What founders, investors and authors say works — summarised in plain words, linked to
the source, and tried on the businesses we run. When enough of them have tried it, we say whether it worked.
121 classics · all free0 being tested0 with a verdict5 businesses before a verdict
Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
“It's to look for problems, preferably problems you have yourself.”
Good ideas are noticed rather than invented: start from a real problem, ideally one you have, and prefer a small group who need the thing badly over a big group who would find it mildly nice. A useful test is who wants it so much they would use a rough first version from an unknown maker.
When it applies: You are choosing what business to start, or which of several ideas to pursue.
Not tried yet
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Schlep blindness: take on the tedious problems others avoid
Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
“Instead of asking "what problem should I solve?" ask "what problem do I wish someone else would solve for me?"”
Founders unconsciously steer away from ideas that involve tedious, unpleasant work, so valuable problems full of drudgery go unsolved and face little competition. Being willing to take on that drudgery can itself be the advantage.
When it applies: You are comparing ideas and find yourself favouring the easy, pleasant ones over ones with paperwork, integrations, compliance or messy operations.
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Start small and monopolize (competition is for losers)
Peter Thiel: Co-founded PayPal and Palantir; Facebook's first outside investor.
Fighting rivals head-on drains profit, so a new business should choose a market small and specific enough that it can quickly become the obvious leader there, then expand into neighbouring markets one step at a time.
When it applies: You are choosing where to launch and can name a small, reachable group of buyers whose needs nobody currently serves well.
Contested. Thiel openly argues that monopoly is the goal; at scale, dominant-position conduct draws antitrust scrutiny and public criticism. For a small business the practical risk is picking a niche too small to pay the bills, or mistaking an empty market for an unclaimed one when nobody actually needs the product (the CS183 notes cite PayPal's first idea, payments between Palm Pilots, as that mistake).
Clayton M. Christensen: Harvard professor whose theory of 'disruptive innovation' changed how companies see upstart rivals.
Well-run market leaders keep improving their products for their best, most demanding customers and ignore cheaper, simpler products that appeal only to small or overlooked groups. A newcomer can start there, improve steadily, and eventually take the leaders' mainstream customers.
When it applies: Existing products are more powerful and expensive than many buyers need, or some people buy nothing at all because the options are too costly or complicated.
Contested. The theory's record is disputed: Jill Lepore's 2014 New Yorker critique argued its cases were selectively chosen, and Christensen and co-authors (HBR, 2015) themselves warned that the 'disruptive' label is widely misapplied. A cheap, simple product may also just remain a small niche product if it never gets good enough for mainstream buyers.
Michael E. Porter: Harvard Business School professor whose ideas on competition shaped modern business strategy.
How much profit a market allows is set by five pressures: rivalry among existing players, the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, and the threat of substitutes. Good strategy finds a position where those pressures are weak, or shifts them in your favour.
When it applies: You are choosing between candidate markets or niches, or trying to work out why the niche you are in has thin margins.
W. Chan Kim: INSEAD strategy professor; co-wrote Blue Ocean Strategy, a multi-million-copy bestseller.
Renée Mauborgne: INSEAD strategy professor; co-wrote Blue Ocean Strategy, a multi-million-copy bestseller.
“the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand”
Instead of fighting rivals over existing demand, create new market space by changing what is offered: drop or cut what the industry over-delivers, add what it has never offered, and so reach people who were not buying at all, aiming for lower cost and distinctiveness at the same time.
When it applies: Your category is crowded, prices are being competed down, and many potential buyers stay out of the market entirely.
Chris Dixon: Andreessen Horowitz partner leading its crypto funds; sold his startup Hunch to eBay.
“The reason big new things sneak by incumbents is that the next big thing always starts out being dismissed as a “toy.””
Important new products are often dismissed at first because they do less than what people already use. If a product is built to ride steady improvements in the technology underneath it, it can become good enough for mainstream users surprisingly fast, by which time incumbents have ignored it too long.
When it applies: You are weighing an idea that experts call trivial or underpowered, but the technology it depends on is improving quickly.
Can't test here
The payoff depends on outside technology improving the product over years; being dismissed early proves nothing on its own.
All markets are not created equal: Gurley's 10 marketplace factors
Bill Gurley: Benchmark venture capitalist who backed Uber, Zillow and OpenTable early.
“A true marketplace needs natural pull on both the consumer and supplier side of the market.”
Some marketplace ideas are structurally much stronger than others. Before committing, score the idea on ten things: a better experience than today, a better price than today, room for technology to help, fragmented suppliers, easy supplier sign-up, market size, room to grow the market, how often people buy, whether payment flows through you, and network effects.
When it applies: Choosing which marketplace to build, or deciding whether an existing one deserves more investment.
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Eric Ries: Wrote The Lean Startup and founded the Long-Term Stock Exchange.
“The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.”
Run a startup as a series of experiments: build the smallest product that can test a key assumption, measure how real customers behave, and use what you learn to decide whether to change course or carry on. Progress is counted in validated learning, not features shipped.
When it applies: Your business idea rests on untested assumptions about who will use or pay for it.
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Steve Blank: Serial entrepreneur and Stanford adjunct professor who created 'customer development', the root of Lean Startup.
A startup is not a small version of a big company: alongside building the product it needs a parallel process for finding and proving its customers, done by leaving the office and testing assumptions with customers directly. Blank's four steps are customer discovery, customer validation, customer creation and company building.
When it applies: You are about to commit to building or selling on assumptions about customers that nobody has checked with actual customers.
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Rob Fitzpatrick: Founder who wrote The Mom Test, a guide to honest customer conversations.
People are polite about your idea, so their opinions and promises are poor evidence. Ask about their real behaviour and specific past events instead of pitching, avoid hypotheticals about the future, listen more than you talk, and treat concrete commitments such as time, money or introductions as the real signal.
When it applies: You are interviewing or emailing potential customers to decide whether an idea is worth building or selling.
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Marc Andreessen: Co-created Mosaic, the first popular web browser, and Netscape; co-founded Andreessen Horowitz.
“Product/market fit means being in a good market with a product that can satisfy that market.”
Of team, product and market, the market matters most: a strong market pulls a product out of a startup, while a weak one defeats even a great team. Until you reach product/market fit, do whatever it takes to get there and largely ignore everything else.
When it applies: You have not yet seen clear signs that customers are pulling the product from you (word of mouth, fast-growing usage, sales closing easily).
Sean Ellis: Ran early growth at Dropbox, LogMeIn and Eventbrite; coined the term 'growth hacker'.
“at least 40% of your active users saying they would be “very disappointed” if they could no longer use your product”
Ask active users how they would feel if they could no longer use the product. If at least 40% say 'very disappointed', you probably have product/market fit and can push on growth; below that, keep working on the product. Ellis himself calls the cut-off somewhat arbitrary, drawn from comparing dozens of startups.
When it applies: You have active users and need to decide whether to keep improving the product or start investing in growth.
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Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
“If you can find someone with a problem that needs solving and you can solve it manually, go ahead and do that”
Early users rarely arrive by themselves, so founders should recruit them one at a time, look after them with unusual care, and even deliver the service by hand before automating it. The manual effort is what gets the company moving and shows what to build.
When it applies: You have a working offer but few users, and are waiting for a launch, a partner or search traffic to bring them.
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Crossing the chasm: win one beachhead segment first
Geoffrey A. Moore: Tech marketing consultant whose Crossing the Chasm is a Silicon Valley staple.
The enthusiasts and visionaries who buy a new product early behave very differently from the practical, cautious buyers who come next, and many products stall in the gap between them. Moore's answer is to pick one narrow segment, give it a complete solution, win it outright, and use it as the base for moving into neighbouring segments.
