(2024-07-07) Lenny Pattern Breakers How To Find A Great Startup Idea Mike Maples Jr

Lenny Rachitsky interviews Mike Maples, Jr. (Founding Partner at Floodgate, ex-Product at Silicon Graphics) about Pattern Breakers: How to find a great startup idea.

Mike Maples, Jr. is a legendary early-stage startup investor and a co-founder and partner at Floodgate. He’s made early bets on transformative companies like Twitter, Lyft, Twitch, Okta, Rappi, and Applied Intuition

More recently, he's been spending a lot of his time researching where great startup ideas come from and what separates the startups and founders that break through and change the world from those that don't go anywhere.

What we're going to be talking about in our conversation today is how to come up with a startup idea and how to take the first few steps to make that idea real. You have a book coming out that is exactly this, helping people understand how to do this. It's called Pattern Breakers, Why Some Startups Change the Future.

I'd been investing for about 10 years and I noticed that like 80% of my exit profits had gone from Pivots.

And I also noticed that like all the ones that had seemed to do well didn't necessarily follow the best practices that everybody talked about

At the same time, I was helping founders shut down their companies, and they had seemed to do all the right things. They'd done the business model canvas. They'd done customer development.

So I have a database of any startup where you would have made more than 100 acts on your first check.

I had to be really careful in the questions that I asked, because like, for example, you don't ask, why were you successful? Because then they'll they'll offer their reasons.

you want to say, OK, I notice here is the seed pitch deck and you called the product X, but now the product's called Y X. When did you make that change? Why did that happen?

you have access to more data and more unique data than most other people because you invest so early stage.

I think the other thing is I just have a pretty simpatico relationship with founders usually. And so I can kind of push for the real

the main thing is that business is never a fair fight. So the incumbents (status quo, BigCo) start out with an advantage and the default is they will maintain their advantage. And so the startup has to decide that it wants to fight unfair.

...better is an extension of the present. Better is when you think the future will resemble the present, but only be slightly different. The way startups win is by being radically different. (compelling)

that's what what we mean by forcing a choice and not a comparison.

A corporate capitalist makes money by persistently compounding, makes money by extending their advantage, makes money by having a moat

Startup has none of those things. There's nothing to compound.

And so the way a startup wins is they just change the subject. They deny the premise of the game rules and propose something completely different. And that was the original notion behind pattern breaking was you want to have an idea that just radically breaks the pattern,

there's basically three elements of most breakthrough startup ideas.

Yeah, the three are inflections, insights, and then what I call founder future fit, or another way I phrase it is, "is this from the future""?

You'll notice I didn't say the implementation, right?

you can navigate the implementation to the right implementation to get product market fit.

So let's talk about the first power.

An inflection is an external event that creates the potential for radical change in how people think, feel, and act.

the inflection that enabled Lyft was the iPhone 4S shipped with a GPS locator chip

it's a point in time where something new gets introduced that creates new empowerment for the first time possible

Another example would be the cameras getting better on the smartphones, which enabled Instagram

Moore's law is not an inflection. You know, an improvement curve is not an inflection. (More precisely, an improvement curve can be an inflection when it reaches a point that supports a new behavior.)

You had more of them connected on Wi-Fi. You had the networks having better upload speed for smartphones

the locator chips in the smartphones. Powered other companies as well. Powered DoorDash, Instacart. They had different insights, which we'll get to, right? But there were lots of different ways to harness that power.

It makes me think about ChatGPT when it came out, it was sitting on top of an existing model and it just gave people a new interface to use it. And all of a sudden everyone crazy. They're like, oh my God, that's the future. But it was already there.

What's out there right now? Obviously, AI is top of mind for a lot of people. I know you're stickler for what is an inflection

I would say that I would probably be a little more specific about it. So I might say that certain large language models are an inflection. (LLM)

How does it specifically empower specific people in specific ways?

What's the specific new thing? What is the specific form of empowerment it offers and to who? And under what are the empowerment conditions?

What about in terms of Twitch? What was the inflection there?

The first was the shift towards user-generated content and sort of internet celebrities. Justin Kahn wanted to be an influencer before there was a term to describe it.

simultaneously, broadband penetration had reached critical mass. You had the CDNs were getting really good and we thought that they would get better.

