The Power to Judge Startup Ideas

post by Liron · 2019-09-04T15:07:25.486Z · score: 84 (38 votes) · LW · GW · 31 comments

Contents

    This is Part III of the Specificity Sequence
  Startup Steves
  Every Startup's Demolishable Claim
  The Value Prop Story Test
  The Extra-Powerful Sanity Check
None
31 comments

This is Part III of the Specificity Sequence [LW · GW]

When Steve claims that Uber exploits its drivers, he's role-playing the surface behaviors of an opinionated intellectual, but doesn't bother to actually be an opinionated intellectual, which would require him to nail down a coherent opinion.

It turns out that a lot of startups are founded by people doing something analogous to Steve: they role-play the surface behaviors of running a company and building a product, but don't bother to nail down a coherent picture of what customers would ever come to their business for.

Startup Steves

Paul Graham, cofounder of Y Combinator, calls this failure mode one of The 18 Mistakes that Kill Startups:


Having No Specific User In Mind
A surprising number of founders seem willing to assume that someone, they’re not sure exactly who, will want what they’re building. Do the founders want it? No, they’re not the target market. Who is? Teenagers. People interested in local events (that one is a perennial tarpit). Or “business” users. What business users? Gas stations? Movie studios? Defense contractors?

I'm in the startup industry, and I watch a lot of startups committing suicide by not being specific enough about who their customer is. From my perspective, the failure to be specific isn’t just a top-18 mistake, it’s the #1 mistake that founders make.

If you watch Paul Graham Office Hours at Startup School 2011, you can see for yourself that most of the founders on stage don’t seem to have a specific idea of who they’re building their product for and what difference it makes in their lives. Eliezer observes [LW · GW]:

There was an exchange in Paul Graham [and Harj Taggar]’s office hours that went like this, while interviewing a startup that did metrics — analyzing pageviews, roughly — and the entrepreneur was having great trouble describing what they did that Mixpanel didn’t. It went on for a while. It was painful to watch.


Paul: I don’t get what the difference is. I still don’t get what the difference is. What’s the difference between you and Mixpanel?
Entrepreneur: The difference is — when you have to supplement — they’re a view company and we’re a platform. That’s what it comes down to. They’re like a view, a reporting company. If you need something they don’t have, a feature -
Harj: So what’s an example of somewhere you’d use your thing over Mixpanel? Can you give a use-case?
Entrepreneur: Yeah, I mean, we had revenue on day zero. There’s a good reason for um… it’s a start up, it’s a series A company in the daily deals space. One we’ve signed a social game company to -
Harj: And why do they prefer your thing?
Paul: That wasn’t what Harj was asking.


The problem (from the perspective of our present discussion) is that the Entrepreneur did not understand that Paul and Harj were repeatedly asking him to move downward on the ladder of abstraction. When the Entrepreneur said “We had revenue on day zero”, he was trying to offer confirmation of the abstract statement “We can do things Mixpanel can’t”, but Paul and Harj still had no idea what his startup actually did.

How many early-stage startups have no specific user in mind? I’d guess about 80% of them. And how bad is not having a specific user in mind? So bad that I don't think they should even be considered a real startup, in the same way that Steve's argument about Uber wasn't a real argument.

Every Startup's Demolishable Claim

Every startup founder makes the same claim to themselves and to the investors they pitch for funding: "We're going to make a lot of money." So what I do, naturally, is ask the founder to furnish a specific example of that claim: a hypothetical story about a single person who might be convinced to pay them a few bucks. And here's how the conversation usually goes:


Founder: We're going to make billions of dollars and have millions of users!
Liron: Ok, what's a hypothetical example of how you give one specific user some value?
Founder: [Nothing]

Maybe they don't literally say nothing, but they say something that doesn't count for one of these reasons:

At this point, I understand if you think I'm just knocking down a straw man, so here's a real example.

Golden is a 2-year-old startup with $5M in funding from Andreessen Horowitz, Founders Fund, and other notable investors. Their product is intended to be a superior alternative to Wikipedia.