When it applies: You have some early enthusiasts, but sales to ordinary, risk-averse buyers are stalling.
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Founder-led sales: founders close the first customers themselves
Pete Kazanjy: Co-founded the sales-software startup Atrium; wrote Founding Sales.
“Founder Led Sales is the process by which startup founders discover, refine, and scale their product’s initial sales motion.”
Before hiring salespeople, the founders should personally find, pitch and close roughly the first few dozen customers, learning who buys, why, and which message works. Only once that process is written down and repeatable should it be handed to hired sellers.
When it applies: A B2B business has fewer than a few dozen customers and does not yet know its best buyer or pitch.
Kevin Kelly: Founding executive editor of Wired magazine.
“A True Fan is defined as someone who will purchase anything and everything you produce.”
A creator or small maker does not need a mass audience to earn a living: a modest number of devoted supporters who buy most of what they release, sold to directly without middlemen, can be enough. The math is fans times yearly profit per fan, so the target number shrinks or grows with how much each fan spends.
When it applies: The business sells creative work or a niche product directly to its buyers and can stay in touch with them itself (email list, membership).
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Seth Godin: Bestselling marketing author; sold his early internet company, Yoyodyne, to Yahoo.
Choose the smallest group of people whose support would be enough to sustain the work, and design the offer and message for them, accepting that it is not for everyone else. Serving that narrow group well earns the trust and word of mouth needed to reach bigger groups later.
When it applies: A new business could plausibly appeal to 'everyone' and is tempted to launch broadly with a generic message.
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Pre-launch email list with referral rewards (Harry's)
Jeff Raider: Co-founded Harry's razors and the eyewear brand Warby Parker.
“Were we going to launch to crickets? Would anyone notice?”
Collect email addresses before the product is on sale, and give each signup a personal link with rewards that grow as more friends join through it. Harry's reported about 100,000 signups in the week before opening (around 85,000 valid), about 77% of them via referral, so it launched to a waiting audience instead of silence.
When it applies: A launch date is set, the product can be explained on one page, and there is a reward (free or early product) people would ask friends to help them earn.
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Fix your suppliers' listings by hand (Airbnb's New York photo trip)
Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
“The similarity is that the photos sucked.”
When the supply you already have is not selling, go and fix it yourself. Airbnb's founders flew to New York, rented a camera and re-shot hosts' amateur listing photos, and weekly revenue doubled from about $200 to $400 within a week; working by hand on existing supply can beat recruiting more of it.
When it applies: A marketplace has listings or sellers, but buyers browse and do not buy because the offers look poor or untrustworthy.
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Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
“Make something people want.”
A new company's one essential job is to build something a real group of people actually wants; if that works, making money from it is the easier problem and can come after. Graham pairs the motto with advice not to worry much about the business model at first.
When it applies: You are choosing what to build, or deciding whether the current offer deserves more effort.
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Startup Playbook: a few users who love it beat many who like it
Sam Altman: CEO of OpenAI, the maker of ChatGPT; formerly president of Y Combinator.
“It’s much better to first make a product a small number of users love than a product that a large number of users like.”
Altman's summary of YC advice: first build something a small group loves, because finding more users is easier than turning 'like' into 'love'. Run a tight loop of talking to users, watching them use the product and fixing what is weak; keep founders doing sales and support; launch something simple sooner than feels comfortable.
When it applies: You have early users and must decide whether to widen reach or deepen the product for the users you already have.
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Launch something bad, quickly (plan an MVP in weeks)
Michael Seibel: Co-founded Justin.tv, which became Twitch; led Y Combinator's startup program from 2016 to 2024.
“Hold the problem you're solving tightly, hold the customer tightly, hold the solution you're building loosely.”
A pre-launch company's goal is to get a very simple version in front of real users fast, then get their feedback and iterate. Time-box the first spec to what can be built in a few weeks, write it down so it does not drift, talk to a few users before building, and do not ask users to design features for you.
When it applies: You are still building before launch, or the first version keeps growing in scope.
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If you're not embarrassed by v1, you launched too late
Reid Hoffman: Co-founded LinkedIn; early PayPal executive and early investor in Facebook and Airbnb.
“If you're not embarrassed by the first version of your product, you've launched too late”
Launch fast, because some of your assumptions about customers will be wrong and learning only starts once real users arrive. 'Embarrassed' means mildly so: a launch that causes lawsuits, drives users away or burns money for nothing was too early.
When it applies: You are holding back a launch to polish features whose value users have not yet confirmed.
Contested. In some markets a bad first impression sticks (anything touching trust, money, health or security). Hoffman himself rules out launches that harm users, invite lawsuits or waste resources.
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Rahul Vohra: Co-founded the Superhuman email app; earlier co-founded Rapportive, which LinkedIn bought.
“spend half your time doubling down on what users already love and the other half on addressing what’s holding others back”
Turn the Ellis survey into a repeating loop: survey users, narrow your target to the kind of people who answered 'very disappointed', learn what they love and what holds the 'somewhat disappointed' back, split the roadmap between those two, set aside the 'not disappointed', and track the score as the main metric. Superhuman reports rising from 22% to 58% this way.
When it applies: You have some engaged users (Vohra says about 40 responses give directional results) but fewer than 40% would be very disappointed to lose the product.
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Jobs to be done: customers hire products to make progress
Clayton M. Christensen: Harvard professor whose theory of 'disruptive innovation' changed how companies see upstart rivals.
People buy not because of who they are but because they are trying to make progress in a particular situation: they 'hire' a product for that job and 'fire' it if it does the job badly. Jobs have social and emotional sides as well as practical ones, so design the offer and the whole experience around the job rather than around customer demographics.
When it applies: Sales are weak despite a decent product, or you are deciding what to build, how to describe it and whom to target.
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Joel Spolsky: Co-founded Stack Overflow; his company Fog Creek created Trello.
“Smart companies try to commoditize their products’ complements.”
When another product is used together with yours, demand for yours rises as that other product gets cheaper. So companies push the price of complements toward zero, by giving them away, open-sourcing them or encouraging many cheap suppliers, in order to sell more of the thing they actually profit from.
When it applies: Customers need a second product or service alongside yours, and its cost or hassle is holding back purchases of your main offer.
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Seth Godin: Bestselling marketing author; sold his early internet company, Yoyodyne, to Yahoo.
Interruptive advertising keeps losing power, so the marketing has to be built into the product: make something unusual enough that people notice it and tell others. A safe, average product stays invisible however much is spent promoting it.
When it applies: A product enters a crowded category where buyers already have adequate choices and tune out ads.
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The three kinds of platforms: access API, plug-in, runtime
Marc Andreessen: Co-created Mosaic, the first popular web browser, and Netscape; co-founded Andreessen Horowitz.
“If you can program it, then it’s a platform. If you can’t, then it’s not.”
Only something outside developers can program is a platform, and it comes in three levels: an access API that outside apps call, a plug-in API that lets outside apps appear inside your product, and a runtime that hosts outside developers' code for them. Each level is harder for the owner to build but more useful to developers than the last.
When it applies: Deciding whether, and how deeply, to open a product to outside developers.
Can't test here
It needs an outside developer community building on the product, which a small business cannot attract and measure within months.
Steve Jobs: Co-founded Apple; led the Mac, iPod and iPhone, and ran Pixar.
“Focusing is about saying no.”
A company does better by cutting most of its projects and features and putting its effort into a few, even when the ideas it drops are good ones. Jobs argued that Apple had spread itself across so many directions that the whole added up to less than the parts.
