Pattern Breakers: How to find a breakthrough startup idea | Mike Maples, Jr. (Partner at Floodgate)
07 Jul 2024 (2 months ago)
Mike’s background
- Mike Maples Jr. is a legendary early-stage startup investor.
- He is the founder of Floodgate, one of the earliest pioneers of seed-stage investing.
- He has made early bets on transformative companies like Twitter, Lyft, Twitch, Okta, Rappi, and Applied Intuition.
- He has been on the Forbes Midas list eight times.
- Breakthrough startup ideas are based on three elements: inflections, insights, and founder-future fit.
- Inflections are changes in the market that create opportunities for new businesses.
- Insights are deep understandings of customer needs or problems.
- Founder-future fit is the alignment between the founder's skills and interests and the future that the startup is trying to create.
- Startups win by proposing a radically different future, disorienting the incumbent, and chaotically moving people to that different future.
- The inflection is the rock, and the insight is the slingshot that David shoots at Goliath.
- The goal is to create the conditions for an unfair game with unfair rules that favor the startup.
The inspiration behind Pattern Breakers
- Mike Maples, Jr. wrote a book after realizing that 80% of his exit profits came from pivots, not following best practices.
- He noticed that successful startups didn't always follow conventional wisdom and that some of the most successful ones seemed chaotic and random.
- He wanted to understand if there was something to learn from these successful pivots or if it was just luck.
- Pattern breakers are startups that achieve success by breaking away from conventional wisdom and taking unconventional approaches.
- They often start with a different perspective or insight that allows them to see opportunities that others miss.
- Pattern breakers are willing to take risks and experiment, and they are not afraid to fail.
- They are also able to adapt and pivot quickly when necessary.
- Some common traits of pattern breakers include:
- They are often outsiders or misfits who don't fit into the traditional mold.
- They are passionate about their ideas and are willing to fight for them.
- They are able to think creatively and come up with new solutions to problems.
- They are not afraid to take risks and experiment.
- They are able to adapt and pivot quickly when necessary.
- Pattern breakers can be found in all industries and sectors.
- Some examples of pattern breakers include:
- Pattern breakers are not always successful, but they are more likely to achieve success than startups that follow conventional wisdom.
- By understanding the traits and characteristics of pattern breakers, entrepreneurs can increase their chances of success.
Uncovering startup insights
- Mike Maples has a database of startups that made more than a 100x return on their first check.
- He collects original pitch decks and interviews founders to understand the origin stories of successful startups.
- He asks non-judgmental questions to get to the root cause of why startups took off.
- He has a good relationship with founders and can push for the real story.
- He tries to glean facts over time with informal discussions rather than formal interviews.
- Successful startups often have a clear and concise mission statement.
- They have a strong team with complementary skills.
- They are able to pivot and adapt to changing circumstances.
- They have a clear understanding of their target market and a plan for reaching them.
- They are able to execute their plan and achieve their goals.
A quick summary of Pattern Breakers
- Business is never a fair fight, the incumbent has the advantage.
- Startups must fight unfair by harnessing different powers that are not obvious.
- Startups win by being radically different and avoiding the comparison trap.
- Startup capitalism is different from corporate capitalism, it wins by changing the subject and denying the premise of the rules.
Coming up with an idea
- Most people get it wrong when coming up with an idea.
- Three elements of most breakthrough startup ideas: inflections, insights, and founder future fit.
- The right insight gives a first-mover advantage into the future, even if the first implementation is not right.
- Underlying forces are needed to escape the gravitational pull of the present.
- Inflections are changes in the underlying forces that shape markets.
- They can be technological, social, economic, or political.
- Inflections create opportunities for new businesses to emerge.
- Startups should look for inflections that are:
- Big: has the potential to create a large new market.
- Fast: happening quickly.
- Durable: will last for a long time.
- Insights are deep understandings of human behavior or the world.
- They can be based on personal experience, observation, or research.
- Insights lead to new ways of solving problems or creating value.
- Insights should be:
- Novel: not obvious or well-known.
- Counterintuitive: goes against conventional wisdom.
- Actionable: can be turned into a business.
- Founder future fit is the alignment between the founder's skills, interests, and values, and the opportunity.
- Founders should be passionate about the problem they are solving.