Here's an excerpt from the conversation I had with Golden's founder, Jude Gomila, on Twitter:

Liron: What specific use case exists on Golden today which is better than could have been achieved if the same amount of writer-effort had been spent on a pre-existing platform?
Jude: Quick tldr on this, some points covered in the blog post, however, 1. 1000x the topic space as a mission 2. removal of notability req 3. Using AI to automate flows 4. Using AI to compile knowledge 5. Better fact validation/hi res cites 6. Better schema eg timeline 7. Features and functions eg faving, activity feed, parallel rabbit hole 8. query results like these as well plus many many more. Have you tested the editor: magic cells, citations product and AI suggestions?

As for the specific examples Jude provided in response to my question... well, I'll just give you the first two and you can judge them for yourself:

1. https://golden.com/wiki/Cryobacterium vs https://en.wikipedia.org/wiki/Cryobacterium

2. https://golden.com/wiki/Ginkgo_Bioworks vs https://en.wikipedia.org/wiki/Ginkgo_Bioworks

Golden has received more funding than startups normally get before having any market traction to show, and the company's high profile makes it a juicy example to illustrate my point here. But there are countless other companies I could have singled out instead. Remember, the majority of early-stage startups are operating in this same failure mode. There are enough examples of startups visibly failing this way that I've started a blog to collect them.

The Value Prop Story Test

When I chat with a founder about their new startup, or I look through the slide deck that they're using to pitch their idea to investors, the first thing I do is try to pull out what I call a Value Prop Story: one specific story wherein their startup gives somebody some value.

A well-formed Value Prop Story must fit into this template:

  1. Describe a specific person with a specific problem
  2. Describe their current best effort to solve their problem
  3. Describe why it’s still a problem
  4. Describe how their life gets better thanks to you

I've previously observed that telling a well-formed Value Prop Story doesn’t require you to show any market research or empirical evidence validating the quality of your idea. This is like how Steve didn't yet need to give us any empirical or theoretical justifications for his claim about Uber's driver exploitation, he just needed to tell us a story about one hypothetical specific driver getting exploited in a specific way.

Who is a specific hypothetical person who will use your product, and in which specific scenario will they use it? That's it, that's the question most startups can’t answer.

Answering this question seems objectively easy to me, in the sense that a well-designed AI wouldn't stumble over it at all. What about for a brain [LW · GW] though, is it a tough mental operation?

Actually, I think you'll find that this is an easy mental operation if you actually have a good startup idea. Here's a Value Prop Story I wrote about my own startup without much trouble:


  1. Describe a specific person with a specific problem
    23 year old male who can’t get a date
  2. Describe their current best effort to solve their problem
    He gets a Tinder account and does his best to use it on his own
  3. Describe why it’s still a problem
    His matches barely respond to his messages, and when they do, the conversation feels boring and forced. He uses it for 1 hour every day but only manages to get 1 date every 2 months.
  4. Describe how their life gets better thanks to you
    Once Relationship Hero coaches guide him through writing his texts, he suddenly has much better conversations that result in a date each week

Since my startup actually has a broad range of use cases (clients come to us for help with a broad range of relationship issues), this Value Prop Story isn't particularly representative of what we do. Its job was merely to prove that there are more than zero plausible specific use cases for Relationship Hero, and it gets that job done.

Given how easy this exercise is - we're talking five minutes, tops - I find it mind-boggling that 80% of startups recklessly skip it and go straight to, um… whatever else they think startups are supposed to do. Paul Graham writes:


Another of the characteristic mistakes of young founders is to go through the motions of starting a startup. They make up some plausible-sounding idea, raise money at a good valuation, rent a cool office, hire a bunch of people. From the outside that seems like what startups do. But the next step after rent a cool office and hire a bunch of people is: gradually realize how completely fucked they are, because while imitating all the outward forms of a startup they have neglected the one thing that's actually essential: making something people want.

