The investor product, Silicon Valley's most harmful myth, PLG principles, and more!
Sajith Pai's somewhat irregular newsletter #20
Welcome to the latest, and this year’s first edition of my rather irregular newsletter! Hopefully it will get less irregular this year, as I plan to hit a monthly cadence (let us see!) Hello and welcome to the 178 new subscribers who have signed up since my last newsletter in December, and who receive their maiden Sajith Pai newsletter! That is terrific!
Quick housekeeping announcements. The newsletter has two permanent sections. Writings - where I usually write and / or refer to one or more original pieces, typically about venture or the startup ecosystem, and, Readings - about what I read and learnt about. My reading diet is tilted heavily in favour of podcast transcripts (and of course books) and against articles / newsletters. This will naturally reflect in the reading list.
This is a long newsletter - think of it as a monthly magazine from me. I don’t know if you can read this entire newsletter (and peruse the links) in one sitting, and even if you do a second run (or more which i very much doubt), you will have to pick and choose what to focus on. A good way to read this newsletter is to certainly read my original writing below, and then glance through the rest and pick 1-2-3 items that pique your interest. Anything more is a bonus.
Writings
I wrote a piece on a concept that I have been mulling for a while, that there is a parallel set of products, similar to the core product (or user product) that the founder needs to keep in mind. One is the investor product, and then depending on how important content or a content-led motion is for generating top of funnel leads (such as for PLG firms, those with an inbound strategy), you need to think of your content assets as akin to a product too. Then there is your internal comms and culture - you could think of them as products too. The complete piece is shared below.
In addition to this, I also share links to two of my PMF Convos (Pulkit Agrawal, the cofounder of Chameleon, and Asad Khan, the cofounder of LambdaTest) which I released this year. These are 1:1 zoom or in person conversations I have with founders, operators, VCs as part of my research on PMF (product market fit). I transcribe these, and if the guest is willing, I release the edited transcript. Let us go.
The Three (or More) Products Founders Have to Keep in Mind
There is not one but as many as three (or more) products that founders need to keep in mind, and keep evolving, while they build their startup.
The first product is well understood; this is the one aimed at users / customers, consisting of all of the surface edges of the startup that come into contact with the users, in order to solve the user’s problems. The desire to create this is what led the startup into being. This is the product for which the PM is hired, and around which a zillion posts and newsletters and podcasts are written about and created for.
The above ‘user product’, if we can call it that is not always a purely software product like at a Postman, but can also be a software + hardware combo like at an Ather, or a software + wetware combo like at an Urban Co. Sometimes, like in a marketplace like Dunzo (or Urban Co), you may have a customer app and a delivery person / rider’s app, but all of these are user products.
The user product is typically where the founders’ maximum attention goes. That said there is at least one more, if not two (or more) products that founders need to keep in mind.
The investor product
A much less understood product is the investor product – this is essentially the narrative that you shape around your startup, aimed at investors. This includes its position in the marketscape relative to its competitors, how it is advantaged vis-à-vis them, and its growth prospects (or perceptions around its prospects).
This narrative is effectuated through clear consistent messaging about the positioning and growth prospects of your startup, delivered via public content (on Twitter, LinkedIn, podcasts) or private content (pitches, DMs, emails or other comms).
Amazon is a great example of a compelling investor product. Jeff Bezos was able to sell the narrative to Wall Street that it should be valued not on its margins or profitability (which were nonexistent through the noughties) but on the fast-growing TAM of ecommerce and its high marketshare here. At the right time, he said, we will be able to take up prices and up our margins. Wall Street believed him and supported a high price / earnings (p/e) ratio, far higher than its peers. This helped Amazon weaponise its stock prices to attract talent through its rising ESOPs, as well as use its high p/e advantageously in M&A transactions.
Another example in this light is Adobe. Kevin Kwok in his brilliant piece on narrative shaping, writes “Adobe has continually shown over the last few decades how core managing the narrative is to getting the support and coordination of investors and employees as the company makes fundamental shifts to their business model. Whether that be in adding new products, transitioning to the faster internal cadence of a SaaS company, refactoring into a cloud-first infrastructure and pricing model, or the myriad other endeavors Adobe has undergone from building printing software to the full expanse it is now.”
