This Week in Startups - Inflation warnings and hedge strategy, Bitcoin ETF, Hindenburg’s Tether bounty + Startup Checklist E3 | E1309

Episode Date: October 21, 2021

First, Jason reacts to CNBC's Paul Tudor Jones interview, where PTJ warned about inflation and called Bitcoin (and crypto) a better hedge than gold (2:10). Then, Jason covers the new Bitcoin ETF and Hindenburg putting a bounty out for information on Tether (21:34). We wrap with episode three of the Startup Checklist, where Jason covers "Finding and Delighting Customers" in points 21-30 (34:41).

Okay, we got a great show for you today. We have episode three of the startup checklist for you, where we're going to talk about your ideal customer profile. You can find the entire checklist at this week in startups.com slash checklist. And you should go through this checklist with your management team or your co-founder if you think about starting a company. So that maybe you know 98 of 100, but the two you don't know, man, that could probably avoid a catastrophe at your company

or maybe give you a little bit of edge on the competition. But first, we have some news. Paul Tudor Jones was on CNBC Wednesday morning, warning about inflation, talking about hedging with Bitcoin, and there's now an ETF for Bitcoin. So we're going to talk about all that. And then I cover Hindenberg Research, the shortseller who tanked Nicola with their Blockbuster report, has just done something unprecedented. They put a million dollar bounty for information on tether's holding something we've been talking about in our tether investigation here on this week and startups for months. Hindenberg research does not have a position.

position short or long in tether or any stable coins they've said. But they put this out there because they want to know the answer and they think it's in the best interest of the crypto community. It's going to be a great show. Stick with us. This week in startups is brought to you by LinkedIn Marketing. To redeem a $100 LinkedIn ad credit and launch your first campaign, go to LinkedIn.com slash checklist. That's LinkedIn.com slash checklist. Vanta, compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a SOC2 report fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash twist.

Odo is a fully customizable and fully integrated suite of business apps that lets you build and scale your stack as you build and scale your business. Your first app is free forever, and right now, Odu is offering $1,000 off your first implementation pack at Odu.com slash twist. That's ODOO.com slash twist. Okay, everybody, in our first story, Paul Tudor Jones was on CNBC Squawk Box this morning, talking about inflation and Bitcoin. PTJ, if you don't know, is a hedge fund manager. He's another billionaire, and he runs something called Tudor Investment Corporation. They have $44 billion in assets under management. That's the old AUM, if you ever hear that term, AUM, assets under management. It's not your money necessarily, but that's how much money

that you are the steward of. So when you hear, you know, Chamath or Sachs or I have a certain number of assets under management, that's like how much money we've put to work. And generally speaking, people get a percentage of the gain on that money. So if he has $44 billion and it goes up, he probably gets 20% of the gain. Hedge funds get paid a little differently than venture funds. So he founded his fund back in 1980 and he's known for predicting the 1987 stock market crash and cashing in with a lot of short positions. His short positions back then resulted in $100 million in profit according to a profile in finance monthly. So he's generally super credible and an interesting character. There was a crazy documentary made about him in the 80s that he and his

company have spent a lot of time trying to take down. The doc was titled Trader. What an inspired name. So, PTJ talked with ARS and Ross Sork and Wednesday on Squawk Box. First up, here's a 47 second clip of PTJ giving his current thoughts on inflation. Very similar to the discussion we've been having on the All In podcast, specifically episode 51, I talked a little bit about the number of jobs that were available and the number of people who were not taking them and who were opting out of being in the workforce. I saw that as a very specific issue in the economy. I called it indigestion and PTJ has similar thoughts. Let's play the clip and I'll talk to you in 47 seconds. And it's pretty clear to me that inflation is not transitory. It's here to stay. And it's probably

the single biggest threat to certainly financial markets. And again, probably, I think, to society just in general. So this 5.4% CPI is a real eye opener. It's a high CPI we've had in 30 years. And of course, it's going to go higher here in the next few months as energy feeds through it. So for an investor in particular, most of this audience, it's absolute death for a 60-40 portfolio for a long stock, long bond portfolio. So the real question is, how do you defend yourself against it? How persistent will this be? And what does the outlook hold? All right.

So if you don't know what the CPI is, that's the consumer price index. It's a measure of the average change. Over time in the price is paid by urban consumers for a market basket of consumer goods and services. That's obviously been going up. Think food, energy, gas in your car, you know, staples, that kind of stuff. And it rose 5.4% from September to September. That's obviously a big deal.

And inflation, I was reading up on 70. In the 70s, there was obviously massive inflation. And the inflation was like 7%, I think on average. There were a couple of years when it was 12%. That obviously can cause problems. for people in the working class who have to buy milk and gas and puts a little pressure on them. But that pressure obviously means you got to go to work. So perhaps there is something happening here where this will drive some people to take all the open jobs and maybe get off the sidelines because they need some money.

But we pumped a lot of money into the system and this is causing the indigestion. Then PTJ broke down why he believes inflation is not transitory. And this transitory debate, you know, is a big one because if this keeps going, if you know the rule of 72, this means if you take any number of time periods and you divide it into 72, that's how long it takes to double. So in other words, if you were growing 10% year over year in inflation, in seven years, the cost of 7.2 years, the cost of goods would double. Conversely, if you were growing 36% a year in inflation, which would be kind of impossible,

but if Bitcoin was going up 36% a year, it would double every two years, right? You're dividing 36 into 72. That's the number of time periods. You can do it for days, weeks, months, whatever, years. And so if it's not transitory, it's going to be compounding. And that means every 10 years, the cost of genes or, you know, your car or the gas you're putting in your car is going to double. Is your salary doubling in that same period of time? Well, if salaries are growing 4% on average and let's say, you know, consumer goods are growing, at 7% or homes are growing at 12%. You have this delta. You have this gap between what people are making, what they can afford, and that obviously can cause a lot of pain and suffering in an economy.

So I'll talk to you after this one minute and 45 second clip. There's a combination of structural and cyclical forces that right now are all rolling in the same direction, to say that inflation can be much worse than what we fear. So let's just start with the cyclical forces first. We have the demand side of the equation. And that would be M2. M2's grown 5.4 trillion since the pandemic began. That's three and a half trillion dollars greater than what it normally would have. That three and a half trillion, 16% of GDP, just sitting in liquid deposits that could go into stocks or crypto or real estate or be consumed. So that's a huge amount of dry powder that's just sitting there waiting to be utilized at some point, which is why

inflation's not going to be transitory. Another demand factor would be we just raised benefits for Social Security retirees as well as military, about 75 million by 5.9%. That's just more fuel to the inflationary fire. The second big component would be the wage pressure that we've got. And the easiest way to see that is obviously job offers relative unemployed. We're 10.4 million job offers, 7.7 million unemployed. It's clear that we have a structural issue in our labor force that's not going to be solved by 0% interest rates and quantitative easing. The structural issues are first and foremost, we have a Federal Reserve Board that are inflation creators, not inflation fighters.

All right, so they have it, folks. If you don't know M2, money supply, M1 is like cash in your bank account. M2 is stuff that you can convert into money, so a money market account, mutual fund, ETF, et cetera. So they like to put these M1 and M2s together, I guess, economists and finance folks. And his point is you could get that money and then go buy something with it. That's not the 60-40 portfolio of stocks and bonds that people would normally do. Obviously, crypto could be part of that or gold or a home, et cetera.

