Would You Bet Your Life On It? How to Be Certain with David Kidder
David was an early angel investor in AirBnB and SpaceX and remains an angel investor for over 40 startups. He's co-founder of Bionic, which offers proprietary organizational solutions to Fortune 100 companies. David would love to chat about how the world's most influential CEOs see the world similarly, and how anyone can develop the same sight.
David Kidder is NYT Best-Selling author of The Intellectual Devotional and author of The Startup Playbook featuring exclusive interviews with 40 of the world's most influential CEOs and founders. While writing this book, David discovered each interviewee shared one of five world views, interviewees like Tony Hsieh, Elon Musk, and Sara Blakely. He walks us through them in his third book, "New to Big: How Companies Can Create Like Entrepreneurs, Invest Like VCs, and Install a Permanent Operating System for Growth."
Moments of disruption have the potential to reshape our lives
The ability and opportunity to scale a massive growth company is very very rare.
What criterion would you “Bet your life” on a company, startup, or job?
What are the KEY THINGS you must understand before jumping in and investing your life, time, and money into a business?
Uncovering what your secret competitive advantage is that will allow you to scale and build a company
“Proprietary Gifts"
Understand something that no one else understands and have the ability to execute it.
Alignment of perfect factors to create a massive growth company
Massive need in the world
Insight into how to solve it
Anchored in a proprietary gift of yours
How do you find our proprietary gifts?
Undervaluing your gift and overvaluing others is very common.
The way you capture value is to focus and go all-in on the things you naturally gravitate to.
“Whoever cares the most wins” You have to do it for the right reasons.
5 Key Lens
Idea selection
Is it coming from a proprietary gift?
Do you have a focus?
Build painkillers, not vitamins.
Execution
10x Factor - what element of the business can be 10x better or impossible to replicate? Invest asymmetrically in this component of the business
Monopoly - can you build a monopoly
Optionality is the enemy. The more things you do, the weaker you are. Concentrate all your energy and mind on solving the issue.
It takes 8-10 years to build a company, you must be committed to the outcome.
Dominate one customer need before reaching for another toe-hold with the customer. Go extremely deep into one need and dominate that before you expand at all.
The job of a founder is 3 things:
Vision and roadmap (correct within 3 years)
Talent - getting the right people in the right seats during the right stages. The wrong person in the wrong seat early on can often be fatal.
Never run out of money. Earn it or raise it.
Very few companies ever raise venture capital.
What does the DATA show about WHERE growth comes from?
A VC or angel investor needs to make 40 bets to get a solid return.
7% of VC investments generate 70% of the total returns.
Those 2 investments have 2 qualities
(1) high conviction
(2) nonconsensus decision making - high disagreement rate
How do you discover a big unmet customer need?
Never invest in an entrepreneur who loves their idea, invest in entrepreneurs who are obsessed with solving the problem
Orient yourself to the truth. Experiment and test.
Wishful thinking is the enemy. - Elon Musk
“When you’re crossing your fingers, you’re in deep, deep trouble."
How do you create a permanent-growth capability at your organization?
Investments in an innovative frontier are like trial balloons - you find where the need is, where the solution is
People wildly underestimate the forces of MARKET TIMING and OUTSIDE FORCES in shaping their lives and the success of their companies.
Growth happens often because you’re in the right place and the right time.
Thank you so much for listening!
Please SUBSCRIBE and LEAVE US A REVIEW on iTunes! (Click here for instructions on how to do that).
Wish you were in early on some of the best performing IPOs of 2019 and 2020?
OurCrowd investors have benefited from OurCrowd companies IPOing — like Beyond Meat — or being bought by companies like Intel, Nike, Microsoft, and Oracle.
Today, you can join OurCrowd’s Investment in Memic — a much-needed innovation in the rapidly-growing, multi-billion-dollar, robotic surgery market.
Memic reports that with their robotics surgeons are performing safer surgeries and patients are healing faster and have less scarring.
You can get in early on Memic and other unique opportunities at www.ourcrowd.com/science. If you’re interested in investing, you need to join OurCrowd.
The OurCrowd account is FREE, just go to www.ourcrowd.com/science
What interferes with your happiness?
I know better than most that your thoughts and feelings aren't always true and can hold you bak from achieving your goals.
That's why I'm excited to share with you our sponsor, BetterHelp. BetterHelp is offering 10% your first month when you go to www.betterhelp.com/sos and sign up.
BetterHelp isn't self-help, it's professional counseling. You'll get timeline and thoughtful responses from counselors and can schedule weekly video or phone sessions. All without ever having to enter a waiting room.
BetterHelp can provide you with professional counselors who are specialized in depression, anxiety, stress, relationships, grief, and much more.
Try them today and get 10% off your first month by going to www.betterhelp.com/sos!
You've got to check out this incredible online community Matt and I have become a part of. It's the ultimate knowledge hub from The Hustle, called Trends.
Trends allows you to interact with and learn from a community of industry leaders to be the first to know what emerging trends are coming next.
No matter what you do, this information is incredibly valuable! They also host weekly live lectures on tons of topics from growth strategies, SEO, and more!
Right now you can get your first two weeks for just one dollar at www.trends.co/success!
Check it out and join Matt and I today!!
Want To Dig In More?! - Here’s The Show Notes, Links, & Research
General
David’s Website
Media
CNBC - “Op-ed: Employers will be failing their workers if they don’t learn these lessons from the pandemic” by David Kidder and Vanessa Colella
Steelcase - “Q+A with David Kidder: Think like a startup”
Atlanta Small Business Network - “How Organizations Can Stay Flexible During Turbulent Times – David Kidder, NYT Best-Selling Author”
[Book Review] “New to Big by David Kidder and Christina Wallace” by Andy Ghillyer
Signal 360 - “David Kidder: Lead With Empathy”
MuckRack Profile - David Kidder
GE - “David Kidder: Taming Big To Bigger — Fostering New to Big”
Devathon - “An Interview with Entrepreneur David Kidder”
HBR - “To Innovate Like a Startup, Make Decisions Like VCs Do” by David Kidder and John Geraci
Crunchbase Profile - David S. Kidder
AngelList Profile - David S. Kidder
Mixergy - A conversation with David Kidder (on fear and entrepreneurship)
[Podcast] The CMO Podcast – David Kidder & Christina Wallace
[Podcast] Mastering Innovation - Entrepreneur David Kidder Says Loving Your Idea Is the Wrong Business Obsession
[Podcast] Business Leaders Podcast - David S. Kidder
[Podcast] ADEXCHANGER TALKS - Can Big Companies Incubate Startups?
