Startups

What’s Your Company Really About?

In That Moment
Still from In That Moment

My writing professor, the incomparable Mick Casale, would ask, “What is your film about?”

Once he got the answer, the follow up question would be, “What is it really about?”

In The Creative Habit, the legendary choreographer Twyla Tharp calls this “the spine.” Take my first short film from NYU for example—In That Moment (5 minutes, embedded below) is about a guy who’s working as a living statue in Central Park and and his encounter with a woman who piques his interest.

But what is the film really about? It’s about the regret chances not taken, moments when fear makes you pick the safe choice, and times when you instantly regret a decision you can’t take back.

If you’re a founder, this question is relevant because you should know what your company is really about. On the face of it, you might be a marketplace—but ask yourself, what is your company really about? You should know that answer.

  • Nana is “about” helping people get their appliances repaired, but it’s really about providing economic empowerment and agency to blue-collar workers
  • Uber is “about” getting from point A to point B, but it’s really about changing the way people travel, eat, and work.
  • eBay is “about” being able to quickly sell something to someone you don’t know, but it’s really about global economic empowerment.
  • Twitter is “about” sharing what you’re thinking, but it’s really about allowing people to learn, find friends, and challenge their worldview (although it is unclear if that ever happens).
  • Core is “about” meditation, but it’s really about taking charge of your mental well-being.

What the film is really about is its spine. For a company, the long-term vision is the spine that holds the company up, provides clarity and guides decision making around design, branding, expansion plans, who you’re counting among your competitors.

At the earliest stages, the spine of your company may not be visible to everyone. Tesla’s first expensive sports car was easy to dismiss for both consumers and investors. But what is Tesla’s spine? Making transportation sustainable for the planet while being joyful to the consumer.

The spine is the deeper intent behind what you’re doing. Not every customer needs to understand the spine to use and enjoy the product, but it’s important for everyone at the company to understand the larger vision.

With that, I’ll leave you with In That Moment.

Seats

Photo by Anton Shuvalov on Unsplash

A role, or seat, in an organization is filled by someone. But that person doesn’t own the seat. The seat is the seat: it’s a conceptual role that exists to make the organization succeed.

When a person who is in the seat excels, adds value, and grows with the organization, they get to keep that seat. They may be offered a different seat, with more responsibility where they can continue to thrive and grow.

But there are times when that does not happen—where the needs of the seat are bigger than what that person can fill.

Every successful company reaches this point. Usually, it’s when the organization is growing so fast that the people can’t keep up and scale their skills with that growth. This is an opportunity, both for the company and for the employee. The CEO/leadership team has to look at that the seat and the person, and ask themselves “is this the best person I can have in this seat?” If the answer is no, there is room to bring on an experienced person to fill the role—someone who can have a dramatic positive impact on the role and the organization.

For the person being replaced, this is hard. But even for him, it doesn’t have to be a bad thing. If he’s intrinsically talented, he can look up to his new manager and learn from her. It’s all about the mindset and the framing. In a fast-growing company, new opportunities will keep coming up and people who show they are open to learning and growing will be given new, different, and often more responsibility.

On some occasions, it may be time to part ways, and that’s okay too. Organizations work best when people are well suited to their roles. And people work best when they’re positioned to apply their unique skills to the fullest, and thrive.

I encourage CEOs and leadership teams to revisit “seating arrangements” once a year, often combined with an annual review process. When you do this, you should put the organizational needs first. Not only is it your fiduciary duty, it’s also the best way to build the company. People will perform better when they know there’s a yearly appraisal, and the best employees should relish the opportunity to get thoughtful input on their areas of growth. Making these decisions is part of the CEO’s job. When the right people are in the right seats, the organization can sing.

The board can play a role by helping the CEO see their own development areas (often done using annual reviews for the CEO). When the CEO ends up modeling behavior of learning and being open about development areas, it can set the organization up with a culture of lifelong learning.

55 Questions for Mission-Driven Co-Founders

Photo by Annie Spratt on Unsplash

Early on, when Tesla was still Tesla Motors and hardly anyone had heard of it, co-founders Marc Tarpenning and Martin Eberhard were approached repeatedly by large companies that wanted to throw significant money at them, so they could work on solving their problems. Marc and Martin always said no.

