Tag: Startups

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Startups

Day 190 and Neutrality

One of the more influential pieces of art on my worldview is the science fiction comedy Men in Black. Yes you read that right. My philosophy is underpinned by a speech by Tommy Lee Jones.

1500 years ago everybody knew the Earth was the center of the Universe. 500 years ago everybody knew the Earth was flat and 15 minutes ago you knew people were alone on this planet. Imagine what you’ll know tomorrow

I don’t really know shit. I know enough to know I don’t know shit. My mother had a favorite bumper sticker “ask your teenager while they still know everything” which at the time as a teen I found a bit insulting and now as an adult think was quite astute. The more I know the less I know for sure.

Because I’ve slowly come to realize that knowing can be a crap shoot I keep odd company. Arguably bad company. I follow some truly outrageous people on Twitter. I follow hard right partisans and tankie left wing socialists. I follow folks with deep convictions on the irredeemable evils of technology and the most ebullient techno-optimists. It’s hard to talk me into not keeping an eye on all view points. Sure I think some folks are dead wrong but how do I know I’m not one of them?

Not knowing things for certain as saved my life. Medicine has a tendency to interpret data as absolute. Biometric markers and test results can for some doctors have as much authority as a papal decree. Anyone who has been told “well your test results are normal” while still feeling like absolute shit will know how frustrating this can be. Plenty of data points look absolutely normal before a system cascades into failure.

We don’t know as much as we need to believe we know. Our craving for certainty as humans is a significant weakness. The venture capitalist who insists that some metric will determine a crucial outcome is a favorite trope of mine. As if favorable CAC/LTV ratio functions as a warding spell or an attractive margin structure offers protection against a changing consumer preferences. Knowledge isn’t magic. Superstition can just as easily apply to P&Ls as poltergeists.

I find it best to remind myself to take a neutral when approaching entrepreneurs. Maybe I don’t know. Maybe everything I’ve ever known was particular to my circumstances, bias, education quirks or just plain randomness. Maybe one small insight will shift the grounds underneath me and reveal entirely new frameworks for interpreting reality. The unknown unknowns have a habit of springing themselves when you least expect.

It’s often tempting to throw opposing viewpoints into buckets that are easy to dismiss. Venture investors are notorious for this. We dismiss folks for any error we spot. We deride their data. We applaud ourselves for spotting cracks in their plans. Resist this tendency. We must always retain the neutrality of perspective that allows us to change our mental models. What we know to be true might be a lie. We may lack a key piece of context that would unlock a cascade of understanding that changes our entire perspective.

This is why the adage “strong beliefs weakly held” can be so key to success. Changing our minds is a strength. It’s hard to admit to ourselves we’ve gotten something wrong especially if we sunk a lot of time, money and reputation into it. But would you rather be right or successful? Feeling superior can be a delight but not if it gets in the way of what we want in life.

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Startups

Day 182 and Operating Capital

Popular culture portrays Silicon Valley and the startup space as one where capital is king. But it’s not the kind of capital you might be envisioning. Money (literal capital) is less of a driver of success than your social capital. And a specific type of social capital is overlooked.

The people with the most social capital aren’t necessarily founders or venture capitalists. It’s the career startup operator that has a good reputation that matters. They have a type of social capital I call operating capital.

There is a reason the team slide matters in a pitch. Who you know and how much they like, respect and trust you has a lot more to do with what deals get done. Part of this is related to luck and timing. The most talented people aren’t always the ones that have big hits. In fact, we correlate failure more strongly to overall credibility.

This makes spotting who has the most status in startups tricky. In industries like finance, money keeps the score. In consumer packaged goods, it’s what brand team you were on. In startups, the score is tricky to quantify value. We’ve developed an elaborate system of social capital signaling that determines who is considered valuable. But within that social capital status in-group you will find that the executive team layer has some of the most pull as founders and board members build working trust with them over years.

Because we value operators as high social status individuals we build our social status signifiers around your proven capacity to problem solve. How you solve problems can make or break a startup.