- Founders should have the skills and experience to execute on the idea.
- Founders should be able to see the future and believe in the possibility of their idea.
Inflections
- Inflections are external events that create the potential for radical change in how people think, feel, and act.
- Inflections are not improvements or gradual changes but turning points where something new is introduced, creating new empowerment for the first time.
- The iPhone 4S with its GPS locator chip is an example of an inflection that enabled the rise of ride-sharing companies like Lyft.
- Timing is crucial for startups to capitalize on inflections.
- Founders who understand and leverage inflections can offer radical products that change the market.
Examples of inflections
- Inflections are significant improvements that create new possibilities and can empower people.
- Examples of past inflections include the convergence of smartphone adoption, improved camera quality, Wi-Fi connectivity, and faster upload speeds, which led to the success of Instagram.
- AI, particularly large language models, is considered an inflection due to its transformative potential.
- Founders should evaluate their ideas by examining whether they embody one or more inflections and how they specifically empower people.
- Inflections can be technological, regulatory, or attitudinal and can occur when there is a change in regulations, technology, or beliefs.
- The COVID-19 pandemic caused a permanent change in people's beliefs about telemedicine, leading to its widespread adoption.
- Technological advancements and societal changes in beliefs and behaviors can both create inflection points.
Insights
- Insights are non-obvious truths that can change people's behavior and are often non-consensus and even hostile to most people.
- Great founders "backcast" by envisioning radically different futures and working backward to create them.
- Pattern-breaking actions are necessary to move people from the present to a radically different future.
- Great startups happen when a subset of people buy into the founder's insight and co-create the future with them.
- Airbnb's initial pitch to YC Combinator was chaotic, with cereal boxes in the room and a non-working product demo.
- Small, iterative failures are valuable for experimentation and discovery without being overly attached to success.
- The quality of a presentation does not necessarily reflect a startup's potential.
- A few successful investments can make up for many missed opportunities in early-stage investing.
- Founders only need to be right once to achieve success.
The power of surprises
- Breakthroughs are unpredictable and require a mindset of seeking surprises and embracing the unexpected.
- Authentic truth seekers construct experiments that allow for unexpected outcomes and view surprises as gifts.
- Non-consensus thinking involves finding secrets through experimentation and noticing surprises, leading to the discovery of "earned secrets" that form the foundation of successful startups.
- Successful startups often pivot from their initial idea, highlighting the importance of experimentation and learning.
- To achieve product-market fit, entrepreneurs should identify a unique offering that customers desperately need.
- Non-consensus ideas carry the risk of being wrong but offer the potential for spectacular success.
- Entrepreneurs should focus on slightly ambiguous opportunities that leverage powerful inflections and insights rather than pursuing obvious big market opportunities.
- Inflections can be used to disorient incumbents and wage asymmetric warfare, while insights are like vessels that founders use to target incumbents.
- The goal is to create conditions for an unfair game with rules that favor the startup.
Founder-future fit
- Founders' compatibility with the future is crucial for breakthrough companies.
- Different founders have varying traits that suit them for different types of futures.
- Founders who align with the future can better understand what to build and attract early believers.
- A prepared mind, constantly focused on the future, attracts luck, notices breakthroughs, and sees beyond the present.
- To generate great startup ideas, live in the future, identify what's missing, and build the product you wish existed, even if it seems unconventional.
- Founder-future fit emphasizes authenticity and finding the team that genuinely matches the radical future.
- Product-market fit is the ultimate goal, and whoever achieves it first gains a significant advantage.
Advice for aspiring founders
- Get out of the present and start living in the future.
- Most great startup ideas come from a future that exists right now.
- The only relevant opinions about the future come from people who are living in it and understand what's new about it.
Living in the future: valid opinions
- To live in the future, spend time with people who are very far along on some edge of technology or the way people behave.
- Work with a company that is at the forefront of innovation.
- Lighthouse customers are those who are living in the future and can lead you to success if you solve their needs.
- You can build for yourself like Andre, Zuckerberg, Steve Jobs, or Bill Gates, or you can build for lighthouse customers you have a good relationship with.
- If you can't do either of those, the example of Maddie Hall is powerful because she proactively got out of the present in a very intentional way.
