5 ms·

Dave McClure: Invest Before Product/Market Fit, Double-Down After.

64 points by malbiniak 16y ago

aristus 16y ago
McClure is smart and all, but the tone and formatting remind me of the timecube guy.
- dirtyaura 16y ago
  McClure's Tone and formatting make his writing so delightful to read. Internet writing needs more of that. Unfortunately for us non-native English speakers, adopting an original writing style in English is not that easy.
losethos 16y ago
If reality is broken, fix that first.
dmor 16y ago
Anyone have thoughts on what this means for how startups might structure founder and early employee equity differently, given that they are going to take on a lot less capital and give up less of the company?
mitchkapor 16y ago
Far and away this is the best, most comprehensive synthesis of how to approach tech startup investing for consumer Internet in the new era
joshfraser 16y ago
having taken money from dave, i can say this guy knows his stuff. i like his way of thinking about things.
ehsanul 16y ago
So I was under the impression that "product/market fit" meant adapting your product to an existing market as early as possible, so you don't get stuck building the wrong thing. For example, IMVU started out with the founders writing 40k lines of code or so to make plugins for AIM/MSN/etc chat clients. They then found out nobody wanted it, and did the market research and saw that people did want something else that was related. Then they built that and made lots of money. They hadn't worked on the product/market fit early enough. Perhaps I've got the wrong definition in my head about this "product/market fit".
- kylemathews 16y ago
  Sort of right. The problem is most startups don't go after existing markets, as there's already existing companies there. So startups try to hit an emerging niche in an existing market or even a brand new market. And it's much harder to discover a market do that then copy an existing product and market meaning during the initial life span of a company, much of it they spend floundering about trying to find "product/market" fit. So what IMVU did is very typical, they thought they understood their market, built a product to meet that market, and only then realized that their product didn't fit their market. When a company reaches this realization they can then "pivot" meaning they can either take their existing product and try to find a new market or take what they've learned about their market and build a new product.
  - ehsanul 16y ago
    Isn't "pivoting" a huge drain on a startup though? You throw away a few months of code and have to create another product. It just cuts into your runway, so much better to get the right product as early as possible, through early customer development.
    - lsc 16y ago
      Yeah, this is what I don't understand. so when do you cut your losses, close down the company, and move on to your next venture? I mean, I understand about pivoting. when I first started I blew a bunch of money building a setup to sell storage, then amazon s3 turned that market upside down. (as an aside, I'm considering that market again. S3 is still here, and it's still pretty good, but it's prices are way higher now, relative to hardware and bandwidth costs, than they were then.) I pivoted fairly quickly to FreeBSD chroot jails, which also didn't do so well, and then to Xen VPSs, which worked okay, though it took me another few years before I got the formula completely right. The thing was, I blew through a significant amount of money (well, significant to me; we're probably not talking about more than two porsches of consulting income) but if I had used other people's money, they would have owned quite a lot of the company. and other than my own experience and knowledge, the money spent before a pivot doesn't really help after a pivot. (I mean, the experience and knowledge matter a lot, but bankruptcy court can't take that away) Now, from my perspective (I own my company wholly; no investors, any company commitments and/or debit are co-signed by me personally) unless I'm willing to declare personal bankruptcy, there isn't much difference between shutting down the company and starting a new every pivot, vs. keeping the company the same every pivot. However, I did spend some significant money. If I was using investor money, wouldn't it make sense for me the founder to close the business and start a new one, thus either retaining more equity or gaining more capital (if I got new investors) I mean, obviously, if you do that from one very similar business to another, you are going to probably have legal problems, and at the very least damage your reputation amongst potential investors. But, take for example, my first pivot. Going from selling raw storage to selling shell accounts could reasonably be said to be a completely different business. I don't think investors would blame me for failing to anticipate amazon would swoop in with a price point I couldn't beat, and I don't think they'd hold it against me if I decided to start another company later, selling chroot shell accounts. How does that usually work? what motivates the founder to stick with the existing investors when the business must 'pivot' to something unrelated to it's original intent?
mahmud 16y ago
WOW! What a great read. He comes out in prose. Personality galore! Do yourself a favor and read it.