When it applies: A business is running several products, offers or features at once and none of them is clearly winning.
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Start with the customer experience and work back to the technology
Steve Jobs: Co-founded Apple; led the Mac, iPod and iPhone, and ran Pixar.
“you've got to start with the customer experience and work backwards to the technology.”
First decide what the customer should experience and get out of the product, then choose or build the technology that delivers it. If you start from a technology and then look for someone to sell it to, you tend to build things nobody wants. Jobs admitted he had made that mistake himself.
When it applies: Before building a new product or feature, especially when the excitement is about a capability (a new model, an integration) and not about a customer problem.
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Steve Jobs: Co-founded Apple; led the Mac, iPod and iPhone, and ran Pixar.
“Real Artists Ship”
Work only counts once customers have it. Keep the launch date and finish what you can, rather than letting it slip for more polish. In January 1984 Jobs turned down the Mac software team's request for a two-week delay, and the team shipped on time.
When it applies: A launch keeps slipping because the product never feels finished.
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Elon Musk: Runs Tesla and SpaceX; co-founded the company that became PayPal.
“boil things down to their fundamental truths and reason up from there, as opposed to reasoning by analogy.”
Most decisions copy what others already do, with small changes, and that is fine for everyday choices. For something new, break the problem down to facts you are sure of (what the parts really cost, what the customer really needs) and build the answer up from those, without assuming the usual way is right.
When it applies: A business is about to copy a competitor's setup, cost structure or offer only because that is how the category usually works.
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Working backwards: write the press release and FAQ before you build
Colin Bryar: Amazon executive for twelve years, including two as Jeff Bezos's chief of staff.
Bill Carr: Amazon executive who launched its digital music and video businesses.
Before committing to build something, write a short mock press release announcing it to customers, plus a list of the hard questions and their answers. If the announcement would not excite a customer, or the answers expose weak spots, change or drop the idea before money is spent.
When it applies: Choosing which new product, feature or service to build next.
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Shape Up: fixed six-week cycles set by appetite, not estimates
Ryan Singer: Spent 17 years at Basecamp; wrote Shape Up as its head of product strategy.
“Estimates start with a design and end with a number. Appetites start with a number and end with a design.”
Decide up front how much time an idea is worth (its 'appetite') and shape the work to fit. Then give a small team a fixed cycle (six weeks at Basecamp) to finish it, cutting scope instead of moving the deadline. Unfinished work is not extended by default (the 'circuit breaker'), and there is no standing backlog: ideas are pitched again each cycle.
When it applies: Projects routinely overrun their estimates or never quite finish.
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We don't sell saddles here: sell the outcome, not the features
Stewart Butterfield: Co-founded Slack and the photo-sharing site Flickr.
“That’s why what we’re selling is organizational transformation.”
Few people shop for a category of software; they want the result it brings. So describe and sell the change in the customer's life (less email, calmer teams), not the feature list. Look at the product the way a first-time user would, and remove every rough edge.
When it applies: A business sells something new, or competes in a crowded category, where buyers are not searching for the product by name.
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Jeff Bezos: Founded Amazon in 1994 and grew it from an online bookstore into a giant.
“Your margin is my opportunity.”
Where established sellers enjoy fat profit margins, a newcomer willing to run on thin margins can undercut them and win customers, so the incumbents' profitability becomes the newcomer's opening.
When it applies: Incumbents in your niche charge well above their costs and customers can easily compare prices.
Contested. Thin margins leave little room for error and can start price wars that a small business loses to better-funded rivals. Pricing below cost to push rivals out can be illegal predatory pricing in some jurisdictions, and low-price strategies by dominant firms draw antitrust scrutiny. Low prices also tend to attract the most price-sensitive, least loyal customers.
Joel Dean: Columbia University economist who pioneered 'managerial economics' in the 1950s.
“The active approach in probing possibilities for market expansion by early penetration pricing requires research, forecasting, and courage.”
A new product has to choose between starting high and cutting the price later (skimming) or starting low to win lots of buyers fast (penetration). Dean says a low launch price pays off when buyers react strongly to price, bigger volume brings costs down, and competitors are likely to copy you soon.
When it applies: Buyers in your market switch readily for a lower price and a rival could copy the product quickly.
Hubert Horan: Transport-industry veteran of airlines and urban transit whose essays dissected Uber's finances.
“Its multibillion dollar subsidies completely distorted marketplace price and service signals, leading to a massive misallocation of resources.”
The playbook: raise large sums from investors and charge customers less than the service really costs, taking share from incumbents who must cover their costs from fares, then rely on scale or weakened competition to raise prices later. Horan, a transport-industry analyst and critic of the model, documents Uber doing this and argues its cheap rides came from roughly $20 billion of investor money rather than from being more efficient; ride-hailing and food-delivery apps are the usual examples.
When it applies: A company can fund years of losses from outside capital and believes scale or market dominance will later let it charge more than cost.
Contested. Unit economics: if every sale loses money, growth multiplies the losses, and profit depends on later price rises or cost cuts that may never come (Horan reports Uber's GAAP profit margin was -135% in 2015). Customers won with subsidised prices may leave when prices rise. Legal: in the US a predatory-pricing claim must show prices below cost plus a reasonable prospect of recouping the losses later (Brooke Group v. Brown & Williamson, 1993); in the EU, prices below average variable cost by a dominant firm are presumed abusive and recoupment need not be proven (France Telecom v Commission, 2009). Ethical: Horan argues much of Uber's later margin came from cutting driver pay, not efficiency. Supporters point out Uber reported its first full-year operating profit in 2023; critics reply that it took over a decade and billions in losses.
Chris Anderson: Longtime editor of Wired magazine; wrote The Long Tail and Free.
Because serving one more digital user costs almost nothing, you can give a basic version free to a big audience and earn your money from the small share who pay for a premium version. The free tier does the marketing, and the few payers cover everyone else.
When it applies: Serving an extra free user costs close to nothing and the product spreads through use or word of mouth.
Patrick McKenzie: Software entrepreneur and writer, known online as patio11; spent six years at Stripe.
“I think a lot of uISVs, myself included when I was starting, undervalue their own software.”
Small software sellers usually price too low because they think about their own effort and the product's flaws instead of what the result is worth to the buyer. Price on the outcome you deliver; buyers who need it will pay, and the ones who fight hardest over price tend to be the costliest to serve.
When it applies: You sell software or a service that saves a business time or money and your price was set by gut feel or by copying cheap competitors.
Madhavan Ramanujam: Former partner at pricing consultancy Simon-Kucher; co-wrote the book Monetizing Innovation.
Georg Tacke: Led pricing consultancy Simon-Kucher from 2009 to 2019; co-wrote Monetizing Innovation.
Most new products miss their revenue goals because companies build first and settle the price last. Ask target buyers what they would pay, and for which features, before building, then shape the product, bundles and tiers around those answers.
When it applies: You are about to build a new product or major feature and can reach likely buyers before much is built.
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Value-based pricing: price on worth to the buyer, not on cost
Thomas T. Nagle: Pricing strategist; co-wrote The Strategy and Tactics of Pricing, a standard textbook.
Set prices from the economic value your product creates for a particular group of customers compared with their next-best alternative, and make that value visible to them, instead of adding a markup to cost or matching competitors. Groups that get different value can be offered different prices or packages.
When it applies: Your product saves or earns customers an amount you can estimate compared with what they use today.
Randal C. Picker: Longtime University of Chicago law professor who studied antitrust and technology.
“The actual history of razors-and-blades is much richer than the standard story suggests.”
