Build a scalable company, not just a product. Bridge the "Product-Company Gap" by focusing on go-to-market fit, scalable business models (pricing, etc.), and a Minimum Viable Segment (MVS). Prioritize instant value, low initial cost, and leverage partnerships for rapid growth. Early customer feedback is crucial for defining your MVS. fit So in the VC business, one of the things we're seed investors at underscore and one of the markers we look for when a company is getting ready to a question Number one, do they have product market fit? So I do not mean to imply that product market fit is bad.02:11It's just not enough to build a big company. So when you're going out to raise a series a, we want to see a little bit of revenue. We want to see a class of customer, at least a minimum viable segment.02:22We'll spend a much time talking about that for which that product works. And so you've repeatedly sold that product a couple times, but there's a lot more that has to happen to get to the next round of funding beyond just that product market.02:34fit. So product market fit is just one step just one step along the way. So the, the challenge is something we call the, the product company gap. How many of those of you who have started a company? How many of you are like actually starting to write code and kind of doing all this stuff Anyone writing software yet? Okay, so in the early days of a software company, certainly you spend all your money on development. it's you know maybe one founder is a technical founder, one's a business founder, but the first five hires are going to be more technical people to kind of build out the product and start to do it. But as you scale the company, you end up spending way more money on sales and marketing than you do on on the product. And I'll share some, share some data with you that kind of that kind of backs that up. What will actually happen is that your expenses will flip. So in the early days, you've got your team, you hire five or six engineers, certainly as seed investors. When we invest in when we invest in seed companies very often it's, you know, one, maybe non-technical person, and the rest of the folks are engineers. for example, no marketing people, no director of sales, no customer success people. But what happens is as you start to bring your product to market, and you get past this kind of MVP. and what we call founder-led sales where the founders, the one founders, the one sales person and they go out and close all the deals as you start to get past that. what happens is it flips you start to have to spend much more money on on marketing than you do on development. Now what actually happens is that there's there's in the SAS business and I'm maybe not all of you aren't creating SAS businesses. Um, there's rules that have started to emerge about how you benchmark companies that are doing this thing. there's a rule called 40 20 20 where for mature mature companies in a mature line of business forty percent of the revenue is on sales and marketing 20 um, is on product and research. so it's actually sick. It's actually 60 it's actually uh, 60 to 20. 60 to 20 in in from sg A compared to r D for a mature scalable product. And this is literally these are literally benchmarks that people use to, to more and more these days too, especially since valuations are compressing and everyone actually cares about metrics. Again, these are benchmarks people use and certainly investors use to value companies decide how much money to invest in it. This is data. And I put a link down here. You know, this is the framing that we use to talk about kind of to value proposition, But is is this a product that addresses a need? Is there an unworkable unavoidable urgent problem or an underserved market? We call it the four use and then there's the 3ds is the solution The product that you've built? Is it discontinuous? Is it defensible? Is it disruptive? And again? um, I know this is a little bit of a little bit of review and we do those of you remember we did we talk about something called the black and white framework is is the product you know on that you kind of you get we have a nice two by two here where we talk about blatant latent aspirational and critical good example of latent and aspirational gucci it's it's obviously aspirational Generally speaking, you see products that look like that more on the direct the consumer side consumers like it You can build gigantic multi-billion companies with something that's latent and aspirational so that doesn't mean bottom left quadrant is bad at all in this case um but it's not it's not um it's not blatant and critical on the other hand um those of you who are old enough or as old as me remember when the cell phone came out cell phone was a status symbol for a long time at first it was in the car you had cords and stuff there was no good reason to do that other than to flex on your friends and especially when you know the phones were like this big and you had to hold them hold them with two hands it didn't take long and the iphone and the maturity of android devices really really changed it before it became absolutely blatant and critical it's critical you know i have kids like kids get phones when they're 10 11 12 because you don't even know how to pick them up at the bus It's blatant and critical for consumers it's blatant and critical for business so it is possible for products to move from latent and aspirational up as they mature and then i thought i'd just give a you know a little example of another one so oculus or vr glasses any of you play vr games guilty um it's latent and aspirational now it's literally a toy um or or is it it's not this is an example of something that right now you might argue Is still sitting in that lower left quadrant as an aspirational product It's clearly going to move up up into the right and not just because of what meta is doing with the metaverse but because of industry. much Um, but it's super important you triple check your value proposition before you do anything before you spend any money before you hire engineers because if you're not solving a valuable problem, nobody's going to pay for it and you won't you won't build you won't end up building a a valuable company and viable viable Just means you can kind of build it and deploy it and the software works. It doesn't mean people will pay for it. So it's important that you really double and triple check that value proposition before you spend even a dime So you have that you have confidence in it. This may look familiar to you. This was part of the stuff that was discussed in that previous session two weeks ago. You know, this is the framing that we use to talk about kind of to value proposition, But is is this a product that addresses a need? Is there an unworkable unavoidable urgent problem or an underserved market? We call it the four use and then there's the 3ds is the solution The product that you've built? Is it discontinuous? Is it defensible? Is it disruptive? And again? um, I know this is a little bit of a little bit of review and we do those of you remember we did we talk about something called the black and white framework is is the product you know on that you kind of you get we have a nice two by two here where we talk about blatant latent aspirational and critical good example of latent and aspirational gucci it's it's obviously aspirational Generally speaking, you see products that look like that more on the direct the consumer side consumers like it You can build gigantic multi-billion companies with something that's latent and aspirational so that