Airbnb, a company close to both of our hearts for different reasons. They benefited, I think, from a couple of things. One was the proliferation of customer reviews online and people's trust of reviews as a substitute for trusting the brand of a hotel. But then also Facebook Connect made it possible to pass people's profile information

And so there were a few things that that happened at the same time and then the great financial crisis (credit crisis 2008). And so you had people upside down on their houses needing to find some way to generate income

inflection doesn't have to be technological

recent example. When the laws were changed because of shelter in place for telemedicine visits, you know, it used to be illegal to do a telemedicine visit across state lines

not only was it made legal, but it could even be reimbursed by the healthcare system. And so that's an inflection because it empowers patients to access more doctors and it empowers doctors to access more patients

There can be a belief inflection. You know, so for example, during COVID-19, the amount of telemedicine visits exploded. And so as a result, there was a permanent change in people's belief about whether they would want to do a telemedicine visit. Before that, the technology was there, but a lot of people just didn't do it.

Zoom was another example, you know, the idea of people working from home a reasonable number of days a week as a permanent condition, I think is another inflection that happened with COVID.

so are those the three, regulatory, technological, and belief.

The next bucket is in the next element of breakthrough companies that you found is an insight.

an insight does come from the founders. An insight, I like to say, is a non-obvious truth about how one or more inflections can be harnessed to change people's behavior

if in the example that we gave earlier with Lyft, the inflection was the iPhone 4S. Insight was, oh, that means you could do Airbnb for cars.

what was you know, what was non-obvious about it or non-consensus about it? Who's going to want to get in a stranger's car? That's crazy.

It needs to be non-consensus and right, not just right

if it's consensus, it's probably not radical enough.

it's a given that the future has to be radically different for me to be a big winner. And so I'm gonna look for radically different futures and work backwards from those radically different futures.

But right now I'm all alone in this different future. I have to get people to come join me in that different future.

I can't waste any ergs of energy on anybody other than those ready to move or about to move. And then I need to co-create the future with those early believers. (lead user)

you don't want your initial startup bets to be too big to fail, right? You want ideas that are small enough to fail a lot because you don't wanna be attached to success.

You wanna be able to just try things and play with stuff and tinker with things because you don't really know where the fractal of new insight is gonna reveal itself.

the importance of being surprised and the power of surprises.

there can't be a recipe for breakthrough. So, you know, and why is that? Well, recipes exist for things that have already been discovered

And so what you want to adopt is the right mindset. And how do you adopt the right mindset? You interact with new technologies at the cutting edge, but you actively savor surprises, right?

you want to be surprised. You want to discover the undiscovered.

Scott Cook, who was the founder of Intuit. Whenever he would be presented a new product, people would present the idea to him and he would say, what were your three biggest surprises as you were coming up with this plan? And what he would find is quite often they couldn't name any. And he felt like when people can't name the surprises they came up with, they're too brain locked on what they want.

if you're an authentic truth seeker, you're always hoping to be surprised

So Chegg was wanting to see if people would do textbook rentals. So they created a fake site called Textbook Flicks... they tested an arbitrary set of prices all the way up to $75. And so they had the demand preference curve at different prices and textbook flicks wasn't a real site.

So you'd get to the shopping cart that would give you a 404 error, but we could tell that people wanted to rent textbooks.

having their noticing filter tuned to like volume 11, where most of us wouldn't notice it. Most of us would just pass the secret right by because we're looking to validate what we think is already true.

to me, secrets are earned. Like a lot of people, I think, have the wrong idea of what vision is. Like a lot of people tend to think visionaries, it's like they have a special pair of binocular and they can look out farther than the rest of us can.

The way inventions happen is people get their hands dirty And they learn about what's missing in the future because they're getting their hands dirty with what's new about it. (iteration)

Okta, at first they wanted to do cloud systems management

They thought that they needed to do problem resolution. But when they showed it to customers, they were kind of meh about it. And they said, well, why are you mad about this? And they said, well, it's not a top priority. And they said, what is your top priority? And they said, identity management.

in the early days of product market fit, I like to say we want to answer a very simple but profound question. What can we uniquely offer that people are desperate for? And if we have an insight, that makes us unique

you want to be right insight, right inflections, right implementation, right early believers that you're talking to

you could be talking to the wrong customer, right? Like some people that I've talked to wanted to integrate it with on-prem software. And in that case, their opinion's irrelevant because they're not an innovative customer

you don't need to have every one of these for your business to potentially be a huge success.