Closer home, we have CRED which has shaped the narrative around how it is building a trust layer enabling frictionless commerce and lending for India’s 1%, and has raised $1bn+ selling this vision. A Ken story on Kunal and CRED breathlessly puts it “Ultimately, the bet is on CRED’s team and founder. The expectation is that Shah has the wherewithal and chutzpah to leverage the narrative around the market and the moats to position the company as being worth US $10bn to someone who has the means and inclination to pay for an acquisition.”
The medium is also the message
The investor product is also ultimately a function of founder personality and pedigree. The tone and intensity of the messaging is linked to, and borne out of the personality of the founder. Uber is a great example of convergence between the investor product and the founder personality.
The investor product can vary between two similar startups, like Nykaa and Purplle. The latter’s investor narrative was focused around margins, private labels and how they were serving the aspirational more than the affluent customer. Nykaa’s like a market leader was on selling the category. The below is from a podcast of Abhiraj Bhal where he talks about the market leader / pioneer’s burden – that of selling the category
The #2 player doesn’t have the burden of explaining TAM. That said, it should sell its relevance, and reason to exist / right to win. A common take is to talk about how the market leader can’t serve all customers or can’t offer cheaper products, and it can thus address underserved customers. Of course, this needs to fit with what it is doing on the ground. Any misalignment between the investor product and the user product is dangerous. Let us dive deeper into this interplay.
The investor product and its interplay with the business side
The investor product both shapes, and is shaped by the startup’s present business context and operations. The former because if the investor product is successful, and it persuades the VC to invest, you now have the funds to grow even faster. The latter because the business context sets the tone for the narrative that the founder is taking to the investor, e.g., if the experiments that they embarked on – say expansion to an adjacent market, or a new geography, hasn’t worked out, then the investor narrative would be very different, from if it had worked out.
Sometimes, you will see the founders stop interacting with VCs coming inbound, typically in between the rounds. The typical response that goes out is “We are heads down building, and we will surface closer to the fundraise”. The underlying message is that the investor product is evolving, the new narrative isn’t clear, and the founder doesn’t want to risk sharing his half-baked narrative with investors, lest she have to change it later. For example, perhaps a SaaS startup is experimenting with a marketplace, and if that takes off, then its narrative would be very different from a scenario where it takes off. Investors who see a change in the startup’s narrative may rethink their interest.
The content product
If you are a B2B EnterpriseTech founder, or a SaaS startup with a PLG play, or are a content-commerce brand, that is, you have a content-led motion, where you are using content to bring in audiences to the top of funnel, where you will engage with your product and hope to convert them, then this section is for you.
The content product is the third product that a founder in this space has to worry about building. In fact the founder should focus on it simultaneous to building out the product. A key reason for that is that, content takes time to create and for distribution to build up; so instead of waiting for the main product to be ready and then start writing, it is better to start the content engine going as you decide to start coding.
Patrick McKenzie (@patio11 on twitter) says in a podcast:
“….every B2B SaaS company will say, “… we should have a content marketing engine and every content marketing engine will eventually publish a book, either like an actual book book or something which is morally equivalent to a book based on word count, degree of intellectual depth, et cetera, et cetera. And the thing that I would suggest most people do is to pull the content marketing forward and sort of write the book before writing the software, if that makes sense? …If you do it earlier, it’s quicker to get up and running on the internet and quicker to get something worthy of the attention of others that have been running on the internet. So you get to start the clock on things like Google giving your domain some authority, you get to start to clock on things like social application via social media and attracting people to your banner, on getting newsletter subscribers, etc., earlier, and those things tend to compound over time… just some things like Google Authority take just a while to bake, regardless of whether you’re physically hands on keyboard during it.
And if you sequence those activities earlier you get to have more opportunities to go through the learning loop, more opportunities for value to compound over a longer period of time versus sequencing them later. If you spend nine months in the code cave building out version 1.0 of your software and then launch to nobody, that’s nine months where you could have had developed a newsletter with thousands of people subscribing to it and then nine months after that, with relatively little additional work done on the newsletter, had people ready to buy everything on the first day. So that is the first thing I would suggest is rethink the mindset of becoming a software person who writes and think more about becoming the expert and then writing the software that sort of encodes your expertise in the software product. I think that really writing deeply about how you understand whatever your problem domain is will make your software product decisions better.”