Videos
QuickRead - New to Big by David Kidder and Christina Wallace | Summary | Free Audiobook
Entre - Founders Series, David S. Kidder, Co-Founder & CEO at Bionic
Rita McGrath - A mindset for growth even in a crisis - Rita McGrath and David Kidder Fireside Chat
SuperPowers Podcast - Episode 5: David Kidder - Act on Passionate Obsessions
Propelify - The Startup Playbook | David Kidder | Bionic
Techo Media - David Kidder | Tech Cocktail Week Vegas Sessions | August 2014
Westchester Digital Summit - David S. Kidder sits with Silverback Social CEO Chris Dessi
Silverback Social - David S. Kidder Keynotes the Baltimore Digital Summit
Max Kalehoff - David Kidder On Entrepreneurship
Books
Amazon Author page - David S. Kidder
New to Big: How Companies Can Create Like Entrepreneurs, Invest Like VCs, and Install a Permanent Operating System for Growth
The Startup Playbook: Secrets of the Fastest-Growing Startups from their Founding Entrepreneurs by David S. Kidder and Reid Hoffman
The Intellectual Devotional Series (5 books) by David S. Kidder, Noah D. Oppenheim Bruce K. Young, and Alan Wirzbicki
Episode Transcript
[00:00:04.4] ANNOUNCER: Welcome to the Science of Success, the number one evidence-based growth podcast on the internet, bringing the world's top experts right to you. Introducing your hosts, Matt Bodnar and Austin Fable.
[00:00:19] AF: Welcome to the Science of Success, the number one evidence-based growth podcast on the internet, with more than five million downloads and listeners in over 100 countries. In this episode, we talk about how to get certain before investing your time, energy, money and ultimately your life into a project with our guest, David Kidder.
Are you a fan of the show and have you been enjoying the content that we put together for you? If you have, I would love it if you signed up for our email list. We have some amazing content on there, along with a really great free course that we put a ton of time into called How to Create Time for What Matters Most in Your Life. If that sounds exciting and interesting, and you want a bunch of other free goodies and giveaways along with that, just go to successpodcast.com. You can sign up right on the homepage. That’s successpodcast.com or if you’re on your phone right now, all you have to do is text the worder SMARTER. That’s S-M-A-R-T-E-R to the number 444-2222.
In our previous interview, we talked about the secret skill of cultivating happiness with returning guest, who’s one of my all-time favorites, Dr. Tal Ben Shahar. Now, for our interview with David. David Kidder is a New York Times best-selling author of The Intellectual Devotional, author of The Startup Playbook featuring exclusive interviews with 40 of the world’s most influential CEOs and founders. While interviewing people like Tony Hsieh, Elon Musk, Sara Blakely, David discovered that these world changers have a shared world view. He walks us through this and more in his newest book, New to Big: How Companies Can Create Like Entrepreneurs, Invest Like VCs and Install a Permanent Operating System for Growth.
[00:02:10] MB: David, welcome to the Science of Success.
[00:02:12] DK: Thank you for having me. Grateful to be here.
[00:02:14] MB: Well, we’re super excited to have you on the show today. You have such a rich background with so much experience. I’d love to start with a little bit about your story, some of the companies you’ve scaled, and some of the thought leader, and industry shapers that you’ve worked with and interacted with.
[00:02:31] DK: I think of my career as — my job as entrepreneurship and have been doing this since I was right out of college, age I think 19 or 20, when the .com boom started. I’ve lived through, I think now as my guess, three major crises from the .com, to the 2008, obviously 9/11 and now this. I had no idea that there’d be these many moments of disruptions, so I’ve gotten comfortable with how to learn and lead in these moments. Also, just deeply curious about the mindset of great entrepreneurs and so happy to talk about those in my own experience. But also, the book I’ve written about the ways to think, I guess, when you’re trying to bet your life.
[00:03:08] MB: Perfect. Yeah. I would say, let’s start with the mindset of great entrepreneurs. I know you’ve interviewed some of the most successful entrepreneurs on the planet, people like Elon Musk, Sara Blakey, et cetera. Tell me, when you sat down and had these conversations with people who built transformational companies and scaled huge businesses, were there any commonalities that you saw between the way that they approach business?
[00:03:35] DK: Yeah. I mean, there’s a lot. First of all, I think — the first thing to recognize is that it’s extremely rare that it happens. It does happen, but if you look at jus statistically speaking, the probability you got a chance to build in scale a massive company is just very, very rare. Taking all talent aside, opportunity aside, if you equalize all of it, it’s just a very rare thing. There are so many factors that go into those outcomes, like outside forces and others that indicate the opportunities to build a great business.
I wrote this book called The Startup Playbook, which was 40 interviews, 300 hours with some of the best entrepreneurs in the world as you mentioned. Kind of when you came back and you listen to what they said, they all basically said that the criteria by which they bet their life on a startup was really around five things. I’m happy as we get into this conversation to share more about what those five things are, but the one that was dominant and really the first one is this idea of proprietary gifts.
Very few successful entrepreneurs just chase white space. They look in the marketplace and say, “Well, there’s money there” and they go after it. In many cases, they’re born to do it. It comes as a gift of experience or their life, quite frankly, where they understand something that no one will understand in how to execute it. That is really the secret. That’s the unfair advantage, is that there’s truly a one-on-one type of founder who can go and do it.
Many companies go out into the space and just try to build a company to solve a problem in the world. Usually, one or two win and the first one usually win 70%, 80% of the space when it’s a new space. They know something that no one in the world has. That proprietary gift was really the first lens, the first criteria that it was a great opportunity. More important as an entrepreneur to think about when you do go and start a company that you have a proprietary gift, that you’re not just crossing your fingers and starting something because you like the idea of being an entrepreneur. But there’s an obsession and there’s giftedness that’s going to allow you to win.
[00:05:27] MB: How do you think about creating, or cultivating or uncovering what your own proprietary gift might be?
