Notes about building
My first startup was massively influenced by the ideas around the Austrian School of Economics, which essentially said that value that was created in the mind A- wasn’t cheating and B was just as real as engineering value. As we built it, we constantly thought about how the value was in the mind of the consumer and in the factory. The positive associations of customer service, brand quality, etc, are just as important as the actual product. The extreme of this is a pen owned by George Clooney is far superior to one owned by an infamous criminal. One creates positive value, one creates negative value. The value is next to impossible to quantify but is still vitally important and real.”Not everything that can be counted counts and not everything that counts can be counted”
As I'm starting the process of my third business, I have revised my framework for how I'm thinking about it. Here's what I'm currently going off:
Product
Brand, mind of the consumer
Delivery mechanism
Distribution
Culture/community
If mistakes come from blind spots upfront, these are the clearest “pillars” I'm using to help build out a strategy and think about new business creation through these lenses. When thinking about the business from day -1 to 0, I find these pillars really helpful. The value of the business is an even split across these 5 pillars. The foundations of the business. The seed of a business that's product-focused looks different from one that is thinking about distribution with equal measure, for example.
Product: This is the thing, this is the actual service or widget which you are selling. It has to be excellent. It has to do what it says and has to be consistent every time.
Brand - Mind of the consumer: In some parts of the world, people would opt to drink Coca-Cola instead of tap water. That's brand value. Moleskine isn't just a notebook. It's a device for you to create your ideal self, a refined and organized version of you. That's brand. North Face doesn't care if you buy their stuff or not, they want people who buy into their mission, not products. That's brand. It's a feeling that gets created, it's the world you want to be a part of/that confirms your identity.
Delivery mechanism: I would argue that Nespresso’s value is in the delivery mechanism instead of the actual product. You could argue they're one and the same thing, but I don’t think they are. The product is the coffee. The delivery mechanism is the machine that delivers the coffee.
Distribution: Building something people want is wonderful but redundant if you can't get it to those people cost-effectively. I see a reasonable amount of pitch decks, and very few include a rough Customer Acquisition Cost (CAC). I think distribution has to be part of the plan from day one. Podcast, email list, whatever it is, if you don’t own the distribution, you don’t have full control of the experience. Most businesses get zero distribution channels to work: poor sales rather than bad product is the most common cause of failure. If you can get just one distribution channel to work, you have a great business. If you try for several but don't nail one, you're finished. The trick is to build distribution into the product.
Culture/community - Internal/External: How do you quantify culture? You can have the best players on a team, and a team with weaker players in isolation can beat them. It’s a leaping emergent effect. Copper and tin, not found in the same geographic proximity to each other, combined created a hard alloy, bronze. Hot dry air mixed with damp cool air creates a tornado. Leaping emergent behavior. This is what I think makes a great and effective culture.
Qualitative factors, often in combination, drive quantitative outcomes. The common theme is great businesses nail the qualitative side of the equation. Todd Combes, who works for Buffett, once said that 99% of what they speak about is qualitative. The best investing is when it's most business-like. Great businesses nail the culture and the qualitative in a unique and unconventional way. Qualitative factors, often in combination, drive quantitative outcomes.
Put through a -1 to 0 framework, you would plan and look at your business through each pillar and incorporate each pillar from day one. Conceptually you could rip this apart, but the model is useful; it may not be 100% accurate, but as George Box said, “All models are false, some are useful.”
