In the last newsletter, I put forth the “Venture Investing Expression” below:
✅ Depth of market problem ∝ solution fit ∝ non-obvious insight ∝ traction ∝ business model ∝ market size ∝ go-to-market strategy ∝ team execution potential ∝ status of fundraise ∝ valuation ∝ stage of business ✅
In this newsletter, let’s unpack “non-obvious insight.” This is one of my favorite topics to unearth when evaluating startups.
Let me ask a question – how do startups win? The answer is not getting product-market fit. Product-market fit is a result of something upstream which I will explain. Let’s go back to first principles for a second.
It starts with seeing.
Specifically, it starts with seeing, listening, hearing, observing data points from the market that leads to a different strategic angle of attack. I name this the “non-obvious insight.”
✅ The “non-obvious insight” simply put, is an insight, a belief, a point of view that is the strategic foundation of the startups’ execution. The non-obvious insight is not widely distributed. In fact, it’s almost a secret believed by only the startup founder and perhaps early believers. It’s oftentimes a contrarian or even a provocative view. It is like a secret that is hidden in plain sight. When I encounter strong non-obvious insights in startups that we talk with and invest in, my reaction is almost uniformly, “Oh my gosh… you’re so right. I’ve never thought of it that way before.”
Non-obvious insights form the underlying strategy of the startup’s angle of attack. ✅
Importantly, a non-obvious insight is context-dependent. Specifically, a non-obvious insight is tied to the context of a market, a customer segment, or a technology development.
I also want to underscore one point – a non-obvious insight is not a feeling, such as “I feel the market is ripe for this because of _______ .” Rather, it’s a conviction.
✅ Non-obvious insights are communicated to me in three different ways:
- “We have seen that __unique insight into the market (typically anecdotally picked up from a large sample size from an array of customers, or from proprietary intelligence)____ and so therefore, we are doing________________ .”
- “We believe that __(POV about the way a market will evolve)____because ___(listing of the several hidden undercurrents in the market that give credence to the POV). So, we are doing ____________.”
- “We know that ___(strategic decisions and tactics that the current incumbents are executing)__ and that is sub-optimal because__(specific examples, not hypotheses). Thus, we are taking a different approach which is_________________.” ✅
In each case, the founder has seen and heard the same things about the market so often that they now cannot un-see it. Thus, they are fully convinced that their POV is correct.
From my experience, I have observed that startups tend to have 3-5 non-obvious insights. Those insights manifest themselves in strategic decisions, followed by arrays of tactics when it comes to execution. Yet, the way things are done all comes back to 3-5 first principles beliefs about the market, the customer, or a technology. They are powered by a series of secrets, contrarian POVs, or insights that makes the startup different, not better.
Let me give you an example. One of my favorite non-obvious insights comes from the Founder and CEO of Zoom, Eric Yuan. On a podcast episode, when talking about his story of starting Zoom, he shares that he was working at Cisco on the WebEx team. He relays to the interviewer that when he would talk to WebEx customers, the customers were “not happy.”
That was one of Eric’s non-obvious insights. This vantage point was one of the “a ha” moments that led him to eventually start Zoom. Just as important, the fact that WebEx customers were unhappy gave him the confidence to believe that he had a shot to be successful in departing WebEx to start Zoom.
Furthering this example, this non-obvious insight is important and often makes fundraising frustrating 😫 . When Eric talked to VC investors in the very early stages about Zoom, most of them thought video conferencing was a crowded space and thus many did not fund him. Hence, Eric was fully convinced of a non-obvious insight that those investors did not know. Or, did not choose to believe.
Let me share an example within Tundra Angels. At one point, we were doing due diligence on a particular startup company after the startup pitched to our entire group. As part of our due diligence process, we engage with members in our group who are experts to the industry in consideration. After one due diligence conversation with the founding team, I spoke with one investor who was strategic to the space that this company was in. This investor noted several strategic decisions the founders had made. In this investor’s words, “They have architected the model so that they have lowered the risk on almost all of the failure points. It’s absolutely brilliant.” In the case of this startup, there were 3-5 non-obvious insights that powered those strategic decisions and tactics. It was so powerful that even a veteran of 20+ years in an industry was blown away. That’s the power of non-obvious insights.
I’ve seen a line in the sand on the way investors think, it seems to be this – the degree to which they value non-obvious insights.
👉 But it’s not just investors. This is in large part because many startups do not even have a clear sense of their own non-obvious insights. Thus, it takes patience to unearth those insights from an outsider perspective and time is of short supply in the VC world. 👈
Within the Venture-Investing Expression above, I weigh “non-obvious insights” as one of the top factors in my decision criteria about startups that I encounter. If a startup is pre-product and yet has compelling non-obvious insights such that over time, myself and the founder spend more time together that I start believing in the secret and insights as well, that’s super intriguing. However, more often the case, I encounter a startup that has excellent traction and is making headwinds in the market and would generally be considered prime-time for investment. In that case, I go on a fact-finding mission to discover non-obvious insights. Many times, they do not have one. It may turn out that their platform is a mere copy cat of another platform in their space, or they don’t have a grasp on anything non-obvious that is behind their angle of attack. If there is nothing non-obvious, contrarian, or provocative about the startup, then there is nothing that strategically creates an advantage over alternatives or competitors when it comes to tactics.
If you know what your startup’s 3-5 non-obvious insights are – the things that you believe that no one else does – then make sure you evangelize that message everywhere you go.
If you do not know what your startup’s 3-5 non-obvious insights are, then you need to do some soul searching. Non-obvious insights, in my founder and investor experience, greatly increase the likelihood of winning in the market.
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