall community of of web 3 is small enough today that at any given time it is actually like quite easy to know who the best most creative Innovative companies are that are operating in the space something actually we talk about within a16z at our at our investment meeting every Monday we're always uh looking at this trying to understand it better figure

out how the how the landscape has changed like who are the new entrance who are people that maybe were killing it before but seem to have lost uh momentum and one great way to navigate product Market fit is if you can uh know who those companies are relevant to what you're building and work hard to win them as customers or users or developers get them to deploy on your on your infrastructure that is going to have a huge effect in terms of pulling the rest of the market uh along with it and again you guys are really uh fortunate in that all of your lead Partners uh understand the the current landscape quite well so if you're thinking you know if you're uh

you know magic block right and you're you're building in gaming and you want to um and you want to supplement your understanding with what we see at the firm like ask and we'll tell you and we can figure that out together and uh and you know Maggie who leads our uh go to market efforts almost certainly can get you an introduction to uh the best uh the best companies in the space that's one example that's I mean we can we can pretty much universally apply that uh across the the cohort so think about this ask us and we're here to help number three and and closely related is that and this is this is generally true in all technology markets and I and I'm betting that uh that for those of you who are already in Market you've seen something like this uh it turns out that

in in any segment in any category in any Market there's a set of uh users customers developers who are just like better and smarter than almost anyone operating in the space and if you if you're able to one discern and understand who those people are and two listen to what their needs are and then build for them uh similar to winning the best customers uh if you build your product road map uh aligned with the smartest customers what's going to happen is that by satisfying them you're going to pull the whole rest of the market uh forward with them because again the the following customers want to do what the smartest people in the space uh

are do doing and so if you've already solved their problems uh you can you can get the rest of the market to come with you number four so in in the same way that we have this incredible set of Primitives with tokens and and um and being able to supercharge Network effects it also you know it's not without challenges right and we we've all we've all seen this which is that when you launch any new network any new protocol uh there are a group of good actors your your power users uh and there are a set of airdrop farmers who show up uh they create like fake activity and congestion on the network just as a way of hoping you're going to give them like a little dollop of your token and they can like immediately sell

it and and make a quick buck and so when you're uh when you're designing reward systems when you're when you're doing airdrops like you really want to take the time to figure out who's who and you want to reward the good actors and uh isolate the Bad actors and and um I think that that we're in the midst of a transition here where the market is getting uh more sophisticated uh about this but like you know one one thing that everybody used to look at uh on any new network was tvl like it turns out uh to total value locked right that's like a really bad indicator of the health of network and what's actually going on because uh people have gotten so good at gaming the system and uh you know

producing fake activity and the like so so you want to get much much more sophisticated at understanding who's using you and how and uh and really investing in the good ones and and kicking out the bad ones last but not least again uh in a network in a protocol you have uh often a token uh treasury this is an incredibly powerful and valuable asset and you want to make sure that you're deploying it wisely you're uh you're giving a grant if you're incenting someone to build on top of you one you want to be able to track the progress of of any project right so you want to make sure that uh people who you're working with who you're partnering with are actually doing what

it is it that they said they were going to do on the time frame that they said they were going to do it and if you're giving them any kind of Grants right what you don't want to do is pay this out all up front and then hope that they deliver you want to make things Milestone based so that uh as your partner makes progress uh they're they're getting rewarded appropriately and then perhaps most importantly right you want to when when you're assessing uh any any kind of partnership you want to make sure that the ultimate Roi that that partnership is going to deliver back to you exceeds whatever the cost of it is and I think that in the last Bull Run we saw uh a number of projects and you guys like all know who these are who

just would um would overpay to get uh to get big brand name logos you know on their website on their slides but it turned out that those logos never ended up producing anything of value that people used or cared about so it was all just like a big waste of time and money so it's important to be Discerning about uh about who you're partnering with and make sure that what they do is actually going to bring value back to you and your network and your protocol another thing to think about right is that one reason that we wanted all of you and the cohort is that through the application and interview process uh we all walked away very convinced that you guys deeply understand your respective markets and