[00:05:34] DK: I have three sons, they’re young, they’re 10, 13 and 14. We think about a lot about this in the sense of -- I think it starts in what you deeply care about. A life that happened to you or you could put yourself in a place where an event would happen, where you discover something, an insight. But the insight is equally about the need, right? But it’s also the insights about how to solve it.
The answer of how you solve it, typically comes from that proprietary gift. When those things align, massive need in the world. This could be a profit for a nonprofit or otherwise, with an insight in how to solve it that’s anchored in a proprietary gift. You start to see the stars align. Then there are other signals where like, every 10 hours feels like one hour in your work and your productivity is high. Those are really great pulse so to speak for errors in your thinking. Because with your conscious and subconscious life, you need both working really 24 hours a day to solve something.
That obsession is a good signal that, wow, you’re going to process twice as long as someone who -- even for the founder of the company, when they leave work, they actually leave the work behind. I just don’t think that you can be in a need in the world and solve it with a company where you’re not thinking about it 24 hours a day.
[00:06:45] MB: You mentioned that it’s really difficult to find all three of these things at once for anyone, yourself included. When you’re thinking about where you are today, what opportunities you should pursue, what do you do if you can’t find something that meets all three of those things.
[00:07:05] DK: Well, like I said, it’s very rare that they actually align. We see all these amazing successful entrepreneurs but we don’t see is the millions that fail within five years behind them. The highest risk, in most cases the least award is to be the founder. I think that that’s only founder is successful is a complete myth. I have contact and friends who know that their superpower is not to find the company, it’s to scale it, right?
They have very particular superpowers across the stages of a company’s life, whether it be in the early stages, mid or late stages where they can be leveraged. They do phenomenally, successfully economically, and otherwise on leveraging their proprietary gift, following an idea that an entrepreneur created.
I think knowing yourself and having that real, honest, high integrity conversation of what you’re good and how to join a movement if you’re not the founder is equally as important as the need to start a company. I would almost recommend that people don’t start a company, you better join a great one learn how to do it. In doing so, you can discover your own path.
[00:08:11] MB: That’s a really good advice, and an advice honestly that’s not shared very frequently. That almost makes me come back in some ways to this notion of the proprietary gift and the idea you touched on learning from existing or previous experiences. For somebody who says, I don’t know what my proprietary gift is, how do you figure out what it is or does everyone have one? Can you create one? Do you have to build it, is it just you’re born with it or not? How do you conceive of that?
[00:08:39] DK: Well sometimes, you don’t even realize that you’re in it or maybe you don’t even like the answer. There’s a psychology of loss of version where you always sort of like overvalue what you have and undervalue what you could become. There’s a security in that. When you look at where you spend your energy and you have the highest effective rates in return on time, return on money to some extent. Really, the answer to that question I view.
Sometimes you’re like the answer. Maybe you’re really good at music but there’s no money in music, but that’s where you get to this is. Or maybe you’re an entrepreneur but you want to be in a super high-tech AI meets Space X sort of thing, and that feels really sexy and valuable to the world, but you’re really good at networking and that’s your gift. I think there’s this sense that valuing your gift and undervaluing your gift and overvaluing someone else’s is really kind of like -- you kind of suffer from the sin of comparison and you want what others have in a way. Versus just focusing on yours, despite how you feel about its value in the world. The power of the value capturing is just the focus, is to really go all in on the things where you naturally flow, and you should create in that strength.
I mean, I look back at sort of like success and failures I’ve had in my career, inevitably, there’s an incredible alignment between kind of the original ideas that I created and built with teams versus the ones where I chase someone else’s dream, where I chase the press release of another company or something that look really like a trend, those big marketplace. And I knew I could get my team together and raise capital.
The reality is, whoever cares the most wins. If you don’t have that and you’re Gen-X because you’re doing it for the wrong reasons, you’ll ultimately get exposed and you won’t have success. I don’t know if that helps you, but those are signals around really looking at what you’re good at, and then finding the biggest need the world to solve with that talent.
[00:10:25] MB: Yeah, I think that’s helpful. The fact that — you touched on this a couple of time, with this idea of maybe that mission isn’t you founding a company, it’s finding an organization that you could be part of, that’s dynamic, that lets you really focus in on what your core strengths are and you can create the most value.
[00:10:42] DK: I have a friend who has served as the director of monetization for two of the most successful technology companies ever. He’s crazy. Well, he’s always taken the number two or number three position in a company. He doesn’t want a big title. He’s in the background but he is the one who architects its financial future, and he’s been rewarded into an astonishing amount of wealth. But also, he lives out that skill and that’s what he does. He is between a B round in a C round or B in a D round type of person. He goes in and does a very specific, very valuable, hard task of solving how the company is going to make repeatable scalable revenue.
He’s been rewarded with that and he’s very humble about it, but he’s probably one of the best in the world. Like he knows he’s not the founder, he’s that guy. I just think that that’s an example of someone who’s extraordinary, but also knows his superpowers. I encourage people to stare on that truth and not really wish they were someone else or wish they had more scale, or wish they were building a company. It’s was sexier, but it’s really themselves in all of this. That’s what matters the most.
[00:11:47] MB: What are some of the other elements that you uncover that shaped the mindset of great entrepreneurs?
[00:11:54] DK: Well, either the second through fifth lens — I’ll simply say, the first three are really about idea selection. The first is, is it coming from a proprietary gift? We’ve covered that. Second is, is do I have extreme focus? Have I been able to go in and validate very quickly the need in how to solve it? I don’t have 10 options. I figured out the one option.
Ironically, optionality is the enemy. The more things you do, the weaker you are as a company. You have to be able to get the science of focus right so you can get all of your concentration of your energy, your mind, and the team and quite frankly, that subconscious-conscious cycles going to solve it. Because the chances are low, you will be able to do it anyway.
Extreme focus is the second lens. The third lens is, you got to have painkillers not vitamins. I think I’ve been saying this now for 10 years when the book first came out. But painkillers are solving chronic, lifelong, malignant pain in a customer. Vitamins are nice, they’re wishful thinking. You hope the customer likes it or you hope they behave differently. But the truth always lives in the behavior of our customer. In this case, the pain killer is the answer to that question of what to solve or how to solve it.