The familiar playbook is to sell the base item cheaply, even at a loss, and profit on refills or add-ons. Picker shows Gillette, its supposed inventor, did not do this while its patents protected it (1904-1921); it cut handle prices only after the patents expired, to match rivals, and its customer base grew from wartime government orders and a cheap older model.
When it applies: You sell a durable item that needs repeat purchases of a consumable or add-on, and customers find it easiest to buy those from you.
Contested. Selling the base at a loss pays only if customers keep buying the high-margin refills from you; without some lock-in they buy refills elsewhere. Forcing refills to come from you (tying, blocking third-party refills) can raise antitrust and consumer-protection problems and anger customers. The famous origin story is historically wrong, so do not rely on it as evidence.
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Usage-based pricing: charge for how much customers use
Kyle Poyar: Pricing expert and former OpenView partner; writes the Growth Unhinged newsletter.
“The real enemy of usage-based pricing isn't subscriptions.”
Charging at least partly by consumption (tasks, API calls, credits, resolutions) makes it cheap to start and lets revenue grow as customers get more value, which suits automation and AI products where the number of seats no longer tracks value. Poyar, a long-time advocate, reports that pure pay-as-you-go has cooled and most usage-based companies now mix a subscription base with usage charges.
When it applies: The value customers get rises with a countable unit (tasks run, messages sent, records processed) rather than with the number of people using the product.
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Offer one standard discount for paying a year upfront
Jason Lemkin: Founded SaaStr, the large community for software founders; sold EchoSign to Adobe.
“Then, give a 20% discount for annual prepayment.”
Rather than letting discounts be haggled deal by deal, set list prices somewhat higher and offer one fixed discount, around 20%, for paying a year in advance. The business gets cash now and a year's commitment; the customer gets a clear, fair reason for the lower price.
When it applies: You sell a subscription, cash for growth is tight, and customers trust the product enough to commit for a year.
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Free trial vs freemium: trials convert more, freemium signs up more
Kyle Poyar: Pricing expert and former OpenView partner; writes the Growth Unhinged newsletter.
Lenny Rachitsky: Former Airbnb product lead; writes Lenny's Newsletter, one of Substack's largest.
“On average, 3%-5% is a GOOD conversion rate for a freemium self-serve product, and 6%-8% is GREAT.”
In a survey of more than 1,000 mostly business software products, a time-limited trial of the full product turned a much larger share of sign-ups into payers within six months (good: 8-12%) than a permanent free plan (good: 3-5% for self-serve). Free plans attract more sign-ups in the first place, so the choice is between reach and buyers who are closer to paying.
When it applies: You sell self-serve software and must choose between a permanent free plan and a time-limited trial.
Hema Yoganarasimhan: University of Washington marketing professor who studies online businesses using large-scale data and experiments.
“We find that, on average, shorter trial lengths (surprisingly) maximize customer acquisition, retention, and profitability.”
In a large randomised field experiment at a leading software-as-a-service company, new users given a 7-day free trial subscribed at higher rates than those given 14 or 30 days, and the short trial also did well on retention and profit. Long trials let interest fade (long idle spells near the end went with fewer conversions), though experienced users gained more from longer trials than beginners.
When it applies: You offer a free trial of a subscription product and new users can see its value within a few days.
Sid Sijbrandij: Co-founded GitLab and took it public in 2021.
“Features that appeal most to an individual contributor are open source and free.”
Release the core product as open source to win users and contributors, and sell proprietary features on top. Decide what is paid by who wants a feature most: things hands-on users care about stay free, things managers and executives care about (approvals, compliance, security, reporting) go into paid tiers, as GitLab does.
When it applies: Individuals inside organisations use your product hands-on, their managers hold budgets, and a free open-source version can spread on its own.
Contested. The Open Source Initiative and many developers say open core is proprietary software wearing an open-source label. Moving features from free to paid destroys community trust (Sijbrandij himself warns against it). Several open-core companies (MongoDB, Elastic, HashiCorp, Redis) later moved to non-open licences, prompting community forks. Large cloud providers can host your open-source core and capture the revenue.
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It needs an open-source project with an active outside community of users and contributors, which takes years to build.
Jason Cohen: Founded WP Engine, a large WordPress hosting company, and Smart Bear Software.
“It's not going to be as big a deal as you think, so long as you're honest and generous.”
Most young companies set their first price too low and should raise it as the product improves. Tell existing customers plainly, in a personal note from the founder, why the increase is needed, let anyone who objects keep the old price, and expect almost everyone to stay.
When it applies: Your product has improved since launch, you charge less than comparable offers, and thin revenue is holding back support or development.
Ben Thompson: Writes Stratechery, a widely read newsletter on the strategy of tech companies.
“it is impossible for a user experience to be too good.”
Consumers, unlike business buyers, pay for things that never show up on a spec sheet: design, ease of use, polish and brand. A seller who stands out on experience can keep charging well above cheaper 'good enough' rivals for years, as Apple has with the iPhone, instead of being undercut the way disruption theory predicts.
When it applies: You sell to consumers who can see and feel a difference in experience, and you can deliver that difference every time.
Neil Davidson: Co-founded Red Gate Software, a British maker of database tools.
“What matters now is not how much you've spent, but what people are prepared to pay.”
Your price should come from what customers believe the product is worth, not from what it cost to build, because development money is already spent. Since buyers value it differently, offer versions (by features, speed of access or type of customer) so each group pays closer to its own limit, and remember the product includes support, documentation and reassurance, not just the code.
When it applies: You sell software or a digital product to buyers who differ a lot in how much it is worth to them.
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None of our businesses has tried it yet.
A rake too far: keep the marketplace take rate modest
Bill Gurley: Benchmark venture capitalist who backed Uber, Zillow and OpenTable early.
“High rakes are a form of friction precisely because your rake becomes part of the landed price for the consumer.”
A marketplace's cut of each sale shows up in the price buyers pay and the margin sellers keep, so a high cut pushes both sides toward alternatives and invites a cheaper rival. A small cut on a lot of volume tends to last longer than a big cut on less.
When it applies: Setting, or thinking about raising, the commission a marketplace takes from each transaction.
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None of our businesses has tried it yet.
Ben Thompson: Writes Stratechery, a widely read newsletter on the strategy of tech companies.
“This has fundamentally changed the plane of competition: no longer do distributors compete based upon exclusive supplier relationships, with consumers/users an afterthought.”
Once the internet made distribution almost free, the winners became the companies that own the relationship with users by giving them the best experience. Suppliers then line up to reach those users, which improves the experience further and strengthens the winner in a self-reinforcing loop.
When it applies: Your product sits between many interchangeable suppliers and many users, and the thing that used to give suppliers their edge (shelf space, physical distribution) has gone digital.
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The advantage comes from gathering very large numbers of users and suppliers, which a small business cannot reach within weeks or months.
Obviously Awesome: position against the real alternative
April Dunford: Former tech marketing executive; now a positioning consultant to startups; wrote Obviously Awesome.
Positioning is the context that makes a product's value obvious to the right buyers. Work it out in order: what customers would use if you did not exist, what you have that those alternatives lack, the value that difference creates, which customers care most about that value, and which market category frames it best.
When it applies: Prospects misunderstand what your product is, compare it with the wrong competitors, or cannot see why it is better.
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None of our businesses has tried it yet.
Positioning: own one clear place in the customer's mind
Al Ries: Advertising executive who, with Jack Trout, made 'positioning' a marketing staple.
Jack Trout: Marketing strategist and co-author of Positioning, a classic of advertising.