And people have a lot of money. And if they have a lot of money and they don't go to work, the money's sitting there. Inflation is happening. Well, the money becomes worth less. So if you had, I don't know, let's just pick $3,000 in cash in your bank account. and gas was $3 a gallon. Now you can afford a thousand gallons of gasoline. Okay, now it goes up to $6,

and now you can afford 500 gallons of gasoline. Nothing's happened, but your money doesn't go as far in terms of buying food or buying gas or buying clothes. And he points out, you know, the job conundrum that we have right now. Jobs are especially entry-level jobs or, you know, starting your career jobs or flex jobs that were, you know, minimum wage, seven, eight bucks all the way up to 12 bucks are now 18 to 35 dollars. A lot of them didn't have benefits. Now they have some amount of benefits or even full benefits. Some of them are coming over the top

with we'll pay for your associates degree like Amazon or Starbucks. I mean, people are really putting a lot of pot sweeteners out there to get people off the sidelines. And I think this M2 issue, just tons of monetary supply, is what's causing the problem. Listen, Right now, LinkedIn is going to give you a $100 credit towards your first ad campaign. I kid you not, go to LinkedIn.com slash checklist and get that hundie right now. This is not going to last forever. LinkedIn.com slash checklist to get the hundy. You need high quality leads.

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by with working 10 or 20 hours a week as a gig worker or maybe working for three months and then taking six months off, you could do that too. And so I think there's a great reassessment going on. And yeah, we have only 7.7 million people unemployed, but we have 10.4 million jobs out there ready to be filled and they can't get filled. So this is, for me, I think it's indigestion. It's going to take a little while to clear up. People just like going to a buffet. You ever go to that? Like, all you can eat buffet? I have three rules.

I don't do all you can eat food. I don't do buffets. I don't do cruises. I find all those like gluttonous and just horrible experiences. It's kind of what's happening in the economy. We had this like stimulus checks. We had rent abatement. We had bonus unemployment.

All of these things we did for the right reasons. But then we poured all this other stimulus in, quantitative easing, people buying, you know, the government buying stocks. All of this stuff in combination is creating this. massive indigestion. It's not good for the economy if people are not working. And if people are not working, you have the secondary issue, which we've been discussing, which is the supply chain. We don't have people driving trucks or taking containers off of container ships and people have money at home. They're buying stuff on Amazon. They're stockpiling, food or, you know, chlorox wipes or

whatever. They're stockpiling. And you can't process all of this without people going to work, which is why UBI is something you hear rich people and liberal people I think talk about all the time. And I think they talk about it with like a great sense of kindness. But we're kind of running a UBI experiment right now. And the upside of it is that it's given massive empowerment to employees. They can sit on the sidelines until the offer is so good they can't turn it down, which, I mean, getting abused as a flight attendant or being abused as a clerk in a store, or a waiter, it's just not worth it.

No amount of money is worth being abused. The way these maniacs are coming in and yelling at people or punching the host or hostess at a restaurant because they just ask to see your Vax card or ask you to put your mask on, whatever. It's not their fault. Please don't do this kind of stuff. People going crazy on flights. Like people are just opting out of these horrible jobs and they just don't want to deal with it anymore. So I think PTJ has it super correct.

I think it's in line with what me and my besties talked about. on Friday, it's just clear we have a structural issue in our labor horse. That's his quote, and it's absolutely true. I think that will work its way through the system as people go, you know what? You know, I didn't want that job, but I'm kind of running out of money and I'm kind of bored. Yeah, maybe I want to go back to work and 25 bucks an hour, 35 bucks an hour. Yeah, I'll do it for that. And hey, I got some bills to pay and, you know, I'm not getting, you know, a lot of people had their rent paid for. They had double unemployment. They had stimulus. you know, you could survive for a certain period

time. And then also people get start crazy. I mean, I really think that an idle mind is the devil's playground is what my grandmother would always tell me. And I think, you know, the hardworking Irish woman she was, she was not wrong. I mean, the Irish, my Irish ancestors

may have worked too much, but, you know, work themselves really hard, but not working conversely, not a good idea. So finally, he mentions the fact that the Federal Reserve Board led by Jerome Powell are basically inflation creators, not inflation fighters. So over 20% of U.S. dollars in existence were printed in 2020. And we have over $3 trillion in stimulus. And then we want to do all this infrastructure bills and the reconciliation bills, all the spending and putting money into the

system does have a ramification. The money printer going burr, as the crypto people love to remind us, is a real thing. Inflation is a real thing. So how would PTJ? Hedge against the market. Well, check out this 37 second clip, and I'll see on the side. One of the things you've talked about on our air, maybe right when the pandemic was hitting, was your interest in Bitcoin. As a hedge. Bitcoin be a great hedge. As a inflation hedge. Crypto will be a great inflation hedge. Is it still a hedge at these prices? I said then, I said, now I've got crypto and single digits in my portfolio. I have a small training position in our fund. I do think we're moving into an increasingly digitized.

As world, clearly there's a place for crypto, and clearly it's winning the race against gold at the moment, right? I would think that would also be a very good inflation hedge. It would be my preferred one over gold at the moment. All right. Similar actually to my position over the years, which is low single digit ownership of Bitcoin, Ethereum, et cetera. It's just fine. It's a fine hedge against gold. For me, I like real estate because I can use it and enjoy it. So, but will real estate grow as much as Bitcoin has. It depends on when you bought Bitcoin, you know, we bought Bitcoin at a hundred

to $200. I was giving my wife a lot of credit for that. She was watching me talk about it. And she's like, I'm going to buy some Bitcoin. It was like, yeah, great, awesome. And we've done phenomenal with that. And so we have nice exposure to it. But if you bought a home in the same period of time, not $200 to $66,000, but if you bought it a home, you know, in the Bay area that was, you know, when Bitcoin was $30,000,

and it went to 66,000, it doubled. Actually, that's kind of what's happened with homes right now. So I like real estate. You can use it. I would rather have own a second home or third home or whatever, an apartment, an Airbnb that you could actually make money from. But there was some big news here. And if you look at Bitcoin, you know, I've always said it's been highly manipulated.

So if we can get the manipulation out of it, which would happen with a wider base of ownership, which seems to be happening. If it doesn't get taken down by hackers and it hasn't, which is a good. incredible. I mean, hackers will get your wallet at the end, but they haven't compromised the actual network. That's a huge win for Bitcoin. If authoritarian nations don't interfere and take over the Bitcoin networks, that would be a big one. We saw that happen with China. So if you just look at those, you know, three concerns I had, I think Bitcoin has smashed those. It hasn't been hacked. It's no longer in China with an authoritarian regime that could really do crazy things

with it. And it seems like it might be less manipulated now because so many people own it, And then I think the fourth, I think, risk factor that I always bring up is, is there a better store of value, a better, more programmable money that would just be better to own than Bitcoin? And then people would say, you know what, Bitcoin's not advancing. It's not changing as fast. There aren't as many developers coming up with new features or new applications in Solana or Ethereum do have more momentum. and then people would say, well, I would want to be in the more appreciating cryptocurrency, whether it was Solon or Ethereum or any of the other ones that have been booming lately. I think that's actually the biggest risk factor now for Bitcoin in terms of supremacy.

Does that mean Bitcoin's going to crash? No. It's still going to be volatile. There still could be a Bitcoin zero event, but I now, I used to think it was 50-50, Bitcoin zero or Bitcoin crashing down to under $1,000, let's say, losing 90% of its value. I put that at 50-50 two years ago. now I'd put it at like 80, 20. I don't think Bitcoin is going to crash down and lose 95% of a value.