Why would you spend time and money building a product when you can’t yet tell a specific Value Prop Story? I think it's because designing and building a product is fun and gives you a false sense of control. You can lie to yourself the whole time about the likelihood that you’ll eventually get people to use what you’re building.

But people usually won’t use what you’re building. Whenever a new startup excitedly launches their product for the first time, the most likely outcome is that they get literally zero users.

The Secret famously claimed that wishing for something makes the universe give it to you, which is BS, but the converse is true: If you haven’t made a specific enough wish about what your initial market traction is supposed to look like, then the universe won’t give you any traction.

The Extra-Powerful Sanity Check

Is it healthy for us to be obsessed with judging startups and demolishing claims about their value propositions? When we say that a startup idea is bad on account of lacking a Value Prop Story, is it right and proper to feel pleased with ourselves, or are we being gratuitously adversarial?

Along these lines, Mixpanel cofounder Suhail Doshi has tweeted:


I get little satisfaction stomping on someone's startup idea. It's so easy to. Somewhere deep, hidden in their abstract description is a distinct yet narrow problem worth solving that's significant. It's more fun to attempt finding it, together.

I basically agree with this, and I basically agree with the commenters on my demolish bad arguments [LW · GW] post who emphasized that we should seek to shine a light on whatever kernels of truth our conversation partner may have brought to the table.

But...

Have you ever sanity checked something?

A sanity check is like when you punch 583x772 into your calculator, and you quickly multiply the two rightmost digits in your head, 3 x 2 = 6, and then confirm that the calculator's output ends in a 6. If you ever accidentally punch the wrong sequence of keys into the calculator, then you'll be pretty likely to see the calculator's answer end in something other than a 6. It's a good use of two seconds of your time to calculate 3 x 2; you get a substantial dose of Bayesian evidence for your trouble.

The Value Prop Story test is likewise a sanity check for startup ideas. In theory, of course a startup founder who is already hiring a team of engineers and building a software product should be able to describe how one specific user will get value from that product. In practice, they often can't. And it's easy for us to quickly check.

Here's what's crazy though: We usually expect sanity checks to have a low rate of detecting failures. You expect to successfully multiply numbers on your calculator most of the time, but you do the 3 x 2 sanity check anyway because it's quick. But with the Value Prop Story test, you'll see a high rate of failures!

A sanity check with a high failure rate is a rare treat; it's an extra-powerful sanity check. When you're lucky enough to have an extra-powerful sanity check in your toolbox, don't make it a final step in your process, make it the first step in the process.

So here's how you can use the Value Prop Story test to upend the traditional order of operations for building a startup: First, repeatedly sanity check yourself with the Value Prop Story test until you pass it. Second, do everything else. In all seriousness, I've recommended that early-stage startup founders follow this flow chart:

But how should we treat founders who are stuck in the flowchart's "Give Value to One Person" stage?

When someone is struggling to pass a sanity check, that doesn't mean we should write off their potential to succeed. It means we should focus our effort on helping them pass the sanity check.

Applying the Value Prop Story test is like placing a low bar in a founder's path. Yes, the bar will trip the ones who aren't seeing it. But for the ones who do see the bar, they can step up onto it and then be on their way. And the next step in their path, such as building a quality product, or building a sales funnel, is sure to be a steeper one than that little first one.

Next post: The Power to Make Scientific Breakthroughs [LW · GW]

Companion post: Examples of Examples [LW · GW]

31 comments

Comments sorted by top scores.

comment by Pattern · 2019-09-04T18:21:45.118Z · score: 20 (10 votes) · LW · GW

Sometimes companies end up selling a tool they originally developed for internal use. This post suggests that's effective because it includes step 1 - creating something that generates value (for someone) - and makes it easier.

comment by Liron · 2019-09-04T18:45:46.869Z · score: 12 (6 votes) · LW · GW

That's exactly right. Similarly, it's a good sign if someone's startup is solving a problem that the founders themselves have, i.e. they eat their own dogfood. The first use case of Relationship Hero was me constantly hitting up my cofounder for dating advice.

comment by John_Maxwell (John_Maxwell_IV) · 2019-09-05T01:41:53.054Z · score: 10 (5 votes) · LW · GW

Great post. I think you have put your finger on something important and under-appreciated.