They turned down those offers because they were both clearly aligned around the mission of the company, the product they were building, and their personal goals and ambitions.

They also knew each other really well. Not only had they already co-founded an e-reader company together, but even before that, they’d been meeting for coffee every Wednesday (and to this day, they still do that). They had a mutual understanding that extended beyond the practical aspects of working together; they had shared values and a shared mission.

Not everyone has the opportunity to meet a co-founder serendipitously—but no matter how you meet, you have to establish that same chemistry that existed between Marc and Martin. You need to be united around your beliefs, values, and mission. You’ll have lots of decisions to make, and you’ll change your mind many times along the way. But there are some things that you need to get right from the start—specifically, what the point is of doing all this, and what will make it worthwhile.

Earlier this year, when I was looking for a new partner, I used Jordan Cooper’s 33 Questions to really determine who I was, what I wanted, how I wanted to build our venture firm, and what I was looking for in a partner. It’s a great list of questions and helps people get to the heart of the things that matter.

I realized that a similar list for co-founders could be useful. I started with Jordan’s list, organized it a bit differently, and then added in questions that are more relevant to co-founders of a startup, rather than a venture firm:

Absolutes:
1. What will you never do and never tolerate from anyone on your team
2. What will you always do and demand from everyone on your team?

The idea and the mission:
3. Describe what the mission is, to you.
4. What’s at the core of this company?
5. In the ideal world, describe what this company looks like in 5 years, 7 years.
6. How much does the mission behind this idea matter to you?
7. Pivoting:
— a. If we don’t get traction and have to pivot, would you be okay with that?
— b. How far of a pivot are you willing to make?
— c. Are you willing to wait and come back to the core idea once the pivot is successful?
8. What is the timeframe within which you want to see the mission come to life?
9. What if it takes longer than we think? What options will you consider?
[Note: Sometimes you pick your co-founder before you decide on an idea. In that situation, this whole conversation about the idea could be had more generally, instead of about the specific company you decide to start]

Understanding each other:
10. What is your life’s mission?
11. What is a life well-lived?
12. How do you define success? How do you define failure?
13. Have you failed before?
— a. How did you feel about the experience?
— b. How did you react to the experience?
— c. What did you learn from the experience?
14. What stresses you out? How should I help you handle stress?
15. Who are your closest thought-partners and collaborators and why?
16. Who doesn’t like you and why? Who would you consider adversaries?
17. Who are your mentors?
18. Who are CEOs you look up to and why?
19. What major life events do you envision over the next 10 years?
20. How do you imagine your frame of mind evolving over the next 10 years?
21. What are the life events that have shaped you that I need to know about?
22. How do you learn?

Ethics and Behavior:
23. Have you ever had any issues in the realm of sexual harassment, inappropriate work behavior, legal issues, or has anyone ever challenged or questioned your integrity in a way that might come into focus in the future?
24. What, if any, policies or infrastructure would you want to create to ensure a healthy and ethical work environment?

Values:
25. What are the values that you want to define your company?
26. What will the company and its people stand for and live by?
27. Are there clients or industries you’re morally opposed to entering or serving?

Motivations:
28. What role does money play in your ambitions?
29. Why are you doing this, versus working for a different company?
30. What gets you out of bed each morning?
31. Is winning important to you?
32. How do you measure the impact of your work?
33. Whose opinions of you matter and why?

Compensation:
34. What kind of salary will make you happy and comfortable?
35. What’s your threshold for an exit? Would you be open to being acquired? If yes, how much would you need to personally make in order to accept the offer?
36. How do you think about equity between co-founders? Should we always have equal equity?

Investors:
37. What kind of investors do you want to raise $ from? (values, brands)
38. Who do you already have good relationships with? Who are aspirational?
39. What is the ideal relationship between us and our investors?
40. Is how much money we raise a badge of success?