uh and the products that you're building and you're you're very native to the space and what we what what you don't want to do and what we've seen in the past right is that the the web two and web 3 markets could not be more different you know that the headline number uh probably top and bottom of the slide like you know Web Two billions of users web 3 tens of thousands of users um at the bottom of the slide you know any single individual user in web 2 has a microscopic if not negative uh what's called arpu a average revenue per user versus like in web 3 uh every person who's really engaging in the right way is unbelievably valuable to uh the network and the product and what they're

building and so like it stands to reason that if you took a web two Centric approach to uh to finding product Market fit and uh customer acquisition like it's probably not going to work because the uh the markets are so different and uh what you don't want to do is like go down this road uh to Nowhere where you use all these Web Two tactics you spend uh a lot of acquisition dollars and you sort of end up with no valuable customers or users or or behaviors at the end of the road so uh we'll we'll talk a lot about that and and make sure that um that you all are uh steering down the good path so one question that I get asked all the time for people who uh are you know maybe this is their

first company as a founder and and prior work experience has been in larger more established companies where at least at some level things were working you're like how are you going to know how are you going to feel it uh how how like what are the signals that I'm on to product Market fit and and what I would tell you is I promise you like you will know you will feel it and so what I thought I'd do is just share uh one example of a past company that I worked on uh and and kind of the moment that we knew that we were there so uh so I mentioned uh loudcloud uh Pioneer in cloud computing um you know we were like a rocket ship upward uh ran smack into uh into the.com crash uh 911 uh total

Financial meltdown if if any of you have read Ben horowitz's book the hard thing about hard things he Chronicles this journey really well so loudcloud pivoted to an Enterprise software company called opsware and what we did was took uh our software and turned it in created a new category that at the time we called Data Center automation now this is going to be hard for you guys to understand but there was a time like not that long ago where uh if you were a company of any size and you had you know and software was an important part of your business like you had to buy your own servers you had to buy your own storage like and I don't mean like rented on AWS you like you know bought these like uh you know the server racks you paid for power you

rented space like you ran all this infrastructure uh on your own and for a very very long time uh the way that you would manage all that was completely manual you you'd have uh hundreds if not thousands of uh what we're called system administrators Network Engineers storage Engineers that were running all this it infrastructure and so the uh the the vision and capability of loudcloud was we had the first automation software that uh that let software do a lot of these manual tasks now trying to convince people uh in the wake of the Doom crash that like you actually needed this was really freaking hard you know we would go and talk to Global 2000 cios and they would tell us well like you

know our number one priority is server consolidation and we're like what like what does that mean they're like well you know we have like way too much it infrastructure like we don't think technology is important like there's never going to be a lot of uh users so really what we're trying to do is like take all the capacity we have uh and like reduce it and make it less and we're like you know that is insane like you know no like really the internet is a big thing people are going to want to use it and and like for uh for about two years from uh from 2001 to 2003 uh nobody believed us nobody cared uh we got like a few customers but it was really freaking hard because like we were we we had gone public as loudcloud uh and and stayed public as opore so we

had to do uh quarterly reporting and you know so you like go to the street anounce your numbers well we have like you know a million dollars in Revenue uh like we have a million to like you know you you get punished uh in your earnings reports if you're not growing like the stock tanks you're going to get delisted uh from the nasac like all that stuff happened to us and then like one day something changed which was uh how many people have heard of uh company called Enron um right so so prefx like Enron was a big uh was a big uh financial disaster right so so this this you know big celebrated public company Enron uh collapses implodes everybody loses all their money and so Congress in the US

passes a law called sarban Oxley uh which is supposed to uh protect consumers from uh from ever investing in a company like Enron again and one tiny provision of the law was that uh was that every public company needed to do regular audits of their it infrastructure and lo and behold we had built everything that you needed to be able to like do audit and compliance on on all of your it uh infrastructure and so suddenly um after no one wanting anything to do with us uh and not understanding what we were doing like our phone uh starts ringing off the hook our our sales pipeline you know not not the not the deals that we closed but the