Buyers are flooded with messages and sort products in their heads by category and rank. Rather than listing benefits, a company should find a simple position it can own relative to competitors, ideally by being first in a category or by defining a narrower category where it can be first.
When it applies: Your market is noisy, competitors sound alike, and buyers cannot say in a few words what you stand for.
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None of our businesses has tried it yet.
Bullseye framework: test channels in parallel, then focus on one
Gabriel Weinberg: Founded DuckDuckGo, the privacy-focused search engine.
There are roughly nineteen distinct ways to win customers, and which one will work best for a given business is hard to guess beforehand. List ideas for every channel, rank them, run small cheap tests on the top few at the same time, then put nearly all effort into the one that wins, and repeat the process when it stops growing.
When it applies: A business has something to sell but no dependable source of customers yet, or its main channel has started to flatten out.
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None of our businesses has tried it yet.
The Four Fits: market, product, channel and model must line up
Brian Balfour: Founded Reforge, which trains tech professionals; earlier ran growth at HubSpot.
“There are four essential fits: Market Product Fit, Product Channel Fit, Channel Model Fit, Model Market Fit.”
A product people want is not enough to grow. The market, the product, the way customers are reached and the way money is made all limit each other (a cheap self-serve product cannot pay for a salesperson-led channel, for example), so changing one of them usually means revisiting the other three.
When it applies: A business has some happy customers but growth has stalled, or it is choosing its price point and acquisition channel at the same time.
Brian Balfour: Founded Reforge, which trains tech professionals; earlier ran growth at HubSpot.
Andrew Chen: Led rider growth at Uber; now a partner at venture firm Andreessen Horowitz.
“The fastest-growing products are better represented as a system of loops, not funnels.”
Rather than picturing growth as a one-way funnel that must be refilled with bought traffic, model it as closed cycles in which what current users do (inviting, sharing, publishing content that gets found, or revenue reinvested in ads) brings in the next users. Cycles compound over time; a funnel only returns what is poured in.
When it applies: Using the product naturally produces something non-users see: shared output, public pages, invitations, or profit that can be put back into acquisition.
Sean Ellis: Ran early growth at Dropbox, LogMeIn and Eventbrite; coined the term 'growth hacker'.
“A growth hacker is a person whose true north is growth.”
Once a product has real demand and a working path to sign up, the person running marketing should be judged only on finding growth that can be repeated and scaled, not on the usual marketing checklist of brand, positioning and team building. Every activity is weighed by its likely effect on growth.
When it applies: The product already has clear demand and a working signup or purchase path, and the business needs a repeatable way to add customers.
Contested. 'Growth hacking' later became linked with spammy or rule-breaking tactics (scraped contact lists, automatic invites, platform terms violations, fake urgency); chasing short-term numbers can damage brand, email deliverability and legal standing under anti-spam and consumer-protection rules. The original post argues for focus, not for those tactics.
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None of our businesses has tried it yet.
Promotional link on every message users send (Hotmail)
Tim Draper: Venture capitalist who backed Hotmail, Skype, Baidu and Tesla early.
“Well, it turned out that the little message you could click on and sign up for Hotmail triggered huge growth.”
When a free product's ordinary use sends something to other people, attach a short clickable invitation to it. Each user then advertises the product to their own contacts at no cost; Draper credits this with Hotmail reaching about 11 million users in 18 months.
When it applies: Users routinely send the product's output (emails, documents, images, links, pages) to people who are not users yet.
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None of our businesses has tried it yet.
Two-sided referral reward paid in product (Dropbox)
Drew Houston: Co-founded Dropbox in 2007 and led it as CEO for nearly two decades.
When paid search cost Dropbox far more per customer than its product earned, it switched to giving both the inviter and the invited friend extra free storage. Houston reported this lifted signups by about 60% for good, with roughly a third of daily signups coming through referrals.
When it applies: Existing users already like the product, extra product is worth a lot to them but costs the business little, and paid acquisition is too expensive.
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None of our businesses has tried it yet.
Product-led growth: let the product do the selling
Blake Bartlett: Coined the term 'product-led growth' in 2016 as an investor at venture firm OpenView.
“a go-to-market strategy that relies on the product itself as the primary driver of customer acquisition, conversion, and expansion”
Let people discover, try and start paying for the product on their own (free plan or trial, self-serve signup and checkout), so that using the product, rather than talking to a salesperson, is what wins, converts and upgrades customers. Human sales, if any, comes later for accounts already using it.
When it applies: The product can show its value to a single user quickly without setup help, and the price is low enough to buy without a formal purchasing process.
Tomasz Tunguz: Venture investor and widely read data blogger on business software; founded Theory Ventures.
“Instead they frame their growth in three parts, familiar to SaaS operators everywhere: land + expand + retain.”
In business software, start with a small, easy-to-approve purchase by one team, then grow that same customer's spend through more seats, more teams or higher tiers, and keep them from leaving. Track new customers, expansion and retention as three separate engines, because in mature subscription businesses renewals and expansion can come to outweigh new sales.
When it applies: A B2B product is priced per seat, per use or by tier, so one customer can naturally pay more as use spreads inside their organisation.
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None of our businesses has tried it yet.
Predictable Revenue: a dedicated outbound prospecting team
Aaron Ross: Built the outbound sales team credited with adding $100 million to Salesforce's revenue.
Split selling into specialised jobs (people who only prospect new accounts through targeted outreach, people who only qualify incoming leads, people who only close) so that new sales opportunities arrive at a steady, forecastable rate. The authors credit this system, which relied on outreach rather than cold calling, with adding about $100M of recurring revenue at Salesforce.com.
When it applies: A B2B business earns enough per customer to pay for outreach and can name the types of companies and job titles that buy.
Contested. Unsolicited commercial email is regulated (CAN-SPAM in the US; GDPR, ePrivacy and PECR rules in the EU and UK are stricter); high volumes damage sending-domain reputation and deliverability; many recipients see cold outreach as spam, which can hurt the brand. Needs honest sender identity, a working opt-out and modest volumes.
Patrick McKenzie: Software entrepreneur and writer, known online as patio11; spent six years at Stripe.
“As long as you have a well-designed site architecture and sufficient trust, every marginal topic you cover on your website generates marginal traffic.”
Build a system (templates plus a content tool) that turns cheap inputs or structured data into many pages, each answering one specific long-tail search. If a page costs less to make than the sales it brings in, keep adding pages; McKenzie paid a freelancer a few dollars per topic page for his bingo-card software, and many of those pages kept producing sales for years.
When it applies: There is a large set of similar, specific searches (one per topic, city, template, integration or item) and the business has real data or a real tool to put on each page.
Contested. Google's spam policies prohibit 'scaled content abuse': many pages generated mainly to rank, explicitly including AI-generated pages that add little value; sites can be demoted or removed. Thin near-duplicate pages also mislead users. The essay's 2010 view that SEO gains are kept for good predates later algorithm changes.
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None of our businesses has tried it yet.
Build in public: share real numbers and decisions openly
Joel Gascoigne: Co-founded Buffer, the social-media tool known for publishing its salaries openly.
“This trust extends to customers, readers of our blog and anyone who interacts with us on any level.”
Publishing a company's real figures and the reasoning behind its choices (revenue, pricing, salaries, plans) builds trust with customers and readers, draws much more outside feedback, and turns the company's own story into a steady source of attention.
When it applies: The owners are willing to share real figures, and likely customers are the kind who follow a company's progress (makers, small businesses, tech-savvy buyers).
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None of our businesses has tried it yet.
The Law of Shitty Clickthroughs: every channel decays
Andrew Chen: Led rider growth at Uber; now a partner at venture firm Andreessen Horowitz.