However, I just want to note that being on stage can sometimes cause peoples' brains to freeze up. So it may very well be that particular founder had a compelling USP and just wasn't able to articulate it well under pressure.

I'm also not sure how I feel about the Golden example. I think improving on Wikipedia is possible, but you first have to reach parity with Wikipedia, which is a big project. And I can imagine extracting some stories out of what Jude Gomila tweeted, e.g. someone doesn't trust Wikipedia and wants a more factually accurate source, especially on an obscure topic, or just finds that Golden articles are generally higher quality. I think these kind of "breadth-first" startup ideas, where you try to provide small amounts of added value to a large number of people and use cases, can be harder to get off the ground. But they can also work really well. It could potentially be the case that Golden will be to Wikipedia what Google was to AltaVista. Although yes, maybe you are better off moving vertical by vertical instead--for example, maybe Google should have initially focused on providing great search results in some particular underserved domain where their algorithms were really outperforming existing solutions. But in the end it seems to have worked out.

Anyway, I'd be curious to hear how you think this all applies to Quixey, as I feel like this post kind of gets at why I was never very optimistic :) [To be a bit more concrete, I remember you saying that Quixey would be like Google for apps because apps are the future, and I just found it totally implausible that people will ever search for apps at a similar volume that they search for webpages--my phone has room for ~100 apps tops on it, but I probably have 100 pages in my browser history over just the past few days. So even if there's a specific story about searching for an app, it didn't seem compelling enough to generate substantial ad revenue, and obviously getting people to pay for search capabilities is gonna be tough.] Do you feel like your ability to judge startup ideas has improved since selecting the idea for Quixey? (Relationship Hero seems like a much better idea to me, for whatever that's worth.)

comment by Liron · 2019-09-05T01:53:39.010Z · score: 7 (6 votes) · LW · GW
I think you have put your finger on something important and under-appreciated.

Thanks John, I know you think about this stuff a lot as well so that means a lot to me.

I just want to note that being on stage can sometimes cause peoples' brains to freeze up. So it may very well be that particular founder had a compelling USP and just wasn't able to articulate it well under pressure.

True

I think improving on Wikipedia is possible, but you first have to reach parity with Wikipedia, which is a big project.

I'm not sure "improving on Wikipedia" is necessarily a helpful way to frame any new startup idea. Personally, I'd just look for a specific thing that Wikipedia isn't currently doing well, e.g. (random example) documenting who is making what public predictions, and then I'd build a startup focused on that value prop.

And I can imagine extracting some stories out of what Jude Gomila tweeted

You're right. The best such story I've heard for Golden is to host articles that wouldn't pass Wikipedia's fickle and politicized "notability" standard. The existence of this Value Prop Story does pass my sanity check, so Golden isn't 100% devoid of a value prop (nothing is ever black and white right?). I've analyzed Golden in more detail here.

I think these kind of "breadth-first" startup ideas, where you try to provide small amounts of added value to a large number of people and use cases, can be harder to get off the ground.

Yeah, I also think of Golden as a breadth-first startup idea, and I'm very skeptical of breadth-first startup ideas. I explained why in my analysis of Arbital:

"Launching a new product means trying to wedge yourself into a crowded market for people’s attention. It won’t work if your wedge is a breadboard full of little bumps of value. To wedge yourself into the market, you need a single sharp spike of value."

But they can also work really well. It could potentially be the case that Golden will be to Wikipedia what Google was to AltaVista.

I don't think the analogy holds, because in 2000 I could easily have showed you a specific query where the Google results were much better than the AltaVista results. Google wasn't a breadboard full of little bumps of value, it was a breadboard full of spikes of value!