And we need all kinds of thinking. We need system thinking, (ops), a knack for keeping talent motivated HR), an ability to drive excitement and warp reality (marketing and PR) and obviously you have to be able to make shit (product and engineering). The people with these capabilities are the ones that accrue the most operating capital. Find those high status people and you will never be far from a startup that may have a shot at the big time.

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Finance Startups

Day 181 and Thesis Trends

As I was putting down scratch notes for Chaotic.Capital’s thesis yesterday on the types of businesses we like I thought I’d do a bit more stream of consciousness writing to discuss some of the mega-trends that I see driving returns over the next decade.

Embedded Functionality

We think more and more businesses will be born of the embedded functionality inside protocol layers or data sets. Many protocols have functionality embedded across different layers of utility and functionality. For instance, the new consumer bank is an API at heart. The protocol layer is the API and the embedded functionality is the financial services layers enabled through the protocol or application layer. Need another example. Retail sales data and demand trends give rise to fashion retailers. Think of StitchFix, the clothing brand is the embedded functionality of its aggregate trend, recommendation and demand data set.


Unbundling Trust

Trust based networks rule businesses like insurance, retail banking, law and financing. But what if trust was unbundled from institutional nexuses of power. What if we built trust from value creation instead of value extraction. DeFi wants to build permission-less trust based on a protocol. Its entirely possible we bundle trust back into the wisdom of crowds and markets. Wall Street Bets is an aggregate source of unbundled trust. Figuring out what layers can be stripped away for more efficiency and what layers we need for safety and peace of mind are unsolved problems.


Data Ingestion Is Value Creation. The more capacity we have for data collection the more demand we will have for data ingestion and processing. While we can say sure businesses rely on the protocol and data and that unbundles trust, that’s not the full picture. We will need people who make sense of the chaos for the muggles. Ordered systems give the impression of serendipity for their users (an introduction on a social network, a recommendation for a loan, an outfit customized for you) but the work required to intake and order the data to create value for users is a big hairy problem. And there is a lot money to be made in those. Centralization may come at this layer especially in user experience.

Flexible Asset Weighting.

We are also interested in businesses that know where they stand with capital needs for their business. If you are executional business you need a thin layer of assets to succeed. To quote Roy Bahat “hot swap” startups are executional businesses. A slim horizontal physical layer to take advantage of low financing costs means return on equity is greater for these asset light businesses. If it’s deep innovation then you can be asset heavy. We like those just fine too. But knowing where you stand and anchoring your business case on your asset weighting can give you an edge. That lets you be capabilities based and find opportunities, particularly as debt as is in a commoditization cycle.


All of this is to say we are thinking across a number of system level problems to unearth startups that will give flexibility to individuals, organizations, industries and hopefully the entire economy. Incumbents won’t see who is coming to beat them because they won’t recognize the new predators. They prioritize value systems that at won’t remain true as systemic chaos erodes inefficient businesses and institutions.

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Finance Startups

Day 180 and Thesis

As I see more pitches and work with more entrepreneurs I am finding it helpful to have my thoughts codified on paper. That way if you are interested in working with me you have a chance to vet me. Knowing what I want to see in a deal and what just isn’t a fit saves entrepreneurs time. So I’m going to doodle a bit on what I do and don’t like.

Chaotic.Capital has 4 key investment areas. But they are really just different levels of working with an uncertain future: at the individual level, the organization level, the systems level and the planetary level.

  • Personal Flexibility is critical when it’s harder to make long term lifestyle decisions (housing, health, children) – how do we allow people to make those decisions without anchoring themselves to place or time horizons that limit optionality. Businesses like marketplaces, preparedness, personal safety, service & product exchanges, health tech, longevity, and alternative credentials.
  • Organizational Agility is a differentiator for businesses in rapidly changing landscapes, so we invest in software and tooling that provides leverage for small teams to have a bigger impact or bigger teams to act more discretely and independently. Businesses like software as a service, cloud infrastructure, collaboration & coordination software, DAOS (decentralized autonomous organizations), automation software, and memetic and organizational aids.
  • Systemic Arbitrage opportunities are even greater in chaos. Working through systems level chaos helps individual and organizations protect against cascade and systemic collapse risk, mitigate political chaos, regulatory uncertainty, memetic crowd and mob behaviors, or medical chaos, just to name a few. Businesses like intelligence, decentralized finance tooling and exchanges, cryptocurrencies, bots & analytics.
  • Climate or planetary risk is an existential risk that is already fucking with our world – we like companies mitigate the chaos of climate change while profiting on the risk. Businesses like mobility, insurance, green tech.