the prospects that we had uh went from uh about about a million dollar a quarter to $15 million a quarter uh in about 3 weeks so like we were Off to the Races it was amazing it was happening we thought we were great there was one problem which is the uh which is the name on the right uh side of the slide was there was this uh tiny competitor that we hadn't been paying any attention to uh and and uh weren't really tracking called blade logic they'd figured this out uh a little bit ahead of uh ahead of us and so I remember this very well it was like the third quarter of 2003 so like roughly uh September of 2003 we had for the first time in our history four

$1 million deals uh in our pipeline of uh of uh Fortune 500 companies and and again this was this was 2003 so a million dollar deal was huge like these did not come along very often in uh in the technology industry and uh and you know we're like this going to be great we're going to close them we're going to be Off to the Races uh and we ended up going uh 0 for four on all those deals blade logic won every freaking single one and it was like uh I mean I like the last day of the quarter was H it felt like someone had died in our office it was really painful but um you know we we learned from the

experience we licked our wounds uh and we then spent uh the next two quarters figuring out what our gaps were versus Blade logic uh how to how to beat them in the in the in the sales process uh and and we were able to over the next couple years take our win rate against them uh from literally zero to percent to like over 98% like it got to the point where if we'd see them in another deal uh we would get excited because we knew uh how to win and and all and and all throughout this time right our our uh sales pipeline kept growing our customer list uh kept growing that's what product Market fit feels like and uh what I'm so excited for is like all of you are going to get to know what

that feels like uh I think over the course of the next months and quarters and we're we're excited to work with you on it so it turns out that uh you know that that was one example I could tell you lots more I will tell you one more in just a minute it turns out that uh that when you're trying to get from where you are today uh to the other side it can be a little bit stressful right because the the the future and success of your company of your Enterprise of your employees uh hangs in the balance of uh of you being able to do this well and so it can really mess with your brain the way that I would describe what it feels like this is a picture of me uh in the forest blindfolded on my knees

trying to find a rare mushroom uh just like sort of wandering around on the ground trying to put my hands on it and it turns out that uh yeah if you're looking at the screen it's blank like you can't see anything uh like you're you're you're literally uh wandering around uh trying to figure like like that's what finding product Market fit often feels like because uh you know until you get there you haven't gotten there and so you're just you're you're trying all kinds of things the good news is that once you get there it feels like you you've entered the land of rainbows kittens unicorns and but butterflies because it it's at that point like everything in your company uh just starts to work right you know all the

executives that you have thought about hiring like there's now A Reason uh to do it and you can like put them to work on doing uh good things you can like you know all your numbers start going up your dashboards go from uh from you know permanent state of permanent red uh to Green it feels amazing and and I would say like you know to me the uh the high is a Founder as an entrepreneur that you get from cracking this code unlocking this is just I mean it is uh the best thing and so I just wanted to conclude with with another story about the the my last company called lro um to try and help land the point of like what this what this can feel like and and my wish

for all of you is that uh is that the journey that you're going to navigate isn't as hard as uh as this one was so so just set the stage so lro computational photography company the the big innovation and Technical breakthrough that we had is that if you go back to the invention of Photography uh which happened in 1850 uh all the way up to today um if if you think of an image sensor in any camera you it doesn't matter if it's like an iPhone or uh the highest End Cinema Camera they're only able to capture uh two properties of light they can capture brightness and color and uh what we'd invented at lro was the ability to add a third dimension

of data to every image didn't matter if it was a still picture or video we we were able to tell spatially where in physical space uh in in 3D space every single picture in a given image was which it turns out has like just breakthrough capabilities for uh for photography for visual effects in movies for augmented in virtual reality for self-driving cars because again if you can know essentially have depth data about your image you can you can now do all kinds of amazing things at its heart ltra was really what you would consider a true mors law technology meaning that the more compute data and uh and storage that you threw at the problem the

