• nate

Raps, PAPs, and Mouse Traps

In honor of International Women's Day, I thought I'd share some ideas on why Diversity and Inclusion should matter. It may be a bit winding, but stick with me. By the end of this, I'm hoping to make an argument that (at worst) sounds like a drunken ramble. This piece is going to have a few parts, that aim to make the case that: 1. SaaS strategy has shifted. Model matters more than product. 2. Innovation in model is hard. 3. D&I is the best way to innovate in model. 4. Closing thoughts and questions.

Part 1: SaaS is all about model, not product

The short version has two main points.

It's become easier and easier to build product. Barriers to entry in SaaS have decreased. A global talent base of developers, and a roster of seasoned SaaS vets can spin up a minimum viable product, and find the first users, in about a quarter. This means first-mover advantage is not really defensible, as you'll have competitors chasing you within the first year at the latest. In "unicorn" cases, first-mover may actually be a disadvantage. If you're creating a category, you need to do the heavy lifting of driving awareness and validation. To use an analogy, imagine you wanted to open a fusion pizza shop that sold Sushi-Bacon-Pizza. Pizza, topped with Sushi and Bacon.

Maybe it'll be the next big thing, and be a billion-dollar franchise idea. Before that happens, you'll be spending thousands of dollars telling the world how good your Sushi-Bacon-Pizza is. Best case scenario, you're successful, but pretty soon imitators will enter the market, and your tuna-roll, pork-belly, and asiago specialty will be sold at venues not flying your flag. If you want to be successful, you'd need a model that makes your company more than a kitchen serving questionable fusion cuisine. Maybe you sign a deal with Netflix and create a brand around your concept. Maybe that leads to monetization through merchandising and retail products.

Maybe you partner with regional developers to reduce start-up costs, and make it easier for franchisees to setup shop. Doesn't matter. Point is, if you're nothing more than weird pizza, you're not defensible.

For SaaS companies, its rare to find a new model. Marketplaces, Freemium, Ecosystem, Modular Products, M&A. It's all been done, and you're really unlikely to build a monopoly. And, while you're chasing early marketshare, you're going to build unit economics that suck. Buy for $1, sell for $2, not the other way around.

Part 2: Innovation in model is hard

So, you have an idea, and get to work. You need a model, and product to ship quickly. You hire a Stanford MBA, ex-Googler for VP Engineering, and a braintrust of ops leaders to build an Agile, LEAN startup. Then, your mousetrap breaks. You can't capture leads at a high enough rate to support your unicorn growth. Lets take it to the conference room. We're doing a free-trial model now, but users are not converting before their trial period ends. UX pulls some data, and recommends optimizing on-boarding flow, and adding an extension to provide "nudges". GTM recommends moving to a freemium model - broader net, and we can use adoption data to identify low-hanging fruit. Basically, the people who use the damn thing will become our proper sales leads. Awesome. Lets get to work.

You do it, it kinda works, but the bucket is leaky. Customers arn't paying for long enough (or paying enough) for your model to work. You hire a rockstar VP of Product and VP of Customer Success to resolve. You identify gaps in value, and build a professional services team to supplement product. It works.

Yay! But, it was expensive. You're not sure when you'll be profitable. Hopefully the VCs understand, and we can get them to follow-on with bridge funding or another round. If they don't, its going to be tough to get anyone else to trust your vision.

Oof. All good, you think, we're moving forward. You decide to check in on a new-to-market competitor. Oh. Shit. They just raised a $15m Series A. You check their website. They have a robust freemium model, 90% of your features, and recently hired an ex-Oracle VP to their COO role. That's no bueno. Papa John's just stole your Sushi-Bacon-Pizza idea.