I think most people who own Bitcoin who have been on this journey could see it losing 50% at any given point in time. So be careful out there. It is ahead, but it's in the kind of middle ground between being super trusted and legitimate and regulated and not manipulated and not having these risk factors and being the wild west. Every year that goes on, that more people own Bitcoin, that risk gets taken out every year that goes on, that a government does it overregulate it,

tax it, or shut it down, you know, it becomes more anti-fragile, I guess would be the way to say it. Sock two compliance is critically important. Why? If you don't have your sock too tight, you can't close major customers. We all know that. And it's really that simple. And guess what? Vanta is going to give you $1,000 off your sock two compliance right now. Vanta's compliance software makes it easy. for anyone to get or renew their SOC 2. They continually test against technical and non-technical SOC2 requirements, and they partner with over two dozen audit firms who have been trained to file SOC2 reports directly within Vanta.

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the price of Bitcoin futures, contracts between two parties. The buyer sell the cryptocurrency and agreed upon price, and it's up 6.6% in the first two days of trading as of this taping. There you have it.

It's a great day for people who are in Bitcoin and who are Bitcoin maximalists. It hit a new high. Congratulations to everybody. That doesn't mean if you're massively up, I still don't advise, like if it's 90% of your net worth,

is that a good strategy? probably not. I mean, if you're a 25 or 30 year old and you don't care about losing all the money, maybe. But again, my advice is if this is over 50% of your net worth, buy yourself a home, buy yourself a second home, pay down your debt, whatever it is, I don't believe in this. Like sell everything you own and own one asset, you know, like some people sort of position you just want to own as much Bitcoin as possible forever. It just seems like a dangerous strategy in terms of diversification. So I've been thinking about inflation a whole bunch,

and I've come to a conclusion personally. I've been talking to my besties about it on the group chat. I believe that two great places to be is where assets are created. This is just a theory I have. I would love to get feedback from the audience. You know how to get me, Jason at calicanus.com, my first name at my last name, or DM me. And this is Jason's inflation trade, if you will.

I believe that incredible value happens at company formation or when builders build a house. Kind of two similar things, right? If a builder builds a house, they have a plot of land. They build a house for whatever, $500 a square foot. So they bought the land for a million. They built the house for $500 square foot. They built a $5,000, a $5,000 square foot house. And they sold it here in the Bay area or in Austin for, let's say, $1,200 to $2,500, right?

well, you know, they've now taken what is three or four million dollars in cost and made somewhere between, you know, six and $15 million in value, depending on how hot the market is. So if you look at, you know, that inception point, when something is created in an inflationary environment, my thesis is, well, then you get to sell that asset and it's increasing in value, good place to be. So I like startups. I like early stage startups. I've always invested with, that's why I started the launch accelerator.

That's why we're doing the Founder University program, which we're going to have 50 founders in it. We now have at Founder. Dot University, 100 people are going to come to the first class. Those hundred people, we get to meet them as they're creating their companies. And right as they're creating their companies, we can invest in their companies. We assume that they, since we're hosting founding university for 12 week and teaching them everything we know, they might let us on their cap table.

So for me, just keep plowing money into early stage startups. I think those are the best. If I was a builder, if I was my brother, Josh, who's an electrician and plumber and, you know, really handy, like, I would be building homes. Like, literally, if the inputs aren't super expensive, which for homes, the inputs are getting more expensive. For startups, yeah, the inputs might be the valuations are slightly higher, but so much values being created that I think if you are there and you're creating things in the world, NFTs are an example of people creating things in the world, art, restaurants, if you can create something that has massive value and is increasing in value as time goes on because of inflation,

then you get to ride it, right? And you get to ride it from when the wave is just starting to hit the shore. And you get that nice long ride, right? And you ride your winner. So nobody knows what's going to happen. But I do think it's going to be two more blowout quarters for Wall Street. If you look at all of the companies on Wall Street, you know, all of the stimulus means more people are buying stuff on Amazon, more people are signing up for Netflix. or Spotify or taking, you know, using DoorDash or Uber, you know, just look at consumption patterns. People can't buy or spend money fast enough. And people are starting to go on those vacations again.

And those vacations are costing more money. So I think, you know, Q3, Q4 and Q1, and we're starting to see Q3 results. I think the third quarter results are going to be blowout. I think fourth quarter results are going to be insane. And then, you know, into next year, you know, let's cross that bridge when we get to it. We'll see in the first quarter and second quarter of next year what happens. But great job by CNBC and Andrew R. Sorkin with the Paul Tudor Jones interview. Finally, here is the opening scene from the 1987 Trader Documentary.

I'll just take you out with a quick 35 second clip. I'm about 50 minutes to go. And I'm getting ready to give them a little drums along the Mohawk. Do a little tom-timing on the market here on the end. Offer 3,070. 50,000. Hey, listen, Benny, don't offer that. Sell 540 market.

Sell 540. Okay, on Tuesday, Hindenberg Research announced they are launching a bounty program to get information on Tether. And they've offered up $1 million. Yes, on Tuesday, October 19th, the short-selling research firm tweeted the following. We have doubts about the legitimacy of Tether. So today, we announce the Hindenburg, tether bounty program, a reward of up to $1 million or details on tether's backing.

Hindenberg research is offering the bounty because they want to, quote, help advance the public's knowledge of what it believes is a growing threat to investors by encouraging disclosures related to a crucial part of the crypto markets, which are nearing systemic size, according to the announcement on their website. Remember, Hindenberg is the short seller who broke the Nicola short report, and they were DMing us and talking to us, we had the Nicola founder on the program. There's similar to Seraparian Capital, who we just covered, and Tether initially claimed

it was a stable coin, as you know, and that it was one-to-one backed by the U.S. dollar. However, then Tether admitted that the coin was only backed by a small, tiny amount of cash and traditional currency, and a significant amount of the backing consisted of holdings of commercial paper, which are loans, and they wouldn't name the parties, and they might be in China or international, who knows, but Tether has a seven. billion dollar market cap. That's kind of, I think, going sideways. It stopped growing, which is probably a good thing because $70 billion is a big hole if it were to collapse or,

you know, half of it were to go away. And they've never done an audit or provided basic transparency despite the fact that they say that in response to Hindenberg's announcement, Tether followed up with a meme and an official statement. And Hindenberg called them out. Hinderberg's tweet reads, in response to our calls for basic transparency, Tether issued a cartoon, called us cynical and suggested that releasing more information on its backing may discredit itself. So this is one of the rules I have about fraud. Anytime people who are involved in a fraud, and we don't know if Tethers are fraud yet, but my God, the different sanctions and fines are starting to mount, and the buzz is obviously troubling, and them responding in this way is a red flag.

When Elizabeth Holmes and Theranos were accused of wrongdoing, what did they do? they attacked a journalist, John Kerry Rue, from the Wall Street Journal, whose award-winning and whose research and whose reporting is, by all accounts and by all of my observations, bulletproof and extraordinary. And so when you attack the messenger, in this case, Hindenburg, in previous cases, they attacked Bloomberg, I believe, Financial Times, myself, Bitfinext. I mean, they just attack anybody who puts up any kind of a question. a reasonable question to them, that is a sign that instead of just saying, hey, that's a reasonable

question, here's the answer, they attack them. That's a sign that somebody has something to hide. It's just a classic sociopathic liar behavior. Now, we don't know if Tether's lying, but they have been accused of that based on their fines. Here's the quote, the stunt from Hindenburg research is a pathetic bid for attention while others are making real change and building wealth and results. So again, just obscurifying and attacking the messenger. They are attempting to discredit not just Tether, but an entire movement. Thankfully, everyone sees where there are opportunism as Bitcoin approaches, another all-time high. And so basically what Tether is doing is trying to build a whole us versus them mentality.