Roles/how we work with each other:
41. Who is the CEO? It’s got to be one of us.
42. What are the kinds of decisions we need to agree on, and which decisions can the CEO make without consultation?
43. How will we stay connected? What processes should we put in place to be in sync as we move fast? (15 minute phone call/zoom at the end of each day?)

How the team will operate:
44. What are your superpowers, and what do you perceive as mine? How can we accentuate and build around them?
45. What are our strengths as a team?
46. Which responsibilities do you want, and what do you actively not want to own?
47. What are our operating agreements? What standards do we commit to, how will we resolve conflicts?
48. How do you want to build the company, geographically? Where should the office be, or will the company be remote?
49. If it is remote, how will we build culture?
50. What is the culture we want for our company?
51. Where do you think you are weak, where do you think I am weak, and where do you think we are weak as a team? How can we buffer these weaknesses?

Concerns / worries:
52. What do you think is going to be hard, both initially and down the line
53. Based on time together so far, does anything worry you?

First 365 days:
54. What are the most important things for us to accomplish?
55. If we do x, y, and z, what will a great first year in business look like?

This is a long list, but working with a co-founder is a big decision. This process only works if each person is herself. It’s like making unique jigsaw pieces fit together. Pretending to be a differently shaped piece won’t help anyone.

These are the things you need to get right from the beginning, if you’re going to start a successful mission-driven company. This process will take time and it won’t be easy, but it’s one of the most rewarding things you can do.

Where Do Missions Come From?

Clarity Sensor, Image Credit: Clarity

Almost every company has a mission statement, but not every company has a mission. For a startup, a mission is a perspective on how the world will look when they succeed. For example, Michael Karnjanaprakorn’s mission with Skillshare was to make lifelong learning and upskilling accessible to anyone—giving people the agency to craft a career that inspires them.

The idea germinated when Michael saw this problem up close: he had graduated from UVA, but he really wanted to continue to pursue new interests. He didn’t see a place where he could stretch, grow and practice lifelong learning in a deep way.

Michael was sure a solution was already out there. When it wasn’t, he realized that if he had this problem, surely others did, too. It was time for a solution—not just for him, but for everyone. That led to his founding of Skillshare.

Sarah McDevitt founded Core after suffering a debilitating panic attack. Over the next few months, she tried many things, and the only thing that worked was meditation. But none of the options in the market made it easy. With something that requires such a regular routine, the phone apps just weren’t cutting it. As a D-1 basketball player, she always loved coaching teens and so she decided that she would build a meditation product that the most difficult customers—teenage boys and girls—could use easily and effectively. This ended up becoming Core.

David Lu arrived at Berkeley for his undergrad and was astounded that every day, he could look up and see a clear blue sky. When he was growing up in Shanghai, this was rarely the case. As he continued his undergrad, he met fellow students, some from other parts of the world, who were also surprised at how the Bay Area seemed to have such great air (back then) compared to other places.

They realized that the first step in fixing a problem is to know there is a problem. They decided to build the most accurate sensor that could measure air quality. As they installed sensors, they learned that when traffic increased, the air quality got worse. David wanted to empower people around the world with data about their neighborhood, companies about the air their employees were breathing, and cities with information on how they could keep their citizens safe. From this, Clarity was born.

For all these entrepreneurs, a mission was born of a problem they had some connection with and cared deeply about—one they wanted to solve for themselves and also for others. Not every story is just like these, of course. But if you’re wondering where missions come from, look around you.

Founder-Market Fit Matters More Than Ever

Photo by Tekton on Unsplash

These days, practically anyone can start practically anything. If you have a sliver of pedigree1, like experience at a reputed company, it becomes even easier.

But as tech permeates everything, people are starting companies in industries they don’t know. In other words, they’re founding companies as outsiders, without strong founder-market fit.

And that’s fine. A fresh perspective is often a huge help. But many industries are complex. The incentive structures, local laws, and nuances about who wins and loses are not obvious from the outside, or even after several conversations with those in the industry. Today, there are over 1,000 seed funds—capital is flowing freely. You will get funded, but that doesn’t mean you’ll find product-market fit, and then get to scale. At any given time, there may be 5-10 companies tackling a similar problem. This is where a founder’s knowledge or experience in the industry is a real advantage.