A similar perspective came from Asad Khan, cofounder & CEO at LambdaTest.
The tweet covers a talk he gave for Blume’s founders where he talked about the importance of creating content before the product releases “I would say even when we start writing the first line of code, it should not be that you should wait for the product. Because your content strategy will take time. I mean, I can give example, like Rishen is doing an amazing job in Toplyne. He started evangelizing ,writing Substack and started doing some blogging, some threads over Twitter, going after the community. He started six months before, almost one year after actually he launched the product. He opened up PLG after one year but he built his audience already.”
Subsequently too, the entire set of content assets are akin to a product that needs to be kept running and updated, aligned to the user product.
Internal comms, culture as products
I suppose you could think of every process as a product like it is alluded to here.
That said, there are two other potential ‘products’ – both aimed at your most important asset, your people. One is internal communication. The other is culture.
Let us take internal communication as a product. Kevin Kwok puts it well: “Talk to top tech companies today and raising capital is ironically one of the easier aspects of building and derisking the company. Hiring and retaining a talented team is far harder. Acquiring and retaining customers is harder. Understanding and getting the team coordinated on what to build is harder. Oh, and did I mention that hiring and retaining a talented team is far harder? This is the CEO’s job: to raise and allocate the capital needed, but also to build a team capable of building the product needed and getting distribution. All while understanding what the company needs to build and helping the team understand and orient around it.” Driving orientation and alignment and coordination is not an easy task, and the best companies devote a lot of resources and thinking to this task.
Some examples of good internal comms. Shopify has an internal podcast. Stripe has its internal documentation library etc. which anyone in the co can access which has access to past memos, guides etc.
On to culture as a product. The canonical example here is Hubspot. This article has Dharmesh Shah, the CTO of Hubspot quoting “Culture is a product you build. And your people are its customers.”
Another way to look at culture is that as a scaling mechanism for internal decisions. Culture is why your frontline team will go the extra hours to solve a customer’s problem, or offer (or not) a reimbursement to an unhappy customer, when you are not there in the room. When your org crosses 20-30 people, well, you can’t be everywhere, and not everything can be codified, so if you don’t want to be a blocker, then culture is your best tool!
So there you go. I am going to end here.
Let me wrap with a short summary. There are at least two products – user products and the investor product. These two need to align with each other. In many ways each shapes the other. Then, if you have a content-led motion, you need to look at your content too as a product. Build your content product even as you build the user product. Finally, you can also look at internal comms, and even your culture as a product too.
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Relevant reads
Narratives & Pseudosecrets; Michael Dempsey
Narrative Distillation; Kevin Kwok
Culture as a product: How Hubspot built its famed startup culture; Various authors
Culture is a product you build; Drew Beechler
PMF Convo #5: Pulkit Agrawal, Chameleon
I first heard of Chameleon, which helps SaaS companies improve their product adoption processes and practices, from Sheel Mohnot when I was interviewing him for our PMF Convo. In our convo, Sheel mentioned this company that took six years from their Seed to Series A raise. I was intrigued and asked Sheel for a connect to Pulkit Agrawal, the founder & CEO of Chameleon. I had a subsequent chat with Pulkit (on 1st December 2022), and he was kind enough to agree to release the transcript of our conversation (please scroll below).
Founders in the enterprise SaaS space, but even otherwise, will find this conversation relevant. The process to achieving PMF (product-market fit) was long - while there was some PPF or product to problem fit (the first phase of PMF) for Chameleon, the growth was not explosive. Sorting out the GTM (Go-to Market) to achieve MMF (Motion to Market Fit, and the second phase of PMF) took a fair bit of time. As Pulkit says: “We targeted a motion (product-led) that we were familiar with, but not what the market needed or was looking for (sales-assisted)”.
The journey to MMF and then PMF saw them moving from the $200 per month self-serve segment to the $10-12k+ mid-market / enterprise segment, shifting their motion from self-serve to sales-assisted. The ICP, channel and message (the three components) of GTM had to change - and changing and re-aligning these took time. In the meantime as they realised that venture interest was likely to be low, they focused on getting profitable and living off their cash flows. The best funding, sometimes, is customer funding!