They're trying to build a group of people and trying to rally Bitcoin when it hits a high, to defend Tether. And so we still have never heard from the CEO. Where is the CEO? We invited the CEO of Tether on the program. We invited the CEO of USC, Jeremy O'Hler on the program. He was on the program. What?

Just yesterday? Did a great job. Explained everything. He said they're going to move to dollar for dollar. They're not going to try to make this big float on the dollars and that they're going to be public soon. They're super, super regulated and here in the United States. And obviously, Tether is bad.

and from operating in New York, and they just had another huge fine. The Tether investigation continues on this week in Tether, we've had a great time going down the rabbit hole with this company. Is it possible that they're just misunderstood by the Attorney General Canada's regulation boards and their recent $41 million fine and Hindenberg research and the Financial Times and Bloomberg? Yeah, sure, it's possible Tether is completely misunderstood in on the up and up. But my lord, when I see this many red flags, I just think, where is the Department of Justice?

Where is the SEC on this? I mean, they should be forced these stable coins to have an audit level that is higher than anything else out there. Why? These stable coins are replacing the U.S. dollar. They're designed to replace the U.S. dollar. If they're replacing the U.S. dollar in people's, you know, trading and bank accounts and how they're doing commerce in the world, This better be on the up and up. I mean, they've basically created their own currency,

and people are using it as a replacement for the U.S. dollar. It should be regulated and arguably should be taxed, and it should be audited. It should have the highest level of scrutiny, not the lowest. It should be run by the most serious and the most ethical and, you know, by founders who and CEOs who will go to jail. We'll go to jail if they don't do it properly. Jeremy O'Air kind of understood that.

He's like, yeah, we're going to go to jail, basically, if we don't do this right. Well, I think if the Tether CEO is, you know, with Logan Roy in Croatia or wherever he went on the first episode of Succession on Sunday. Like, I'm wondering if the Tether executives are currently in a place where they don't extradite people. I'm wondering. Yeah, and Ripple, that's another one, XRP, don't get me started. All right, let's go to our startup checklist. If you listen to Twist often, you've heard me talk about O-Doo's suite of business apps a lot, and they are sweet. Well, they're going to give you your first app free forever and $1,000 off your implementation pack at O-D-com slash twist, O-D-O-O-O-com slash T-W-I-S-T.

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Get that credit right now before it's gone. ODO.com slash twist. Welcome back, everybody. It's time for us to do another 10 questions, 10 bullet points for your startup checklist. Why do we create this series? What we created a series in order to help support founders, sometimes first time founders, sometimes second or third time founders, and basically equip them with a checklist of 100 bullet points

that just give you an idea of how to run your business better, maybe some blind spots you might have, or discussion points that you and your team can, you know, have a conversation around. Maybe you just pop open a Slack puddle or you pop open a Zoom call, maybe you're in a private room at a restaurant and you just want to print this out and go to work at an off-site meeting. These are hard-fought lessons. These are tactical things. These are strategic things.

These are mission-based things. All different levels of important issues that you're probably going to have to deal with. Now, some of them might seem really basic. But sometimes it's the basic ideas, the basic questions, the basic truisms that will get you very far in life. So, in episode one and episode two, we cover the qualities of a winning founder. In other words, do you have what it takes to run a company? And then we talked about business models in that second episode. And you can go through those first 20 points from the first two episodes at this week in startups.com slash checklist. We always make it very easy. This week in startups.com

slash meetups. This week and startups.com slash discord slash slack slash checklist slash startup basics. We always try to have a simple URL for you to go to. You'll probably be able to guess some of these. There's not one to suggest speakers for the and guests for the pod. We don't take guest suggestions. Oh, God. When we do, it's always people who have no business being on this week in startups because they just want to sell you something.

They don't want to help you. And this podcast is really about helping founders and helping investors and really the ecosystem. That's why I do it. That's why I'm so passionate about it. That's why I'm in Year 11 and I've done over a thousand episodes because I get to walk down the street in any city around the world. And somebody stops me and says, hey, J-Cal, I really appreciated the interview with Saka, really appreciated this interview, really appreciated this feature.

You don't know this, but you helped me with my company. Man, it just warms my heart because I was helped by so many people in the early days of the industry. And I feel like it's my obligation to throw down a couple of ladders, maybe throw down a couple of maps and say, hey, here's what I've learned. All right. So today, I'm going to go through checklist, bullet point. 21 through 30. And today we're going to talk about customers

because, you know, it's not enough to be a great founder. It's not enough to build a great product. At some point, you're going to need to have your product meet the public, right? And this is where the rubber meets the road. This is when reality, you know, basically comes into your startup. So the first question, bullet point number 21 on our checklist. Do you know who you're building for? This is critically important.

You need to understand who is your ideal customer profile, who is your ideal user? Now, sometimes you're going to get a bunch of users and they'll be your first users. But what are the chances that your first users are actually your ideal users? A lot of times you start a company and you share it on Twitter or you put it on your LinkedIn or you tell your friends about it in email. Maybe you'll launch it on Product Hunt or other great services out there. you find a subreddit. But do you actually know that these are your ideal customers?

They could be looky-lose. They could be people who are trialing. They could be tech enthusiasts who just like to check everything out. I sign up for a zillion services. Does it mean that I want to use them every day? So you really want to be able to think this through. And sometimes you're your own customer, right? You just happen to love the product and you're building something for yourself.

In fact, this podcast is very easy for me to understand you. as the audience because I was a founder early on in my career had a lot of questions. And so it's easy for me to understand who the audience here is. So where are they located? Where do they live? How old are they? Why are they using your product? What's their occupation?

What are their goals? What are their problems in life? And you really need to stop and think about that. And you may need to segment these customers into ones who really need your product. and ones who might like your product and ones that are just perusing your product. Who's the real customer? Sometimes people will go and they'll visit a car dealership, right? They'll go to the car dealership and they'll want to test drive a bunch of cars,

but maybe they're not going to buy any of those cars. Maybe they're going to buy a used car. Maybe they're just checking it out. Other times people show up. They've got their three-year-old lease. It's up. They need a new car. They want to trade it in.

They just had a baby. They need the third row. They need something that's good in snow. have a very specific approach to getting a new car and you've really qualified them. Well, qualifying a customer is something that a little company called Superhuman has done really well. Raul, the CEO, has been on this podcast many times and they really only allow people who are power users of email to use the product and to buy it from them. They will tell people, we don't think you should use our product. And you should just keep using Gmail or Outlook or Yahoo Mail

or AOL mail or Hotmail, whatever it is. And the reason is because they charge $30 a month, $360 a year. Now, ask yourself, are you in your email box more than an hour a day? Okay, are you in it more than two hours a day, three hours a day? Does your email box represent your ability

to make money in the world? In other words, are you a sales executive, a venture capitalist, a dealmaker? And do you live in that email box? Okay, if that is the case, then you're going to be willing to pay 30 bucks a month for it because you get one sale a year, one incremental sale. You save one hour a day, a week, a month. For me, if I saved one hour a month using Superhuman, I would pay for it.