The fourth lens as you saw those first three, which most ideas die in. The last about execution is, what do I execute? The fourth lens is really the 10X factor, which is, what element of the business can be ten times better or impossible to replicate? That is really powerful in the sense that, once you start investing asymmetrically in that one thing, the company gets to a place where it’s uncatchable. Which leads to the fifth lens, which is, can you build a monopoly, the M word?
Can you put hooks and barbs in customers so they stay with you long enough, i.e. about three years so that you can solve the whole need and you can also build a business? If you’re one and done quickly, it’s very hard to get through the cycle of customers, volume of customers you would need to actually discover the truth for your product or your service and be with them economically to build the business.
Those five lenses have been written out 10 years ago, have really just led my life. It’s led 40 of my angel investments in the last 15 years, 17 years and it’s been the advice that I really give most entrepreneur thinking about what or should I build the business and how to do it.
[00:14:06] AF: This episode of the Science of Success is brought to you by our partners at BetterHelp. That's BetterHelp, H-E-L-P. You'll get 10% off your first month by going to betterhelp.com/sostoday for 10% off your first month. Let me ask you, what interferes with your happiness? Is there something preventing you from achieving your goals? I know there have been plenty, plenty of times getting too far into my own head has kind of gotten in my way. Limiting beliefs, thoughts of doubt, it can all build up inside you and become paralyzing or cause counterproductive behaviors to form.
BetterHelp will assess your needs and match you with your own licensed professional therapist. You will get timely and thoughtful responses plus you can scheduled weekly video or phone sessions all without dealing with one of my least favorite things ever, the waiting room. It's effective and more affordable than traditional online counseling and financial aid is available. Licensed professionals are on staff who specialize in things like depression, stress, anxiety, relationships, trauma, and even more.
Plus, everything you share is completely confidential. In fact, so many people have been using BetterHelp they are recruiting additional counselors in all 50 states right now. If you want to start living a happier life today, as a listener you'll get 10% off your first month by visiting betterhelp.com/sos. Join over 1 million people taking charge of their mental health. Again, that's betterhelp.com/sos for 10% off your first month today.
[00:15:56] MB: You said a couple of things that I thought were really insightful. One, this idea of investing asymmetrically in the piece of your business that’s really hard to replicate or has a competitive advantage. Tell me a little bit more about that/
[00:16:10] DK: It’s about finding something that as it gets to critical mass, the very next thing after critical mass is like a velocity that’s uncatchable. For example, that could be — there are lots of forms of monopolize. There could be data, right? I plug into a very specific stream of data and I get so much of it that no one has the insights I have. It could be integration. I plug into so many things that at some point, there’s a tipping point where I plugged into so many things that everybody gets their whole solution in my tool or my place.
Also, it could be salesforce, which is, we’d go so deep into our channel that no one could replicate that channel, so we have complete product or service all the way to doorstep type of access. It could IP around knowledge. You build so many insights in to a particular space that that community or those answers can only exist with you. You’ll be able to remote around relationships.
The answer is, whatever aspect of the business that given enough time, and given enough connection with the customer that need no one else could make. Their test for that is, when you go to the marketplace, no one really even bothers to compete with you in a way. Your competitive set is actually quite low. This is something that Peter Thiel once taught me, which is, competition is for losers. Why build a company that competes to other companies when you could just build one of one company that creates its own marketplace?
I think that’s been my philosophy for at least this last company, Bionic, but that’s a hard thing to do. The reality is, companies take a long time to build. They take eight to ten years. If you’re not committed to that outcome, why are you building a company in the first place. The way you think and the way you execute drives so much of the value that you realized with your team and with your customers.
[00:17:49] MB: Something else you touched on a minute ago that is such a great insight. I don’t think I’ve heard it quite this way but I’ve heard it in different phrasing. But this notion that optionality is the enemy, and the more things you do, the weaker you become. Tell me more about that.
[00:18:03] DK: Well, I think you see this in both startups but also big companies. I think we now watch the end of all, the conglomerate as a successful model, which the whole idea was, is that the more things we do at scale, the greater our business is hedged, right? That’s true if you have a lot of resources, but startups don’t have a lot of resources. They’re trying to typically zero sum themselves into a marketplace.
This case is that, it’s so hard to get traction with even a customer in one single need. That if you don’t completely dominate it, you really can’t have a leveraged point to expand your business. If you have a weak toehold in the marketplace and you’re already reaching for the next one, maybe that toehold is, it can’t sustain both in strength or weight what you need to accomplish. You really have to go extremely deep into one need and dominate it before you start expanding from that. That’s one view of it.
The other view of it is that, if you took as SaaS business for example, which – For example, my other startups, last two or three, features an arms raised in features very often doesn’t lead to success. I mean, it can over a long period of time. But over a short period of time, say the first, three, four or five years, it’s really about just solving the one problem. So the question of, what is the one problem is one that an entrepreneur, a founder, a CEO has to get right. We have to test a lot of things to answer that question.
Other past investors, Albert Wenger and Fred Wilson once told me, it’s like, the job of a founder is really three things. It’s the vision in roadmap, right? You basically have to be correct in your vision within three years, but you have to be almost completely on time in the first four quarters that you’re in.
The second is just talent. It’s getting the right people and the right seats at the right time during the stages in those first three years. But knowing that you may have Mr. Right only for 18 months. So talent is certainly through 1 through 20 in the first 20 employees. If you get the wrong person in the wrong seat, it’s often fatal, right? Because it takes six to nine months to get them there, to discover the wrong person. They leave, you replace them and it’s a year and you’re out of money and/or you lose your customer.
Talent is the second part of the job and the third is just never ran out of money. There’s only two ways to do that, you either earn it or you raise it. Ironically, very few companies despite perception actually raise venture capital. There’s only like couple of thousand a year, relative to the 2.4 million businesses trade every year. So, very few raise it, so you better be focused on how to organically grow your business in all instances.
Those three jobs are really incredibly hard to get right, because timing of the decision in what’s coming next is such a critical aspect of leading well and being a founder.
[00:20:42] MB: Such great advice. I love all three of those suggestions. That brings me to some of the lessons that you shared in New to Big, with this idea of creating a company that scales, that thinks entrepreneurly, but then scales up to be a larger business. Tell me about what was the inspiration behind writing that and what were some of the key lessons that you drew out of it?
