Mike Maples Jr. and Peter Ziebelman discovered that the key to mega-success for startups is to defy conventional wisdom and aim for radical change in the future of products and services, rather than being "safe" by just extending what is offered now.
Mike Maples Jr. and Peter Ziebelman Urge Entrepreneurs To Boldly Aim For A Future World
In “Pattern-Breakers: Why Some Start-ups Change the Future,” Mike Maples Jr. and Peter Ziebelman explain what's fundamentally wrong with the goals of most startups and the investors who back them.
"They aim to just improve products and services based on patterns in past data to forecast the future and they hire those based on their past performance working with something similar," Maples told Startup Savant. "These are ‘best practices' in business and our brains are wired for pattern-matching in all our activities to avoid risk in an otherwise chaotic world. Drawing on past experiences and knowledge helps us make decisions efficiently and be successful in other ways, like making friends and choices of all kinds."
So what could be wrong with all that?
"Very few people are able to create real breakthroughs in any field because this requires breaking a pattern that makes us feel safe," explained Ziebelman. "In 1903, the New York Times published an article on why there would never be a flying machine, but 69 days later Orville and Wilbur Wright launched their first plane at Kitty Hawk, North Carolina. They owned a bicycle shop and had no formal training in aeronautics, but the principles they understood about balancing and steering bikes contributed to their understanding of flight control. Their curiosity, ability to observe, persistence, mechanical skills and tinkering enabled them to shatter age-old beliefs that human flight was impossible."
Maples is a co-founder and partner at Floodgate, a Silicon Valley venture capital firm specializing in seed investments. Over the past two decades, Floodgate has backed breakthrough startups like Lyft, Twitter (now X), Twitch, Okta, Cruise Automotive, Applied Intuition, and Rappi, many of which have become household names or play key roles in major corporations.
Ziebelman started his career on a team to create speech synthesis semiconductors at Texas Instruments and later became a systems software engineer at a startup. He now teaches entrepreneurship at the Stanford Graduate School of Business, co-founded Palo Alto Venture Partners, and consults on entrepreneurship with Fortune 500 companies.
Harvesting The Results Of Seed Investing
"Seed investing often involves backing just a couple of founders with an idea or possibly an early prototype," wrote Maples. "I often say I invest in people I'd gladly get into trouble with, because trouble happens just about every single time. We typically lose all our money in most of our investments, pinning our hopes on the occasional massive payoff when a startup is acquired by a larger company or goes public. I'm a co-conspirator with ambitious founders in their rebellions against the status quo. Each investment journey can take several years, and there is no off-ramp in the interim."
Pattern-breaking ideas offer something radically different from anything that came before and can seem crazy at the time, the authors note:
- Airbnb debuted when everyone doubted that home owners and renters would be willing to host strangers.
- Lyft and Uber offered to provide rides in cars of unknown drivers, instead of licensed taxis.
- Twitter/X initially allowed posts of only 140 characters and few imagined that even when that changed to 280 that this would explosively impact all media and communication.
"In 2014, I was feeling uneasy because of an unexpected investment windfall," Maples recalled. "I had backed a startup that became Twitch seven years earlier and had attracted tens of millions of users on its streaming platform before it was acquired by Amazon for close to $1 billion. It was very different from when it started as a spin-off of a live internet reality show, Justin.tv. I asked my 14-year-old son, a video game and YouTube expert, why it was such a big deal and he explained that it allowed hundreds of thousands of spectators to watch ordinary people play competitive games like League of Legends. It became the world's dominant platform for streaming gamers."
But the same week, another company he was sure would be a huge success closed its doors, despite the founder doing everything he was supposed to, from customer development and finding a market to building a great team and creating a high-performance culture.
"I saw this happen again and again, even when about 80% of the most impactful startups I had worked with had pivoted to another business model." Twitter was a podcast called Odeo when he invested in 2005, but then Apple made podcasting free in iTunes and it had to find a new direction.
"I became obsessed with uncovering the reasons why some startups achieved extraordinary results while others, despite seemingly following the right steps, struggled or achieved only modest success," Maples said. "Figuring this out was tough because no startups are totally alike. Luckily, I had good relationships with lots of founders who were willing to speak honestly with me."
Then Ziebelman invited him to talk to his Stanford entrepreneur class. Prior guest lecturers had all talked about best practices, such as how to identify attractive market sectors, interviewing customers about solving their problems, and creating a minimum viable product with a business model to test its potential. Yet despite all their experience and sophistication, most startups failed.
"My research had revealed a counterintuitive truth," said Maples. "The failures had started with what appeared to be promising ideas on the surface. Entrepreneurship was being taught as if there were a simple formula for success. But the super-successful founders embrace pattern-breaking as a core part of their job description, which demands a mindset and aptitude to break the conventional mold. Pattern-matching is a mental shortcut that helps us process information efficiently to make decisions to avoid danger and adapt, but it can miss significant anomalies right in front of us."
Breaking Patterns Through Inflections
Maples and Ziebelman eventually decided to collaborate on a book to explain what they have learned about why only a few startups become extraordinarily successful, even turning into unicorns (a privately-held startup that reaches a valuation of $1 billion or more). The keys:
1. Gain insights about inflections, external events that can significantly change how people live, think, and feel, yet are not obvious.