As my colleague Jonathan Kroll put it:

“The bar has never been lower to build a product. 10 years ago, you’d need millions in investment to have some sort of rudimentary machine learning or computer vision capability. Now, this is all off-the-shelf.

This is amazing! Right?! Well yes, it is—but as a result, building a cheap product with amazing functionality is at everyone’s fingertips. So while amazing products with amazing features could have been the major source of differentiation in the past, today, that’s just not enough.”

Founder-market fit is an advantage because:

  • These founders get to asking the right questions quickly.
  • If they don’t know the answer, they know who to call in the industry to get the answer.
  • “Founders who know exactly what their market needs,” in terms of leverage to move the needle, “might meet those needs faster and in a more capital-efficient manner, therefore extending runway and giving themselves more time to experiment,” said my colleague Sara Eshelman.
  • They understand the incentive structures, and so know how to position their company in the most appropriate (read: unthreatening and helpful) manner to the relevant constituents.
  • They know local laws and where they can push and where they can’t.

Founder-market fit is not developed only by having worked in the industry. You can also be obsessed with a problem in that industry and immerse yourself in it before you find a solution that works.

One example of this is Filip Victor. Filip is the founder of our portfolio company Mati, which is focused on identity verification. He came to the US as a student and faced the challenges of an immigrant: not being able to get credit and not being able to verify his identity with many of the commercial entities that you need to live a life with agency. This led him to spend time learning about the space to try and solve the identity verification problem for people in the developing world.

Another example is David Zamir at Nana. During a tough moment in his life, he taught himself to repair appliances, going out to customers’ homes to fix their washing machines in order to have an income. This led him to create an appliance repair marketplace that trains technicians and enables them to craft their own livelihoods.

Founder-market fit is real when a founder knows enough of the market to see a real opportunity, while knowing how hard it’s going to be. At the same time, founders need to have a bit of rebellion, a bit of chuztpah, a bit of “fuck it, this may really work,” a bit of willingness to upset former colleagues, boldness, and the ability to envision how things could be. That’s when they can take the leap and build a company that could be amazing.


  1. This is a problem and it is exclusionary, but it is also how the world currently works 

Your Startup is an Improv Class

The Office Michael GIF - Find & Share on GIPHY
From Giphy

These are some guidelines for an improv class.

  • Improv is a trial by fire.
  • Don’t deny the reality in front of you; react to the world as it is.
  • Ditch your inhibitions.
  • If you have a good idea, run with it. If you don’t, it could falter. Commitment matters more than the idea.
  • Take the initiative to develop your character; otherwise, someone else will.
  • Adapt your character as the improv session evolves. Don’t worry about what it looked like 5 minutes ago—that scene is already over. You have to react in the present.
  • Improv is about everyone contributing little actions and lines that make the scene killer. It’s not about who said the smartest line; it’s about the whole.
  • Figure out how to make others look good. Letting others shine gives them an incentive to let you shine.
  • Be in the moment. Don’t focus on who’s watching, on looking dumb, or on being wrong. Instead, focus on what you’re doing.
  • You have to take (a little) time to think—but then, be willing to own the spotlight.
  • If your performance is inspirational, the others will want to step up.
  • Improv teaches you that you control very little, except your performance and how you react. The rest depends on other actors, the audience, and a bit of luck and timing.
  • A situation may look bad or good, but every situation is an opportunity.

This is also startups.

Your startup is an improv class.

Zoommovies, Panpics, and Startupping

Mythic Quest’s Quarantine Episode

Human beings are amazing. A mere two weeks after the lockdown started, most people had adapted to a remote world. Kids were learning soccer on Zoom, personal trainers adapted, cooking and baking classes moved to zoom—but I really did not expect theater and filmmaking to adapt in this world.

But, adapt they did. Zoomtheater and Zoommovies are a thing now, 4 months into the pandemic—for example, Host is a horror movie, made on Zoom.