[00:21:06] DK: Well, the idea behind the book and I’m sure you have listeners who are in corporate jobs as well who wants to start their own company and/or be an entrepreneur in a large organization, and they can’t for variety of reasons. They don’t want to leave their job or they can’t leave their job but they still have this capability.
I have written The Startup Playbook, and I have spoken about your conferences and I’ve been asked to come speak at large enterprises around how to think differently. We sort of pioneered the whole growth mindset movement, as well as the growth systems movement that has led to the transformation of companies like P&G, and General Mills and Citi and others.
Fundamentally, it’s the recognition that big organizations are basically focused on planning and risk mitigation, So that big to bigger engine, that scale of operating at will is really at war with growth because growth lives in risk. If you try to de-risk and create risk at the same time, the purpose of those operations so to speak or the cultures are very different. What we focused on is really transforming, re-founding big companies. We do that with this model called the Growth Operating System, which is really the job of New to Big. It’s that zero to $100 million revenue. That first dollar to scale revenue job that large company struggle doing.
Our belief is that venture capital and entrepreneurship are forms of management. The reason why this is so important is that, there’s a huge distinction between planning and discovery. Planning is something that’s knowable. Growth lives in discovery. It’s in a job of managing the unknowable. If you go to the statistics of this, the deeper you go into, you realize that as you get good at this job of scaling growth as a capability, you realize that the statistics are really credible about where growth comes from.
If you’re a big company or quite frankly an angel investor like myself, you have to make about 40 bets into a single need in the world to have success. If you look at the math, about 7% of all the capital you invest in an opportune area or portfolio produces 70% of all the money we make. If I make 100 bets or 50, 7 of those bets of 100 will be all of my unbanned returns.
When I go back to the beginning and I look at, why do we make those 7 out of 100 that made all the money? They have two qualities. One is, high conviction, meaning why you and why now. What’s they proprietary gift for the company and what’s the outside force? Then the second one is, is non-consensus decision-making. You make all of your money with the ideas with the highest disagreement rate. If you have consensus, you’re basically screwed. You have to be able to invest in large volume with high degree of failure in a way that serve contrarian non-consensus, so you can actually learn something.
It’s in that discomfort that learning discomfort, which is not planning that growth is discovered. That is the oppositive of the way a large organization works. We have learned, and built a model and coached it with some big companies of the world as they’ve ignited their growth revolutions from the top.
[00:24:03] MB: How can an investing entity or a decision maker simultaneously have high conviction and also have disagreement or lack of consensus.
[00:24:12] DK: Because the signals across the stages of venture, seed ABC are all very different types of signals, both on the quality of them, i.e. the efficacy. Is it strong or weak signal? It’s really less about building the business than it about discovering the need. In the early stages in the seed round or an A round, about 60% of the reason why you stay invested in an idea despite struggle is really the team. So the way you’re looking at the founders and saying they have a secret, they have a proprietary gift and they have discovered really big need. It’s emerging, it doesn’t exist yet.
In those stages, you’re creating metrics that are really signals. What is the problem solution model we’re looking for that creates repeatability and focus that we can draw an insight into why we keep investing in it? Almost always, it very rarely has to do with economics. There might be an economic element to it, but ends up sort of in the metrics cocktail. I like to call it the God metric. Very rarely is financial.
At the beginning stages, we’re looking for the signal that comes from solving a new need. It can be a basket of them quite frankly. Across the stage of seed going to A round, once you discover that pragmark to fit, which is usually the A round, you can repeat that metric and we want to keep focus to the company. We don’t want to go global quickly, we don’t want to go national quickly. We want to focus just on a customer, in a geography or vertical that we can repeat right quickly to get focus.
Once we come out of that round, A round to B round, we can get that God metric and then start to expand it. Each one of these stages are discovering commercial truth, but each stage is a different commercial truth in the ability to take something once. Do it many times and then do it very widely. That really creates the funding stage gaining that you’re familiar with, seed ABC that lead to a company by the C going to D round that we think could scale. We should pretty much know the answer to how big this can be at those points and what you have over unreasonable period of time, call it four to five years.
[00:26:17] MB: Got it. Yeah, that makes sense from the perspective of looking at kind of the key challenge at each of the different growth phases. But I’m curious more around as an investing decision maker without maybe abstracting this a little bit from just the context of startups. Explain to me the distinction, because when you say making a high conviction decision, but your investment committee or whoever also doesn’t have consensus about, how do you balance those two factors?
[00:26:46] DK: Again, with growth funds in particular, the structure of the board is designed to make non-consensus, high convictions. Enterprise are getting better at this. But like for example, if you look in deeply at the investment team at let’s say Andreessen Horowitz, right? And they’re public about this. When they find an idea that they all love, they try to talk themselves out of it. Think about that for a second. If they all belief it’s a good idea, they realize, wait, hold on, everybody else knows this. There is not enough dissention, so therefore, most can be a bias decision. Bias becomes normalcy. That means that other people have the same insight.
I think that the culture and the decision architecture you put at that board level, the investment committee level really determines how effective you are in discovery. In fact, there are tools that a lot of funds use to allow for almost like pre-mortems before they create investing. Where they’ll make blind or unbiased decision making early in the process and then revisit it before they make an investment decision to see if they’d become normalizes in their biases. Or they maintain the sort of non-consensus aspects that allow them to get to that truth.
At a large organization, it’s harder candidly, but they are very smart. They’re equally as capable as anybody else in the marketplace of investing. It just takes them a while to adjust from a planning model to a discovery model. A cause of this, which is, I think when you get a lot of mindset, things are right.
I’ll give you an example of one. This idea of shifting from TAM to TAP, from a total addressable marketplace in the world to total addressable problem or need, you kind of move from a linear to portfolio model. We know the need even if the marketplace didn’t exist, because we framed it in such a way that the volume of bets we’re making in that space is going to be higher because we’re discovering. As oppose to, okay, we’re going to build a specific company going after a specific market where we know there’s a specific budget and a specific buyer. Very different sort of models of investing. Where one consensus is probably to your benefit because experiences will accrue to advantage.