exponentially better uh results you could get from it the challenge was uh that uh I joined the company uh to take over from the founder who had um started the company out of Academia and wanted to go back to Academia so I came in uh when the company had uh shipped its first product which is what you see uh on on the screen there and the problem was the company had started in probably the worst possible place in the market you could which was to build a uh a consumer handheld product right so you know not very mors law friendly very price sensitive uh and the first product shipped in uh in 2011 right as smartphone photography was just uh going exponential and the entire

rest of the camera industry was like absolutely dying and uh and so uh my job I came in to figure out you was there a place that we could take this Tech uh to still take advantage of what it what it had to offer and so you know we looked at everything from uh from microscopy to self-driving cars which were like so really nent at the time and really like scoured every aspect of Imaging and what we found over time was that uh we had this breakthrough opportunity in the highest stand of the market so you know not be further away from where we started which was building a product that uh that met the needs of uh professional C

cinematographers and uh visual effects artists and what we ended up building was this you can see there's like a little bit of a difference in scale between the first product and the and the second product um and so you know we we were meeting with and talking to uh all of the all you know if you if you watch the most recent uh Academy Awards like everybody that was there Christopher Nolan JJ Abrams Steven Spielberg uh and the way that we knew that this was probably a good place for us to focus is that uh is that we would uh go into these conversations uh and start to tell them about how we could change their workflow some of the capabilities that we thought we could unlock for them and you know before we

even got three sentences into it uh they would start completing our sentences for us they they they knew when we would describe a problem they're like oh yeah yeah no I I know that like we've been there before if we had a system that could uh you know give us depth data if could if it could do this we would completely change our workflow so we knew we were on to something um and and focused the entire uh company on uh on building this new product I wish that was the end of the story but the the the challenge was that uh we had at this point no Capital to uh be able to do this so when I joined the company uh I'd been told by the board that we had about you know a 12mon Runway and that uh that they would be

supportive and that uh and that uh you know we'd need to raise Capital along the way but they were there for us so I I quit my cushy job in uh in private Equity you know jump in with both feet uh and and as I get in there and start like really digging into the into the financials it turns out we don't have uh we don't have 12 months of capital we have like six weeks uh and the problem was that all the cash that we had had been contractually committed to build that little camera uh up at the at the top so we had thousands of those things that nobody wanted and we couldn't sell but we had like no money to uh go and build uh the new thing so I

embark on this um on this emergency fund raising process and and I remember a board member member uh telling me who was like a a well-respected uh venture capitalist at the time he's like look the way this works is like you know you talk to you talk to between 8 and 12 investors if you don't get a yes like that just means the Market's not interested it's not happening uh for you so he's like you know do your best and uh and we'll see what happens I guess I didn't share my fun fact before my fun fact is that uh no matter what I do in life uh once I commit I am committed I'm not going to give up uh on it it does doesn't matter if it's like uh you know

a project with my with my kids or something uh athletic or running a company but I was like freaking committed and I was not going to let this thing die so you know he gave the 8 to 12 investor guidance uh 83 NOS later I got to uh Andre and Horwitz uh and uh and got a yes and so they uh you know a16z they they they had some money in the company before but you know they were really the ones that let us uh that that invested and let us take lro forward um so we we didn't we didn't uh get to build a once in generation technology franchise company the challenge was that even even though we got a pretty good uh

first prototype uh we needed about2 to $300 million more uh to do all the custom Hardware uh development that would have been needed to like really make this the industry standard but uh we definitely got the attention and interest of uh of Apple Google uh meta and other companies that at the time were super interested in uh in being on the bleeding edge of um of of Imaging and so we we sold the company to Google uh like almost all the all the employees came over many of them are still there today and uh if you look at Google's camera products like particularly the pixel phone a lot of the a lot of the Core Concepts and science that we built

