Startups

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.

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.

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.

This past week, I talked to 10 candidates for our first round of summer intern interviews. It was awesome to see the enthusiasm and energy in the applicants, as well as the range of people who applied. On the job listing, we stated that “experience is preferred, but not required”—so we got a lot of MBA students, young professionals, recent graduates… and, to my surprise, one rising sophomore.

This young man, let’s call him Carl, realized there was no downside to having a conversation about the role. Because if he got picked to have a conversation, he could pitch why, despite how young he is, he’s qualified for the role. And if he impressed (which he did), he could put himself in a position to land future roles or be referred to other opportunities. He would also make a connection in the venture industry that he wouldn’t otherwise have had. Having spoken to him, I can put a face to the name, and I have a positive impression.

Because we had such fantastic candidates, Carl didn’t move on to the next round. But, he stands out in my mind for having the chutzpah and confidence to put himself out there. At Spero, we are giving some serious consideration to having ongoing, in-term interns, and Carl will be on the very short list of people I’d call if that opportunity opens up.

This story connects to the broader issue of how requirements are written and what they actually mean. Most of the time, a requirement is a proxy for a skill that people want to see so you can be successful in the role.

For example, in a job description:

An MBA is a proxy for analytical skills, basic financial skills, modeling basics, and an ability to evaluate businesses.

Experience in a specific role/industry is a proxy for the ability to hit the ground running versus needing people to spend time explaining how the industry works.

Years of experience is a proxy for maturity, the ability to collaborate with people, and the ability to handle the kinds of decisions the role will require.

And when raising venture investment, $1M revenue is often a proxy for product-market fit. There may be other ways to show PMF without being at exactly $1M.

This is not to say that every prerequisite is a proxy, or that you should fudge the facts. If you’re 2 credits short of your MBA, don’t say you have an MBA — but don’t automatically assume you’ll be rejected, either.

In our summer intern posting, we didn’t specify a single hard requirement, not even a college degree. I believe the whole professional world is moving towards tours of duty, which don’t depend on credentials like that. One of the smartest product designers I know doesn’t have an undergraduate degree. He is awesome and has accomplished a lot at some of the very best tech companies in Silicon Valley.

Next time you see one of those proxies, if you feel you‘ve demonstrated what the proxy is asking for, don’t hesitate to apply. I‘m fairly confident that Carl will do something interesting with his life. He recognizes that he is the asset and despite his youth, he understands the concept of proxies. He took the chance to put himself out there, and in nearly every situation, that’s better than not applying.

Last week, I saw the awesome news that my NYU Grad Film classmates Sarah-Violet Bliss and Charles Rogers are making their next feature. I love their story because it’s so different from what people may consider the “traditional” path in film.

It was the summer of 2012, and most of the class was on draft 63 of their soon-to-be perfect first feature script. But before that, we each planned to submit draft 79 to all the prestigious film labs. There, we would get input from auteurs we admired. Then, we’d make the perfect film, it would open to acclaim at the perfect festival, and get acquired and released nationwide. That was the plan.

That same summer, Charles and Sarah-Violet (SV) had a very different plan. Instead of perfection, they decided to create immediately. They cranked out a feature script. They each borrowed $40K through student loans. Knowing they were on a tight budget, they wrote about a world they knew (deep Brooklyn), with only a small handful of locations (all in NY), and very few characters. They didn’t submit the script to any labs. They didn’t apply for any grants. They did not wait.

They planned the shoot. They cast fantastic actors, some of whom they’d known for years. One of our classmates was the cinematographer.

They shot their feature. They edited their feature.

They did it all on a total of $110K. Tiny, even by indie standards.

One year later, they submitted it to festivals. The movie, Fort Tilden, premiered at SXSW. It won SXSW. And that set SV and Charles on a different trajectory. They were writers on the Netflix show Wet Hot American Summer and now have their own, very successful show on TBS, Search Party.

I share this story to share the power of ignoring gatekeepers. There are a few big steps in making a feature film: write a script, prep and plan the shoot, shoot, edit, release. Every step depends on funding. You could wait for funding at each stage—basically asking for permission from someone else to make your film. Or, you can do what SV and Charles did — make the best movie within the constraint they faced and the funds they were able to access. No waiting, no permission needed.

Don’t get me wrong: this is definitely not an easy or guaranteed path. I spoke with SV recently about her story, and she said, “(Taking out those loans) was still a huge insane risk I wouldn’t exactly recommend for everyone. But it felt right. So I’m always very careful to say, ‘Look, this is how we did it, and it worked out for us. I have some success but I also still have student debt.’ That said, I do NOT regret it. Not everyone would be comfortable with the position I put myself in, but it was right for me. I had a lot of clarity in the process and risking the money didn’t scare me. Waiting years and years to find funding or someone to approve of my voice was a much scarier fate.”

If you follow the SV & Charles model, you will have a real, live product. A product which people can see and enjoy. A product that people can evaluate and say “hey, they won SXSW on a tiny budget.”

Given the choice between being constrained, but still making something, versus waiting for the “ideal” situation, what would you pick? While most of the class was dreaming of the perfect first feature, SV and Charles made their first feature. That was enough to launch them into a world that is very hard to break into.

Breaking into tech is easier because angels and early funders (the gatekeepers) are willing to fund first-time founders. But it’s not always easy to raise your angel or pre-seed round.

Look at the funds and skills that you have. Decide how much risk you want to take — each person has their own comfort level and you should be the one that decides what is best for you. And then, design and build something using your skills and your budget. If you build something people love, you will have a little success. And that little success can propel you onto your next opportunity. And then onto the next opportunity. And each project or startup could get better. The gatekeepers will then come to you (and I say that as a venture investor).

In my film school class, every single person had ambition, most had a great idea. But SV and Charles just did it. And they went from strength to strength. You can, too.