Conversely, when you’re growing for growth, that same experience is your liability because future biases is to seek things that you already know and we know that growth doesn’t lives there. That’s a long-winded way to describe this and it’s a fairly — it’s probably a more sophisticated answer than needed, but it’s a very complex decision architecture question that you have to get it right.
[00:29:14] MB: Yeah. I think no, that was a great extrapolation of that. If I can sort of summarize it in some way. Basically, what you’re saying is, you want to avoid essentially group think where everyone agrees the same way. You want to create some sort of dissention in the thought process. You want to beat the ideas of red team, the post-mortem, pre-mortem, however you want to look at it and use that methodology to ensure or try to ensure that you’re thinking about the possible failure points of the opportunity before you jump in.
[00:29:40] DK: Yeah, you’re taking an opposite signal, which is, you know when there is friction, there’s opportunity, right? Because there’s net new learning. Yes, you have to validate it, the efficacy of the learnings is very high, but you need to go in and lean into that discomfort.
I know that you’re in the Science of Success, which you focus on. I’ll give you another example of this, which is, how many bets do you have to make in a portfolio to get those returns? You need typically 20 to 40 in like a major need in the world when you’re going for growth. Knowing that you’ll probably have a 60% failure rate across all the stages of your investing. Seed to C or beyond.
The second factor — volume being the first, the second is time, right? Where does your due diligence come from? We’ve talked about lenses, we’ve talked about mindset, but there is a function of, have we invested the energy in determining if this is a good idea and how. If you look at fund returns, if you go down, you can kind of get your money back. If I have let’s say, I have a million dollars or ten million or hundred million, it doesn’t really matter and I make 20 bets into a venture fund or a growth fund. I’ll typically just on that volume alone get about 1.5% on my money, which is not really a great return for the time and energy.
But if I look at the other factor of diligence, if I spend less than 20 hours per deal, I’ll go from 1.5 to 1.92. Not a significant lift more. If I spend less than 40 hours, so double, the return will go for about 1.9 to probably 3 to 3.5. We have a bunch of data on this, a bunch of machine learning data. The last thing is, is that you spent greater than 40 hours and the diligence is shared from a network. Meaning, you have multiple lenses and filters. The fund returns go to over 9X. The reason why is because you’re getting dissention, you’re getting non-consensus, you’re getting deep expertise to take harder looks at things that filter out the signals from false positives and false negatives. That’s where the fund returns really left.
If you can replicate some of that systematic thinking and modeling in time, energy, money, and network and how you deploy capital into growth as an investor, quite frankly as a founder, you’re really going to radically increase the odds that you’ll get it right. That really is about how much openness do you have to disagreement and you have to be comfortable with it to get to the right decisions.
[00:31:56] MB: Yeah. That’s a great way to characterize that you have to be open to disagreement. That’s a really — a cornerstone of any successful decision-making process.
[00:32:08] AF: Do you ever wish you were in early on some of the best performing IPOs of 2019 and 2020? OurCrowd investors were, and now you can join them in what's next. With OurCrowd, accredited investors have access to invest directly, easily, and most importantly, early. OurCrowd investors have benefited from OurCrowd companies IPO-ing like Beyond Meat, or being bought by companies like Intel, Nike, Microsoft and Oracle. If you’re an accredited investor, you can join OurCrowd for free at ourcrowd.com/science and review the current deals. No payments involved at all until you decide to participate in a deal.
As you refer deals, now, here’s on of my favorite parts, you have access to OurCrowd’s investor relations team where you can talk to directly on the phone about your personal investment goals. Now, OurCrowd’s investor relations team have already done a ton of things to help you out. They’ve reviewed thousands of companies, invested hundreds of millions of dollars, closed investments on over 200 companies, chosen dozens of companies that have made exists and accredited investors can participate in a single company deal for as little as $10,000 or one of OurCrowd’s funds for as little as $50,000.
Today, you can join OurCrowd’s investment in Memic. Memic explains that their tiny robotics allows surgeons to be less invasive and safely perform gynecological surgeries so women heal faster and have less scarring. Memic is a much-needed innovation in the rapidly growing multibillion-dollar robotic surgery market. You can get early on Memic and other unique opportunities at ourcrowd.com/science. If you’re interested in investing, you need to join OurCrowd. The OurCrowd account is free. Just go to ourcrowd.com/science to get started with your free account today.
[00:34:12] MB: Tell me a little bit about how both at the startup phase and even at larger companies how you can discover these big unmet customer needs versus wasting your time going down dead ends and rabbit holes.
[00:34:28] DK: Well, I mean, these are simple things but they’re really profound. The truth is, which is you never invest in an entrepreneur who loves their idea. You only invest on entrepreneurs who are obsessed with the need or the problem in the world. Because you need every option. Everything’s been in the table always to solve it. Whether you’re trying to get your technology work if it doesn’t need technology or it needs to be a service company. Whatever the answer is the answer. That’s the first thing.
The second is, you organize yourself, your relationship with your investors and your teams or culture to always drive to the truth. How do you create an environment where you know you’re betting your life on commercial truth? Obviously, the lean movement, we call it validate. But that scale to experiment in task to get the answer, run down dark alleys to get to the light as my friend, Dick Costolo says is that, you have to always be pursuing the light. Again, wishful thinking is the enemy. The more you don’t have that truth, the more idea, the more you chase white space. It’s just radically increases the probability of failure.
Getting those things right in yourself, in your investor, in your relationship with them is really just about getting the truth. Are you a person in an organization that can do that? That’s a very difficult job, because it weighs on you very heavily for a larger portion of your day than you really wanted to actually. You want to be — got to be spending more time in the fun stuff and less time in the hard stuff. Reality is, that you spend most of your time in the hard stuff for a very long time until you earn the right not to.
[00:35:54] MB: I love that phrase, wishful thinking is the enemy. It’s such a simply way to encapsulate a really, really poor idea.
[00:36:00] DK: The guy who said that is in The Story Playbook and it was Elon. We were doing an interview — one of Elon’s very close, lifelong friend, who’s a very good friend of mine who ran the Creative Founder Institute, named Adeo Ressi. Adeo, he introduced me to Elon like 10, 12 years ago.
