mike maples startups

Startup Mental Models, Characteristics of Great Entrepreneurs, and Living in the Future – Mike Maples, Jr. on The Knowledge Project, Hosted By Shane Parrish

Check out The Knowledge Project Episode Page & Show Notes

Key Takeaways

  • Successful startups are born from insights about the future
  • Startups aren’t companies; they’re a group of people with a set of proprietary insights that are a result of them living in the future
  • “I think startups are so impossible that if you’re not 100% committed, you almost have no chance” Mike Maples
  • Great founders can easily answer the question, “Why is now the perfect time for your startup?”
  • Great entrepreneurs:
    • Are like artists—they move people beyond their logic
    • Don’t seek approval; they seek the truth
    • Willingly identify and tackle key company risks
    • Are antifragile—they get stronger under pressure
  • Startups don’t have markets; they have potential energy behind a movement
  • As a founder, it’s essential you drop your ego and focus on a continual search for the truth

Books Mentioned

  • In the past, Mike read Thinking, Fast and Slow by Daniel Kahneman
  • Mike’s ‘Herbie Model’ for startup founders originates from The Goal by Eliyahu Goldratt)

Intro

  • Mike Maples (@m2jr) is a partner at Floodgate and host of the Starting Greatness podcast (check out the Podcast Notes)
    • Mike is widely considered as one of the best technology investors of all time (he’s an early investor in Twitter, Cruise Automation, Chegg, Lyft, Okta, and Twitch)
  • Host: Shane Parrish (@ShaneAParrish)

What Does a Typical Day Look Like for Mike?

  • Mike tries to spend his days meeting with founders who “live in the future”
  • That said, as a VC, Mike faces a ton of inbound meeting requests—it’s a continual battle as to whether or not to take them

Startups Aren’t Companies; They’re a Group of People Living in the Future

  • “A startup isn’t really a company at all; a startup is a set of founders with a set of proprietary insights that are a result of them living in the future” – Mike Maples
  • To become a company, a startup must do three things:
    • Have a breakthrough insight (AKA insight development)
    • Have a breakthrough value proposition (AKA value hacking)
    • Have a breakthrough killer, predictable growth strategy

Let’s Expand on a Few of The Above Points

Successful Startups Are Born from Insights About the Future (great startup ideas solve future problems, not current ones)

  • “Most of the great startups come from a great insight, and a great insight usually occurs when someone is living in the future, and they notice something that’s missing.” – Mike Maples
    • Then, it’s the job of the founder(s) to return o the present and bring early, true believers with them back into the future
  • Why the future? Why not an insight about the present?
    • “The problem with living in the present: your idea actually sounds plausible because you’re talking about present issues or opportunities in the world, but usually, the disruptive power of the idea isn’t big enough” – Mike Maples

Insight Development Poses the Truth; Value Hacking Validates the Truth

  • After coming up with a non-consensus insight, next comes the value hacking phase—this involves figuring out what you can build that’s unique AND people are desperate for
    • (If your insight is powerful enough, it’ll naturally connect with somebody desperate—you’ll be solving a problem in a novel way that’s an order of magnitude better than any past solution)

If a Startup’s Value Proposition is Compelling, Growth Comes Naturally

  • “Value hacking is about seeking the truth rather than selling. If the truth of your value proposition is super compelling, then growth becomes the exercise of syndicating the truth. If the truth of your value proposition isn’t present, you have to grow by throwing money at the problem.” – Mike Maples
  • “You want to have a value proposition that’s so strong that the customers in your target audience would be irrational not to buy if they knew the truth” Mike Maples

Startup Teams Are Like Improv Jazz Musicians

  • A big company is like a marching band—people need sheet music to tell them what to do; startups are much different—they’re mostly made up of improv jazz musicians 
    • Just as the lead performer in an improv jazz group determines the group’s sound direction, a startup founder leads a close-knit team of people attempting to improvise their way to success

Successful, High-Value Startups Are Incredibly Rare

  • “10 companies out of 10,000 every year create 95% of the value in the startup business. It’s incredibly rare to have a combination of an awesome insight, an incredible startup team—that’s like a jazz band with a composer running it—who can persuade the world to join their movement, and then create a super compelling value proposition.”Mike Maples

The #1 Characteristic of Great Startup CEOs

  • They’re incredibly adaptable and mentally flexible—they absorb ideas like a sponge but are also willing to acknowledge when they might be wrong about something
    • Mike gives an example: If you met with Mark Zuckerberg or Bill Gates once a year, each time you met with them, it’d be like meeting with a different person 