over here are are the features that people like if you've ever used uh nights side or some of the Cinematic video stuff that was all invented by the lro team and we had like a good uh a good journey and ride there um during the course of this uh there were many uh nights where I would wake up at 3:00 a.m. and thought that somebody was stabbing me in the chest and it was horrible uh but the uh but but what I learned and and so yeah that may happen to you I hope it doesn't but just know that if it does you're not alone and we're we're always here to uh talk to you you and and uh and counsel you through it but the the two things that I took away from that that uh that one I

want that I wanted to share with you uh so number one is that often in this journey like you the the ultimate destination the outcome is outside of your control there are going to be factors at play you know maybe you're building something that's just too early uh for the market maybe you haven't figured out the right uh product yet uh so what you want to focus on is not the destination but just asking yourself like am I doing everything that I can to make the best decisions possible and like get to where we're going uh and then the second thing that uh that I really took away uh from the experience and I and I promise all of you will as well as part of this journey is like what you're going to

find is uh well it may be hard once you uh come out of this wherever wherever you may end up like almost everything in life that you might have thought was hard before is going to seem so easy so you're going to you're going to develop a skill set that I would say less than 0.1% of the PO the global population has and so I think you know that in itself is something that you should feel good about and take pride of and we're honored to be on this journey along with you guys and so uh how do you how do you take the set of things that uh that I just talked about and and actually put it into practice well it turns out that it's actually pretty easy so one is what are your current core

beliefs about what it is that you need to do to find product Market fit if you haven't thought about that you you definitely want to take some quality time to think that through second is you want to turn those beliefs into a set of actions that you can take so what are all the levers you can pull and experiments that you can run that will tell you if your hypothesis is on track or not and then it turns out that your co-founders and actually other people in the cohort is why we do uh group check-ins uh are almost certainly going to expand your thinking uh on the topic you're going to you're going to uncover new directions and ideas that maybe you hadn't thought of before by talking to all the other smart people uh in the room uh and last but not least like look we I'm here for

you we're here for you if this is uh something you want to work on uh or you're worried about come talk to us because we will uh we will Dive Right in with you uh thank you all for listening let me open it up for questions do you still have one of those little handheld cameras Oh yeah I I've got yeah more of them than you can shake a stick out was there ever a point in your journey where you were just ready to give up you're like this is not going to happen it's out of my hands I've put in 100% And just I'm gonna let this die oh like every day for uh for a number of years now there there was a point where uh it was so miserable where I I like as as a as a I was uh married with two

young kids now I have two bigger kids still married uh but I mean there there were times where I remember saying to my wife if I if someone offered me the opportunity to pay them a million dollars which we didn't have and that would let me quit I would do it in a heartbeat um but uh that opportunity didn't present itself so we we kept we kept going but I mean I mean part of it right and I think you guys will all experience this like when you're I mean as a as a founder and a CEO uh you know not only are you committed to what you're doing uh but you also have a responsibility to everybody else that uh that you've convinced to come along with you on the journey and at least in in in my

experience like you you want to do right uh by those people so like until you've exhausted uh every every Avenue tried everything like you just don't want to give up um suppose you're following pmf with um with one of your products um but then you extrapolate and think that the market even if you're the most successful the market is isn't that big um and you support another opportunity for um like a different product what do you do do you keep building those two products parallel or do you just like go all in on the bigger opportunity yeah so that that is an outstanding question actually uh Maggie and I gave a talk on that at our last uh CSX cohort and and I I actually think that the biggest f failure is the wrong word but the

biggest disappointment is uh is you know you're you're going to put so much effort and energy into what you're building that you want to make sure that what you're building for uh like the the the theoretical destination or or End Market however you want to think about it is large enough that it makes sense to do that so I would say that if you uh you know if you're if you're on to something but you're pretty convinced that it's just not the the the end result is not going to exciting and you've identified something that's you know maybe a little less proven but you think represents a much larger opportunity uh by all means like go after the bigger opportunity so throughout a journey you might have run

