I have the same belief about startups, but I don’t see it as being in conflict with the Value Prop Story. I would go further and say it is really important to be able to link the execution to the value proposition, because otherwise what are you executing exactly?
Naively, if A and B neither have a value proposition, we expect them both to fail. If A does have one, it is trivial for B to claim theirs is higher as a result of execution. This is things like:
UX design → easier to use
Hiring | coding → shorter time to delivering value, and add more value faster
Minimising downtime | customer support → value is more likely to be there when the user wants it
Advertising | sales | expanding → able to put the value proposition in front of more users, faster
Execution is the causal explanation for delivering value, so being able to articulate this feels like a huge advantage.
I guess I want there to be a minimum lower standard for a Value Prop Story. If you are allowed to say things like “our product will look better and it will be cooler and customers will like our support experience more”, then every startup ever has a value prop story. If we’re allowing value prop stories of that low quality, then Golden’s story could be “our articles will be better than Wikipedia’s”. Whereas when Liron said that 80% of startups don’t have a value prop story, they seemed to be talking about a higher bar than that.
I had a fun time the first time I visited Stanford (and the Bay Area more generally). I had read Paul Graham’s essays and Peter Thiel’s book as a teenager, and was chatting with a guy on the bus about the startup he was working at. Somehow the conversation got to a point where I was like “But you need a model of the world where you have a secret or some other key valuable insight that other people haven’t noticed / aren’t taking advantage of!” And he was like “Oh yeah, everyone round here has one of those.” I was so shocked that my important information had been goodharted on by such a broad network of people.
It’s a good point that most bad startups can still tell a Value Prop Story which is well-formed, but just has a small delta in value. Jude did that when he claimed that cryobacterium on Golden gives more value to readers than cryobacterium on Wikipedia, and my objection is merely that the delta in value doesn’t meet the kind of “minimum lower standard” you’re talking about.
Now that I think about it, I think we can improve the Value Prop Story test by saying that the specific user in the Value Prop Story has to be willing to pay one hour’s worth of their salary per month to get the company’s product or service.
This stronger test works because regardless of the company’s actual pricing model, there should exist at least one passionate customer who doesn’t mind paying. For example, Reddit is free, but there are plenty of people who would pay one hour’s salary per month for it if they had to (at the same time, we expect that most Redditors wouldn’t pay that much for Reddit—the median case is different from the #1 extreme case).
Just one big caveat worth noting, which is captured in the flowchart diagram in the post: I see a lot of founders who claim that they’ve pitched potential customers and gotten excited reactions about the product they’re building, but in practice still fail to get any traction. The culprit is usually that they lacked a specific Value Prop Story, and their conversation with the potential customer consisted of flinging non-specific ballpit concepts.
I don’t think I’m claiming that the value prop stories of bad startups will be low-delta overall, just that the delta will be more spread out and less specific. Because the delta of the cryobacterium article, multiplied by a million articles, is quite big, and Golden can say that this is what they’ll achieve regardless of how bad they actually are. And more generally, the delta to any given consumer of a product that’s better than all its competitors on several of the dimensions I listed above can be pretty big.
Rather, I’m claiming that there are a bunch of startups which will succeed because they do well on the types of things I listed above, and that the Value Prop Story sanity check can’t distinguish between startups that will and won’t do well on those things in advance. Consider a startup which claims that they will succeed over their competitors because they’ll win at advertising. This just isn’t the type of thing which we can evaluate well using the Value Prop Story test as you described it:
1. Winning at advertising isn’t about providing more value for any given consumer—indeed, to the extent that advertising hijacks our attention, it plausibly provides much less value.
2. The explanation for why that startup thinks they will win on advertising might be arbitrarily non-specific. Maybe the founder has spent decades observing the world and building up strong intuitions about how advertising works, which it would take hours to explain. Maybe the advertising team is a strongly-bonded cohesive unit which the founder trusts deeply.
3. Startups which are going to win at advertising (or other aspects of high-quality non-customer-facing execution) might not even know anything about how well their competitors are doing on those tasks. E.g. I expect someone who’s generically incredibly competent to beat their competitors in a bunch of ways even if they have no idea how good their competitors are. The value prop sanity check would reject this person. And if, like I argued above, being “generically incredibly competent” is one of the most important contributors to startup success, then rejecting this type of person makes the sanity check have a lot of false negatives, and therefore much less useful.