What I don’t like to hear are pitches for things that are tangentially related or a forced connection. Sometimes folks will try to get us excited about a problem they’ve already solved and are scaling but we are looking for longer time horizons. There are plenty of amazing startups that have great returns but aren’t a fit for us. We really do want the crazy weird stuff that is going to take a while.

We don’t need you to know where you are going. We want to see ten or twenty year out timelines. What would life look like without school? How about a world where we didn’t pay taxes based on our geographic location. How about a world where we automate how our attention is allocated. Or a world where our financial power isn’t rooted through centralized trusted powers. We want 1000x leverage on change.

I’ll write more later this week about the types of companies I don’t want to invest in. Not because I don’t like them but because they just don’t match what this fund is meant to do.

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Emotional Work Startups

Day 176 and Bias Against Action

There is a phrase popular amongst early stage startups meant to encourage faster problem solving; bias for action. It gained popularity as one of Amazon’s core principles.

Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.

Generally speaking this is a straight forward positive principle that individuals and organizations benefit from. It’s easy to become paralyzed by overthinking. The average person overweight risk and organizations are even more prone to this. Action is good when faced with external friction. And startups in particular can be killed by friction. I think a bias towards action is default good. I regularly use this methodology to make decisions for my life. In the face of uncertainty acting is often better than not.

But I’m learning that my tendency to “just do it” has some downsides. If I’m always trying to fit in more action, more decisions, more outcomes, then I can easily burn myself out. I can waste precious energy by always saying “yes” let’s do it. My enthusiasm can and does get the best of me. In other words, I’ve got a bias towards action that needs to be balanced out.

It’s hard for me to emotionally recognize that I need more of a bias against action. But I’m not saddled with the traditional issues that make a bias towards action necessary. I don’t struggle with willpower. I don’t struggle with meeting my commitments (short of being physically unable to work say 80 hour work weeks). Hell, I just decided on January first I would write something every day no matter what, and here I am almost halfway through my first year. When I commit to taking an action I generally mean it. Sometimes to my detriment given my workaholism.

So I’m reassessing when I personally need a bias towards action. Maybe I need to have a bias towards inaction so I do not let my enthusiasm for getting shit done set me back. I need to have a bias towards rest. I need to have a bias towards naps. I’d encourage you to ask yourself which side of the issue you come down on. Maybe it’s a bias towards action. That’s great! Do more and faster. But it’s also possible you are like me. Less can be more.

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Emotional Work Startups

Day 174 and Easy for You

I’m not normally the type that reads business books. I’m pretty disinterested in management techniques and organizational structures because I suck at it. And I bring up sucking at MBA style topics because as I was doomscrolling I came across an older article from the Harvard Business Review. The headline was “why do talented people not play to their strengths?” I clicked.

It begins with fairly standard case study chit chat about the NFL and I’ll admit my eyes glazed over. Why had I bothered to click when I’m so not the business school type. And then I spotted a nugget that rang so true I swear I’ve got a little tinnitus from the “ding ding ding” bell that rang in my head.

We often undervalue what we inherently do well.

I’ve written in the past about my struggle to accept things that come easy to me. I have had a self limiting belief about the necessity of struggle and it’s inherent morality. Maybe I’m rationalizing pain and hardship because emotionally I need there to be a “why” for having fought through a chronic illness. Surely suffering through and taming a spinal disease has made me a better person right? Or maybe shit just happens.