Anyway, I'd be curious to hear how you think this all applies to Quixey, as I feel like this post kind of gets at why I was never very optimistic :)

Yeah, I agree with you that Liron_2009 was super wrong, while your argument was basically good. Kudos :)

Do you feel like your ability to judge startup ideas has improved since selecting the idea for Quixey?

Y E S

comment by Pattern · 2019-09-05T18:57:45.100Z · score: 1 (1 votes) · LW · GW

What's the difference between "a bump of value" and "a spike of value"?

comment by Liron · 2019-09-05T23:07:43.897Z · score: 2 (1 votes) · LW · GW

Only a difference in magnitude, a "little bump" vs a big spike.

More precisely, the quantity of value we're measuring is the delta between a specific product or service that the company offers to a specific user, and that specific user's next-best alternative if the company didn't exist.

comment by cousin_it · 2019-09-05T10:14:34.065Z · score: 9 (4 votes) · LW · GW

If we're talking about the power to say "this startup will fail", I feel like I had this power all along and it's not very useful, unless you can make money by shorting startups or something. It would be more useful to have a power that said "this startup will succeed" - that would actually make you rich, but this post doesn't seem to be it.

comment by Liron · 2019-09-05T11:18:59.642Z · score: 6 (3 votes) · LW · GW

For people like you and John Maxwell, I think the best value-add of this post is that you can link smart founders to it who are currently failing the sanity check but are having trouble grasping why. That's largely why I wrote this and my blog - I keep trying to tell this to various founders, and for a while they don't listen.

I also think investing 30 $10k checks in smart hard-working founders who can tell one strong value prop story would make a net expected return on the order of 30%/yr, but it's hard to be sure.

comment by ricraz · 2019-09-05T14:14:43.876Z · score: 8 (4 votes) · LW · GW

Intuitively I like this criterion, but it conflicts with another belief I have about startups, which is that the quality of execution is absolutely crucial. And high-quality execution is the sort of thing it's hard to tell a Value Prop Story about, because it looks like "a breadboard full of little bumps of value" rather than "a single sharp spike of value".

To be more specific, if a startup A has already created a MVP, and someone else wants to found startup B that does exactly the same thing because their team is better at:

  • UX design
  • Hiring
  • Coding
  • Minimising downtime
  • Advertising and publicity
  • Sales and partnerships
  • Fundraising
  • Budgeting
  • Customer support
  • Expanding internationally
  • Being cool

then I expect B to beat A despite not having a convincing Value Prop Story that can be explained in advance (or even in hindsight). And it seems like rather than being a rare exception, it's quite common for multiple startups to be competing in the same space and cloning each other's features, with success going to whoever executes best (more concretely: the many bike-sharing companies; food delivery companies; a bunch of banking startups in the UK; maybe FB vs MySpace?). In those cases, the lack of a Value Prop Story is a false negative and will lead you to underestimate the success of whichever company ends up winning.

comment by ryan_b · 2019-09-05T14:58:17.854Z · score: 8 (4 votes) · LW · GW

I have the same belief about startups, but I don't see it as being in conflict with the Value Prop Story. I would go further and say it is really important to be able to link the execution to the value proposition, because otherwise what are you executing exactly?

Naively, if A and B neither have a value proposition, we expect them both to fail. If A does have one, it is trivial for B to claim theirs is higher as a result of execution. This is things like:

  • UX design -> easier to use
  • Hiring | coding -> shorter time to delivering value, and add more value faster
  • Minimising downtime | customer support -> value is more likely to be there when the user wants it
  • Advertising | sales | expanding -> able to put the value proposition in front of more users, faster

Execution is the causal explanation for delivering value, so being able to articulate this feels like a huge advantage.