Dissecting the Pitch Meeting

  • Great founders can easily answer the question, “Why now?”
    • “When you ask a founder questions like, ‘Why do you think now is the time for this to happen? Why hasn’t it happened before? Why isn’t it going to happen sometime in the future?’ regardless of the market they’re in, they’ll usually have a good answer to those.” – Mike Maples
  • Also in pitch meetings, Mike aims to discover a founder’s true motivation
    • “When I’m talking to a founder, very early in the discussion, I try to ask them, ‘What motivated you to do this? … Why did you decide to start this?’ You can learn a lot about their insight based on how they answer that question.” Mike Maples
  • Mike only invests in fully committed startup teams
    • “I don’t react super well to ‘We’re all still working at our jobs, and we can’t wait to leave as soon as we get funded.’ If you’re not passionate enough to leave your job to work on your startup full-time, why would I be passionate enough to write a check?”Mike Maples
      • Another reason: “I think startups are so impossible that if you’re not a 100% committed, you almost have no chance.”

Mike’s Startup Mental Models

First, What Are Mental Models?

  • “I look at mental models as frameworks for making decisions that maximize the probability of the best outcome.” – Mike Maples

The ‘Earned Secret’

  • This involves doing work to discover something others think is non-intuitive
  • Brian Chesky exemplified this perfectly: After putting his apartment up for rent on Craigslist and receiving a ton of inbound requests, Brian discovered the ‘earned secret’ that eventually led to the formation of Airbnb

Technology and Adoption Inflection Points

  • A founder’s answer to the question, “Why is now the right time for your startup?” has two components:
    • Technology Inflections
      • For instance, around the time Mike invested in Lyft, GPS locators in cell phones had just gotten good enough for ridesharing
    • Adoption Inflections
      • Also around the time of Mike’s Lyft investment, enough people now had smartphones that you could count on anyone who wanted to drive/ride being able to do so

Navigating the ‘Idea Maze’

  • Founders should make an honest attempt to look at every experiment with their product idea that’s ever been tried and ask:
    • What were the assumptions?
    • Why did it fail?
    • Why are my assumptions different?
    • How is the world different in a way that may change the outcome?

‘Thinking Wrong’

  • This involves flipping an incumbent’s business model/strategy on its head and adopting it as your own
    • This way, even if the incumbent decides to counter-attack, they have to change their business model (and they likely don’t have the skills and internal capabilities to that well)
  • Related to this is the ‘Sword and the Shield’ go-to-market strategy, which the telephone perfectly exemplified:
    • Around the time of the telephone’s development, the telegraph allowed for transcontinental communication through Morse Code. Initially, the telephone only allowed for VERY short-distance calls, but once someone could use a telephone to make a cross-country call, the telegraph companies were screwed.
      • The shield: your go-to-market strategy is so different that the incumbent doesn’t feel a need to attack you
      • The sword: the skills you build over time that the incumbent lacks (and by the time the incumbent realizes you’re a threat, the asymmetry of your skills compared to theirs is too overwhelming)

Characteristics of Great Entrepreneurs

  • They willingly identify and tackle key company risks:
    • “The best founders know the most important risks standing between themselves and success, and they tackle those risks early—because if you eliminate those risks, you massively improve the probabilities of winning.” – Mike Maples
  • They’re like artists—they move people beyond their logic:
    • “Entrepreneurs aren’t experts in business functions as you and I would think about them. Yes, very often, they’re technical, but their defining characteristic is that they’re artists—they notice things other people don’t notice, and they present their ideas in ways that move people to abandon their logic.” – Mike Maples
      • (Founders have to convince a bunch of people to do something the rest of the world thinks is crazy—logic alone can’t do this. They have to move people the same way a great painting does.)
  • They have a powerful vision—one that compels a set of like-minded people to believe in a particular “secret,” and further think they’ll, one day, convert everyone else in the world to that same point of view
  • They don’t seek approval; they seek the truth (they’re willing to be disagreeable)
    • “What I find in great startups: the leaders are, very often, willing to be disagreeable, and they’re not motivated as much by approval … They don’t seek approval as much as they seek the actualization of their vision.” – Mike Maples
  • They’re anti-fragile—they get stronger under pressure