And I save one hour a day probably or one hour every two days, half an hour a day. So it's an easy decision for me. But, you know, I can understand somebody saying, you know, that's not for me. Same thing with Zoom. There are some people who pay for Zoom because they're on five calls a day and they want to have all the features or other people who don't care about the time limits, et cetera. And so it's very important for you to understand who is your customer. Now, the next bullet point is, can you explain your startup in one simple sentence? We call this Jason's OSS rule.

It's the OSS rule. One simple sentence. Any great company can explain what they do in a simple sentence. In fact, a lot of times when I meet a founder, they'll ask them, what do you do? And they'll say, well, we're a future of work startup leveraging software and integration. to improve workplace communications in the long term. And I'm like, okay. There's a lot of buzzwords in there.

It's very convoluted. I don't understand it. Okay. Well, what is the company? Oh, well, we sell communication software to startups to reduce emails. Okay, great. You know, and that would be slack, right? We reduce the number of emails by letting your employees chat with each other.

There's a really simple way to say that. We do real-time communications through chat rooms. We provide chat rooms for corporations. Great. Coinbase. We're leveraging the blockchain and decentralized technologies to allow any investor to get exposure into the world of cryptocurrency. It would be a terrible way to explain Coinbase. We let you buy cryptocurrency in an app. That's it. Right? Uber. We use AI and machine learning to connect riders and drivers disrupting the world of transportation and mobility as we know it. That's just convoluted word salad. We let you get a taxi. We got to get a ride quickly and cheaply. Just say it in as

few words as possible and workshop that. This way, when you're talking to a potential employee, a potential customer, your website, PR, communications, advertising, marketing campaigns, you want to be able to describe what you do simply. And just keep working on those sentences to make it simple. Even refining that crypto one, because I did that off the top of my head, we help people invest in crypto. We help people buy crypto. We're the easiest way to buy cryptocurrencies. You can just keep working on these. Uber, we help you get rides. We help you get from point A to point B for the cheapest amount possible.

We help you get a ride fast and cheap. Really simple. And winning founders always explain their products simply. And then people who don't understand their product, they don't understand their customer. Man, they just start using buzzwords and marketing. There's no easy way, no easy way for them to get employees or to get customers. Really work on this. explain your company in a sentence.

And, you know, if you have a sales team, if you can't, as the founder, explain your startup in a sentence, well, you're playing the game of a phone, you know, that phone tag game where the message gets more and more convoluted, you need to, as the founder, be able to say it in a sentence super simple. This week in startups is a podcast for founders. The end. It's a podcast.

I mean, it's in the title, so it's pretty simple. That speaks to branding as well. And so understanding what your product does for customers critically important, and the one simple sentence test really does help you know if you're able to do that. And if you're not, that's okay. You could be on the product market fit journey. You could be refining your product and figuring out what people actually want. But don't get yourself into the crazy position of adding features to a product that you can't even explain in a sentence. Does that make sense?

Okay. Number 23. Do you know where to find more customers? Do you know where to find more customers? This is critically important. In fact, this is why look-alike audiences on Facebook, Twitter, Google, and other platforms became so popular in the last 10 years because you could upload your email list and say, these are my customers, and then they would go try to use artificial intelligence and

networks and keywords and consumer behavior, psychographics to find you more similar customers. That's why they were able to do so well in getting apps. installed on iPhones. You played this video game. You were this demographic. You would be more likely to subscribe to this service, et cetera. Once you have your first five customers, you should immediately be figuring out how to get to 10 and 50. What I see happen with founders is they find a couple of customers and then they're like, you know what? Wow, that's great. We have five customers. You know what we should do? We should go stop looking for more customers and we should start building a

bunch of more features. If your product is solving the problem from five customers and they love it, why wouldn't you try to get to 10? Why wouldn't you try to get to 50? Keep trying to add to that customer base consistently until you're not delighting customers anymore and you can't find them. Because there is a natural audience for most products and yeah, you might need to add features, but it's like drilling for oil. I have founders who set up this oil rig. They drill 10 feet into the earth and immediately the liquid gold starts pouring out. Or there's, They're digging for diamonds and they dig a 10-foot hole and they find five diamonds. Those are the customers.

And you know what they do? They come out of the mine. They're like, we found five diamonds. Let's go set up an oil rig. And I'm like, but you found a diamond mine. Do you think there might be more diamonds down there? Please keep digging. Don't get lost on the product death march.

Don't get lost on going to speak at conferences or do other kind of nonsense. Unless, of course, that's a conference where your customers hang out. And that's one of the things I see just to take conferences as a microcosum. of this distraction issue that founders have. Founders would rather go to a tech conference and see their friends who are starting a whole different genre of companies than go to an industry conference

where their customers are. As an example, there are conferences for lawyers and accountants that are incredibly boring, and they're hosted in terrible conference facilities in weird cities, but your customers are there, and you might be able to meet your boring customers

where they are and they're captured for two or three days, why would you not go there? Go to those. Ask your customers, those five customers you have. Hey, do you have any friends who you think our product or service might be good for? Or look at who they're following on LinkedIn. Or type in the name of their company, Wilson Sonsini, competitors, contemporaries, right? And find out who are your existing customers, contemporaries, and competitors,

and see if they might like to use your product. Now you're the arms dealer in an arms race between law firms and accounting firms for your amazing SaaS software or your amazing educational product that helps them get certifications or whatever it happens to be. Keep digging and find more customers. The more customers you have who use your product, the more you learn and the more you ring the register. The more you ring the register, the more you're able to hire people. The more hiring you do of qualified people, the better your product will become, the better customer support will be. And the flywheel will start cranking from customers, enabling you to hire team members, enabling to have a better product that delights more customers, that gets you more team members. I think you get the idea. Product, team, customers, product, customers, team, this flywheel is tried and true.

And when you find customers, ask yourself, what was the source of that customer? Did we find them on Twitter? Did we reply on Twitter? Did we DM them or direct message them on Twitter or LinkedIn? Did we find them in a news story? Did we cold email them? You should always know how you sourced your customers. And double down, double down, double down, until you can't find any more.

And, you know, Alex too, who did Com, one of our great investments in history and personally one of the most rewarding for me because it spread so much equanimity and reduce so much suffering and anxiety in the world. He created a viral site, do nothing for the number two minutes, still live today. And that virality of that product drove people to come. And it was just a simple website that said, hey, can you sit still for two minutes? And if you touched your keyboard or your mouse, it would say fail. And people shared their scores, and he collected 100,000 emails of engaged users in just a couple of days before he launched comm. Can you think, like Alex II, do you have that product?

subcontest that he has, well, that's but one way to source customers, the virality of a unique, notable product or service on the internet that gets email addresses. I seem to have, you know, maybe 25% of Alex's gift and I, you know, I tried to study him, but you might have seen I did remote demo day.com during the pandemic. It was just a new idea to let other companies meet are investors. You know what? We've invested $16, $18 million last time I counted in the year that we've been doing this. Totally new product.

I set up a Squarespace website, put up a type form, we're done. Our deal flow increased. The number of dollars invested increased. We met great founders in companies. It was a huge success. In fact, Gingster, one of the companies that's just crushing it for us, and Vincent, two great companies, we found

through a remote demo day, just by planting that flag and trying something new. another thing I tried that was new during the pandemic doing a podcast with Chimoth and Sachs and Friedberg called All In. So sometimes you create like a little product, a little media property, whatever it is, an event, and it just becomes amazing source for new customers. You can be sure that when people meet me to invest in their companies as an angel investor and running the syndicate.com, do you think they mention All In or This Week in service

to me? Of course they do. Of course they do. They probably listen to both. And so ask yourself, how can I get more customers? Please ask yourself that. Please do not get distracted. We live in the venture community and in the growth community of high growth startups.