comment by ricraz · 2019-09-05T19:15:50.387Z · score: 2 (1 votes) · LW · GW

I guess I want there to be a minimum lower standard for a Value Prop Story. If you are allowed to say things like "our product will look better and it will be cooler and customers will like our support experience more", then every startup ever has a value prop story. If we're allowing value prop stories of that low quality, then Golden's story could be "our articles will be better than Wikipedia's". Whereas when Liron said that 80% of startups don't have a value prop story, they seemed to be talking about a higher bar than that.

comment by Ben Pace (Benito) · 2019-09-05T19:28:08.265Z · score: 7 (3 votes) · LW · GW

I had a fun time the first time I visited Stanford (and the Bay Area more generally). I had read Paul Graham's essays and Peter Thiel's book as a teenager, and was chatting with a guy on the bus about the startup he was working at. Somehow the conversation got to a point where I was like "But you need a model of the world where you have a secret or some other key valuable insight that other people haven't noticed / aren't taking advantage of!" And he was like "Oh yeah, everyone round here has one of those." I was so shocked that my important information had been goodharted on by such a broad network of people.

comment by Liron · 2019-09-05T23:33:16.949Z · score: 4 (3 votes) · LW · GW

It's a good point that most bad startups can still tell a Value Prop Story which is well-formed, but just has a small delta in value. Jude did that when he claimed that cryobacterium on Golden gives more value to readers than cryobacterium on Wikipedia, and my objection is merely that the delta in value doesn't meet the kind of "minimum lower standard" you're talking about.

Now that I think about it, I think we can improve the Value Prop Story test by saying that the specific user in the Value Prop Story has to be willing to pay one hour's worth of their salary per month to get the company's product or service.

This stronger test works because regardless of the company's actual pricing model, there should exist at least one passionate customer who doesn't mind paying. For example, Reddit is free, but there are plenty of people who would pay one hour's salary per month for it if they had to (at the same time, we expect that most Redditors wouldn't pay that much for Reddit - the median case is different from the #1 extreme case).

comment by mr-hire · 2019-09-06T14:23:22.506Z · score: 2 (1 votes) · LW · GW

A few related ideas here:

The 10x startup: the idea that because of switching costs, a new startup has to provide 10x value to the previous alternative.

Problem/solution fit: The stage before product market for where you describe your solution to an idea and the customer says "Yes, I want that."

So one way to go beyond "Having a specific value proposition" is "Having a specific value proposition that gets your customers excited."

comment by Liron · 2019-09-06T14:40:51.390Z · score: 2 (1 votes) · LW · GW

Ya these ideas are all consistent and related.

Just one big caveat worth noting, which is captured in the flowchart diagram in the post: I see a lot of founders who claim that they've pitched potential customers and gotten excited reactions about the product they're building, but in practice still fail to get any traction. The culprit is usually that they lacked a specific Value Prop Story, and their conversation with the potential customer consisted of flinging non-specific ballpit concepts.

comment by ricraz · 2019-09-06T14:11:16.497Z · score: 2 (1 votes) · LW · GW

I don't think I'm claiming that the value prop stories of bad startups will be low-delta overall, just that the delta will be more spread out and less specific. Because the delta of the cryobacterium article, multiplied by a million articles, is quite big, and Golden can say that this is what they'll achieve regardless of how bad they actually are. And more generally, the delta to any given consumer of a product that's better than all its competitors on several of the dimensions I listed above can be pretty big.

Rather, I'm claiming that there are a bunch of startups which will succeed because they do well on the types of things I listed above, and that the Value Prop Story sanity check can't distinguish between startups that will and won't do well on those things in advance. Consider a startup which claims that they will succeed over their competitors because they'll win at advertising. This just isn't the type of thing which we can evaluate well using the Value Prop Story test as you described it:

1. Winning at advertising isn't about providing more value for any given consumer - indeed, to the extent that advertising hijacks our attention, it plausibly provides much less value.

2. The explanation for why that startup thinks they will win on advertising might be arbitrarily non-specific. Maybe the founder has spent decades observing the world and building up strong intuitions about how advertising works, which it would take hours to explain. Maybe the advertising team is a strongly-bonded cohesive unit which the founder trusts deeply.

