What's your earned secret?
(at minute 8:07)
Talk with a dozen successful founders and you'll hear a few very common themes of general startup advice...
Team. Nothing matters more than great people. The hugely successful Techstars accelerator values team so much that they say that the five things they care about (in order) are "team, team, team, idea & progress."
Product-market fit. This is the north star for all startups. It's how you know you've created something that customers love. You either have it or you don't.
Build small. Because startups are about testing assumptions, build quick and small so that you can change the product quickly as you get customer feedback.
While these (and maybe 5-10 others) are the most common themes of advice from the best people in early stage startups, there is one that the most respected founders fixate on the most...
- Unique insight (otherwise known as an "earned secret"). What's the invisible world that you see that others don't? How did you authentically arrive at this vantage point?
A truly unique insight isn't mandatory to create a successful business. If you live in a neighborhood that doesn't have a pizza restaurant and you start a successful pizza restaurant then you didn't have an "earned secret"...you just identified a basic need and filled it. I suspect that this straight-forward approach is what makes up 95% of all successful businesses.
The reason why the notion of a unique insight/earned secret is so important in the startup world is that it's the best foundation for having a venture-backed, high-growth startup because you can apply resources (eg money, people) to a small, powerful flywheel and see outsized returns from those resources. Lots of resources applied to a slower-growth business (eg a pizza restaurant) doesn't produce the same amount of leverage. High-growth founders and investors need leverage.
On this podcast Ben Horowitz, the very successful co-founder of the venture firm Andreessen Horowitz, talks about this thoughts on earned secrets using Airbnb as an example.
He describes an earned secret as...
"You did something in your past to solve a hard problem and learned something about the world that not a lot of other people know."
Here's how Ben describes Brian Chesky's earned secret...
1) His background. Brian was a graphic designer who wanted to go to a design conference, but he didn't have enough money for a ticket. All the hotel rooms in the cities were filled, so he decided to rent an air mattress on the floor of his apartment so he could get enough money for a ticket. No unique insight here...just someone working hard to solve a problem in a clever way in his everyday life.
2) The surprise. 500 people replied to Brian's Craigslist ad. If you think back to a time before Airbnb you'll remember how radical and surprising this must have been. Wait...500 people are willing to stay on an air mattress in a stranger's home??? The only comparable human behavior at the time was CouchSurfing, but that was a tight-knit, non-profit community staying on couches for free...not strangers paying real money.
3) Research. These surprising results caused Brian to spend some time researching the hotel industry. He found out that hotels have only been around for about a hundred years. Before that it was people renting rooms in their individual homes for travelers. This way to get rooms began to lose out a century ago because the quality of these rooms varied widely. This allowed hotel chains (like Hilton and Hyatt) to emerge because they gave travelers much more consistency. Then the rise of new media like newspaper and television fueled the growth of national chains in the 20th century. In this research it occurred to Brian that online ratings and reviews solved the consistency issue even more than hotel chains are doing now.
This was the journey of Brian's earned secret that became Airbnb.
Using this story as a guide, here's how I would characterize the main parts of arriving at an earned secret...
1) Looking for problems. The best founder that I know have their antenna up constantly looking for unseen problems in their day-to-day life. They approach these problems with optimism and flexibility, knowing that everything in the world was created by people just like them.
2) Manual effort. Like Brian at Airbnb, once a problem is identified the founder tries to find evidence that people really want this problem solved. Sometimes this evidence already exists in the world (as human behavior around the edges like CouchSurfing) and sometimes a simple test is necessary (like posting an air mattress on Craigslist).
3) Surprising results. One of the most counterintuitive things about startups is that many problems can't be solved. Or they can't be solved in a way that creates a high-growth startup business. My favorite example to use of this is babysitting apps. Over the last few years I've had at least five potential founders approach me with babysitting apps that they planned to launch. While there are some exceptions, the vast majority of babysitting apps don't get initial traction because they aren't any better than what currently exists (mostly text messaging with one or two trusted sitters + Venmo). Despite this (lack of) evidence, very capable founders notice that their friends aren't using any babysitting apps, so they proceed to build one and no one uses it. This wasn't an earned secret...it was just a logical process to fill a perceived opportunity in the market. These founders would have been much better off doing a manual test of the behavior that they thought would get a groundswell of interest from a dozen moms...and not launching anything until the manual results were extraordinary. It's not enough to correctly identify a hidden problem in the world...you have to have some indication that your solution will solve it in a way that people will love.
4) Reconciled into a viable business. The final piece of the puzzle is to organize this whole situation into a business model. And by "business model," I don't mean "financial model"...I mean a holistic product and brand that provides a clear value proposition. My colloquial term for this process is creating a "mechanism." I started using this term because of what is said around minute 16:13 in this video. In this video Reid Hoffman, famous startup founder and investor, says that he views startups as overcoming key frictions. If you can identify the right one or two (mostly through talking with trusted advisors) and solve them (with a mechanism) then you can create a very big business. In the case of Airbnb the mechanism (that got attached to Brian's unique insight about excess "hotel" inventory sitting in peoples' homes) was ratings & reviews because of the trust issue inherent in strangers sleeping in strange homes.
I realize that this framework flies in the face of what most people consider "starting a business." To most people you simply find an opportunity in the world and then just work to solve it. As I said, I suspect that 95% of (great) businesses are started this way...just not the fastest growing 5%.
What I believe separates good founders from great ones and good ideas from great ones is stepping through their ideas in this way (even if it's accidental). This wind-at-your-back as you progress from one step to the next is practically required to grow an idea on a napkin to a very big business.
Too many founders (especially first-time ones) discount the power of this type of momentum. It sounds good as a general rule-of-thumb, but who has time for all this when I'm creating the new unicorn startup??? Then they proceed to push a boulder up hill for 24 months and then quit.
Still don't quite see the value in all this early work? Let me say it this way...how important was this early momentum to helping the Airbnb founders battle for 1,000 more days before getting enough traction to know if they had a big business? Without these early, foundational results would they have quit after a year? I might have.
Step through this process like Brian did and it greatly increases your odds of creating a successful startup.
Sidenote: If you enjoyed this post, you might like this one as well.
Get Right to the Lesson
I’d recommend listening to the entire thing, but to get right to the point go to minute 8:07 of this podcast.
Thanks to these folks for helping us all learn faster
Ben Horowitz (@bhorowitz), co-founder of Andreessen Horowitz (@a16z)
Sharon Chang (@sychang), Operating Partner at Andreessen Horowitz (@a16z)
Please let me and others know what you think about this topic
Email me privately at firstname.lastname@example.org or let's discuss publicly at @davempayne.
The best startup advice from experienced founders...one real-world lesson at a time.