Kernel Strategies

This post is dedicated to George Floyd, Breonna Taylor, Ahmaud Arbery, and the millions of others who have suffered racial injustice in America. Please consider donating what you can to an organization dedicated to building power in black communities, such as the NAACP Legal Defense Fund and the Black Futures Lab.

Grand visions are great — but they don’t pay the bills.

In order to generate traction for a new idea, you need to start with a strategy that delivers simple, tangible value to a very specific set of people, with a very specific set of needs. This is true for all businesses, but it’s 1000x more true for startups toiling in obscurity with few resources. 

[ME: Laughs, painfully]

I’ve noticed that most people intuitively tend to adopt a product-centric approach to this problem. They think if they create the right “MVP” or “v1 product” then their business will work. But product isn’t everything. No matter how many hours you spend agonizing over the finer details of the onboarding flow, you’ll fail if you don’t have the right team, or your initial niche is wrong.

It’s better to think of your business holistically, as a complete system of activities performed by people and machines. This includes hiring and compensation, partnerships, deciding what to be the best at, and what to be merely proficient at, choosing who to serve, finding a way to reach them cheaply, determining a pricing model, etc.

Product-centricity blinds us to huge parts of the spectrum of possible actions we can take to improve our businesses. It’s like how our ancestors had no word for “blue,” so they couldn’t really see it. (This is a real thing! Scientists have compared cultures with many words for green to our own, and they are consistently able to distinguish shades that english speakers cannot.)

The more complexity we can perceive and integrate into our decision-making, the better we can make trade-offs and tailor our strategy to the environment, the faster we will grow.

So, how to move beyond product-centricity? The solution is to adopt a better paradigm that encourages you to see the business as a holistic system.

I’ve started using the term “kernel strategy” to describe the DNA of new businesses. It’s the initial focus that, if it works, will unfold into something much bigger, while still feeling like essentially the same thing even as it scales. The better your kernel strategy fits the market, the faster you’ll grow.

(Maybe instead of “product/market fit” we should say “strategy/market fit”?)

So, what makes for a good kernel strategy?

Every startup has to find their own way to success, but there are consistent attributes of high performance kernel strategies. By creating a list of these attributes it’s easier to guide your decisions in the right direction.

You can and should think this through from scratch, but here’s my current checklist, adapted from a similar one by legendary investor Mike Maples.

1. Understand the core job to be done

When you hear someone say your product has to “solve a problem” they’re often conflating two separate but important concepts: the reason the product category exists, and pains associated with current solutions.

For example, let’s imagine you’re starting a mattress company. What problem are you solving? Well, at the most basic level, the purpose is to help people sleep at night. This is the core job to be done. But there are painful moments when buying or using current solutions — like maybe mattresses are too expensive, or wear out too quickly, or are a pain to transport from the store to your home.

These pains are your opportunity, and they’re what most people refer to when they ask what problem you’re solving, but it’s important not to lose sight of the main reason the category exists.

2. Identify an improvement worth making

Of course your product has to do the job better in some way. But if you want to build a business with power, it’s important to understand why some improvements become commoditized so quickly, while others don’t.

In a nutshell, you want to improve the main thing that’s not good enough about the current experience for some significant set of people, and you want it to be the kind of thing where people will demand continued improvements for a long time. If customers stop caring about improvements you make, you’ll lose power.

(To learn more about how and why this works, read Finding Power.)

Of course, “an improvement worth making” only matters if you have identified an actual problem, and plenty of companies fail to do this.

https://twitter.com/nbashaw/status/1257399021502697479

3. Start in a well-defined niche

The job-to-be-done and initial niche are deeply intertwined.

For example, maybe you notice you can’t sleep well at night because your mattress is too hot. And you think you can design a solution, but it will be pretty expensive. So you focus on people who make a lot of money and care a lot about their sleep quality. Perhaps athletes and executives that work out every day?

This is probably the thought process that resulted in Eight Sleep. In order to gain initial traction, they had to find alignment between the job and the niche.

But, should they have gone after a bigger target market from the start? Or was it good to stay focused on high-paid athletes and workout fiends? 

There are two schools of thought on this:

The Peter Thiel approach is typified by companies like Facebook and Uber. You start in a small niche, create a compelling new product, gain power through a dominant strategy, and use that power to expand to adjacent niches.

The Keith Rabois approach starts with a wider scope from day 1. The goal is to find a big need that lots of people have  — like selling your home, or accepting credit cards in retail stores — where there is a fragmented market of suppliers and the user experience is painful. Then, conceive of a better solution, raise enough money to build a compelling v1, and roll out to everyone at once. Opendoor and Square both typify this approach.

(If you’re interested in diving deeper on these two styles, there’s a giant thread on it that I wish was an essay, but is still worth reading if you’re especially motivated 😆)

Generally you’ll have a higher hit rate by focusing on a narrow niche, because it’s easier to have a more detailed and accurate picture of who you’re serving and what they need and how to give it to them. But there is also some risk of getting stuck in that niche if you are not careful. For example, Rap Genius wanted to expand beyond music lyrics to articles, but it didn’t work. Product Hunt wanted to expand from tech to books, podcasts, and video games, and it didn’t work either.

Of course, it’s infinitely better to end up like Rap Genius and Product Hunt than to fail out of the gate. Both of those businesses are still alive and kicking and experimenting with new ways to expand.

So, if you want the best chance of success, it’s better in most cases to take the Thiel approach and start with a narrow focus.

4. Deliver a solution with performance and appeal 

Your product doesn’t just have to work, it has to seem like it’s going to work. These turn out to be subtly different things.

For example, I recently got hooked on a new note-taking app called Roam, but I hated it at first. Not just the idea of it, but even the initial product experience. But then, after using it for a few days, I started to understand how it worked, and everything clicked. Even now it’s hard for me to explain exactly why I like it. 

In other words, Roam has high performance, but neutral or even negative appeal. Most of the time this is a recipe for disaster. You want it to be obvious why your product is great. People should easily be able to believe that using your product will be a good idea. But thanks to its exceptionally great performance for a certain type of user, Roam has managed to gain a following despite the lack of appeal.

But, ideally, you’d have both.

5. Develop an efficient, repeatable growth process

Your initial growth strategy doesn’t have to be infinitely scalable — it just needs to work in your first niche.

Great businesses are rarely built on smooth exponential curves. Instead, they’re the result of stringing together a series of smaller S curves, each individually unlocked by a new insight. If you can find an engine that works to generate your initial growth and takes you all the way to IPO, then that’s amazing, but not a requirement.

The need for efficient growth in the early stages of a business is part of the reason why it’s so important to target a relatively constrained niche. By focusing on a narrow community, it’s usually easier to find early customers.

6. Articulate the purpose

Ultimately our time on this earth is limited, and we want to spend it advancing causes that are meaningful. You might think your product is just a utility, but it will work much better if people are cheering for its success, and that can only happen if they understand the broader purpose.

It helps when you have a specific totem that represents the story. For example, when Lyft wanted to convey a sense of silly friendliness, they put a pink moustache on their cars. Apple has always made sure their packaging imputes the craftsmanship and quality of the products contained within. Facebook moved fast and broke things. And Amazon used doors for desks.

Most startups don’t think about this one very much, but it shouldn’t be underestimated. Everybody needs purpose.