From: thepipeline_xyz
Carl, a partner at Six-Man Ventures, an early-stage crypto fund founded in 2021, emphasizes that building a strong company and enterprise value is more critical than just building a great product for crypto startups [00:00:05]. The talk, titled “Product and Company Building,” aims to consolidate learned experiences for founders [00:01:37].
He notes that while first-time founders often prioritize product, second-time founders understand the importance of distribution [00:02:18]. The goal for founders should be to focus on creating enterprise value for themselves, their employees, and the ecosystem, rather than solely on developing a good product [00:03:31]. Most founders spend 70-80% of their time on product, but should shift focus more towards company building [00:03:34].
Company Building
Company building involves crucial aspects like cash management, fundraising, brand awareness, hiring, vision, and mergers & acquisitions (M&A) [00:03:44].
1. Pick the Right Co-founder
Building a business is an incredibly difficult and often lonely endeavor [00:05:38]. Having a co-founder who is equally invested can significantly boost morale and provide support during challenging periods [00:06:08].
Key considerations for choosing a co-founder:
- Complementary Skills [00:06:26]: Seek someone who complements your skills rather than replicates them. For example, two highly technical engineers might not be as effective as a team with one technical person and one business-savvy individual [00:07:11]. Attributes like product sense, technical acumen, market analysis, and community management are important [00:06:37].
- Personality [00:07:25]: Complementary personalities can lead to stronger decision-making.
- Network [00:07:50]: A co-founder with a different network vastly enhances your ability to succeed [00:08:00].
- Founder-Market Fit [00:08:16]: Investors highly value this, especially for early-stage companies. If you’re building a DeFi protocol, having a background in traditional finance or as a market maker demonstrates market understanding and technical capability [00:08:34]. If you lack deep founder-market fit, consider bringing someone who has it to quickly understand the market and access relevant networks [00:08:55].
- Obsession [00:09:09]: Both co-founders should be obsessed with the problem space they are building in, as competition means someone else is likely equally dedicated [00:09:12]. Founders who are only part-time involved or split focus are often seen as an “insta-pass” by investors [00:09:34].
2. Optimize for a Massive Financial Outcome
If you take venture capital, you must aim for a significant financial return [00:10:05]. Venture investors typically look for a path to a 100x return, as a 10x return is not considered interesting [00:10:31].
Key financial strategies:
- Avoid Over-Dilution [00:10:47]: Diluting too much too early can make it difficult to attract later-stage investors who seek meaningful ownership [00:11:17]. If you have significant dilution in one round, avoid over-diluting in the next [00:11:38].
- Don’t Fret Over Small Valuation Differences [00:12:16]: For the right strategic partners, a slightly lower valuation is acceptable [00:13:10]. Achieving a billion-dollar outcome is extremely challenging, so optimizing for success by bringing the best people to the table outweighs minor percentage differences in valuation [00:13:27].
3. Create Enterprise Value with Capital
The purpose of raising capital is to create enterprise value, not just to build a product [00:14:38]. Product Managers think about products, while CEOs think about enterprise value [00:15:01].
Types of Enterprise Value:
- Revenue [00:15:07]: The most straightforward measure, demonstrating the ability to drive and grow income [00:15:10].
- Brand Awareness [00:15:24]: Becoming a recognized leader in a crypto category can be valuable, even without immediate high revenue, as it suggests a future path to monetization [00:15:31].
- Data [00:15:46]: Proprietary data accumulated across many customers can be monetized in the future [00:15:49].
- Partnerships & Distribution Channels [00:16:05]: Working with tier-one companies or having exclusive distribution channels (e.g., through Fireblocks) can provide a clear path to future revenue [00:16:12].
Always raise capital with a margin of safety [00:17:03]. Don’t be overly optimistic about short runways, as markets, trends, technology, and customer demand can change rapidly [00:17:19].
4. Do the One Thing That Matters
A founder’s most challenging job is identifying and executing the one thing that will almost guarantee success, while excluding all other noise [00:18:07].
Common pitfalls:
- Focusing on Features over Customers/Growth [00:19:07]: For a Series A, investors seek customers, growth, AUM, and revenue, not just a beautiful product roadmap [00:19:09].
- Focusing on Tech Debt instead of Shipping [00:19:39]: As a startup with limited runway, spending months refactoring backend code without delivering new features or acquiring customers can be detrimental [00:19:53].
- Being Too Broad instead of Deep and Expert [00:20:20]: Trying to do three, four, or five different things, often with customized offerings for each customer, indicates a lack of scalable business and focus [00:20:38].
Align your team on the single mission that guarantees success [00:21:03]. Don’t just plan; act decisively [00:21:41].
5. Hire Slowly, Fire Quickly
Under pressure to grow, founders might hire too quickly [00:21:56]. However, bringing on the wrong people causes more damage than not hiring at all [00:22:07]. An eighth person in a company represents 12.5% of the company’s operational capacity, and if they’re not performing, it significantly impacts efficiency [00:22:30].
- Maintain a High Bar [00:22:48]: “A players hire A players, but B players hire C players” [00:22:58]. In a competitive crypto talent market, top engineers want to work in a challenging, motivated environment free of “dead weight” [00:23:07].
- Act Decisively on Bad Hires [00:23:36]: Once you know a hire is wrong, act quickly [00:23:51]. Avoid a revolving door by taking your time to hire the right person initially [00:23:56].
6. Get Out of Stealth
Staying in stealth mode for too long is detrimental. The risk of irrelevance is far greater than the risk of someone copying your idea [00:24:10].