It's a merit-based. It is a milestone-based funding system. If you hit milestones and you grow, you get more money. More money helps you to grow. So don't do milestones that are soft and don't matter, like speaking at conferences or going to TEDx, no offense, or, you know, doing retreats or other nonsense or building features nobody cares about. Get more customers, delight more customers. Now, another question to ask yourself, number 24 analysts, is do you have founder product fit?

In other words, you as a founder, are you absolutely in love with this product? We invested in a great company called FitBod and another one called Steasy. One of them teaches you how to dance. The other one teaches you or helps you record your workouts and then uses AI to predict your next workout. See how I describe them in a sentence? One of them teaches you how to dance. Steezy teaches you how to dance with videos. FitBod is an app that lets you record your workouts and suggest your next workout using AI. You understand what both of those products do because I can, as their investor, explain them in a sentence and of course they can too.

Well, the people running FitBod are gym rats. They love to work out. You should see them. They're jacked. And they hire people who also love to work out. What does that do? They don't have to explain to people why recording how many reps you do at what weights are important. They know why it's important.

They're eating their own dog food. We've had this expression in the industry for a long time. Make sure you dog food. What does it mean? Make sure you use your own product. Well, I'm going to make it an even higher level. Founder product fit means the founder loves the product. If the founder loves the product, if you love video games and you're making video games,

if you love meditation and mindfulness and you're creating calm, if you're hip hop dancers, the founders are steazy, we're in a dance troupe. They don't have to worry about waking up in the morning and understanding the customer, understanding the product, or being motivated. All of those are slam dunks. Conversely, if you're an investor and you find a founder who works in a dance company, a dance troupe, and they're making a dance app,

I think you've removed the risk of them not being motivated to build the product or not understanding the customer. So make sure, make sure, make sure that you are doing something that has founder product fit. If you don't love this product and you're just doing it as a money grab, probably not a great idea. And you might be a transient CEO or president of it. that company. So let's move on to point number 25. Do you know how people are using your product?

It's a very basic question. Do you know how people are using your product? And we try to make each of these bullet points on the checklist very simple. Again, remember the one simple sentence test? I actually challenged my team and we really revved on these to say them as simply as possible. Do you actually know how people are using your product? I don't know if you do or not. Because you have to stop building, you have to stop raising money, and you have to look at the data. And you have to see, okay, are people going directly to Enstizi, teach me how to do this specific dance move or are they taking the course? It's a good question.

Are people going into comm and going right to sleep stories for kids? Or are they doing a course or are they doing the daily comm? It would be good for you to know how people are using it and to segment those and to figure out why people are going to those areas. In fact, Steezy uses the customer support tickets they get to inform their product decisions because people might call customer support when they're confused and they can't find something. This is super obvious. If you've been in the industry for five or ten years, you've probably gotten to this point.

But this might be a point for people who are in their first companies. Sometimes you've got to slow down to speed up. Sometimes you have to slow down in order to speed up. Slow down. Do a survey. of your customers. Ask them why they use your product. Take them out for lunch. Do a discovery Zoom with them. Say, hey, can I send you a $10 gift card, a $25 Amazon gift card and just talk to you about how you're using your product? We notice that you log in often and you don't want to be

creepy, obviously, but we know you're loving the product. We know you get a lot of use out of it. Can we just ask you 10 questions on a Zoom with my product manager and my sales team? It would be really great. And so make sure you know how people are you, using your product. This is very simple, but, you know, what time do they use it? How long do they use it? Are they snipers? Do they come in and use one feature and leave? Or do they live all day in your products, right? What actions are they taking? Are they getting frustrated and, you know, logging out at some point? And if you can group people into different segments, different buckets, you might have people who use superhuman five hours a day. You might have people who use it for 50 minutes a day. You might

ask them different questions, right? You might prioritize. their needs differently. I can tell you, for the people who are in superhuman for three or four hours a day, I think Raul is paying attention. And he asks very probing questions. For example, they have an introduction feature. They know power users take introductions all day. If you hit command shift I on somebody's introducing you, it automatically replies, takes the person who sent the email of the introduction, puts them in BC and says, thanks for the introduction, Jason, and then in parentheses puts, now BCC. We used to all do that manual. all day long. They productized it. That's like a superpower feature for salespeople and VCs.

Oh man, when they productized it, it saves me a minute or two on each of those emails and I get 10 of those a day, which means I get hundreds of them a year, which means I save thousands of minutes a year. Thank you, superhuman, for paying attention for studying how I use your product. And you see this in the Apple products, right? They keep looking at how you use the product. One of the things I noticed in the new iOS release was that on my iPad, it gave me a little tool tip that I could flip up from the bottom right and it would open notes and let me take a quick note and save it. That saves me from having to type in notes or go find notes, open it, hit the new button, just flip it up, boom, type my note, save it, done while I'm in another app on my iPad

Pro. So let's go to point number 26. Do you know how to conduct customer interviews? There is an entire science out there of doing these customer interviews that you may or may not know about. You can do these very simply. You can ask people one question in your app. You can have a pop-up come up. You could ask people to take a survey.

You've probably seen that when you've been on other people's websites. Hey, would you do a survey for us? You can do it in person. You can do what's called the Listening Lab. You should look up all of these. You should study all of them. It's beyond the scope here to tell you exactly how to do them. but it's easily available online to do these.

And you can hire people to do them. You can have third parties do them. And you can do it by email. You can do it by phone. You can do it by Zoom. There's so many ways to do it. And simple questions. What do you think about the product?

Is there anything you change about our product? These open-ended questions, man, you never know what idea is going to come in. Now, open-ended questions are not like NPS score, you know, or, you know, scale on one to 10 or pick one of these four radio buttons. So you're going to have to sort through a lot of junk, but they're kind of like Yelp reviews in that. If people keep saying the hostess was rude, and you see three of those at a restaurant,

if you're the owner of that restaurant, you need to fire the goddamn hostess because she's rude or they're rude. If you're getting the same qualitative comments over and over again, these qualitative ones that take a little while to sort through are important. And, you know, I got those a lot. You know, people would come to our conferences and we'd ask them for, you know, feedback. And it was constantly like, why don't you have more food out or whatever?

And we were like, if you buy a free ticket, we don't have food because we gave you a free ticket. But if you want the paid ticket, you should get food. And they would just constantly give us that feedback about it. And then what we did was we started sending people, here are the 10 restaurants that are closest to us, you know, at the event that you should go to. And they really appreciated that, right? Or we told them, hey, bring food with you. And then we said, people were asking about water.

And then we started giving out water bottles. we made it a sponsorship opportunity. This is a great story. People kept saying, hey, we need water. We need water. And I was against the plastic bottles and Gigi. One of my mentors kept telling me don't have plastic bottles. And so then we had launch bottles you could buy, like refillable bottles for $3.

And you could buy one. Or we then made sponsors bottles that said launch on one side and Zendesk or whatever on the other side. And then we would rent for $1,000 of high-powered water filter. It would filter the water. It would make it cold. and it would shoot it out very powerfully so you could fill your water bottle really fast. People went crazy for it. They were lined up.