I have heard from several angel investors words to the effect of “I don’t invest in ideas, I invest in people.” Which is to say they prefer a good group of founders with a mediocre idea to a less reliable group of founders with a better one.
This seems similar to your high generic competence standard. The hitch is that the preference for a good team over a good idea doesn’t rest completely on the likelihood with which a mediocre idea will be successfully executed, but rather also on the likelihood that this good team will recognize the mediocrity of the idea and shift to a new one successfully. Quoting from Paul Graham’s essay linked above:
So don’t get too attached to your original plan, because it’s probably wrong. Most successful startups end up doing something different than they originally intended — often so different that it doesn’t even seem like the same company.
I feel like the ability to recognize and then articulate value should be included in the idea of generic competence. Likewise for things like opposition research: following the advertising example, I don’t see why we can’t just recurse on execution advantages with the same basic structure of a story. It is like a Value Sub-Proposition Story, where the specific person is the entrepreneur and the specific problem is delivering on some aspect of the Value Proposition (by getting it in front of people).
It still seems useful to the investor to know whether or not execution advantages are specific and what they may be, and therefore also useful to the entrepreneur to articulate them.
I don’t think I’m claiming that the value prop stories of bad startups will be low-delta. Because the delta of the cryobacterium article, multiplied by a million articles, is quite big, regardless of how bad Golden actually is.
Ahh, I should clarify that the Value Prop Story test I have in mind does not let you sum across multiple Value Prop Stories. It functions as an existence proof that the startup idea contains at least one specific case of a big value spike.
Indeed, one of the most common ways startups try to “cheat” the Value Prop Test is by trying to answer it with a bag of low-value-delta examples.
Consider a startup which claims that they will succeed over their competitors because they’ll win at advertising.
Hm, do we know any example of such a startup? I can’t think of one. The reason I ask is because ryan_b explained how most of these indirect advantages do also manifest as Value Prop Stories.
Being “generically incredibly competent” is one of the most important aspects in startup success, then rejecting this type of person makes the sanity check have a lot of false negatives, and therefore much less useful.
I see examples all the time of incredibly-competent founders whose startup is currently failing the Value Prop Story test. My strategy here as an angel investor is to hold off on investing, watch as they keep iterating or pivoting their idea, and invest when I see a Value Prop Story emerge.
I have the same belief about startups, but I don’t see it as being in conflict with the Value Prop Story. I would go further and say it is really important to be able to link the execution to the value proposition, because otherwise what are you executing exactly?
Naively, if A and B neither have a value proposition, we expect them both to fail. If A does have one, it is trivial for B to claim theirs is higher as a result of execution. This is things like:
UX design → easier to use
Hiring | coding → shorter time to delivering value, and add more value faster
Minimising downtime | customer support → value is more likely to be there when the user wants it
Advertising | sales | expanding → able to put the value proposition in front of more users, faster
Execution is the causal explanation for delivering value, so being able to articulate this feels like a huge advantage.
I guess I want there to be a minimum lower standard for a Value Prop Story. If you are allowed to say things like “our product will look better and it will be cooler and customers will like our support experience more”, then every startup ever has a value prop story. If we’re allowing value prop stories of that low quality, then Golden’s story could be “our articles will be better than Wikipedia’s”. Whereas when Liron said that 80% of startups don’t have a value prop story, they seemed to be talking about a higher bar than that.
I had a fun time the first time I visited Stanford (and the Bay Area more generally). I had read Paul Graham’s essays and Peter Thiel’s book as a teenager, and was chatting with a guy on the bus about the startup he was working at. Somehow the conversation got to a point where I was like “But you need a model of the world where you have a secret or some other key valuable insight that other people haven’t noticed / aren’t taking advantage of!” And he was like “Oh yeah, everyone round here has one of those.” I was so shocked that my important information had been goodharted on by such a broad network of people.
It’s a good point that most bad startups can still tell a Value Prop Story which is well-formed, but just has a small delta in value. Jude did that when he claimed that cryobacterium on Golden gives more value to readers than cryobacterium on Wikipedia, and my objection is merely that the delta in value doesn’t meet the kind of “minimum lower standard” you’re talking about.
Now that I think about it, I think we can improve the Value Prop Story test by saying that the specific user in the Value Prop Story has to be willing to pay one hour’s worth of their salary per month to get the company’s product or service.