some experiments to validate the product Market fit you might have strong beliefs about um whether you have it or not and at some point I guess until you close that1 million dollar deal um you might start start wondering is it do I really have product Market fit should I pivot like is it I guess the question of grit versus quit um and and I guess the answer is depends but maybe you have some some ways of naviga so I I mean what you what you want to be looking for are uh signals along the way right so is there so okay so there there there's not a million dollar deal uh is that because my product's not good enough the

customers don't exist yet uh I'm not articulating the need well enough you you you really want to I mean this I think is uh maybe the most important thing to deeply understand is that often times if you do a a surface analysis of actually here here's like a perfect example there there's a uh founder in our portfolio I work uh closely with and um they're actually going to be here in a couple weeks and they'll maybe tell the story but they'll they'll they they said um you look uh we we shipped all these new features that we said we were going to a ship our our core metric core Northstar metric is uh number of active active developers uh like those didn't

go up does that mean that we built the wrong wrong set of things and the easy answer is no but that that's actually the wrong the wrong answer what you want to ask is like well um you know do like first of all if if you go back to that win rate Point like maybe it's not about more developers maybe it's about understanding who the best developers are for your uh product and did like the features like and appreciate the features that you ship maybe it's about maybe the key people who are like the most likely suspects to do what you're doing don't even know that you ship those features or maybe you haven't explained them well enough so that they deeply understand like what the benefits of using them are so that's why like you you you really want to play the role I

think of a interrogator or uh detective of yourself of your team of your customer base so you can actually get to the real truth um and actually a funny funny analog in the same way I talked about how uh you know the power law applies both to venture capital and to product Market fit um you know Jay and Liz can tell you this but I mean the way that we think about making investment decisions is a very similar process like we're and Mark andreon has talked about this extensively on on a number of podcasts like you're really trying to get to the ground truth on something and so that I'd say that's the best approach to figuring out where where you are in the process how does the journey to

product Market fit look different when you're working in an existing and well- defined Market versus creating a new market for most technology companies um there I mean the the best ones are almost always creating a new market right because if the if the market was clear and well defined uh there's a ton of incumbents who are who are pretty entrenched and are probably uh going to be able to effectively block you from selling into it um and so I I mean like one of one of the one of the best uh Venture pitches of all time was uh when stripe first went to raise money like one of the things they set up front is that uh most of the companies for our product don't yet exist and that's

because you know they were building a payments product for uh online native uh online native merchants and like not a huge number of them had uh had come into existence in roughly 2009 when they were raising um and so I think it's uh I guess to to directly answer your question so if you're selling into a well-defined existing Market you need to figure out really a strong disruption strategy where you know what you're building is so different so new so much better that it'll make people consider an alternative to what they're already using uh when you're building for a new market uh it's all wh space but you're but it's a challenging process of of finding I it really comes back to the

definition of product Market fit you need to find how in this new market you can build a set of capabilities that are going to intersect with a set of needs that people may not even know they have I have a very concrete uh question that goes back to your experience and also mine I I saw that you were VP for subscription services at Google yeah back when I was there one of the things I was really excited when I was working there one of the products was stadia I'm wondering if you've been involved in that and if you can share a bit what has maybe not worked so well there or what the learnings were oh man yeah so I I did uh I uh took over stadia after it was no longer working uh and uh and and we needed to figure out what to do with

that so uh for those who so stadia was Google's uh uh basically uh streaming video game Ser AAA video game service so instead of having to uh purchase and download uh titles you know through a browser I guess uh now I mean now both Sony and Microsoft have uh competitive products but at the time you know the idea that you didn't have to do a big download install for a AAA game and could play like instantaneously right in your browser was like pretty amazing um yeah that's we should talk about that over lunch just that that was a that was a failure uh that rests like completely Google's feet like that didn't have to happen and and they just uh approached