Part 3: D&I is the best way to innovate model

The high-level challenge is SaaS isn't necessarily execution - execution can be bought, in a sense. The challenge is building defensible models and moats. Brand is important, but that can only go so far. And, if you have a board room full of people only talking about mouse-traps, leaking buckets, and continuous deployment, you're going to have a tough time seeing what you can't see. First, speaking in these terms DOES have tremendous value. If someone tells me their product isn't sticky, or leads are falling off before conversion, I can glean a lot of information is a short statement. I generally can tell (1) their stage, (2) some information on model, and (3) what metrics matter to them right now. That allows us to quickly ideate, test, and all that good stuff - the whole LEAN startup thing. On the flip side, its probably rare that we can build something truly new, truly defensible. To explain this a bit deeper, I'm going to go tangental into ideas about innovation, looking at the blockchain space and thinking of social networks. Blockchains work similar to any board game. You have rules-of-the-game that determine how the software runs. Just like passing go gets you $200, a blockchain might set rules that say when you can transfer a token. If we think of startup methodology as a blockchain, we're all generally on the same protocol, with the same levers. This, along with cheap capital and ideas discussed in Part 2, means most startups are going to run into competition sooner, rather than later, and someone is probably going to make Pizza cheaper and better than you. Lets zoom out for a second, and think of social networks. People also have a sort of protocol, or "rules of the game". We might call this culture, social capital, reciprocity. This is pretty evident for anyone who has gone to high-school. As a young buck, I was friends with the "smart" AP kids. Our protocol was generally get good grades however you can, and whatever mischief we create shouldn't be an existential risk to our potential ivy league School or doctoral program. When I did venture out to other circles, the rules were different. I wasn't used to beer runs or buying a water-bottle full of SoCo or Grey Goose for $10 at a party. It was fun, but different. And, there was overlap. We were all competitive, and crossing the figurative organizational lines for a game of Halo 2 or pick-up football wasn't unusual, before returning to our in-group. In some ways, these things could be thought of "bridging" protocols, and finding ways we were similar rather than different. And, as time went on, everyone realized high school was silly. The AP kids partied in college. The jocks focused on school and their MBAs. Sharing in each others experience allowed all of us to create our best selves when we were all ready. Slowly and begrudgingly, we turned into adults. I tend to think building a business isn't that different from being a dumb high-school kid (no offense high-school kids). A roomful of MBAs is going to view building community, internal culture, and external shareholder success differently than someone coming up on the wrong-side of the tracks, who may not have had the same opportunities as a typical Stanford grad. And, at its core, this type of social "protocol" is the real building block of models. It's not about one being right or wrong. It's about sharing knowing and openness, and trying to know what you don't know. And, this line of thought should create win-wins, or "blue oceans" for those looking to collaborate with the other. And yes, the deeper implication, is that diversity really does matter at the founder-exec level, even more than hiring a few D&I SDRs for some marketing piece. 4. Closing Thoughts, Challenges, and Questions I'll caveat this now, that I'm probably not Diverse by 90% of definitions. But, as a founder, looking to build a mouse-trap and fix leaky buckets, I'll share some tactical challenges I'm thinking through: Attribution is hard. Actually tying D&I to long-term performance and profitability at the investor level is tough. Many funds and angels that support minority and women founders are betting on logic similar to the above, and probably have some moral skin in the game. Broadening this gambit might take some time and data. Additionally D&I may be difficult in high-growth environments, where the tactical efficiency of speaking in terms of mouse-traps and follow-on funding is essential to rapid development. I'm more partial to moderate growth that assures success for early employees and customers, and think this better stewards investor capital. After all, retention and advocacy is the most defensible thing in the world. All that said, trying to build something with a 10-month-old means I'm biased to those that "get" the vision and can startup quickly. Last note from me, there is a massive skill gap to understanding how networks and communities are essential to model. Because we've been taught that competition is par-for-the-course, we autopilot into competition, or "red oceans". Maybe uni's should teach pro-social business, and the braintrusts should push some data. Maybe then we can start building together. Would love to connect and discuss more. Full disclosure, I know more about mouse traps.

But if you come strapped talkin about hova and gats i might flow like dr seus, pullin

out a cat in a hat with a baseball bat

followin like moose tracks, spitin ice cream raps, and hitin back like warren sap

before CTE was on the scene

and roger rabbit said he don't see, why the good ol boys,

are bein mean

cuz its hard to see trauma from 10,000 feet you cant feel a coma from the box seats

Slim Natey, Out.

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