Startups Don’t Have Markets; They Have Potential Energy Behind a Movement

  • “In startups, you’re living in the future, so on some level, there’s no market yet. There was no market for browsers in 1993, and there was no market for ridesharing in 2009. Markets in the startup world are movements, so trying to quantify the total available market is wrongheaded. It’s more about quantifying the potential energy of your insight.” Mike Maples
  • “Markets in a startup are movements, yet to be created, of innovators in on a secret together. The market happens as a function of more people joining the movement until, someday, everybody’s in on the movement, and it’s a big market.” – Mike Maples

How to Be a Great Storyteller

  • A great story has three components:
    • The beginning describes the big idea that represents a better future
    • The middle describes a sequence of tension (the problem waiting to be solved)
    • The ending describes the hero’s journey
      • “What entrepreneurs who tell stories well succeed at is they realize they’re not the hero in the story; the audience of their message is the hero of the story. What they’re doing is helping that person go on a hero’s journey to co-create a better future.” – Mike Maples

Successful Startups Have Contrarian Recruiting Strategies

  • “Discovering undiscovered talent is a key superpower of great startup teams”Mike Maples
    • If someone’s making a ton of money at Google, why would they join your startup for more money and less status? They probably won’t. You MUST be able to spot and hire undiscovered talent.
    • Further: “Great startups find people who are, one day, going to be great before the world knows they’re great”
  • Take the Paypal Mafia (Keith Rabois, Peter Thiel, Reid Hoffman, David Sacks, and Max Levchin)—none of them were established in tech before joining the team; in a sense, they were all relatively undiscovered

Mike Uses the ‘Rule of 20’ Process to Illustrate the Four Types of Experiments

  • The ‘Rule of 20’: Talk to 20 people in your target market segment
    • Needs Experiments: With the first five people, ask them about how they do their job and say nothing about your product idea/what you do/etc. (you’re discovering the needs of your target customer)
    • Validation Experiments: With the next five people, ask questions aiming to validate the need for idea/product 
      • For example, say, “I notice you’re doing X. Why is that?”
    • Assumptions Experiments: With the third tier of people, ask questions like, “Wouldn’t it be better if…?”
    • Solutions Experiments: With the last five people, pose your product idea
      • Ask, “Would this product be interesting to you?”
  • One important point: When running through these experiments, as a founder, you must drop your ego and focus on a search for truth (don’t try to force your idea on anyone)

The ‘Herbie Model’ for Startup Founders

  • (This idea originates from The Goal by Eliyahu Goldratt)
  • The book describes a bunch of Boy Scouts on a hike with one hiker named Herbie being the slowest
    • To facilitate a smooth formation, the group puts Herbie in front of the pack. But, the scouts can only move as fast as Herbie, so, to make him go faster, they begin taking stuff out of his backpack and distributing it among the group.
  • How does this apply to startups?
    • “I think a lot of startups get bad advice. They get advice that’s exhaustively correct, but what they don’t realize is that when you’re a startup, you can’t do everything well; you have to do a small number of very important things A-plus well.”Mike Maples
      • (In other words, founders should identify their ‘Herbie’ problems and tackle them first)

The Four Growth Gears Should Operate in Unison

  • 1. Acquisition (acquiring customers)
  • 2. Engagement (whether or not users keep using the product)
  • 3. Monetization (making money from an engaged customer)
  • 4. Enlistment (getting users to spread the word about your product, AKA organic growth)
  • Mike expands:
    • “Each of these four gears—acquisition, engagement, monetization, and enlistment—turn as a set of flywheels that are integrated together. All the gears rotate at the speed of the slowest gear. You’re not only trying to make the gears go faster; you’re trying to make the slowest gear no longer be the slowest.” – Mike Maples

What’s the Ultimate Startup Advantage?

  • Cultivating an egoless, reality-based, truth-seeking culture

Additional Quotes

  • “Sometimes, people will ask me, ‘How do you get a good startup idea?’ The counter-intuitive answer to that question is: don’t try to think of a startup.”Mike Maples
  • “Most desires that humans have aren’t innate desires; they’re desires that arise because they see other people caring about it.” – Mike Maples
    • “People tend to mimic the behaviors and seek the approval of others way more than realized—it’s literally baked into our operating system as humans.”
  • “We like to say at Floodgate that ego is about who’s right and truth is about what’s right.” – Mike Maples
  • “When you replace a CEO involuntarily, you almost always make the company worse.” – Mike Maples
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