The mistake that a lot of founders make, and it's very understandable, they say, I want to go after big market opportunities. So they analyze big markets. They find unserved customers with unmet needs in under-addressed markets. So then they go build a product to go solve that problem. And that's very appealing because it seems obvious and the dots connect forward in an obvious way. But unwittingly, it buys into a context (frame). It buys into the current definition of the market. which was already set by the incumbents.

The third element of Breakthrough Company is future founder fit. What is that?

there's no canonical best founder,

There's a set of traits that a founder can have that make them ideally suited to a certain type of future.

Who knows the most about this future? Who has the most intrinsic motivation to pursue it? Who has the best network and keep the best company in that ecosystem of the future?

Louis Pasteur once said, chance favors the prepared mind.

most people think that the way you come up with good startup ideas is try to think of a startup. And I like to say, no, that's exactly wrong.

What you do to come up with great startup ideas is you live in the future. and you notice what's missing in the future.

want to find customers that live in the future

Founder future fit is ultimately about authenticity.

What are some things that you recommend they start to do this week, next month

The number one thing I like to say is get out of the present.

William Gibson was right. You know, when he said the future is already here, it's just not evenly distributed

people will say to me like, hey, I have a mental health startup. Mental health is a huge problem. It needs to be solved. And I'll say, why is your idea from the future? Well, in the future, I believe mental health needs to be solved. I'm like, that's not what I'm asking.

Maddie Hall, who started Living Carpet. She was working at Zenefit. And at first she tried to think of a startup and she had ideas that weren't that good.

But then she decided to go follow Sam Altman for a year and be his chief of staff. And Sam Altman visits the future multiple times a day with people. And so that's what led her to this idea for Living Carbon, which does genetically modified trees.

she was basically sampling a lot of different futures until she found one that she liked.

The number one thing about the ideas goes back to the not playing the comparison game. So the thing that I see people underestimate when they come up with ideas is the threshold of desperation required in the customer (compelling), right? So like... If we want to solve problems for desperate people and it's like if we have powerful inflections that really empower and we have something unique, there should be somebody who is irresistibly drawn to that empowerment.

Why is that important? I like to say that if a customer has the ability to do something other than what you do to solve their problem, they won't be crazy enough to do business with a startup.

If everybody's selling apples, I can't be a 10x better apple. I want to be the world's first banana

They need to be willing to tolerate the fact that you can't execute very well because like, how could a startup execute really well? (early adopter)

Speaking of execution, good segue to the second part of the chat, which is basically you looked into what do the most successful companies and founders do differently. And you also found three core things that they all do, and many of them do. Movements, storytelling, disagreeableness.

asking people to abandon the familiar for an uncertain tomorrow is a provocative act.

And so we need as founders to persuade others to change their habits and with our pattern breaking actions. And so what the pattern breaking founder does is they create a stark dichotomy between the world that is and the world that could be. And they create an irresistible desire on the part of early believers to move to that different future with them.

three aspects to acting different, right? One is movements, the other storytelling, and the other is disagreeableness

a movement is a different way of developing a market than how most marketing people think about developing a market.

What a movement does is it leverages a grievance of a minority against the tyranny of a majority.

early customers are not animated by pragmatism. They're animated by belief.

a movement is basically a set of people with the same belief moving together to a different future.

you can't be half in on that.

there's a set of early believers who believe they've been enlightened about something that the rest of the world doesn't get yet. And they think that the startup founder is sort of like the prime mover of that movement.

Is there an example? Lyft obviously comes to mind with this.

One of my favorite examples is actually an old one, Clarence Birdseye... discovered how to flash freeze food when he was up in the Arctic looking at Eskimos and they were flash freezing their fish. And he wondered, could you do it for other things? And he found out you could, fruits and vegetables. But like it wasn't enough to just flash freeze the fish.

or the fruits or the vegetables. You had to convince the trains to have a refrigerated car. You had to convince the supermarket to have a refrigerated aisle. And so he had to start a movement where a whole lot of people simultaneously believed in this idea of being able to eat food in a more convenient way not always in season not always uh grown locally. (whole product)

I'm trying to think about what are current movements that are happening. One that might be a movement is with LLMs, just this bet that transformers are the future of how this is going to work

Another one that I really like is Tesla. So like Tesla's mission says, accelerate the world's transition to sustainable energy. They don't even say they're a car company. So like Tesla doesn't say, here's why we're better than Ford and Toyota. And this is really important, right? Because the great movements do appeal to a higher purpose.