They were getting water. They were drinking more water and more hydrated. All of that came from feedback we got. And then we would also ask, just on a number, who rate this speaker on a scale of 1 to 10? We'd then rank the speakers. The top three speakers, we would invite to the next event and we would give them twice as much time. So there's just examples of querying your customers and getting feedback. Would you recommend our product to a friend or colleague?

Hmm. Really good one, right? And then there's listening, right? And follow up prompts. So there's a real science to this. But say more about that. You probably have that friend who says, tell me more. How you doing?

Yeah, tell me more about that. How's it going? Okay, yeah. Can you explain what you mean by that? Can you elaborate on that? These are very open-ended short questions that will allow somebody who gives a short answer to make it into a long answer and make you more informed. So those are prompts that let you listen more.

You don't want to interrupt the customers when they're speaking. You want them to get going, right? Listening labs are a whole other science where you put a new product in front of somebody and you say, imagine your friend sent you this app. And they say, okay, what am I supposed to do? And they said, well, just imagine your friend sent it to you. And they're like, okay, what do you want me to do? And it's like, well, your friend sent it to you.

So what would you normally do? And what would you do next? This is a very good way to notice how good your onboarding is or how people interact with your product with very little knowledge getting into it, right? And so, you know, of course, you can do net promoter scores and all that. And that's our next point, number 27. Do you even know what net promoter score is? Net promoter score is very, very simple. Founders become obsessed with it. You can go to netpromoter.com and a bunch of other services provide this. But basically, you're asking, how likely would you be to recommend Uber to a friend on a scale of one to ten?

Now, what's not important is exactly how you phrase that sentence. It's the scores. And it puts people into three buckets. People who score a nine or a ten are considered promoters. That's why they're net promoters. They're enthusiasts. They'll tell you about it. The perfect example is people who own a Tesla. Anybody who owns a Tesla is telling people you have to get a Tesla. It's incredible. Oh my God, this Tesla is incredible. Those are nines and tens. And in fact, Tesla has one of the highest net promoters scores ever. Why? Because the car was so transcendent and they kept putting more software in it and making it better and better. Passives score to seven or eight. When you say, hey, how was that restaurant? How much do you love your, you know, sob, your Volkswagen? People might say, yeah, you know,

it's good. It's like a seven or an eight. Well, they're not enthusiastic enough to tell people they have to get it. So they're not really promoters. They're also not detractors. They don't hate you, but they don't really love you, do them. They're kind of. of indifferent is a way to think about them. The technical term is passive as opposed to promoter. I look at them as indifferent. They're basically of little value to you other than they might still buy your product, but they're not loyal to it. They're not going to tell other people to it, and so your product's not going to grow. And then there's detractors. These are people who are pissed off at you. They're angry. They're zero to six. These are people who, you know,

you sat late in your restaurant. These are people who got their gadget and it didn't work. These are people like Google Home. I mean, I went off on Google Home compared to Nest. I was a promoter of Nest products because they were so easy to use and they worked and they were easy to set up. And then goddamn Google decided that Nest as elegant and perfect and high promoter score as it was wasn't good enough. And they took me as a net as a promoter of Nest products.

And then they forced me to take my Nest product and use Google Home the worst app I've used in a decade. I mean, it might be the worst app I've ever used. Just terrible design, hard to use, not beautiful, not elegant, not simple, overcomplicated. I want to open my Nest app, see my cameras, and see what temperature my house is. I'm done. And then Google Home is like, connect your Sirius XM, connect your Hulu, do this, do that, set schedules. I mean, it's so all over complicated that they literally took a perfect product that everybody would promote and they turned us all into detractors.

I cannot tell you enough how horrible Google Home is. And in fact, that's that negative word of math. So how you actually calculate net promoter score is if you get a promoter, they're worth a one. If you get a detractor, they're a negative one. And if they're a passive, they're worth zero. So if a hundred people loved Ness, you would have a hundred. Nobody gets 100.

But if you got, let's say, 60 people who were promoters, you'd have a 60. And let's say you had 40 people who were passive and no detractors, you'd be a 60. Let's say you had 70 people were promoters, 20 people who were passive, and 10 people were detractors. You'd minus the 70 promoters, the 10 detractors, you'd be at 60. And you can look at these. Apples of 47, Facebook negative 21. These are just major brands out there. And people track this independent of the brand. So they'll do it for other people. Starbucks 77, like people who go to Starbucks really love it, right? You're not going to be a detractor.

And delighting customers is super important because if you'd like customers, it means you have product market fit. It means they're going to stick around. It means they're not going to go to a competitor who puts a cheaper price out there. And you want to ask them follow-up questions. So if they're a detractor, you're going to ask them different questions than if they're a promoter, aren't you? If they're a detractor, you're going to say, how can I solve your problem? How can I make this better? If you are, on the other hand, a promoter, you'd say, thank you. Would you like a referral code to send it to your friends? Now, are you sending a referral code to detractors? Hell no. Hell no. You don't want

even incept that idea in their brain that they should tell people about Google Home. Nest, on the other hand, if I rated the product really well, Nest might say, here's your code to share, and we'll give you a $10 credit for everybody who buys a product, right? You get the idea. It's just absolutely a great thing to do. And if you look at Robin Hood's referral program, I mean, give and get a stock, Uber's, give a ride, get a ride, Dropbox, the OGs, give five megabits, get five megabit, give five, give five gig, get five gig, whatever they did.

Really, really smart, right? And that really can get your startup flywheel going. Pay number 28 on our list. Should you start with a free or a paid product? Very important for you to make this determination. There's two different schools of thought. If your product is free, a lot of people will play with it. You get a lot of data.

If you charge people, you're going to pre-sort them, and you're going to get the serious people to give you their credit card, and you're not going to have to deal with the riffraff, the looky-lose, the window shoppers. This is why some people don't give out samples. Yeah, you go buy like a Michelin Star restaurant. Are they outside giving you a sample? No.

Why aren't they giving you a sample? Because it's $300 and it's three hours to go to a Michelin Star restaurant and do like 20 courses. They know that if you are interested in free food on the street and you want, you know, three pieces of a mini kish, you're not their model. Now, if you're in Costco and they give you some mini kishes and you're starving and the, There's a pack of, you know, 17 mini-kishes for $12. Like, yeah, maybe you're going to go for it. Right. So different strategies for different consumer bases and for different goals for the company.

You can't use Superhuman for free. And they don't want you onboarding yourself because they know that if you are not a power user, you're going to churn. So why did they waste the time? Why did they have a detractor? Right. Superhuman doesn't want you signing up yourself. using it, not knowing what any of the great features are, and then bad-mouthing them.

Why would I ever pay for this? This is stupid. But once you learn a couple of the superhuman features that make you superhuman, and you understand how snippets work and Command K and, you know, all the different advanced features, well, then you're going to be a promoter. So basically what they've done is they've used onboarding and training, and you can only use it if you're paid to get you bought in, which then means if you're bought in and you understand the product, you're going to be a promoter. So these two things are very related. I, for SaaS products, think it should always be paid. And you should not let people in and you should

be upfront about the pricing. That's my belief. Let people pay or do a time trial. I think time trials are too, because if you do a time trial, they can try all the features. But really, you know, there's ground up SaaS that does work for some people, like a simple product like SaaS, like Slack, rather. So there is a philosophy to let people use it for free or pay as you go. You can tell you. all this. You know, obviously consumer products that are advertising-based are not charging at all. Therefore, you don't need to even consider this question if you're doing a free advertising-based product. Okay, number 29 coming around the horn. Do you understand the technology adoption curve? This is something that everybody used to know about. And I'll just pull it up here

on the screen for you all to see. You can read about this online. And if you just type in crossing the Kazin by Jeffrey Moore. And you can look this up. The technology adoption curve was introduced by EM Rogers in 1962. I actually didn't know that today. But in the 80s and 90s, people talked about this a lot. And basically, you make a bell curve. And the first people to use the technology, let's take the cell phone, would be innovators.

