Some months ago, I was interviewing with venture capital firms for an analyst role. Around that time, I was chatting with a friend who was working with a global top 3 VC firm, about a startup that he was evaluating. Now I have a really bad memory for the important things in life, but something he said during the course of that discussion has stuck in my head like the chorus from an annoying song.
“Why are you getting into the nitty gritties!”
Well, I interviewed for that firm (and didn’t get through), but eventually did enter the VC industry. Picking apart business plans, speaking to founders, and watching VCs in action helped me reinforce that habit: always get into the nitty gritties. Get into the muck and get your hands dirty.
On the face of it, any business plan looks good (except maybe Pets.com). Talking about an obviously exaggerated “total addressable market“, or “synergies” with the “local ecosystem” is easy – like a huckster can sway a crowd, so can a savvy founder simply talk smooth about “the big picture”, “macro trends” and the like to sell investors. Do not fall for it. There’s really only one question to be asked, to the absolute last level of detail: why would someone pay for this?
Let’s play out a conversation where this happens.
You: Why would someone pay for this?
Founder: Because they love the product! And we’ve rolled out a freemium model to…
You: Why do they love the product? And how does that love translate to money?
Founder: Because feature X is addressing a real pain point…
You: How does feature X work?
Founder: We’ve built a realtime machine learning algorithm into the backend that provides custom recommendations…
You: Wait, sorry I was unclear. How does someone use it? Take one of your users, say Bob, and describe how Bob would use it
Founder: So Bob does…
You: But why would Bob actually use it like that…?
…and so on
This is usually the point in the conversation where the strongest businesses rise above the rest. Like a kid constantly asking why, keep drilling down – ask why someone would use it, why would they pay money for it, why does the product work like this, so on. There’s no better way to quickly understand if 1) the founder has clarity about what they’re doing 2) they’ve thought deeply about the user, and how they want to make a dent in the user’s life 3) they have the humility to say “I haven’t thought of that, but I will”, instead of defending their opinion to the death (no one can think of everything after all).
This technique allows a person with some common sense to very quickly ask and answer hard, real life questions, vs. theoretical ones. Don’t believe me – this method is endorsed by no lesser than Richard Feynman in his splendid memoirs. When someone is describing something, keep making up examples (snippet from Surely You’re Joking Mr. Feynman) – keep visualizing how it works in real life (So Bob will use this to order a cab, why would he wait around for a cab to arrive? Ah, you connect to the nearest drivers so wait time is under 10 mins, etc.) When you add to the mix the various quirks that make us human, does the example hold up? When you look at the anecdote, instead of relying on statistics, does it make sense?
So to sum up: Think big picture, sure, but don’t forget to think small picture too. The devil is in the details after all.