Pulkit says: “There's so much hype around speed in the valley. Speed is important, but there is a natural time to things… things take time to mature, to marinate.” I thought this was a terrific point. Not all businesses have to be rocket launches, hitting PMF and capturing megabucks in funding. In certain sectors, segments, figuring out the solution space, figuring out the GTM takes time. It is important for founders to figure out what it is that they are really building, and if so make peace with the pace.
The other point I found particularly interesting in the convo, and wanted to stress is how they upped prices, relentlessly. Pulkit says: “Our sales coach helped encourage us to price higher and higher, you know, even pricing a $24,000-per-year deal. I couldn't believe it. I was embarrassed in pitching this. It kind of started to work.” Clearly, don't hesitate to increase your product pricing if you believe that the product is providing more and more value to users. Almost always, these pricing negotiations and conversations give you a sense of how the customer perceives your product and the value it is providing.
Link to the transcript. This was also shared on LinkedIn as an article.
PMF Convo #6: Asad Khan, LambdaTest
This was one of the first interviews I conducted, as part of the research for my book on product market fit (PMF here onwards). Asad is cofounder & CEO, LambdaTest, building one of the most technically innovative India startups. As Satya Nadella recently put it after meeting Asad: “LambdaTest is doing for test automation what Kubernetes did for container orchestration - creating that next level of efficiency around test automation so that people can actually focus on testing versus test orchestration.”
LambdaTest was one of the most non-consensus bets we took at Blume (we led the seed round in late ‘19). When we first met them in July ‘19, PLG (product-led growth motion) was not the buzzy catchphrase it was, the two founders did not have a technical background (that said both have an incredible tech understanding though), they were based in Noida, not Bangalore, and so on. Yet, they have built an incredible product, one that has garnered a lot of user love globally. Now, they are adding on an enterprise motion with the HyperExecute test execution platform.
In this convo, Asad talks about three broad themes. The first is his take on PMF, including his rather quirky definition (curiosity and reaction), how they determined that they had PMF at LambdaTest, his view on why PMF should be seen at feature level as much as at the product level (a point that Nishchay of Jar also alluded to) and why a $1m ARR is not always a sign of PMF.
The second theme he covers is his growth playbook - here he covers why extremely innovative products often struggle for adoption early on, his playbook for growing from $1m to $5m & beyond, and why a high churn doesn't worry him too much.
The third and last theme was his perspective on PLG including how founders pursuing a PLG motion should invest in content months ahead of the product launch (as I covered in my writing in the The Three Products as well), why PLG startups have a faster learning curve, and why they are more capital efficient.
This is a dense, insight-packed convo, so be prepared to read it slowly, and even twice:)
Link to the transcript. This was also shared on LinkedIn as an article.
Readings
I have been deliberately eschewing articles in favour of podcast transcripts (as i keep repeatedly sharing here). That trend continued much of the last four weeks too. Thanks to the end of December holiday week, I was able to get a bit more reading done than I usually do. So this time there are nine readings (I told you this was a looong newsletter!). Of these nine, one is a book, and the other eight are podcast transcripts (four of which are organised by me and are not available publicly!).
The Unicorn’s Shadow by Ethan Mollick (Book)
Ethan Mollick is an Associate Professor specialising in Entrepreneurship teaching and research at the Wharton School at the University of Pennsylvania. He is well-known on twitter for sharing and distilling learnings from academic research into entrepreneurship, startup culture and venture funding. This short book by him is a compilation of a lot of academic findings around various aspects of entrepreneurship, several of them contradicting popular notions, and busting these common myths. Here are three findings I found particularly interesting – the first around the average age of founders, that solo founders are more likely to succeed, and that the best cofounding partnerships are families, not friends.
Finding: The average age of a founder is 42, including in hot areas like technology.
Finding: The odds of running an ongoing startup-venture are 2x for solo founders vs those w teams.
Effectively Solo founders have no real disadvantage it seems, though i am not sure if the solo founder data that Prof Mollick used excludes those who had cofounders leave midway? Flo Crivello, a founder, had this interesting post recently about how how viewing solo founders negatively was one of the most harmful myths in Silicon Valley.
Finding: Starting companies with friends you haven’t worked before is as bad as starting with strangers. The most successful cofounders are ex-colleagues with whom you have some work experience. Surprisingly the most successful founding-team relationship was family.
Link to my notes / highlights from the book.