They're willing to pay any amount of money. They're tech enthusiasts. They don't care about the price. They care about how cool it is, how innovative it is. The Tesla Roadster would come to mind as well. So the big brick, $3 a minute cell phone that you saw on Wall Street, if you've ever seen that movie with Michael Douglas, pretty great. Then there's early adopters. These are people who would try a phone.

So when the Star Tack came out and it was a dollar a minute and the phone instead of being $5,000 was $500. Yeah. Or I'd say $1,000, more people would try it. Then you have the top of the bell curve, right? The big fat part. And those are broken into two majorities, the early majority, the late majority. So, the early majority might be, oh, your mom, she's tech savvy. The late majority might be your dad.

He's a laggard. You know, he doesn't set the VCR up. He doesn't know how to use the microwave. In some households, it might be the opposite. But you get the idea. You have one sibling who always, you know, they may not buy that cell phone first, but they may, you know, buy the Apple Watch number three, right? And then the late majority might buy Apple Watch number five.

In the watch category, I bought the first, the third, and the sixth. First three, two were garbage. I threw them away. I gave them away. I kept my fifth bit. And then at the end, you have the laggards, the skeptics. The reason it's important for you to understand this is, if you're doing a totally new, innovative product, there are some people who are just not going to take the time to overpay,

to deal with the technology curve, et cetera. So if you have a Tesla Roadster, you understand, plugging it in was not as elegant and simple as it is now. You had to turn this thing, push it in. It was kind of a raw feeling, and it was $160,000. Now you can buy one for $50,000. That is a thousand times better than the road search. That's how the technology adoption curve works. The people who are the tip of the spear pay more. They struggle more. They have more manuals to read. You get the idea. Know where you are in this process. The first people to use Uber or Airbnb were innovators. They were the avant-garde.

They were the risk-takers. People using Airbnb in year 12, they're not taking any risk. All their friends have done it. Yeah, there still might be some skeptics left. But I would say, you know, we're in the late majority for Uber, Lyft, DoorDash. And one would argue quite successfully that telemedicine, food delivery, all were accelerated by the pandemic because you couldn't go to a restaurant, you use DoorDash, right?

Or Uber Eats or Postmates. Because your doctor couldn't see you, you finally got your doctor on FaceTime. It forced people's hands. So a lot of the people who are the late majority, the skeptics, the laggards, even the early majority, I think, in telemedicine, you know, got pushed forward.

And better health and some of these other online counseling services. They were kind of like this oddity over here that, you know, innovators were using, early adopters were using, instead of going to a counseling session in person, people were doing it on their phones. Crazy. Now, that's become the standard. So there you go. Very important that you understand these groups. The early majority, they make decisions based on data, right? They're going to look at it. You know, the innovators, they'll just take any risk. They just love it. They love to support stuff. The early adopters, yeah, they want to understand it, but they'll take a lot of risk. Then,

the majority, you know, they're going to make an educated decision late requirement. They just want it to be, you know, they don't want to take any risk. The late majority just wants everybody else to take the risk. They'll buy iPhone four or five, right? They'll stick with their Star Attack, you know, they'll stick with their Motorola phone, their BlackBerry until, you know, we've all got the iPhone keyboard to a decent place, right? And the laggards, they're just skeptical of everything. I mean, there's laggards out there who are still on dial-up or they don't even use a computer.

they still have a flip phone. All right. Finally, if you've got users who are disengaged, they really use your product, they're unprofitable, should you keep them around? No, why not? Because they're taking your time away from you

when you should be working with the customers who love your product and are profitable. So we see all the time people giving away free product, let's say, and then they have some people paying. And then their customer support calls from the free users are worse. And those people are more entitled than the people who are paying the high prices. And if they're disengaged and they're not really using your product and you're charging them every month, a small amount of money, it's just overhead for your team.

So part of being a mature entrepreneur is just saying, we are no longer supporting this product. We're deprecating this product. sorry, if you're using the product, you have one year to download your data, but we're not doing it anymore. And it's really about focus. And it's really about focus. And it's better for them. And what you'll see when you do this, let's say you had a product like Flickr, right, the Yahoo's photo product. They probably had a lot of free users. They had some paid. They were now faced with, you know, a world in which iPhone exists and Google photos and you know, if you just said to, you know, the million people using it, hey, we're moving to

paid. It's 10 bucks a month. You have this much of time. They convert 5% of the million users, or let's say it was 10 million users. They convert 5% to pay. Now they've got 500,000 incrementally paid users. Well, that's better than having 5,000 and all of those other people who are freeloaders. And, you know, superhuman, as we mentioned earlier, they fire the customers. They don't even hire them so they don't have to fire them. They know that's going to happen later. So they basically preemptively fire them. It's really that simple. And so once you figure out your customer base and you know who they are, go ahead and raise your prices. Yeah, the bottom 20% are going to be upset. The bottom 20% are not your ideal customers. They're costing you money.

Keep raising your prices and getting rid of the weakest customers so that you have a strong, vibrant business. Now, if it's costing you nothing, you're going to have this internal argument about it. I can tell you over time, companies I've seen, succeed will deprecate products that are distractions and they'll focus on the products that are winners. If you owned 10 restaurants and three of them, like let's say you had 10 different ideas for restaurants, right? So you've got 10 brands, Chinese food, Japanese food, Mexican food, French food, Russian food, whatever it is. And let's say three of them are money losing or break even. If you shut those three restaurants down,

If you shut the three Walgreens in San Francisco that are getting robbed the most, you can focus on the ones that are profitable and don't have those headaches. That's really a perfect example. You have in San Francisco a massive crime problem. It's legal, basically. You don't go to jail if you steal under $1,000 worth of stuff. Don't ask me to explain why we got here. It's just super controversial. But it basically passed a law that you could steal stuff under $9.50.

I think it's $950. and get away with it. Well, if you're Walgreens, and you've got a footprint across the country, and San Francisco has 70 different locations between CVS and Walgreens, why not cut 30 of them that are causing the most problems in your portfolio, that are putting your employees in danger, just get rid of them. Just get rid of them. You don't need them. You don't need the headache.

What happens when you get rid of that headache? We sleep better at night. And then your employees are not talking about this problem. restaurant, this problem location, this problem city, and you can focus on the ones that are delightful and thriving. And that's just how it works. Okay, stay tuned for episode four, where we're going to talk about another part of the startup flywheel, your product, specifically how to build a great product, how to know you have a great product. Remember, you can see the entire checklist at this week in startups.com slash checklist. Thank you so much. If you have

ideas of what should be on the checklist, you know how to get me. DMTWI startups. on Twitter, DM Jason. Email us. I'm Jason at calicanus.com and we will keep improving the checklist. You can take this checklist. You can use it however you like as long as it's not commercial. Take it, give us credit, link back to this

week in startups.com slash checklist and make your own. Edit it. It's a living, breathing document. We hope that you get value from this and that's why we do the show. So thanks for tuning in everybody. We'll see you next time. Bye-bye.