And maybe I’ve been downplaying all of the many super power and talents I have. I’ve spent so much time grieving the loss of the hard things like working long hours and always hustling that I’ve been ignoring that i can win doing things that feel easy. Because they might just be easy for me but not easy for everyone. Quoting the article.

Often our “superpowers” are things we do effortlessly, almost reflexively, like breathing. When a boss identifies these talents and asks you to do something that uses your superpower, you may think, “But that’s so easy. It’s too easy.” It may feel that your boss doesn’t trust you to take on a more challenging assignment or otherwise doesn’t value you — because you don’t value your innate talents as much as you do the skills that have been hard-won.

Working long hours were always hard for me. I fought to stay up late because I would find myself fatigued and in pain. I really valued that because it hurt me. It was hard for me. Whereas I never valued being at being ahead on news and trends, or my facility at gaining media coverage, or how easy I found it to spot when the market was going to move. I distrust the skills I can do effortlessly.

But I realize now that those are valuable skills. It makes me a good investor, especially in private markets where seeing where the market is going and alerting people to potential is very well remunerated. So next time you scoff at a compliment from somewhere on you work ask yourself if what you did is easy or just easy for you. You might be surprised to find you have a superpower you never noticed.

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Aesthetics Internet Culture

Day 167 and the Naughties

I arrived in New York City in January of 2006. The aughts were an interesting time to be in New York. The recovery from 9/11 gave the city a sense of resilience but the Great Recession hadn’t reshaped the financial landscape of the country just yet.

I moved to Manhattan because I wanted to work in fashion. I didn’t have any relevant experience. I’d studied economics. But I was a blogger and that turned out to be enough to find a way in.

I met a man in the comments section of our respective fashion blogs as back then back links were an acceptable form of socializing. We both moved to the city the same week. He would become my cofounder on a fashion media startup and also my boyfriend. Yes it’s as dysfunctional as it sounds. Don’t worry we are still friends.

We’ve got a lot of fond memories of the Aughts. New media was just coming into its own. The possibility that it might change industries like fashion seemed exciting and democratic for style. No one had figured out how to grift by “influencing” yet. Which meant actual influence was still possible.

That first generation of bloggers was more influential in moving industries like culture than the commercial milieu we have now. Less lucrative certainly but the impact was significant. Good stuff actually emerged from living instead of someone imitating living.

My friend (the ex and cofounder) are considering writing a chronicle of our time. Partially it’s an exercise in nostalgia. It was a lot of fun. Maybe it’s a bit of an ego trip to think we could’ve even write some fiction that ties together the ethos and the aesthetics of that moment.

Back then we hadn’t cracked up the media industrial complex into algorithms and big automated ads dollars. A lot more got done in restaurants, bars and parties. The city itself hadn’t turned over into the complete plutocracy that dominates now. The kleptocrats needed the financial industry to implode and get bailed out for that kind of real estate takeover. Before the bailouts maybe the rest of us good maintain the delusion that we too could strike it rich. Now the distance is too great.

It was an era when Condé Nast mattered. Finance was a thing the cute guys with ambitions for money did, not yet a space that was entirely populated by Hedge Fund guys set on moving to Planet Billionaire.

And holy fuck the parties were great. Classes mingled more without the stratification that came out of the Great Recession. You could be someone even if you lived in a shitty barely heated no hot water squat loft on Bowery. It still cost $1600 but better than the 16K a month I saw it go for recently. You could get into club if you had some style. Instead of convincing people you mattered because you had a bunch of followers you had to convince someone you were cool.

I know this all sounds like bullshit old person nonsense mumbling about past good times. So if we do write about the Aughts it will take a lot better writing to make it compelling. I think it’s possible as I still retain a sense of place that I think is worth sharing. I’ve got ridiculous stories that could make for a fun read. So I’m putting the energy into the universe that I’ll capture those moments and share.

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Emotional Work Startups

Day 166 and Safe Advice

Mistakes are expensive in the moment but priceless long term. This is why failed founders are so respected and sought after in the startup ecosystem. Their advice is the best money cannot buy. Money literally cannot buy the experience that comes from having utterly fucked yourself.