Consequences of prolonged stealth:
- Lost Time [00:24:28]: Spending 50% of your limited runway in stealth means you’re not learning, iterating, talking to customers, advertising, or getting feedback [00:24:31].
- Lack of Excitement [00:24:49]: You can’t build excitement or momentum for launch if you can’t discuss what you’re building [00:24:51].
- No Market Anchor [00:25:08]: You lose the opportunity to define your company as the market leader or anchor against which others are measured [00:25:27].
Examples of companies that got out of stealth effectively:
- Monad: Built a community of hundreds of thousands globally before mainnet launch [00:25:48].
- Jito (Solana): Quickly established itself as the MEV platform on Solana by building in the open and branding themselves [00:26:13].
- Photo Finish (Solana): A virtual horse racing game that engaged its community through NFT mints and breeding events over a year, ensuring excitement for the game’s launch [00:26:42].
Engage in “plus EV” Enterprise Value activities like building community, creating mini-games, doing quests, or appearing on podcasts to build excitement even before full product launch [00:27:18].
Product Building
7. Be Relentless About Finding Product Market Fit
Product Market Fit (PMF) is defined as finding repeatable cases of “hell yes” customers [00:34:00].
- Repeatable [00:34:27]: You need a single product that serves many customers in a defined market, rather than a customized solution for each.
- “Hell Yes” [00:34:40]: Customers should be “pulling” your product, eager to sign up and use it, rather than you having to “push” it through sales pitches [00:34:54].
How to tell if you have PMF:
- Willingness to Pay [00:35:50]: If people still use your product when you charge for it, or even raise prices, it’s a strong sign of PMF [00:36:06]. Founders often undercharge for products [00:36:51].
- Pricing Strategy: A good approach is to “double prices until somebody says no” to find true price discovery [00:36:28].
- Customer Evangelism [00:37:01]: Are your customers actively recommending your product to others? [00:37:10]
Regarding market share vs. revenue: In growing markets, market share is often more important [00:28:42]. For infrastructure companies during a bear market, focusing on increasing market share, even with low revenue, can pay off dramatically when the market recovers [00:29:05]. However, do not assume you have product market fit if you aren’t charging for your product, as people may only love it when it’s free [00:29:56].
8. Remember That Customers Lie
Do not directly ask customers what they want, as they often cannot articulate their true needs [00:37:34]. Instead, ask them:
- What do they do? Understand their current processes and operations [00:38:27].
- What are they trying to accomplish? Identify their ultimate goals [00:38:41].
By observing their actions and goals, you can identify opportunities to build a better experience or a more direct path to their desired outcome [00:38:35]. Product intuition based on understanding customer needs is more valuable than direct requests [00:38:01].
For seed-stage startups, avoid extensive A/B testing [00:39:03]. You have limited runway, so make decisions quickly, ship, and correct if wrong, rather than spending too much time on complex experiments [00:39:31]. This is why VCs value founder-market fit, as experienced founders already understand the market and necessary product [00:39:52].
9. Simplicity is More Important Than Complexity
“If I had more time, I would have written a shorter letter.” [00:40:20] Anyone can design a complex product, but a truly great product strips away most things to offer one or two compelling experiences [00:40:31]. Elon Musk’s first principle of product design is “make the requirements less dumb” [00:40:46]. Peter Thiel advises to “do one thing uniquely well” [00:41:14], which often requires a simple product.
Problems with complex products:
- Decreasing Customer Attention Span [00:41:33]: Users have very limited time for a product to make an impact [00:41:54].
- Increased Technical Debt [00:42:04]: Teams add features but rarely remove them, leading to engineers maintaining conflicting functionalities [00:42:10]. Always think about how to simplify and cut features, even customers if they aren’t the right fit [00:42:25].
- Unclear Value Proposition [00:42:35]: A complex app obscures its core benefit [00:42:41]. Simplicity drives clarity.
- Serving Too Many Customers [00:43:03]: If your product is complex, you may be trying to serve too many customer segments [00:43:05].
How to gauge product complexity:
- Can you describe your value proposition in two sentences (or 15 seconds)? [00:43:13]
- Can customers have a “delight moment” within 60 seconds of onboarding? [00:43:36]
- Is there a singular, clear call to action above all others in the app? [00:43:59]
- Do you constantly add features without ever deprecating old ones? [00:44:07]
10. Referrals Should Include the Core Value Proposition
In crypto, referral codes are popular, but they should be more than just a code [00:44:28]. The referral process should immediately immerse new users in the product’s core value proposition.
Example:
- Pay (private crypto Venmo): To onboard, users had to be paid by someone [00:44:56]. This immediately gave them a balance, unlocking the app’s features (sending money, claiming points, interacting with DeFi), creating a far more compelling onboarding experience than starting with a zero balance [00:45:21].
- Betting App Example: Instead of just signing up, a referral could involve someone sending you a bet to join, immediately putting you into the core experience [00:46:11].
This ensures the user experiences the value immediately, rather than being overwhelmed by options or needing to figure out how to engage [00:46:31].
Summary
The 10 key pieces of advice for crypto founders in building and sustaining a crypto startup are:
- Pick the right co-founder [00:46:50].
- Optimize for a massive financial outcome [00:46:53].
- Create Enterprise Value with your capital [00:46:55].
- Do the one thing that matters [00:46:58].
- Hire slowly, fire quickly [00:47:01].
- Get out of stealth [00:47:04].
- Be relentless about finding product market fit [00:47:07].
- Remember that customers lie [00:47:09].
- Simplicity is always better than complexity [00:47:13].
- Referrals should include the core value proposition [00:47:15].