This stronger test works because regardless of the company’s actual pricing model, there should exist at least one passionate customer who doesn’t mind paying. For example, Reddit is free, but there are plenty of people who would pay one hour’s salary per month for it if they had to (at the same time, we expect that most Redditors wouldn’t pay that much for Reddit—the median case is different from the #1 extreme case).
A few related ideas here:
The 10x startup: the idea that because of switching costs, a new startup has to provide 10x value to the previous alternative.
Problem/solution fit: The stage before product market for where you describe your solution to an idea and the customer says “Yes, I want that.”
So one way to go beyond “Having a specific value proposition” is “Having a specific value proposition that gets your customers excited.”
Ya these ideas are all consistent and related.
Just one big caveat worth noting, which is captured in the flowchart diagram in the post: I see a lot of founders who claim that they’ve pitched potential customers and gotten excited reactions about the product they’re building, but in practice still fail to get any traction. The culprit is usually that they lacked a specific Value Prop Story, and their conversation with the potential customer consisted of flinging non-specific ballpit concepts.
I don’t think I’m claiming that the value prop stories of bad startups will be low-delta overall, just that the delta will be more spread out and less specific. Because the delta of the cryobacterium article, multiplied by a million articles, is quite big, and Golden can say that this is what they’ll achieve regardless of how bad they actually are. And more generally, the delta to any given consumer of a product that’s better than all its competitors on several of the dimensions I listed above can be pretty big.
Rather, I’m claiming that there are a bunch of startups which will succeed because they do well on the types of things I listed above, and that the Value Prop Story sanity check can’t distinguish between startups that will and won’t do well on those things in advance. Consider a startup which claims that they will succeed over their competitors because they’ll win at advertising. This just isn’t the type of thing which we can evaluate well using the Value Prop Story test as you described it:
1. Winning at advertising isn’t about providing more value for any given consumer—indeed, to the extent that advertising hijacks our attention, it plausibly provides much less value.
2. The explanation for why that startup thinks they will win on advertising might be arbitrarily non-specific. Maybe the founder has spent decades observing the world and building up strong intuitions about how advertising works, which it would take hours to explain. Maybe the advertising team is a strongly-bonded cohesive unit which the founder trusts deeply.
3. Startups which are going to win at advertising (or other aspects of high-quality non-customer-facing execution) might not even know anything about how well their competitors are doing on those tasks. E.g. I expect someone who’s generically incredibly competent to beat their competitors in a bunch of ways even if they have no idea how good their competitors are. The value prop sanity check would reject this person. And if, like I argued above, being “generically incredibly competent” is one of the most important contributors to startup success, then rejecting this type of person makes the sanity check have a lot of false negatives, and therefore much less useful.
I have heard from several angel investors words to the effect of “I don’t invest in ideas, I invest in people.” Which is to say they prefer a good group of founders with a mediocre idea to a less reliable group of founders with a better one.
This seems similar to your high generic competence standard. The hitch is that the preference for a good team over a good idea doesn’t rest completely on the likelihood with which a mediocre idea will be successfully executed, but rather also on the likelihood that this good team will recognize the mediocrity of the idea and shift to a new one successfully. Quoting from Paul Graham’s essay linked above:
I feel like the ability to recognize and then articulate value should be included in the idea of generic competence. Likewise for things like opposition research: following the advertising example, I don’t see why we can’t just recurse on execution advantages with the same basic structure of a story. It is like a Value Sub-Proposition Story, where the specific person is the entrepreneur and the specific problem is delivering on some aspect of the Value Proposition (by getting it in front of people).
It still seems useful to the investor to know whether or not execution advantages are specific and what they may be, and therefore also useful to the entrepreneur to articulate them.
Ahh, I should clarify that the Value Prop Story test I have in mind does not let you sum across multiple Value Prop Stories. It functions as an existence proof that the startup idea contains at least one specific case of a big value spike.
Indeed, one of the most common ways startups try to “cheat” the Value Prop Test is by trying to answer it with a bag of low-value-delta examples.
Hm, do we know any example of such a startup? I can’t think of one. The reason I ask is because ryan_b explained how most of these indirect advantages do also manifest as Value Prop Stories.
I see examples all the time of incredibly-competent founders whose startup is currently failing the Value Prop Story test. My strategy here as an angel investor is to hold off on investing, watch as they keep iterating or pivoting their idea, and invest when I see a Value Prop Story emerge.
I agree with this explanation