One other quick example, I'm thinking about linear.app is kind of pushing this movement of craft and design and experience matters in B2B software. And you shouldn't settle for something that you don't love

And you know what? Chesky, this was I don't think he even knew he was fully doing this at the time. But Chesky did this brilliantly with Airbnb. So he created a movement around living like a local. And so the other thing that a movement does is it turns the greatest strength of the status quo into its biggest weakness. (disruptive innovation)

Brian never said hotels suck, you know, death to the four season. He just said, hey, look, you know, when you go to Paris, you have a choice. You can you can hang out in the four seasons and it's going to be just like the four seasons everywhere else in the world. It'll be in the middle of the town or you can live in Paris like a Parisian.

let's say your Four Seasons, your whole business is predicated on doing a good job of having a common experience that people can accept and that they're used to and that they expect. And so now you've taken all of the stuff that you invested decades in And turned it into something you have to apologize for all of a sudden.

That reminds me of counter-positioning from Hamilton Helmer's 7 Powers book.

it's kind of a, here's how we want the future to look and why we're doing this.

And then it's a combination of marketing, positioning, messaging, repeating it, social media, I imagine. Is that roughly how to think about it? Oh, but I would also say that it's about storytelling.

there is a science to storytelling. And so like, for example, you know, the hero's journey.

the hero has to have a reason to credibly believe that that they can beat the bad guy. Right. And so then they, then what happens is you, you, you find co-conspirators along the way

if we take the Lyft example

Logan and John would engage in a call to adventure. Try this ride sharing app. It shows cars on a map. You know where they are all the time. They come within five minutes. Fist bump the driver. Now, this was where the genius of the pink mustache came in. So the pink mustache honored the fact that a lot of times people resist the call. It's scary to get in a stranger's car. So the pink mustache made it seem a little bit less scary.

part of the story is languaging. This was the genius of Twitter.

They didn't call it microblogs, Inc. Right. They created a metaphor around tweeting birds

the storytelling primitive ends up working spectacularly well for startups, right? We need to describe the world that is. We need to describe the world that could be, which is that different future

the founders sometimes make the mistake of thinking that they're the hero, but they're not. The early believers are the heroes.

it's the job of the founder to tell a story that emotes early believers to want to move with them and co-create the future with them

I had Nancy Duarte on the podcast. She's one of the most famous presentation designers, and she had exactly the same advice when you're trying to tell a story. You basically bounce back between the world that is, the world that could be. What is, what could be. What is, what could be.

Nancy would show me how Steve Jobs' iPhone launch speech She'd be like, OK, well, now notice what he does. He shows how bad phones suck now. They have styluses, they have keyboards. And then he talks about what could be. You could combine an Internet communicator. You could combine an iPod. And he goes back and forth between how bad the current stat state of things is. how it should be, how bad it is, how it should be

Something that I was thinking as you were talking was, I've seen too many founders spend so much time crafting this amazing story and vision of their product. And they have this really cool blog post and big idea, but nobody really cares about their product yet.

Just make sure you're building something people want above all else. And the story is a layer on top of that.

it's all ambiguous all the time. And people are arguing about what the right direction is all the time. And people are, it's just messy. But it's like, you know, movements are messy.

The third is my favorite. I'm excited to hear you talk about it, which is disagreeableness

The only people who are different can really make a difference. And so that's kind of the mindset.

So I like to say a startup is a fundamentally disagreeable act in the first place

every startup I've ever seen on the inside was wild

what a lot of startup presentations do is they take their sales pitch and they re-host it for every other audience. They re-host it for the press, for investors and for employees and all that. And that's wrong because what you're doing is you're talking about yourself to different people. But what you wanna do is describe the world that could be, the stakes that are involved, and then each of those individual audiences, you want to meet them where they live in the world....