Emil Michael, Former Chief Business Officer of Uber on 20VC podcast w Harry Stebbings (transcript organised)
Interesting, enjoyable listen. Emil’s perspective and views, as an elite ur-operator, dealmaker and consigliere to Travis Kalanick, on Uber, their culture, and challenges they faced, including that with Benchmark, their Series A investor, is fascinating. He is extremely candid when it comes to the run-ins with Benchmark. The misalignment between the interests of a hypergrowing co and its early-stage investors is brought out sharply. The other interesting subject area of the podcast was his insight into the craftsmanship of negotiation, of which he is a clear shokunin. His stories of his negotiations w Steve Ballmer and Jean Liu (Didi) are riveting; the latter is a negotiation masterclass, essentially.
It is interesting to read this observation from Emil Michael, on how early stage investors sitting on the massive gains are biased (think of it as an endowment effect of a kind) to be more conservative, and thereby at odds with the founders and later stage investors who still see a lot of growth left. He would like these VCs to exit. That said for early stage VCs, the power law is a brutal reality. This one or two winners in their portfolio has to pay for the sins of the remaining ones, and thus they are incentivised to stay the course. I can’t visualise any top tier seed or early stage VC exiting in the scenario Emil Michael suggests, though they might be a bit more open to term limits on board seats.
Link to transcript excerpts and highlights from the Emil Michael podcast episode.
Kyle Harrison, Contrary, on the 20VC podcast w host Harry Stebbings (transcript organised)
I really enjoyed listening + reading this, especially given I work in venture and there were some really interesting threads around the venture business – the shift in power from firm to individual partners (see below), LP incentives and how they prop up legacy VCs unduly, the unwillingness of growth stage founders to see the new funding reality etc. In addition there is a fascinating discussion about how Blackstone innovated to emerge as an asset manager enabler focusing on the 80% (backend) while leaving the 20% to the manager with who they are partnering. All in all, a really interesting podcast for me. That said, I don’t know how interesting it will be to non-venture folks.
I found the below particularly interesting. Older legacy firms need to be careful about this - if you don’t have a clear transition playbook is in place, and the older partners / GPs are a bit more sticky on sharing economics, then there is a risk of the younger, name brand Partner, thinking whether she should go solo.
Link to transcript excerpts and highlights from the Kyle Harrison podcast episode.
Eric Tarczynski, Contrary on Venture Unlocked w Samir Kaji (transcript organised)
I thought this was an excellent podcast episode. Contrary is a differentiated venture firm – they identify talent before they are thinking of starting out, creating a community of such talent, supporting them at various inflexion points and hopefully writing the first cheques into them when they are starting out. (Similarities with South Park Commons which also has this community → funding element.) It was interesting reading about their modus operandi, and how they have staffed their firms including engineers (interesting discussion about how having internal engineering / data science teams is becoming table stakes) to help them identify promising talent, and support them.
It is also a good episode to understand the challenges of fundraising – their first fund was just $2m, the second $20m and the present one $75m. One big advice from Eric for future fund managers – it is important to balance your thesis and desired stake size with some logo hunting, as many LPs didn’t find too many well-known names in their portfolio and this made the fundraising process slower than they expected.
I found the below interesting. I do know that Sequoia has a large engineering / data science team (100+ in numbers is what i have heard). I haven’t heard of other early stage firms with data science teams (barring those like Tribe Cap where data-led discovery is integral to their business model). I can’t see the pure seed funds invest here - the AUM won’t support it. It needs the AUM of a crossover / multistage fund for the 2% to cover it.
Link to transcript + highlights of the Eric Tarczynski podcast episode.
Ireena Vittal on Lightbox’s podcast w Sid Talwar
Ireena is one of the well-kept secrets of the Indian business world. Well, that is not entirely true. The upper echelons of corporate India know her well and she is heavily in demand for board presence and counsel. Still, she doesn’t have the visible public celebrity or recall that her intellectual stature and reputation should ideally allow. One big reason for that is that there is very little material on the interwebs on her - reportage, interviews or even her writings. Occasionally she comes on podcasts, and when that happens, I make sure I listen / read it at length. Her vast experience, and her sharp intellect, come together to provide rich perspective and perceptive insights, all packaged in her pithy, no-nonsense style of expression. This podcast is classic Ireena for those who know her; lots here to unpack, across what makes for winning consumer and retail brands, the protocols that enable product quality to be maintained, the evolution of the Indian shopper, why the middle is a dangerous ground, and finally her take on kiranas and their evolution.