Are these pieces any good? Well, it depends — film, which is asynchronous (i.e. shot and edited before the viewer sees it), can be just as good. For theater, which is delivered in real time, the remote version is not as good as when the cast and crew are in the same location. But the ability to adapt, the ability to even try this, makes me optimistic.

An image from Mythic Quest’s Quarantine episode

For a polished spin on quarantine filming, look at Mythic Quest, which is on Apple TV. They were filming the second season when the pandemic shut things down. This article outlines what the crew and cast did to shoot a “pandemic” episode that is part of Season 1. They used iPhones with prosumer film software, mics, and shot in all natural light, since lighting is one of the harder parts of filmmaking. They then edited it together to make it look like it was shot on Zoom.

On the other hand, some of Princess Bride’s celebrity cast decided to make a fan fiction, and it’s very clear that it’s shot by non-professionals, embracing the reality of shooting in different locations, with no crew.

In a scene with Diego Luna and Jack Black, they create continuity from two different locations in amazing ways: Diego throws down a green rope tried to a tree in his house and Jack, who is lying on a set of stairs in his house, grabs a hose that is thrown down to him. Diego lifts, Jack clambers, until finally, Jack is back at the top of the mountain (stairs). It’s really well done!

Images from Home Movie: Princess Bride. Image courtesy: Quibi

This would never have been considered acceptable pre-pandemic, but with a new set of rules for the world, there’s a new set of expectations. All film-watching requires the “willing suspension of disbelief,” and for these pandemic-pictures (panpics?), the suspension of disbelief has to be extended. But they are so entertaining!

Theater, unlike film, is synchronous – everything is live. This makes it much harder to adapt to a remote environment. While in film, you can do an extreme close up to show the twitch of an eyebrow, theater acting is “bigger,” so that the person in the last row can have the same read of a scene as someone sitting in the front. So Zoomtheater and the innovations there are harder to adapt to the pandemic. But theater has adapted, too. And if the pandemic stretches out, theater will have to continue to adapt. Imagine if there was a plugin that:

  • allows a lighting tech to set the stage by adding a virtual background and virtual lighting to make people seem like they’re in the same room, with the mood lighting the director wants.
  • controls which person is “shown” to the audience during a live performance. That way, the tech can make sure the right face is shown at the right time.
  • enables a “prop” tech to develop a unique, dynamic set and background for each actor and upload it behind them as the stage changes
  • allows live mixing of the audio so that music can be woven in, like a play.

It’s entirely possible that this could happen. Because despite the insanity in the world around them, humans continue to create, continue to innovate, continue to live lives of hope and splendor. Constraints make them innovate in ways that they wouldn’t have thought to before.

The same is true for startups. Startups have to startup. And the first requirement of startupping is surviving. But the very best startups, like the best creators, use constraints to innovate and thrive, offering customers an unexpected, delightful solution that moves us all forward.

Being Messy

Photo by todd kent on Unsplash

Chanel Miller said her New Year’s resolution for 2020 was to fail as much as possible.

“Making things that are really crappy and undeveloped until maybe they can be good. I’m way too young to confine myself to one lane and lose the ability to openly experiment.”

This is exactly how a the first draft of a film script develops. Characters and ideas float around in your head, and one day, they’re done with the floating and demand to live on the page. The script gets written, and when you’re done… it’s shitty. It’s embarrassing, you don’t want to show it to anyone, and you wonder how on earth your magical characters and ideas amounted to this pile of doodoo on the page.

But, it’s really important to have this first draft. Because as Miller said, yes, it’s crappy and undeveloped, but you need the crappy and undeveloped to have hope for the good and the great.

Struggling, wrangling, failing, crying, working, pushing forward allows your characters and your story to breathe, thrive, and for the bones to slowly emerge from the pile. Experimenting openly, taking the story in unexpected directions, adding or removing key characters, and messing around with no pressure allows the sparks of creativity that makes the script sing.

Every creator needs that messy time.

The same is true for startup creators. Ideas for a product form in your head over time, sometimes over years. Then one day, you’re ready to put it on the “page” — to code something, to craft something. And it may be a sloppy, messy ball of hair, mud, and hope. Don’t clean it up, polish, and shine it in order to raise money too early.

