Summary
Founders become trustworthy organically or inorganically; and by having domain expertise that leads them to become the perfect people to build a scalable idea.
Introduction
In a previous article, we spoke about the importance of trust.
In this article, we are going to set the stage for what it means to be and become trustworthy.
There are many ways that capital allocators evaluate a founder's trustworthiness; this process starts in the form of reference checks or LinkedIn scrubs before a meeting. The process continues when a founder presents the problem that they are working on.
A founder and a capital allocator must agree that a problem exists for some group of people in the world; if they aren't able to agree that there is a problem, it can be said that the capital allocator has very little trust in the business' potential to scale.
An inability to reach an agreement on the existence and severity of a problem is a signal that the beliefs of a founder and a capital allocator are out of alignment. Beliefs become aligned through shared proximity; experiences that put them on one accord. Trust is established through shared proximity as well. Either through those experiences or through occupying the same space over time.
When we talk about proximity in this essay, we literally mean closeness. This closeness looks different in every circumstance but the case studies shared in this series will outline a framework for understanding it.
Abstractly, one way to understand proximity is through what Paul Graham calls organic ideas:
"The best way to come up with startup ideas is to ask yourself the question: what do you wish someone would make for you?"
What this means is that you should look at your own experiences to get hints about your opportunity for building a transformative business. The interesting thing about organic ideas is that almost by definition, people who are not your customers need to have had a similar experience to the one you had in order to agree that a problem exists. Your potential customers need to have had an almost identical experience to get excited about purchasing that solution.
Trust
Organic Trust
It’s helpful to coin a term to understand what is happening here. What we're talking about is organic trust. Much like organic growth, organic trust is entirely internal. Someone has trust in you as a founder because of their interactions with you over time.
They might not know anything about what you're building yet provide you with resources because they want to demonstrate that they believe in you. You might not even have an idea yet.
For example, in a webinar hosted by Stripe, Meka Asonye - a Partner at First Round Capital - talked about how at the seed stage, investment is really about belief in the founder.
Inorganic Trust
Similar to how inorganic growth refers to companies using external measures to increase sales; inorganic trust is when founders use external measures to bolster their trustworthiness. When I speak of external measures, I'm referring to anything outside of their character. This can be in the form of demonstrating degrees of product market fit; explosive sales or sales growth; or having an MVP.
Startups vs. Small Businesses
Startups are designed to grow quickly.
The reason this is significant is because first-hand experience with a problem is insufficient data for building a startup. To build a startup you need a type of first-hand experience that is different in kind from those that lead to small businesses.
Domain Expertise
One reason the experiences that lead to startups are different from the ones that lead to small businesses is domain expertise. No one knows for sure what types of experiences lead to startups vs small businesses. Experience with Bitcoin and the challenges of purchasing and storing it inspired Brian Armstrong to build Coinbase. Bad experiences with women’s shapewear inspired Sara Blakely to design Spanx. Who could have known that building a trusted place for people and businesses to buy, sell, and manage crypto; and developing a new form of women’s shapewear would both be billion-dollar businesses?
Founders know how neglected or dramatic a problem is but using the past to predetermine what domain someone should get expertise in is a false signal. Moreover, it just wouldn’t work.
Imagine telling Brian Armstrong that he should go into the women’s shapewear industry or telling Sara Blakely that she should build a digital currency product. Making suggestions like that undermines the important role that their experiences played in their journey to identifying these business opportunities.
Flipping the entrepreneurial paths of these two founders doesn’t work because these founders were in close proximity to the problems they solved; and due to this proximity, they turned out to be the right people to build those solutions.
Among other things, this proximity also influenced their decision to raise money vs bootstrap. More on this later.1
Cultural Artifacts
Domain expertise is what I call a cultural artifact meaning that the field we choose to work in is probably going to be one we have experience with.2 And because we can’t choose the environments we grow up in, our freedom is in some sense narrowed at birth.
We do have the ability to gain more freedom, though. You can choose to become a teacher or a lawyer, and you don’t have to be a doctor. But those who assume that this optionality has unlimited degrees of freedom are blind to the fact that this optionality is itself a restriction of free will.
For example, while deciding between becoming a teacher or a lawyer, you never even considered the possibility that you might be a great software engineer. This restriction of free will; this unconscious (or conscious) disregard of industries we are unaware of or not interested in, is what I mean when I say that domain expertise is a cultural artifact.
The options we have and consider are significantly influenced by the culture we are a part of. This isn’t always a bad thing. It’s what made Tristan Walker the perfect person to re-engineer the single-blade razor for black men with curly facial hair. However, it can be a bad thing if it confuses founders into thinking that their domain expertise has put them on the path to building a startup when it is actually setting them on the path to building a small business.
Perfect Founders
To build a startup, you have to be the kind of person who will get the right type of hunches about what needs to be built.3
This means that it is not enough that you are working on solving a problem that you have experienced first-hand; to get funded, you also need to have experienced the kind of problem that will put you on the path to building a business that grows quickly.
Who knows what influenced Tristan Walker’s ability to be excited about Twitter when it was a “fledgling startup”? Who knows what enabled him to spot Foursquare? No one knows for sure. But I’d argue that his ability to spot the potential of these companies was also a cultural artifact; and I'd also argue that it is what enabled him to get excited about re-engineering the single-blade razor.
You are likely to be the perfect person to build your startup idea if you are at the leading edge of a field that's changing fast. Being at the leading edge of a field that's changing fast is one iteration of the phrase described earlier in this series: "privilege to build," meaning, you have received an opportunity others have not, and so you are the person who will know what valuable business needs to be built in this arena.
Scalable Ideas
Building a business based on an insight you receive by being at the leading edge of a field that is changing fast is only one type of scalable idea. These kinds of insights can be classified as dramatic problems (e.g., artificial intelligence and quantum computing).
Neglected problems also lead to scalable business ideas (e.g., re-engineering the single-blade razor like Tristan Walker). These are the "if you know, you know" (IYKYK) type of businesses. If you are within the culture, you know how neglected the problem is.
Dramatic problems and neglected problems are two sides of the continuum of scalable ideas that lead to valuable businesses.
More on this later, but to set the stage for our next discussion, the continuum looks like this:
In the next article, we will leverage case studies to build upon this visual and show how cultural differences introduce barriers to the trust-building process. These barriers lead to disagreements on what problems need to be solved.4
A special thank you to Kwame Boler for contributing to this article; assisting in framing several concepts that are foundational to this piece, and for reviewing early drafts.
Brian Armstrong Case Study and Sara Blakely Case Study to follow.
Sort of like how a lot of kids want to be YouTubers because they spend a lot of time on YouTube.
What Clayton M Christensen called the “job to be done”