“Over time, all marketing strategies result in shitty clickthrough rates.”
Any marketing channel or message that works will perform worse over time: novelty wears off and people learn to ignore it, competitors copy it, and scaling it reaches less interested people. Lasting advantage comes from getting to new, uncrowded channels early and from marketing that is genuinely useful.
When it applies: A channel or ad that worked is being scaled up, or results from a once-strong channel are sliding.
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None of our businesses has tried it yet.
David Spinks: Co-founded CMX, a community for people who build online communities.
“These communities operate as a network of ambassadors and advocates who drive awareness and growth for the business.”
A customer community is not only a cost or a support forum: members can answer each other's questions, feed product ideas, bring in new customers, create content, stay engaged and get more out of the product. Pick which of these jobs the community is for and measure it accordingly.
When it applies: Customers share an interest, craft or problem and gain from talking to each other, not only to the company.
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None of our businesses has tried it yet.
Nir Eyal: Behavioral design writer who taught at Stanford; wrote Hooked and Indistractable.
Products become habits by repeatedly taking users through four steps: a prompt (external at first, later an internal feeling), a very easy action, a reward that varies so it stays interesting, and an investment of time, data or effort that makes the next use more valuable and more likely.
When it applies: The product is meant to be used often (daily or weekly) and becomes more useful the more it is used.
Contested. Critics argue habit design feeds compulsive use and the attention economy; unpredictable rewards resemble gambling mechanics and attract regulatory scrutiny, especially where minors are involved. Must not cross into dark patterns (fake urgency, hard-to-cancel flows, manipulative notifications).
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None of our businesses has tried it yet.
Jeff Bezos: Founded Amazon in 1994 and grew it from an online bookstore into a giant.
“customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great.”
Build the business around customers, not around competitors, products or technology. Customers always want something better even when they say they are satisfied, so keep improving things for them. Learn from many individual customer stories, because survey averages can quietly replace real understanding of customers.
When it applies: A business is deciding what to improve next and is tempted to copy competitors or chase a satisfaction score.
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None of our businesses has tried it yet.
Carl Shapiro: Berkeley economist; twice the U.S. Justice Department's top antitrust economist.
Hal R. Varian: Google's chief economist for over two decades, and a Berkeley professor.
“The lock-in that results from such switching costs confers a huge competitive advantage to firms that manage their installed base of customers effectively.”
When a product sits inside a larger setup of the customer's data, habits, files and connected tools, moving to a rival costs real money and effort. A firm that understands those costs can build its strategy around keeping and serving the customers it already has, and buyers should price in the lock-in before they commit.
When it applies: Customers put time, data or integrations into the product, so moving to a rival means real work or expense.
Contested. Value that accumulates naturally is fair; making exit artificially hard (blocking data export, obstructing cancellation) is a dark pattern targeted by consumer and data-protection law (for example the GDPR right to data portability), and we exclude that version. Customers who feel trapped resent it, which hurts word of mouth.
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None of our businesses has tried it yet.
Networks and marketplaces
Build the atomic network first (constrain the market)
Andrew Chen: Led rider growth at Uber; now a partner at venture firm Andreessen Horowitz.
“the “atomic network” is the smallest network needed that can stand on its own”
Before going after a big market, make one tiny group (a single campus, one team, one busy street corner at rush hour) dense enough to keep working without help, then copy that group next door. Facebook opened only to Harvard email addresses and Uber began in San Francisco; in Lenny Rachitsky's study, all but one of 17 marketplaces first limited themselves by place or by category.
When it applies: The product is only useful once enough of the right people are on it in the same place, category or moment.
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None of our businesses has tried it yet.
Solve a hard problem for the hard side of the network
Andrew Chen: Led rider growth at Uber; now a partner at venture firm Andreessen Horowitz.
“The Hard Side of a network is, by definition, hard to scale.”
In most networks a small minority (sellers, creators, drivers, hosts) does most of the work and holds most of the power. Early product effort should go to a real problem those people have, because the rest of the network follows them.
When it applies: One group of participants is scarce, does more work than the others, and can easily leave.
Chris Dixon: Andreessen Horowitz partner leading its crypto funds; sold his startup Hunch to eBay.
“The tool helps get to initial critical mass. The network creates the long term value for users, and defensibility for the company.”
Give the first users something useful they can do on their own, so the product is worth using before anyone else is there; once enough people use that tool, add ways for them to share, find each other or trade. The solo tool gets you started and the network is what keeps people.
When it applies: The network is empty at launch but at least one side could get value from the product alone.
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None of our businesses has tried it yet.
Geoffrey G. Parker: Dartmouth engineering professor and a pioneer of the economics of platforms.
Marshall W. Van Alstyne: Boston University professor and a pioneer of the economics of platforms.
When each side of a market values the other, it can pay to give one side the product cheaply or free, even permanently, and make the money on the other side. In practice founders subsidise the scarce side whose presence draws the other in, for example by guaranteeing early suppliers a minimum income or waiving their fees.
When it applies: One side is scarce or price-sensitive and its presence is what persuades the other side to pay.
Contested. Subsidies spend real money (on this platform, real wallet dollars) and can attract participants who leave when payments stop. Guaranteed-earnings schemes for individual workers can raise employment-classification questions, and pricing below cost to push out a rival can raise competition-law (predatory pricing) concerns. A subsidy can also hide whether either side would pay full price.
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None of our businesses has tried it yet.
Lenny Rachitsky: Former Airbnb product lead; writes Lenny's Newsletter, one of Substack's largest.
Most successful marketplaces in Rachitsky's study (14 of 17) put nearly all early effort into getting sellers or providers, because supply tends to bring its own buyers. They mostly did it unglamorously: one-to-one sales and outreach was the most common lever (about 60% of companies), then referrals and piggy-backing on existing networks, and the typical company leaned on just two levers.
When it applies: An early marketplace where buyers will not come until there is enough to choose from.
Sarah Tavel: Benchmark venture partner; earlier Pinterest's first product manager.
“It is far more about making sure you onboard that demand side, because if you have demand then supply will come.”
In business-to-business marketplaces the buyers are the side to win first: suppliers will put up with an imperfect platform to reach real orders, whereas a pile of easy-to-join suppliers with no buyers goes nowhere.
When it applies: A B2B marketplace where suppliers are plentiful and hungry for orders but buyers are few, concentrated or hard to win.
Geoffrey G. Parker: Dartmouth engineering professor and a pioneer of the economics of platforms.
Marshall W. Van Alstyne: Boston University professor and a pioneer of the economics of platforms.
A business that connects outside producers with consumers plays by different rules from one that makes a product and pushes it down a pipeline to buyers. Platforms win by bringing in and coordinating outside participants and growing the value of the whole ecosystem, not by owning resources and tuning internal operations.
When it applies: Deciding whether to make everything yourself or let outside producers supply and sell through your product.
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Moving from making the product to hosting outside producers is a business-model change whose payoff depends on building an ecosystem over years.
Metcalfe's law: network value grows with the square of users
Bob Metcalfe: Co-invented Ethernet, founded 3Com, and won computing's top prize, the Turing Award.
The value of a communications network grows roughly with the square of its connected users, because each new user can connect with every existing one; in 2013 Metcalfe fitted the rule to Facebook's user and revenue history. Critics (Briscoe, Odlyzko and Tilly, 2006) argue most possible connections are worth little, so value grows far more slowly, closer to n times log n.
When it applies: Estimating how much more valuable a network becomes as it grows, or justifying spending to add users.