In the interview and company conversations, that was the one thing that stuck out of me was, is that when you’re crossing your fingers, you’re in deep, deep travel. That is literally the enemy. Only you can answer that question. But if you don’t, the truth is coming anyways, so why delay it.
[00:36:35] MB: Yes, such a good insight. I want to change gears a little bit. Tell me about how you can create at your company a permanent growth capability and what does that mean?
[00:36:46] DK: Well, in a large enterprise — well, in a small enterprise, you should be completely — your whole organization is about growing. You’re growing or you’re dying, so it’s much more a cue. You fell that urgency in how you’re leading it because everyone’s really focused on that.
In larger organization, it’s harder because you’re insulated from the customer, you’re insulated from the day-to-day net impact of your decisions because you’re not really in a live-die, live-die modality versus a startup, which you only are in a live-die modality. The urgency is crashing sometimes. But the answer to an enterprise is you got to change the way you work. That’s really the how.
Big organizations typically don’t have an ideas, money or talent problem. It’s just the machine that they’re in, that big to bigger, lean manufacturing, six-sigma matrix is literally at war with growth. You got to build the machine. What we do is we’ve created something called the Growth Operating System and it has five components. We set growth boards that our senior executive leadership, as in the C-Suite sit on and they become growth investors. They learn how to do high conviction, non-consensus investing in portfolios that are not markets for problems and needs, add volume.
They’re not making five big bets a year that McKenzie told them to write. They’re doing 30 or 40 that they created, where they invested in it, or incubated it, or bought it and they’re scaling it up across the stages of venture as a form of stage gate financing. There is decision science and there’s metrics across those stages that they learn, because they’re smart.
Then they build special forces for growth that learn how to do this, and they build career paths for people who could validation and startups, and they learn discovery, which is creating the portfolios themselves. Then they learn how to build things, they learn how to do the A through C rounds, and eventually, they’re scale up or acquire or kill.
Lasty, the fifth element of this, it’s just the operations. They learn how to operate growth, and they change incentives because you always get what you paid for. They change speed, and legal and requirements that usually slow the machine down and they create speed.
Those elements, growth board, discover, validate, build and growth ops are the components of we call an operating system for growth or the growth of us. It’s really, it’s a very powerful offering that allows that CEO whether P&G or Nike or smaller to manage growth in the same way they manage efficiency, right? They can now operate and create organization with the same skill. That is really — that’s what ambidextrous leadership is, is you got to be able to operate and create going forward. This is the bar for all leaders going forward. You can’t just do one. That error is over of stock buybacks and efficiency. The world has been disrupted. The needs have changed and the world needs growth leaders.
[00:39:29] AF: I want to tell you about this amazing online community that I’m a part of. It’s the ultimate knowledge hub from the hustle called Trends. You can learn all you need to know about trends in virtually any space, from business, personal development, psychology, and more. It's an incredibly powerful tool and helps you identify trends before they happen so you can be the first to capitalize on new and emerging trends in any space. Trends will give you the network and information you need to succeed.
Trends gives me access to a community of industry leaders in virtually every field where I learn how to capitalize on emerging opportunities. Trends is a place where I workshop ideas and I network with other entrepreneurs and investors. And one thing I love to do is attend their weekly live lectures. They have expert who teach growth strategies, SCO, or my favorite, how to send the perfect cold email. A lot of our sponsors know, I do send quite a bitter cold emails.
Trends has exclusive research with intriguing topics to help inspire, like the 30 companies defining the future of media and pop culture. Or data on thousands of successful kick starter projects, for example. I've always been fascinated by supplements and sleep. So lately, I've been discussing the new trend of sleep supplements and how they can help us get to sleep faster and get more out of our time of sleep. I'm enjoying Trends so much that I want to share it with you. And right now you get your first two weeks of transfer just $1. Go to trends.co, that’s “co”. So trends.co/success to start your $1 two-week trial. That's trends.co/success for your $1 two-week trial. Trends.co/success.
[00:41:20] MB: It’s interesting this theme that has really transcended a number of different topics that we’ve talked about today has been this idea of — correct me if I’m characterizing it wrong, but this notion of almost portfolio thinking as oppose to really focused bets and something. It’s more about, when you’re dealing with change, when you’re dealing with the frontiers of innovation, you need to have a lot of smaller bets distributed across the field as oppose to two or three really big deep bets. Is that a correct understanding of kind of on of the themes?
[00:41:51] DK: It’s absolutely true, but it’s only a part of a model. There’ve been some great books. My friend Peter Sims, wrote one called Little Bets which was great and I think, someone is coming out with a book, it’s basically a carbon copy of that. I don’t remember who, but it’s coming out in the next couple of months.
There are things like that that are just part of the model. It’s part of the element, but you’re absolutely right. What you’re trying to — honestly is permission. Permission is the reason why — is what portfolios drive. It’s optionality, but not in the sense of a company, but for our company to see the truth. If you only have five silver bullets into a trillion dollar need in the world, how are you ever going to see the answer to what’s working. Whether it be a technology, or model, or service or product. But more importantly, about why you, what’s your proprietary gift as a large organization in solving and winning it?
If you can’t answer that question, why us and why now? You’ll never going to actually capture or scale the growth if something is going to happen to you. You make the investment and watch it happen, but if you want to own it, the question of why you and why now is central for that. Really, a portfolio is kind of the only way to answer that question. It’s such a complex discovery question. It’s not something you study and have the answer for. It’s something that has to be done, observed, and learned. That’s a different continuum of leadership than reading a white paper and making a decision.
[00:43:11] MB: It’s essentially, you create a basket of experiments to really figure out where the market is going, where the customer needs are going, which solutions are addressing those needs. Then as you see those things developing in real time, you start to double down and focus in on the things that are actually working.
[00:43:27] DK: One other element of this permission point is what you’re saying is, read Hoffman, the founder of LinkedIn. It’s just a beautiful human being on so many levels. I am always amazed by him and incredibly grateful friend. But he wrote the forward of my book, The Startup Playbook. I remember he tell me once, he’s like — I asked him, “To what degree is of every dollar you have in the bank is good timing and good fortune?” And he was like, “80%.”