3. Startups which are going to win at advertising (or other aspects of high-quality non-customer-facing execution) might not even know anything about how well their competitors are doing on those tasks. E.g. I expect someone who's generically incredibly competent to beat their competitors in a bunch of ways even if they have no idea how good their competitors are. The value prop sanity check would reject this person. And if, like I argued above, being "generically incredibly competent" is one of the most important contributors to startup success, then rejecting this type of person makes the sanity check have a lot of false negatives, and therefore much less useful.

comment by ryan_b · 2019-09-06T18:18:21.480Z · score: 4 (2 votes) · LW · GW

I have heard from several angel investors words to the effect of "I don't invest in ideas, I invest in people." Which is to say they prefer a good group of founders with a mediocre idea to a less reliable group of founders with a better one.

This seems similar to your high generic competence standard. The hitch is that the preference for a good team over a good idea doesn't rest completely on the likelihood with which a mediocre idea will be successfully executed, but rather also on the likelihood that this good team will recognize the mediocrity of the idea and shift to a new one successfully. Quoting from Paul Graham's essay linked above:

So don't get too attached to your original plan, because it's probably wrong. Most successful startups end up doing something different than they originally intended — often so different that it doesn't even seem like the same company.

I feel like the ability to recognize and then articulate value should be included in the idea of generic competence. Likewise for things like opposition research: following the advertising example, I don't see why we can't just recurse on execution advantages with the same basic structure of a story. It is like a Value Sub-Proposition Story, where the specific person is the entrepreneur and the specific problem is delivering on some aspect of the Value Proposition (by getting it in front of people).

It still seems useful to the investor to know whether or not execution advantages are specific and what they may be, and therefore also useful to the entrepreneur to articulate them.

comment by Liron · 2019-09-06T14:29:37.111Z · score: 2 (1 votes) · LW · GW
I don't think I'm claiming that the value prop stories of bad startups will be low-delta. Because the delta of the cryobacterium article, multiplied by a million articles, is quite big, regardless of how bad Golden actually is.

Ahh, I should clarify that the Value Prop Story test I have in mind does not let you sum across multiple Value Prop Stories. It functions as an existence proof that the startup idea contains at least one specific case of a big value spike.

Indeed, one of the most common ways startups try to "cheat" the Value Prop Test is by trying to answer it with a bag of low-value-delta examples.

Consider a startup which claims that they will succeed over their competitors because they'll win at advertising.

Hm, do we know any example of such a startup? I can't think of one. The reason I ask is because ryan_b explained how most of these indirect advantages do also manifest as Value Prop Stories.

Being "generically incredibly competent" is one of the most important aspects in startup success, then rejecting this type of person makes the sanity check have a lot of false negatives, and therefore much less useful.

I see examples all the time of incredibly-competent founders whose startup is currently failing the Value Prop Story test. My strategy here as an angel investor is to hold off on investing, watch as they keep iterating or pivoting their idea, and invest when I see a Value Prop Story emerge.

comment by Liron · 2019-09-05T15:08:55.371Z · score: 2 (1 votes) · LW · GW

I agree with this explanation

comment by Liron · 2019-09-05T14:28:09.241Z · score: 2 (1 votes) · LW · GW

What's an example of your claim... like Slack entering the group chat market, or Zoom entering the video call market?

In these situations, it's clear that there will be specific people getting value, and the only question will be whether those specific people are getting a sufficiently high delta in value over their next best alternative (the "spike of value").