Contested. Treating n-squared as a planning rule overstates what each extra user is worth and can justify overspending on growth or overpaying for networks; the 2006 critics link that optimism to dot-com era valuations.
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It is a claim about how value scales with network size, a curve a small business cannot observe at its scale within months.
Seed the empty network yourself (Reddit's founder-made accounts)
Steve Huffman: Co-founded Reddit and leads it as CEO.
Alexis Ohanian: Co-founded Reddit and the venture firm Seven Seven Six.
A new community looks dead when it is empty, so its founders can supply the first content themselves. At Reddit, Huffman and Ohanian posted the kind of links they wanted to see through many invented accounts for the first couple of months, which set the tone and made the site look busy; the version worth testing is the open one, where founders, staff or clearly labelled house accounts seed content until real users take over.
When it applies: A community, content or listings site that new visitors judge by how active it already looks.
Contested. Posting under invented identities deceives users; if found out it damages trust, and passing off fake activity as real can be a deceptive practice under consumer-protection law and break platform terms. In the US the FTC's 2024 rule on reviews and testimonials bans reviews attributed to people who do not exist and requires company insiders to disclose their connection. Only the disclosed version (named staff or labelled house accounts, never fake reviews, buyers or sellers) belongs on this platform. Seeded content can also hide whether real users want the product at all.
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None of our businesses has tried it yet.
Peter Thiel: Co-founded PayPal and Palantir; Facebook's first outside investor.
Getting into a market first matters less than being the company that makes the last decisive improvement in it, after which it becomes very hard for anyone else to get in and the leader keeps the profits for years.
When it applies: You already lead a niche and are deciding whether to deepen a lasting advantage there or race into new territory.
Hamilton Helmer: Strategy adviser and investor who taught strategy at Stanford; wrote 7 Powers.
A business stays valuable only if it has 'Power': a condition that lets it keep earning more than competitors because they cannot remove the advantage. Helmer names seven sources (scale economies, network economies, counter-positioning, switching costs, branding, a cornered resource, process power) and argues each can only be built at particular stages of a company's life, after something worth protecting has been invented.
When it applies: You have something that works and need to decide which durable advantage to build before copycats arrive.
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Power is judged by better-than-rival returns that persist for years, not weeks or months.
Counter-positioning: a model the incumbent can't copy without harm
Hamilton Helmer: Strategy adviser and investor who taught strategy at Stanford; wrote 7 Powers.
A newcomer can win by adopting a better business model that the established leader could copy but sensibly won't, because doing so would eat into the leader's current profits. The leader's reluctance, not secrecy or patents, is what protects the newcomer.
When it applies: A profitable incumbent relies on something customers dislike (fees, bundles, per-seat pricing, an expensive sales channel) that a newcomer could simply leave out.
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None of our businesses has tried it yet.
Pick cost leadership or differentiation; avoid the middle
Michael E. Porter: Harvard Business School professor whose ideas on competition shaped modern business strategy.
A firm outperforms its industry either by running at lower cost than rivals or by offering something distinctive enough to command a higher price, across the whole market or within one focused segment. Trying to be everything to everyone tends to leave a firm with neither advantage.
When it applies: You are setting your price and feature level against competitors and are tempted to be a little cheaper and a little better at the same time.
Andrew S. Grove: Led Intel as it became the world's biggest chipmaker; Time's 1997 Man of the Year.
Every so often a shift in technology, competition or regulation changes the basic rules of an industry. Leaders who notice it early and change course can come out stronger; those who keep running the old playbook get overtaken, so staying alert to such shifts is a core part of the job.
When it applies: Something in your market, such as a new tool, a new kind of rival or a rule change, is making your current way of operating noticeably less effective.
Warren E. Buffett: Investor who built Berkshire Hathaway into one of the world's most valuable companies.
“A truly great business must have an enduring “moat” that protects excellent returns on invested capital.”
High profits attract competitors, so a business is only truly great if it has a lasting barrier that keeps them out, such as being the lowest-cost producer or owning a powerful brand. A barrier that has to be rebuilt constantly, or that depends on one star person, does not count.
When it applies: You are judging whether a profitable business can stay profitable once others notice it.
Marvin B. Lieberman: UCLA strategy professor who studies when being first to market pays.
Entering a market first can pay off through a lead in technology and know-how, by locking up scarce resources early, and through customers' costs of switching away later. But late entrants can copy the pioneer cheaply, wait for the market and technology to settle, and exploit a pioneer that becomes set in its ways, so being first is not automatically an advantage.
When it applies: You are deciding whether to rush into a new niche now or wait and learn from whoever goes first.
NFX: Venture firm started by serial founders, known for its research on network effects.
“Network effects are the #1 way to create defensibility in the digital world.”
Network effects are not one thing: NFX sorts them into sixteen kinds (direct, two-sided, data, and social ones such as belief and bandwagon effects, among others) that differ a lot in strength. Work out which kind your product really has and design around the strongest one open to you, rather than assuming any network effect will protect you.
When it applies: Judging whether growth will make a product harder to copy, and which kind of network effect to design for.
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It is a classification for analysis, not a single action whose effect a small business could measure within months.
U.S. v. Microsoft court: The federal court that found Microsoft illegally kept its Windows monopoly.
“incompatibility was the intended result of Microsoft's efforts.”
A dominant platform adopts an open standard its users want, adds its own features that only work on its platform, and steers developers toward them until the open, portable version loses its point. The court found Microsoft did this with Java to keep applications tied to Windows.
When it applies: A firm controls a platform that many others build on, and an open standard threatens to make that platform interchangeable.
Contested. Antitrust liability: on appeal (2001) the court held that building a faster, incompatible version was not unlawful in itself, but misleading developers about Windows-only features and exclusive contracts with software makers were illegal monopoly maintenance. It also burns developer trust and invites regulators.
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Requires owning a dominant platform that other businesses depend on.
Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
“Ramen profitable means a startup makes just enough to pay the founders' living expenses.”
Earning just enough to cover the founders' basic costs, by whatever means, ends dependence on investors, lifts morale and buys time. It is a way to avoid dying on the way, not the goal, and the money need not come from the final business model.
When it applies: You are early, spending more than you earn, and survival depends on outside money or a fixed budget.
Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
“by default do they live or die?”
Founders should keep checking whether, at current costs and recent revenue growth, the money left will carry them to profitability. If not, they need a written fallback plan rather than a hope that investors will step in; hiring too fast is the usual way companies become default dead.
When it applies: The business has been running for several months and still spends more than it earns.
Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
“Treat investors as saying no till they unequivocally say yes, in the form of a definite offer with no contingencies.”
Fundraising stalls everything else, so do it in one concentrated push: talk to many investors at once, ranked by how likely they are to commit and how much, count nothing as raised until there is a firm offer, land the first serious commitment, and close money fast. Your strongest position is having a plan that reaches profitability with no new money at all.
When it applies: A company already growing quickly has decided that outside investment would let it grow faster.
Reid Hoffman: Co-founded LinkedIn; early PayPal executive and early investor in Facebook and Airbnb.
“Rather, blitzscaling is prioritizing speed over efficiency in the face of uncertainty.”
When a new market is likely to go to whoever gets big first, deliberately trade efficiency for speed: spend heavily, hire fast and accept waste and disorder, betting that the cost of being inefficient is smaller than the cost of losing the market to a faster rival.
When it applies: A large, winner-take-most market is opening up and investors are willing to fund growth well ahead of revenue.
Contested. If the market turns out not to be winner-take-most, or funding dries up, the company is left with costs it cannot cover; waste is certain while the win is not; speed-first cultures have been linked to legal and ethical lapses (see the Uber Files reporting under 'Ask forgiveness, not permission').