Love your messy stage, because it is so important to relish that stage. You can only do it once for each startup, and it’s when experimentation, ideation, hanging out, and trying weird things is entirely possible. It’s where ugly is awesome.

At some point, a screenwriter will have to share the script with producers. At some point, you have to share your startup with users and, if you want, with investors. If things go well, they love it, and you build an amazing company. Fantastic.

If you’ve grown your company into a wonderfully world-changing one, it’s worth finding ways to go back to being messy. Get into small groups. Make room for experimentation with ugly, creative things that may fail, because that can lead to new lines of growth. If you have the urge to start again, you could start another company and embrace the new ugly ball of mess. Whatever path you follow, the messy part of creation can be the the best part of creation, and the challenge of it makes your ideas and your company better.

Investing in Founders is like Casting Actors

On the set of “Waking Jed”, directing Jessica Chastain. Photo Credit: Anna Kooris

One of my early lessons in screenwriting was to focus on the character—motivations, personality, drives—and not external characteristics. It’s tempting to specify that the leading lady is blonde, petite, or whatever. And it’s okay to envision the character while writing, but we’re taught to avoid specifying detailed external appearance in casting.

The reason is that sometimes, the best casting decision is the one that’s least expected. You might have an image in your head of the character, but the best actor—the person who is most convincing and does an incredible job—might look very different from your mental image. Let’s say your character is written as a seductress, but the best actor for that role could be more of a plain Jane. That adds a lot to the nuance and depth to the story. A more regular-looking person being a seductress is so much more interesting than the hottest person on earth being a seductress. The film Snowpiercer was written for a mild-mannered man in a suit, but Tilda Swinton rocked the role.

During casting sessions, screenwriters and directors need to learn to set aside their mental picture, look at the actors in front of them, and reimagine the story with each person auditioning. That’s the way to cast the best actors.

Similarly, investors sometimes have a mental picture of who will be a good entrepreneur. It’s not based on looks (one hopes), but on the profile — the experiences a person “should” have had to be a great entrepreneur. VCs can sometimes be biased toward someone who’s worked at a hot company that went public, or is an engineer who can build it all, or a name-dropper who seems very connected in the ecosystem.

If investors carry around these biases in our heads, we will miss the best people. Like great actors, great entrepreneurs can come in all shapes and sizes, and from all backgrounds, all levels of work experience, ages, nationalities, and genders.

When casting an actor, the most important things to look for include:

  • Ability to live the character. Do you believe the actor is the character
  • Willingness to take direction. A director should never tell an actor “how” to play the scene, but the director can and should give her guidance on the mood of the scene, how the audience should feel, or the character’s motivation for a certain action. And the actor should be able to take that input and give the director a range of options.

    I remember when I had the chance to direct Jessica Chastain and James Franco. They gave me such a spectacular performance on the first take and then turned around, asked how it was, and whether I wanted to see it another way. My jaw was on the floor — I was blown away by their talent and their humility in asking for input from a student director.
  • Ability to go with the flow. Film production (especially in the indie world) needs to be flexible. Sometimes, a much-desired location might suddenly become available (for free!), and the crew might have to shoot there tomorrow instead of three weeks from now. This means the actor has to be ready for scene 56 instead of scene 18.

Many of those same characteristics apply to ideal founders:

  • Ability to fully inhabit the role of the CEO. This is about vision, tactical capability, ability to hire, and the ability to sell their vision and themselves.
  • Willingness to take input. An investor should never tell a CEO how to do their job, but a big part of the investor’s role is to see around corners, anticipate challenges based on their experience, and give the CEO input and feedback.
  • Ability to go with the flow. Startups need to be flexible. Sometimes, a new competitor might emerge, you might lose a key person on your team, a pandemic might unexpectedly sweep the globe. The best CEOs are those who can adapt and find a way to thrive in the new world.

Just like the success of a film depends on casting the person who is the best actor, the success of an investment depends on casting the best founder. It requires putting aside the mental preconceptions and focusing on the person in the room (or on Zoom). Despite her youth, can she be an amazing CEO? What gives you that confidence? Her knowledge of the space? Ability to be compelling? Authenticity?

