Let me ask a question - how do startups win?

My answer is not the typical venture capitalist answer, which is likely along the lines of achieving "product/market fit".

No, I see product/market fit is a downstream affect something else... something that I want to cover here. Let’s go back to first principles for a second. 

Winning in startup, in my opinion, starts with seeing. 

Specifically, it starts with what the founding team sees, hears, and observes from the market that leads to a unique strategic angle of attack. 

I call this the “non-obvious insight.” 

This is one of my favorite, and most critical, topics to unearth when evaluating startups. 

✅ The “non-obvious insight” simply put, is an insight, a belief, a point of view about market opportunity that not widespread. In fact, the non-obvious insight is almost a secret believed by only the startup founder and perhaps early believers.

It’s sometimes a contrarian or even a provocative conviction on a market, a series of customers, etc.. But sometimes it is like a secret that is hidden in plain sight.

But when stated, it’s non-obvious because it can sometimes have the reaction of, “Oh my gosh… you’re so right. I’ve never thought of it that way before.” Or, in the case of one recent startup founder who shared with me what a potential customer told them when they demoed their product, “Why didn’t I think of this?”

Non-obvoius insights are non-obvious because they are not heralded from the rooftops. Rather, they are seeded from a collection of insights on the ground.

Importantly, non-obvious insights form the underlying strategy of the startup’s angle of attack. ✅

Let me give you an example.

One of my favorite non-obvious insights comes from the Founder and CEO of Zoom, Eric Yuan. Before Zoom, the web conferencing space was viewed as a mature market. Go-To-Meeting, Google Meet, Skype, and other such technologies dominated the landscape. 

In fact, the opportunity was so much of a head fake that most VCs that Eric Yuan pitched too passed on the startup, noting that Zoom would face incredibly stiff competition.

But Yuan possessed a key non-obvious insight, which became his conviction around why he started the company to begin with.

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.” 

Here is a brief clip of Eric speaking on a podcast:

Eric’s non-obvious insight, that he saw that clearly no one else did, was that existing web conferencing users were “not happy.” This unique vantage point was one of the “a ha” moments that led him to eventually start Zoom.

This non-obvious insight is critical, but often makes fundraising frustrating, as Eric spoke about in the audio clip, because investors often to do not see or buy in to the non-obvious insight 😫 .

I would argue that because early-stage startups sometimes or often do not have much more than a series of non-obvious insights, the best investors are very good at sussing out non-obvious insights.

That's why when Tundra Angels invests in startups, startups that possess non-obvious insights move forward in our process, and ones who don't get stopped at the door.

So, a startup’s non-obvious insights are the atomic unit of a startup and its execution. 

But it’s not just one non-obvious insight. 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. 

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. 

✅ Non-obvious insights are communicated to me in three different ways: 

I personally 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. 

When the right pieces come together, non-obvious insights can be so powerful that even a veteran of 20+ years in an industry can be blown away.

Let me share an example within Tundra Angels. At one point, Tundra Angels was doing due diligence on a particular startup company after the startup pitched the 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.”

The startup possessed 3-5 non-obvious insights that powered their 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. 

There seems to be a line in the sand in the way that investors think, and it seems to be the to which they value non-obvious insights. 

But it’s not just investors. Often times, the startups themselves do not even have a clear sense of their own non-obvious insights. That equally is a problem.

But in some ways, it's not surprising - because non-obvious insights do not come automatically.

Non-obvoius insights are non-obvious because they are not heralded from the rooftops. Rather, they are seeded from a collection of insights on the ground.

See you next Wednesday,

Matthew

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