64 points by malbiniak 16y ago

aristus 16y ago

McClure is smart and all, but the tone and formatting remind me of the timecube guy.

dirtyaura 16y ago
McClure's Tone and formatting make his writing so delightful to read. Internet writing needs more of that. Unfortunately for us non-native English speakers, adopting an original writing style in English is not that easy.

losethos 16y ago

If reality is broken, fix that first.

dmor 16y ago

Anyone have thoughts on what this means for how startups might structure founder and early employee equity differently, given that they are going to take on a lot less capital and give up less of the company?

mitchkapor 16y ago

Far and away this is the best, most comprehensive synthesis of how to approach tech startup investing for consumer Internet in the new era

joshfraser 16y ago

having taken money from dave, i can say this guy knows his stuff. i like his way of thinking about things.

ehsanul 16y ago

So I was under the impression that "product/market fit" meant adapting your product to an existing market as early as possible, so you don't get stuck building the wrong thing. For example, IMVU started out with the founders writing 40k lines of code or so to make plugins for AIM/MSN/etc chat clients. They then found out nobody wanted it, and did the market research and saw that people did want something else that was related. Then they built that and made lots of money. They hadn't worked on the product/market fit early enough. Perhaps I've got the wrong definition in my head about this "product/market fit".

kylemathews 16y ago
Sort of right. The problem is most startups don't go after existing markets, as there's already existing companies there. So startups try to hit an emerging niche in an existing market or even a brand new market. And it's much harder to discover a market do that then copy an existing product and market meaning during the initial life span of a company, much of it they spend floundering about trying to find "product/market" fit. So what IMVU did is very typical, they thought they understood their market, built a product to meet that market, and only then realized that their product didn't fit their market. When a company reaches this realization they can then "pivot" meaning they can either take their existing product and try to find a new market or take what they've learned about their market and build a new product.
- ehsanul 16y ago
  Isn't "pivoting" a huge drain on a startup though? You throw away a few months of code and have to create another product. It just cuts into your runway, so much better to get the right product as early as possible, through early customer development.
  - lsc 16y ago
    Yeah, this is what I don't understand. so when do you cut your losses, close down the company, and move on to your next venture? I mean, I understand about pivoting. when I first started I blew a bunch of money building a setup to sell storage, then amazon s3 turned that market upside down. (as an aside, I'm considering that market again. S3 is still here, and it's still pretty good, but it's prices are way higher now, relative to hardware and bandwidth costs, than they were then.) I pivoted fairly quickly to FreeBSD chroot jails, which also didn't do so well, and then to Xen VPSs, which worked okay, though it took me another few years before I got the formula completely right. The thing was, I blew through a significant amount of money (well, significant to me; we're probably not talking about more than two porsches of consulting income) but if I had used other people's money, they would have owned quite a lot of the company. and other than my own experience and knowledge, the money spent before a pivot doesn't really help after a pivot. (I mean, the experience and knowledge matter a lot, but bankruptcy court can't take that away) Now, from my perspective (I own my company wholly; no investors, any company commitments and/or debit are co-signed by me personally) unless I'm willing to declare personal bankruptcy, there isn't much difference between shutting down the company and starting a new every pivot, vs. keeping the company the same every pivot. However, I did spend some significant money. If I was using investor money, wouldn't it make sense for me the founder to close the business and start a new one, thus either retaining more equity or gaining more capital (if I got new investors) I mean, obviously, if you do that from one very similar business to another, you are going to probably have legal problems, and at the very least damage your reputation amongst potential investors. But, take for example, my first pivot. Going from selling raw storage to selling shell accounts could reasonably be said to be a completely different business. I don't think investors would blame me for failing to anticipate amazon would swoop in with a price point I couldn't beat, and I don't think they'd hold it against me if I decided to start another company later, selling chroot shell accounts. How does that usually work? what motivates the founder to stick with the existing investors when the business must 'pivot' to something unrelated to it's original intent?

mahmud 16y ago

WOW! What a great read. He comes out in prose. Personality galore! Do yourself a favor and read it.