Sure maybe you lost a couple million bucks but you will never make the same mistake again. And because it hurts so god damn bad you will go out of your way to help others to avoid your fate. I’ve found that founders with failures are generous. They have seen the ways even the best laid plans can implode and want to help you from doing the same.

This is why it’s all the more frustrating for these operators watch a startup struggle to take advice. Speaking as a founder with failures, I know when someone else is about to make the mistakes I’ve made. I feel it in my bones. But it’s not always easy to help people help themselves.

Getting someone to an emotional place where they can hear that they too are about to fuck up their professional life takes love. Psychological safety is crucial to hearing someone else.

I have a theory that it feels safer to hear a hard piece of advice when it comes from someone you know is delivering it without ego. Someone who never seems to have struggled a day in their life tends to evoke our own feelings of inadequacy. Their advice could never work for us because we aren’t as smart, rich, connected or sexy as they are. But someone with scars? Sure maybe they get why this is so hard for us.

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Startups

Day 159 and Friction

Everyone has their mental models and super powers that make them unique. While I’ve written about my more specific skills like getting attention, one of my other super powers is a bit further down the stack.

I think I have a naturally immunity to the friction of inertia. The slow stickiness of life doesn’t seem to impact me as much as the average person. Generating momentum is my natural state. I guess this means my X-Men doppelgänger is the Juggernaut.

Juggernaut from X-Men: Last Stand saying “I’m the Juggernaut Bitch”

Startups suffer particularly from inertia around them. The world pushes back actively against changes. Think of inertia like eddies in the stream of linear time. You must get unstuck or you will circle forever alongside the stream, never getting anywhere while watching as others get ferried down the currents. That’s why I recommend to startups that they simply do whatever is necessary to generate momentum. Get the fuck out of the eddies of inertia.

When you are pushing against existing reality to make something new, you already need to significantly reduce friction just to get a shot on goal. You need to change opinions, learn new skills, bring together a team, work well together.

And that doesn’t even mean you will make the goal, even if all preparation work that goes right. All of that momentum you generated simply to have an opening. Yeah even then you can still fail. The market, your underdeveloped skills, your competitors, sheer dumb luck all have a chance to block your goal. That means you need to be undeterred by failure. You need to overcome friction consistently.

Overcome the inertia and the friction to keep taking more shots is your best chance. Probability likes your odds from five shots better than one.

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Startups

Day 155 and Momentum

Startups don’t really operate on logic, plans or “objectives and key results” to name and shame. Founders and executive teams get really good at planning and strategies only to have it all blow up in their faces. Generating momentum in spite of startups being incredibly resistant to planning is part of the trick.

I’ve been thinking a lot about the emotions that go into that “no plan survives contact with the enemy” reality of startup life. The past two days Alex and I have been enjoying a victory lap after the 1.8B acquisition of his former startup Stack Overflow. It’s a process of mixed emotions and shared experiences with other families that lived it with us.

But one central theme is that nothing changed in our skills, planning, insight or capabilities after we got the market validation. We didn’t suddenly get better and got rewarded overnight. Our plans got exploded like everyone else in startup land, over and over and over again. Till one day it was worth a bunch of money. Now everyone involved looks like a genius. But the reality is that the momentum of startups live a life and logic unto themselves. No one set an OKR for “billions” nor did they plan out a straight line from day 1 on acquiring customers consistently. No one planned out a ten year roadmap for creating enough value or revenue for a substantial exit. No one micromanaged shit for a decade. The momentum just worked itself out eventually.

And yes I’m using the Royal We here but mostly to make a point. Startups and their teams and the entire ecosystem around them are team efforts. Together we turn nebulously ideas into sketchy plans and eventually great things. Don’t get so wrapped up into the need to manage everything so closely.

A graph showing a bell curve distribution. The two outlier “make stuff”

The momentum of making stuff can and should eventually pull you into your goals. So don’t kid yourself all your numbers or plans do shit. Be the Jedi.