the market in completely the wrong way like the the tech was solid the go to market was completely wrong the value proposition was wrong yeah yeah so it worked right which was good I had a question when you were moving from selling cameras to to basically main to to to mainstream retail to building uh a product that was that or at least looks extremely complex and selling to Google meta that kind of companies how did you at what time in the in the process did you say okay I think we have product Market fit because those companies are saying that we want some kind of use some kind of Technology like that and we don't necessarily want to develop and build that inhouse but at

what time did at like I guess it goes simultaneously when did you um say okay like at this point we're actually going to put in the capital to build this device such that we can serve our customers and how did you manage that process in terms of of timelines yeah sorry that's a that's a part of the story that I left out which was that is not only was like there the pivot and the capital rise but uh when we decided to go to this new place uh we had to lay off about 70% of the company uh because the the people that we had who were great uh engineers and product managers that knew how to build consumer products uh just didn't know how to build a large scale Enterprise product like that so that that was yet another another part

of the trauma yeah um what so I think it I mean I mean it um it uh actually relates I I think Paul's question set that up well we we we made the decision when we could see that uh we had interest in a new market and believed that that was just fundamentally bigger a bigger opportunity than the market that we were in and had you confirmed those deals with those companies before you actually come oh no no and we had nothing right I mean it took us it took us uh about 14 months to build the new product so all we had was customer enthusiasm and confidence on our side that we um we knew what it would take to build a product that would work in that

market okay thank you yeah so I mean a big this is like one of the challenging Parts is you you are often taking a leap of faith into uh into the unknown and and so you know that's part of what makes the psychological part of it so challenging uh yeah somewhat related question so with opsware and lro it sounds like it took a few years to get to a clear pmf going back to the earlier talk how did you keep filling up the gas tank to make it to that point in time like what was the narrative was there but what were some of the proof points you were using to raise the capital required to get to that clear demonstrable pmf um and and kind of is

it a specific type of investor that you need to find um yeah just some commentary on that yeah so I I mean there's there's a chapter about this and the hard thing about hard things it's well well told there but the the summary is that um that part of the pivot was driven by the fact that we couldn't raise Capital so we we we started the company on September 9th 1999 which was like uh you know Peak fundraising for dotom companies uh found ourselves public uh less than two years later with a $100 million uh run rate and then the entire bottom uh fell out of the market you know first driven by the Doom crash then then 911 and so part of the pivot to an Enterprise software company was it

was just it there was no possibility of getting new capital into the company and so we needed to take the remaining funds that we had and move to something that was more Capital efficient now like you can argue right that I mean the the things that we were building with loudcloud would have been uh would have been indistinguishable from what AWS became so there's like a there's a theoretical argument that had we somehow been able to keep the company capitalized for for another you know fiveish years that we would have been better off staying as a cloud company but that just that was not an option on the table of the time so I think you know a lesson is that uh sometime the sometimes the circumstances and and Market will dictate moves that you have

to make even if uh you don't want to or they're suboptimal I got the last question so uh told a story that uh opsware didn't have product Market fit and the situation changed because of an event with Enron uh but that was something outside of your control that just sort of helped you achieve product Market Feit you didn't the customer found you not you finding the customer and I just wonder whether that's uh do you see that as an okay strategy waiting for situations to change or I just like some commentary on that yeah so I would say I mean it's a little less binary than that the way I describe it is uh the market conditions changed such that something that we could do became

important and and we had to we were I think uh through luck and experience were able to figure out that uh that there was a there there and so we then like really navigated the company towards that and I think that um you know the the more the more General description of what you're describing which I think is the hardest part of uh of doing a technology company is that uh is that timing is completely un unpredictable like and and it's not in your control so there are definitely going to be times uh that um you know you're you're building the right thing but the market is just not ready for it yet and then you know your your job as a Founder CEO is to figure out uh okay like of the

options available for me and like given what the market is ready for uh what can I how can I steer the product to take advantage of that and then you know hope that over time the uh the world realizes the full uh Brilliance and beauty of what it is that I actually want to build [Music]