The best casting decisions happen when we are open to allowing incredible actors to show us how much better the character can be. In the same way, I try to approach every meeting with a founder with a willingness to be blown away by their vision of the world.

Hardware as a Moat

Photo credit: Peloton

When investors look at companies, one of the things we try to understand is whether the company can build a moat. In tech, a moat is a conscious business design choice that allows a company to develop and maintain a sustained competitive advantage over other players in the space.

Economies of scale and network effects are two of the best-known moats. But there are others—like deep tech, etc. Today, I want to propose a new moat: hardware. I’m talking about products like Peloton, where the hardware is central to having the full experience.

In the wellness space, software solves real problems, and the app ecosystem in these spaces is thriving. These apps help with things like meditation, period tracking, sleep tracking, and exercise of all kinds. But in a crowded market like that, investors ask, “How does a company win?”

Now, when you have “just” apps in these spaces, with no connected hardware, they are fungible. To move from one app to another, you just… click. If you have paid an annual subscription, you might wait until it expires, or you might just eat the cost and try a new app regardless. With these apps, there may be UI differences or instructor differences, but the experience is largely similar. The customer choice is being made based off of relatively small differences.

As my colleagues and I have written, in a software-only space where differences are minimal, a product-led community can be a great moat. Another moat could be sales to enterprises, where a company buys the app/service as a benefit for employees. If you lock up as many companies as possible, very quickly, the employees of those companies become your customers. But this kind of lockup, while valuable, may not be driven by passion or love for the product.

So, a moat that could be longer lasting is hardware. Yes, hardware often scares VCs, because it can be complicated. You need to create processes around mailing things out, dealing with returns, production challenges, and more. There seems to be an endless list of issues.

However, hardware has changed over the past few years, becoming easier to manage than it was 10 years ago. A whole ecosystem of companies has emerged to support hardware companies with many of the logistical issues. And engineers, product people, designers, and marketers who have built and shipped multiple versions of good consumer hardware are available in the market.

In a crowded software market, hardware can be your moat.

The most successful of these companies is Peloton. If you buy a bike (or presumably a Tread), to just get your hardware to turn on, you have to pay Peloton $39 a month for a subscription. And while your parents’ generation ended up using exercise equipment mainly as a clothes horse, these new devices are a joy. They are well-designed, they are connected, they often have community elements, and they have a rich user experience that’s compelling and powerful. So, sure, much like your parents, you could turn your Peloton into a dumping ground for your shorts and t-shirts, but once you’ve bought a device that costs several thousand dollars, the additional monthly pinch of $39 is likely making sure that you are using the device. Their numbers back this up: their S1 claims 95% 12-month retention for those who buy their hardware. Even if it is a bit lower, like some analysts debate, it’s still incredibly strong. Also, just yesterday, agreeing with this point of view, Lululemon bought Mirror, a connected hardware exercise mirror, for $500M.

Photo Credit: Core

It is even better when the hardware gives you unique data. For example, our portfolio company Core provides your Heart Rate, your HRV, your minutes of calm, and your minutes of focus for each session. Because you are holding a device that vibrates to give you a point of focus, and that same device gives you all this data, once you’ve bought a Core, you’re unlikely to want to use anything else to meditate. Same goes for Peloton.

In addition, unlike another apps on your phone, which are all behind the black glass screen, hardware is visible. You can see your Peloton bike in your house, your Core trainer on your desk or bedside table. And by being visible, and by being well-designed, they beckon to you to use them and experience the tactile, live user experience with them. They exist in the real world.

These are still the early days of connected hardware, but between the physical presence, the cost paid to acquire the device (which could be a proxy of customer commitment), the tactile experience, and the data generated, these devices can serve as a moat in crowded software markets. Over the next few years, companies will evolve their model and create fantastic new experiences for consumers. Both as a user and as an investor, I am excited to see where this world goes, and I’m excited to use these beautifully designed products and apps to achieve my goals.