Examples include the embedded GPS locator chip in the iPhone 4s in 2011, which enabled ride-sharing, the belief by Airbnb founders that hosts and visitors would quickly feel as comfortable as if rooms were in a hotel, and Google's discovery that search results which were the most relevant to a keyword would attract repeat searches.
2. Harness strategic inflections which change what people value, believe, and may be willing to do.
Facebook Connect enabled websites and smartphone apps to incorporate profile information, allowing other users to see it. In 2012, Facebook bought Instagram and the iPhone 5 had 8 megapixels, while Kodak declared bankruptcy. Stress-test the inflection to determine what the specific new item best enables, the magnitude of how it could affect customers, and the conditions needed for it to reach its full potential.
3. Timing is critical.
Don't buy into the idea that because something similar was tried in the past it can't work with your innovation now. Given how easy it is to launch new products and services, keep an eye on those others that could impact yours one way or another and adapt accordingly. Many mental health startups seemed like great ideas because entrepreneurs and investors knew so many people clearly needed these services, but there was no inflection to empower the capabilities for the near-future.
4. Make sure the difference is really different.
It's easy for investors to fall in love with startups that fill an obvious need at the moment, but that means others will be considering starting companies with similar ideas. An obviously underserved market attracts pricing pressure, longer sales cycles, faster retaliation from incumbents, and other competitive factors. The authors point to the numerous scooter and meal-delivery startups that failed or struggled. A non-obvious difference will mean there is more time to develop and test the market for what they write is "an unfair advantage, an insight about conditions external to any particular business sector."
5. Stress-test insights to be sure they are powerful enough.
Brian Chesky and his roommate Joe Gebbie could barely pay the rent in their San Francisco apartment and needed money quickly. They realized that a four-day industrial design conference was coming to town and would fill hotel rooms quickly at high rates. They advertised on Craigslist and Couchsurfing.com offering guests air mattresses, internet access, a space to work, and Pop-tarts for breakfast and in a few days were getting their first bookings. Airbnb was born. Maples' investment in Outbox Mail, which offered to help users opt out of junk mail, failed because he did not understand the power of U.S. Postal Services guaranteeing advertisers that their mail will reach households.
6. Live in the future.
Too many have the idea that what is needed is a vision of the future, as if they have binoculars that can foresee the market over the horizon that will inevitably be there. Marc Andreessen was a student and programmer in 1992 when the World Wide Web was made public. He and Eric Bina could see the potential if they created software and began experiencing the benefits that led to the Mosaic, the first user-friendly browser which became Netscape.
7. Build what is likely to be missing in the future.
You can live in the future by spending time on platforms like Reddit, a haven for entrepreneurs focused on futuristic startup ideas, with subreddits for in-depth discussions, the authors say. It's also an ideal testing ground for innovative ideas. X/Twitter can also be a place for inspiration and collaboration with those interested in creating businesses serving customers that do not yet know they need them.
Pattern-Breaking Actions
For entrepreneurs ready to put these principles into action, Maples and Ziebelman outline the essential steps that transform radical ideas into market-changing companies:
You Need an Implementation Prototype
Most startups create a Minimum-Viable Product (MVP), a stripped-down version that can be used by early adopters, but a prototype that is more basic can test the market, as well. For example, e-courses or subscription platforms can test demand on landing pages.
Recruit Co-Conspirators
Tell a provocative story that defines a larger purpose beyond selling products to build momentum towards radical change that will attract the adventurous to the team. Good chemistry internally is critical. Twitch's four founders navigated through continual chaos because of their determination and mutual respect rarely seen in large organizations. Make a list of prospective hires who have great talent and an aptitude to do whatever you need.
Attract True Believers Among Early Customers and Investors
Tesla's Roadster faced competition from comparably-priced cars with all kinds of impressive features, but it had the one thing that mattered to future customers: showing that it was possible to build a functioning prototype of an all-electric vehicle. To attract the right investors, don't try to sell to everyone with a long presentation trying to convince even a majority of them. Potential co-conspirators appreciate a sharp, direct pitch about your vision of the future that is not obvious and leaves plenty of time for questions.
Create a Movement Around Your Story
Political movements rally people to a cause larger than themselves, so you should appeal to a higher purpose about what you are offering. Attack the status quo, which will get the attention of the media and provide free marketing. Force a choice between your bold new product or service and the incrementally improved alternatives. Uber and Lyft did not offer a fresher version of a cab, they provided the ability to push a button and get some choices for an immediate ride. Steve Jobs described the first iPhone in 2007 as a combination of a "revolutionary mobile phone, a wide-screen iPod with touch controls, and a breakthrough internet communicator."
"The scales in the business arena tip towards incumbents and breaking patterns calls for a bit of disagreeableness," the authors write. "You must summon the courage and develop the temperament to doggedly chase your insights, often confronting outright hostility to your movement to avoid the trap of excessive agreeableness and the conformity trap. This principle applies to all your interactions, be they with skeptics, advisors, team members, investors, regulatory authorities, or any other party that could positively or negatively influence your startup's mission. Perseverance and conviction keep your non-consensus idea whole and inspire others to join your movement."