- They are far ahead of everyone else, especially in terms of technology adoption.
- They were excited about the cloud when it was still considered insecure.
- They tend to adopt certain kinds of products, such as relational database servers and scalable front-end programming interfaces.
The importance of desperation in customer needs
- The key to finding a great idea is to focus on solving problems for desperate customers.
- Customers should be so desperate that they are irresistibly drawn to your solution and see it as a game-changer.
- Force a choice, don't make comparisons.
- Find people who value the advantages of your solution and don't waste time on those who don't.
- Create a product that people can't be neutral about, something that people either love or hate.
- Customers should be willing to tolerate the fact that a startup may not be able to execute perfectly.
- Startups can win by focusing on areas where execution is less important and desperation for the solution is high.
Creating movements and storytelling
- Pattern-breaking founders create movements by leveraging grievances and emotionally committing early believers to a different future.
- Movements accumulate and accelerate, transforming startups into established companies.
- Examples of movements include ride-sharing, seed investing, and the belief in Transformers as the future of AI.
- Great startups create movements by exposing weaknesses in the strengths of incumbents and offering an alternative that customers can choose based on their values.
- Storytelling is an important aspect of creating a movement, following structures like the hero's journey to engage audiences and convey the movement's message.
- Founders should focus on being mentors who guide and inspire others, rather than trying to be the hero themselves.
- Effective storytelling involves highlighting the contrast between the current state and the potential future, and presenting the opportunity for transformation.
- A great pitch should focus on the potential future and how the audience can be a hero in that world, rather than just talking about the product or company.
- Investors ultimately believe or don't believe in the founder's vision, so it's important to find the ones who are prepared to move with you and make sure they absolutely know why they should.
- The first slide of a pitch deck should clearly state what the company does, and the second slide should highlight something that is not obvious about the company or industry.
- Successful startups identify movements, use storytelling, and have a favorite (passionate) topic.
The role of disagreeableness in startups
- Great founders are often disagreeable, willing to stand out and pursue their unique visions even against conventional advice.
- Disagreeableness in founders is not about being obstinate but having the courage to follow their convictions and make tough decisions.
- High standards and ambitious goals can inspire people to achieve great things, even if it means working for a tough boss like Elon Musk.
- Pattern breakers, those who create breakthrough startups, share similar principles to those outlined by Professor Feffer.
- Acquiring power requires wielding both rewards and punishments, and founders must have the courage to be disliked before they win and unfairly criticized after they succeed.
- Successful companies often have internal chaos and ambiguity, which disorients incumbents and leads to a radically different future.
- Lenny Rachitsky has created a movement by engaging people with product management sensibilities, starting from humble beginnings but accumulating a following over time.
- Mike Maples Jr. emphasizes the importance of having a strong point of view for startups, comparing it to Nike's honoring of athletes and how it becomes the company's story and a desirable destination.
- Mike Maples Jr. unintentionally started a movement and offers his popular "Product Manager" hat to the speaker, even if they are not currently a product manager.
Applying these principles within a company
- Pattern-breaking products require a separate approach, leadership, go-to-market strategies, and risk profiles compared to regular ideas.
- Successful pattern-breaking products like the iPhone, AWS, and the IBM PC were led by mavericks and operated autonomously.
- To encourage pattern-breaking, companies should create autonomous business units with decision-making leaders and invest in high-risk, high-reward projects without early visibility to the main organization.
- Embracing failure and departing from the consensus are crucial for breakthrough success.
- Starting a company can be lonely, but great founders persevere despite doubts and unpopularity.
Lightning round
- Mike Maples, Jr. recommends reading "The Five Regrets of the Dying" by Bronnie Ware and "Chase Chance and Creativity" by James Austin.
- He admires the movie about Enzo Ferrari for its accurate portrayal of 1960s Ferraris.
- Mike has a fascination with vintage fountain pens, especially the Mont Blanc 149 first-generation Celluloid pen.
- His life motto, "do your best best," emphasizes giving one's best effort to honor life's gift.
- The speaker stresses the importance of personal excellence and being the best version of oneself.
- The book "Pattern Breakers" offers insights into the success factors of groundbreaking startups.
- Listeners are encouraged to spread the ideas from the book and become advocates for the concepts discussed.