What we’re saying is, it’s like, listen, as good as everyone is, right, and as smart as — and all the smart money and smart entrepreneurs, people widely underestimate the role of outside forces of market timing. The reason why very often big companies fails, because they think they’re in control. Their balance sheet, their budget, their brand, then they prematurely scale a technology in search for a problem or whatever it is. Then it doesn’t emerge for another two or three years, and they stop doing it. So they’re not even there when it happens.
An entrepreneur who can hedgehog their way to be not dead when it happens is there to win the space. Being there when it happens and recognizing that your growth is going to happen because of outside forces as much as it is about your own plan’s execution is a much more acute understanding of how success in new things actual occurs. I think that is an entirely new mindset that large leaders are now understanding, which is like, “Oh my God, we’re not just crossing our fingers and getting lucky, we’re positioning capital into a new part of the world so that we know when it’s arrived because we don’t control it.”
These are really quite profound insights in leadership and quite profound insights even for an entrepreneur who’s just hoping that their success comes. Going back to lens again, you start looking through this lens and start understanding how these factors work. It really fundamentally changes the job you do. I’m going to go back at the beginning around the three jobs of entrepreneurship, which is, you have to have vision and you got to be right on time. Two is, you got to hire the perfect people 1 through 20 without a mistake and you get two or three, 20 through 50 and maybe four or five on 50 to 100. You exceed that number, you’re dead.
Three is, you can’t run out of money, so whether you can earn it or raise it. That job with these factors, these lenses become not a job execution, it becomes of the criteria of how you — and how you lead. Those are the big ah-has for me over the last decade of learning how to do the job as a founder.
[00:45:45] MB: Such good insights and David, I’m curious. For somebody who wants to take some kind of action to start concretely implementing some of the things we’ve talked about today, what would one action step be for them to begin to implement some of these notions into their lives?
[00:46:02] DK: Well, two ideas. One is, I wrote The Purpose of Bionic seven years ago. It was the statement basically to ignite growth revolutions and I used to think that was really like about money or success, whatever it is. But in reality, it’s the interior life of the leader. Ultimately, you are the permission, you are ceiling inside of you that you will allow yourself or your company to take risk or not, or discover your becoming because you have a bias of what it has to be.
You have to really become friends with your mind to change that, those biases in or those permissions, and 90% of our life has lived in the subconscious. So if you can’t get underneath all the why and your intentional choices, there’s a lot of ways to sabotage otherwise successful possibilities.
The other aspect of this is that I think there’s this race to achieve in building things, so particularly companies obviously. But this, “When I get this, I’ll be happier” or “When I get this, I’ll have success” or “I will be successful when this thing happened.” They’re kind of like peak moments or mountain tops and in reality, when you get there, one is, you realize that there’s nothing there at the top. Secondly is that, it’s just not satisfying. I philosophically and I think I talk about this a lot in my own company is, is just fall in love with who you’re becoming. This is a grind and it’s a journey. It’s one of the hardest journeys to do this as an entrepreneur as oppose to a larger organization, but not better words. But the odds are is that you’re not going to be successful. So you have to be at peace with that reality, because it’s really not about the company. It’s just a company. It’s really about your own growth in that journey that hopefully leads to a better, more extraordinary life and a more extraordinary you so you could have a more extraordinary impact on others.
When you get that wrong, eventually, people will figure it out. They’ll figure out your selfishness, they’ll figure out your fakery and it will come falling apart anyways. I would just spend a lot of time in your intention and knowing you’re doing it for the right reasons.
[00:47:55] MB: Great insight and really, really good look at what the journey is really all about. David, for people who want to find you and all of your work online, what’s is the best place for them to do that?
[00:48:06] DK: I do a lot of keynote speaking for large organizations in honor of my books. You can go to davidskidder.com. If you’re a large enterprise and you want to learn more about bionic, you can go to onbionic.com or you can reach me at david@onbionic.com. Also, go check out the books. There’s newtobig.com. You can get on Amazon The Startup Playbook. All of those things are, they’re just tools and they’re just insights and there’s no answers. It’s more about just sharing my own personal journey with others. Hopefully, those are of good enough quality that you find them, and keep them and hang onto them because others have but I return to them all the time as well. They just inevitably illuminate some part of something I missed the first time, or the second, or the third time.
Again, it’s who you becoming. I just want to thank you, Matt. You’re a great interviewer and you’re very generous, so thank you for this time together.
[00:48:58] MB: Well, David, thank you so much for coming on the show and sharing all this wisdom.
[00:49:01] DK: Hard earned, nothing’s perfect, so thank you.
[00:49:04] MB: All right, cool. That is a wrap.
[00:49:06] MB: Thank you so much for listening to the Science of Success. We created this show to help you, our listeners, master evidence-based growth. I love hearing from listeners. If you want to reach out, share your story, or just say hi, shoot me an e-mail. My e-mail is matt@successpodcast.com. That’s M-A-T-T@successpodcast.com. I’d love to hear from you and I read and respond to every single listener e-mail.
I’m going to give you three reasons why you should sign up for our e-mail list today by going to successpodcast.com, signing up right on the homepage. There are some incredible stuff that’s only available to those on the e-mail list, so be sure to sign up, including an exclusive curated weekly e-mail from us called Mindset Monday, which is short, simple, filled with articles, stories, things that we found interesting and fascinating in the world of evidence-based growth in the last week.
Next, you're going to get an exclusive chance to shape the show, including voting on guests, submitting your own personal questions that we’ll ask guests on air and much more. Lastly, you’re going to get a free guide we created based on listener demand, our most popular guide, which is called How to Organize and Remember Everything. You can get it completely for free along with another surprise bonus guide by signing up and joining the e-mail list today. Again, you can do that at successpodcast.com, sign up right at the homepage, or if you're on the go, just text the word “Smarter”, S-M-A-R-T-E-R to the number 44-222.
Remember, the greatest compliment you can give us is a referral to a friend either live or online. If you enjoyed this episode, please leave us an awesome review and subscribe on iTunes because that helps boost the algorithm, that helps us move up the iTunes rankings and helps more people discover the Science of Success.
Don't forget, if you want to get all the incredible information we talk about in the show, links transcripts, everything we discussed and much more, be sure to check out our show notes. You can get those at successpodcast.com, just hit the show notes button right at the top.
Thanks again, and we'll see you on the next episode of the Science of Success.