Some of the bullets in your list (e.g. hiring, coding, budgeting) don't directly constitute passing this test. But others (e.g. UX design, minimizing downtime, customer support, expanding internationally and being cool) do potentially create spikes of value from the perspective of the customers they acquire.

comment by Fluttershy · 2019-09-05T18:19:30.557Z · score: 7 (9 votes) · LW · GW

Man, most people are roleplaying everything. It's not fixable by just telling them what concrete stuff they're doing wrong, because they're still running on the algorithm of roleplaying things. Which is why rationality, an attempted account of how to not do stuff wrong, ended in a social club, because it didn't directly address that people are roleplaying everything anyways.

comment by Liron · 2019-09-05T23:42:37.818Z · score: 5 (8 votes) · LW · GW

This isn't the right place to argue against the whole premise of LessWrong

comment by Fluttershy · 2019-09-06T18:32:40.878Z · score: 3 (9 votes) · LW · GW

What the hell? It's just a more specific version of the point in inadequate equilibria, and don't you want to know if you can do something better?

comment by Fluttershy · 2019-09-05T18:32:13.066Z · score: 3 (6 votes) · LW · GW

Presumably the reason why people are roleplaying everything in the first place is because, you'll be seen badly if you stop roleplaying, and being seen badly hurts if you don't have enough emotional resilience. Here's my best attempt at how to break people out of this.

comment by lucho · 2019-09-07T21:36:35.827Z · score: 3 (3 votes) · LW · GW

From a guy who never made it past the sanity check (yet), I really appreciate reading stuff that actually does that: add value to at least one guy (from comments I see that it also gives value to more people). So thanks for giving this away for free.

I feel like, as a first time founder, I receive mixed signals all the time. If I go through YC Startup School I'm taught about the "quantum value" one has to add to the customer, and how to be 10x better at one thing. If I read the news, I see a startup that raised $5 million to build something that is generally explained in terms of nice features or engineering achievements and not that one thing at which it's 10x better. I wouldn't be surprised if this tension unconsciously (or consciously) influences my pitches, decks, funding applications and even actions as the key to success seems to differ depending on who one talks to. Still, here, relaxing and reading on a Saturday morning, the value prop model makes much more sense to me than throwing lots of money at something that actually doesn't pass the check.

I hope that this is the appropriate place for this semi-rant, Liron, and that these two cents provide at least additional feedback to test the value prop story of Less Wrong.


comment by Liron · 2019-09-07T17:58:09.476Z · score: 2 (1 votes) · LW · GW

Thanks, I got some value out of your comment :)

It's true that many investors don't understand the Value Prop Story test, and evaluate based on other signals such as impressive-sounding features and technologies.

But I don't think this needs to be a source of conflict for you. If you build a startup that's actually good, and passes the Value Prop Story test, then you'll get traction and revenues, and those signals on average attract investors even more than impressive-sounding features and technologies.

comment by Slider · 2019-09-08T16:35:53.250Z · score: 1 (1 votes) · LW · GW

While it is easier to posit a scenario where the stars align for you, I do not think that the overall diffuculty level is that easy. "Better than available options" means the person can turn to anybody for an alternative meaning you have to be better than everybody else. Being the worlds best at something sure sounds like atleast moderately challenging.

Consider that they make somewhat plausible story where they beat a lot of options. Now if you come up with an already existing option that does the job better that turns it into a failure but that kind of failure would not be so catastrophically bad as not being able to form a coherent position. The height of the bar is warranted, even if you succesfully make the product as claimed the better option would be in a position to market-dominate. However replies that fail in this way do not fail for not being able to be spesific.

It's probably part of the background paradigm but it seems to me that if you posit a particular way of doing you can argue whether that would be good/desirable or not and if you posit a particular goal to shoot for you can argue whether it's reachable. Either way there isi significant risk tha the other side of that coin is voefully underspesified. There is also the issue that even if the end user experience is clear the way of having a production chain that can deliver that can be murky. So it isn't obvious which of these spesificities are especially critical/valuable. It's one thing to answer too ambigiously to a question but it is another thing to know that a question should be answered or that you are answering that particular question.


comment by Jules Le Tanneur (jules-le-tanneur) · 2019-09-04T19:15:46.146Z · score: 1 (1 votes) · LW · GW

Edit: this was actually more appropriate as a response to your previous post