I thought the below was extremely insightful, that when people buy brands, they are buying pieces of identity.
Link to transcript highlights from the Ireena Vittal podcast episode.
Eugene Wei on Stratechery w Ben Thompson
Really interesting conversation covering Netflix, Twitter and their challenges, and working off that to cover a bunch of topics. Eugene Wei is one of the deepest product thinkers I know of, especially on social networks (see this and this) and Ben Thompson is a sharp observer. Their conversation, and this is more a conversation and less an interview, is consistently interesting and insightful. A couple of great takeaways including why Spotify as an aggregator benefits from commoditised content (vs a Netflix), Eugene’s 2x2 matrix for social networks (people unknown to known on x-axis and convergent to divergent views on y-axis) and a great quote by EO Wilson on how our primitive emotions battle with the godlike tech that has been thrust on them. The convo / interview is paywalled. Highlights of what I found interesting linked to below.
Here is Eugene’s 2x2 matrix for social networks. It is a 2x2 and of course you can do many 2x2s on different axes I suppose, but I found this an extremely useful model / framework.
Link to transcript highlights of the Eugene Wei - Ben Thompson conversation.
Avnish Bajaj, Matrix Partners India, on Matrix Moments w host Salonie Ganju
This is a short interview where Avnish shares his perspectives on what the key metrics we should track in a business. The headline and initial questions refer to PMF (product market fit) but I thought the content was not specific to PMF per se (of course eventually everything is connected in the sense that without PMF you don’t have a successful business). Two interesting points from him -
1) Measuring at the right time – for an ecommerce site, don’t measure NPS just after a purchase, because you have not received the product. Instead measure CSAT scores. Measuring NPS here can mislead you.
2) Have third party measurements done occasionally to validate your measurements – he says he sees a gap of 20 points between internal measurements and third-party measurements. One big reason he says is that internal measurements often don’t cover lapsed customers, and hence what you are measuring is a smaller set of usually happier customers. Third-party measurement mechanisms cover a broader set of customers and hence use third-party data to ensure you aren’t drinking too much of your own kool-aid.
Link to the transcript of the Avnish Bajaj podcast episode.
Aydin Senkut on Venture Unlocked w Samir Kaji
Good listen / read for those on the venture side, and far more useful to VCs than founders, as is typical of Venture Unlocked’s podcasts. Aydin Senkut, an early ex-googler PM who became a super angel and then set up what has come to be a well-regarded venture firm with an exceptional track record (47 unicorns!). I found it interesting that despite raising a small $40m fund early in their history, they did not restrict themselves to preseed companies in the US. Instead they took surprising Series A and B bets as well as pursued international investments in Canada (Shopify), Finland (Rovio) and Australia (Canva). Their international strategy was cherrypicking the best co in a geography instead of opening an office and looking at all the companies (many subpar) in that market. I also loved the story he gave of the Michelin Chef whose strategy for the best food is “start with the world's best ingredients and then I try to do as little as possible”. This is broadly true of startups too - the best founders need the least help.
Link to podcast transcript + highlights of the Aydin Senkut episode.
Victoria Treyger, Felicis on Full Ratchet w Nick Moran
Sajith: Good breezy listen / read on sales in startups. Victoria was CRO at Kabbage (acq by Amex) and knows a thing or two about sales. Here she talks about the importance of founder-led sales early on in a startup’s life, when to hand over the sales baton, why you should never hire a CRO early (or before Series C), what to look for / ask the CRO while hiring, and finally, when a startup should consider a PLG motion, and how to plan the transition from pure PLG to adding on the enterprise sales layer.
This by her on why you need do the CRO hiring after the Series C round is very insightful.
Link to podcast highlights of the Victoria Treyger episode.
Bye
Phew, that was looong! Like I said, think of this as a monthly magazine - you don’t have to read it all in one sitting, and you don’t have to read all of it!
That is all for now folks. Feedback in the comments or at sp@sajithpai.com (Please don’t send pitches or CVs or anything work-related at my personal id; I may / may not respond to them; instead please use sp@blume.vc for pitches please).
See you next month, hopefully!