doesn't mean bottom left quadrant is bad at all in this case um but it's not it's not um it's not blatant and critical on the other hand um those of you who are old enough or as old as me remember when the cell phone came out cell phone was a status symbol for a long time at first it was in the car you had cords and stuff there was no good reason to do that other than to flex on your friends and especially when you know the phones were like this big and you had to hold them hold them with two hands it didn't take long and the iphone and the maturity of android devices really really changed it before it became absolutely blatant and critical it's critical you know i have kids like kids get phones when they're 10 11 12 because you don't even know how to pick them up at the bus It's blatant and critical for consumers it's blatant and critical for business so it is possible for products to move from latent and aspirational up as they mature and then i thought i'd just give a you know a little example of another one so oculus or vr glasses any of you play vr games guilty um it's latent and aspirational now it's literally a toy um or or is it it's not this is an example of something that right now you might argue Is still sitting in that lower left quadrant as an aspirational product It's clearly going to move up up into the right and not just because of what meta is doing with the metaverse but because of industry. You know, this is the framing that we use to talk about kind of to value proposition, But is is this a product that addresses a need? Is there an unworkable unavoidable urgent problem or an underserved market? We call it the four use and then there's the 3ds is the solution The product that you've built? Is it discontinuous? Is it defensible? Is it disruptive? And again? um, I know this is a little bit of a little bit of review and we do those of you remember we did we talk about something called the black and white framework is is the product you know on that you kind of you get we have a nice two by two here where we talk about blatant latent aspirational and critical good example of latent and aspirational gucci it's it's obviously aspirational Generally speaking, you see products that look like that more on the direct the consumer side consumers like it You can build gigantic multi-billion companies with something that's latent and aspirational so that doesn't mean bottom left quadrant is bad at all in this case um but it's not it's not um it's not blatant and critical on the other hand um those of you who are old enough or as old as me remember when the cell phone came out cell phone was a status symbol for a long time at first it was in the car you had cords and stuff there was no good reason to do that other than to flex on your friends and especially when you know the phones were like this big and you had to hold them hold them with two hands it didn't take long and the iphone and the maturity of android devices really really changed it before it became absolutely blatant and critical it's critical you know i have kids like kids get phones when they're 10 11 12 because you don't even know how to pick them up at the bus It's blatant and critical for consumers it's blatant and critical for business so it is possible for products to move from latent and aspirational up as they mature and then i thought i'd just give a you know a little example of another one so oculus or vr glasses any of you play vr games guilty um it's latent and aspirational now it's literally a toy um or or is it it's not this is an example of something that right now you might argue Is still sitting in that lower left quadrant as an aspirational product It's clearly going to move up up into the right and not just because of what meta is doing with the metaverse but because of industry. Um, you know the ability to check this i think one of that screenshot at the top was the ability to kind of check the skin of an aircraft with VR goggles that can kind of detect stuff that you can't with your eyes to operate factory machinery. And you know, not a pleasant subject. but every day on TV with what's going on Ukraine. you see what's going on with drones and everybody is wearing VR goggles to pilot those drones. It's now it's now a absolutely common part of war fighting question. Typically, you're building a fraction of your total vision and you, and you've got an idea of the people that you want to sell it to, but the most important thing is to be able to sell it to somebody repeatably and to be successful when you do that. And that almost always means you need to find what we call a minimum viable segment. And what do I mean by that? What it means is of your grand market where you have a dream of, you know, building a deck of corn that could, you know, sell all of your stuff to all of these people, you find one segment of that that has consistent needs either based on the four U's and and the 3ds and stuff that we talked about, but it has consistent needs that you think you can take your small product, solve a problem that's important enough for them and do it over and over again. so you've kind of you've carved out a space that's like okay maybe there's not 100 competitors I'm going right after this thing I'm solving a very particular problem and I can absolutely dominate it and by dominating it it's viable you've proven you can succeed in this market with your first idea and by the way doesn't matter if it's your first idea because you might try you might try it it might be a second it might be your third iteration but it's small bets you're not making you're not betting the whole house kind of right out of the gate but you want to make sure that there that it's a combination of pain points budget product use case channel how would you sell into them how would you sell into that customer profile and the the center of the venn diagram is your your mbs cluster of demand that was actually uh actually coined by a um as trainer the founder of intercoms of deca corn out on the west coast um and so and that's important right because what you've done is you've simplified the problem there's only one channel you're only talking to one department for their budget. So here's an example Um, this is an example from our our portfolio, um, a portfolio from a company that first did it the wrong way and then switched and figured it out so it's a company called the ploy Um and when they started what they do is they're um, they're a health care hiring and onboarding platform nurses doctors Um, you know a physician's assistant etc all of that stuff but they had a grand vision for what the platform was going to do.22:20They had 20 different features. They were going to have nurses, doctors, skilled nursing home, health care, senior centers, vets like everything spent a lot of time trying to build the product across it and did not do well. they struggled, struggled to raise money, struggled to kind of get off the ground, they peeled the whole thing back and said, you know what? hiring nurses, nothing else and they had tailwinds from the pandemic, but they did this.22:49they've been they made that switch before the pandemic, the company started going like this. And now if you go to their website, guess what's back home health care, senior living veterinary care because they prove to themselves prove to their investors that they were onto something honed the value proposition, then expanded, tried to do too much at first went for the minimum viable segment, Boom, And now they're one of the best performing companies in our portfolio question Yes, the question I have