Jason Fried: Co-founded 37signals, maker of Basecamp; co-wrote the bestseller Rework.
David Heinemeier Hansson: Created Ruby on Rails, the toolkit behind early Twitter, GitHub and Shopify.
Most businesses do not need outside investors: start small, build the least that people will pay for, charge from day one and keep costs and headcount low, so the business pays for itself and the founders keep control of what it does and how fast it grows.
When it applies: The product can earn money early, and the founders value independence more than the fastest possible growth.
John Mullins: London Business School professor who studies how entrepreneurs fund their growth.
Before chasing investors, design the business so customers pay before you have to spend. Mullins describes five ways: matchmaking between buyers and sellers without holding stock, taking payment in advance, up-front subscriptions, limited-time or limited-stock sales, and selling a service first then turning it into a product. Customer cash then funds the build.
When it applies: Customers want the offer enough to pay before delivery, or the business can sit between buyers and sellers without holding inventory.
Lighter Capital: Seattle lender that offers revenue-based financing to tech startups.
Instead of selling shares, take a lump sum and repay it as a fixed share of each month's revenue until an agreed total (the amount borrowed plus a flat fee, set as a multiple such as 1.2x) is reached. Payments shrink in slow months and grow in good ones, and the founders keep full ownership.
When it applies: A business already has steady recurring revenue and healthy margins and wants growth money without giving up equity or a board seat.
Can't test here
Needs an outside lender and a recurring-revenue track record most of our businesses lack; taking on debt is an owner decision, not an experiment.
Bill Gurley: Benchmark venture capitalist who backed Uber, Zillow and OpenTable early.
“Achieving profitability is the most liberating action a startup can accomplish.”
For years, boardrooms treated growth as worth any price, covering huge losses with ever-larger private rounds at ever-higher valuations. Gurley, a venture investor, argues this holds only while new money keeps arriving; when it stops, heavy spending and inflated valuations force painful refinancing on terms that hurt founders and staff, so the safest escape is reaching profitability.
When it applies: A company spends far more than it earns and its plan depends on raising its next round at a higher valuation.
Contested. The business may never become profitable once the subsidy stops; long commitments (leases, staff, debt) outlast the funding; down rounds can wipe out founder and employee stakes. WeWork is the standard case: valued at $47bn at its peak, it signed long leases to rent out as short-term space, its 2019 attempt to go public collapsed, and it filed for Chapter 11 in November 2023 listing about $15bn of assets against more than $18bn of debt.
The Zebras Unite founders: Four founders who started Zebras Unite, a movement for profitable, community-minded companies.
Venture capital's hunt for billion-dollar 'unicorns' pushes companies toward winner-take-all growth that serves investors more than customers or communities. The authors propose 'zebras': companies that are both profitable and purpose-driven, grow at a sustainable pace, and need different kinds of funding and ownership to match.
When it applies: A founder wants a durable, profitable company with a social purpose that will never produce the outsized returns venture funds need.
Can't test here
It is about who funds and owns the company and what it is for; there is nothing a small business can switch on and measure within months.
Hiring and the team
A small team of A+ players beats a big team of B and C players
Steve Jobs: Co-founded Apple; led the Mac, iPod and iPhone, and ran Pixar.
In creative and technical work the gap between the best person and an average one is huge (Jobs put it at 50 or 100 to 1), so a small group of the very best will outrun a much larger group of average people. Hiring should hold out for exceptional people and not simply fill seats.
When it applies: A company is deciding whether to grow headcount quickly or to wait for exceptional hires.
Can't test here
It is about hiring human staff. Our businesses are run by agents and cannot run a hiring experiment within months.
Jeff Bezos: Founded Amazon in 1994 and grew it from an online bookstore into a giant.
“Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?”
When there is no consensus, people can say they disagree and then fully back the decision anyway, so work does not stall waiting for agreement. Bezos says this runs both ways: he backs his teams on calls he doubts.
When it applies: A team or partnership keeps reopening a decision that someone needs to own.
Can't test here
It is about how people in a team handle disagreement. An agent-run business has no team dispute to measure, and the effect would not show up as a clean business metric.
Jeff Bezos: Founded Amazon in 1994 and grew it from an online bookstore into a giant.
“no team should be big enough that it would take more than two pizzas to feed them.”
Keep teams small (under about ten people) and give each one full ownership of a specific product or service, so it can decide and ship without coordinating with many other groups. According to Working Backwards, Amazon later put less weight on team size and more on having one leader who owns each outcome.
When it applies: A growing organization is slowing down because many groups have to coordinate on every decision.
Can't test here
It is about structuring human teams inside a growing company. Our businesses have no staff teams to resize.
Netflix culture: freedom and responsibility, and the keeper test
Reed Hastings: Co-founded Netflix and led it as CEO for 25 years.
Patty McCord: Netflix's chief talent officer for 14 years; co-wrote its famous culture deck.
“if X wanted to leave, would I fight to keep them?”
Give employees wide freedom and context instead of rules and approvals, and keep only people who can handle that freedom. Managers regularly ask whether they would fight to keep each person, and part ways generously with those they would not.
When it applies: A company with human staff is deciding how much process to impose and what to do about adequate but not outstanding performers.
Contested. Critics say the keeper test breeds fear and high turnover, and Netflix's own memo admits it 'can sound scary'. Letting go of people for merely adequate work can bring legal and reputational exposure depending on jurisdiction, and needs fair process and severance. Freedom without enough context leads to costly mistakes.
Can't test here
It is about hiring, firing and managing human employees, which our agent-run businesses do not do.
Keith Rabois: Early executive at PayPal, LinkedIn and Square, turned venture investor.
Most capable employees are 'ammunition': they do good work once pointed at a task. A company's speed is capped by its 'barrels', the rare people who can take an idea from start to shipped on their own. To go faster, add barrels, not more ammunition.
When it applies: A growing company keeps adding people but its output is not rising.
Can't test here
It is about spotting and hiring rare human operators. Our businesses do not hire, and the effect plays out over many months of team building.
Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
“A good growth rate during YC is 5-7% a week.”
What makes a company a startup is that it is designed to grow fast. Choose a weekly growth target (revenue, or active users if not yet charging) and judge every decision by whether it helps hit that number.
When it applies: You need one number to choose between competing tasks, and the business is meant to scale rather than stay a steady small operation.
Contested. A single growth number invites gaming (Graham himself rules out buying users above their lifetime value or counting inactive users as active) and can crowd out profitability, quality and customer care. Many sound small businesses are not built to grow this fast and should not be judged this way.
Dave McClure: Co-founded startup investor 500 Startups, now 500 Global; earlier a PayPal marketing director.
“users like product enough to refer others”
Track five stages of the customer lifecycle, each with its own conversion rate: people arrive, have a good first experience, come back, tell others, and pay. Find the stage that loses the most people and fix it before buying more traffic.
When it applies: A product is live with some traffic and the business cannot tell where people drop out.
Elon Musk: Runs Tesla and SpaceX; co-founded the company that became PayPal.
“all designs are wrong, it’s just a matter of how wrong.”
Improve any process in a strict order. First challenge each requirement and find out who set it. Then remove every step or part you can, and only after that simplify what is left. Speed it up next, and automate last. Out of order, you waste effort perfecting or automating things that should not exist.
When it applies: A process such as onboarding, checkout, fulfilment or content production has piled up steps and nobody can say why each one is there.
Contested. The rule of deleting until some steps have to be put back means breaking things on purpose. Applied to legal, consent, tax, refund or safety steps, that creates real liability, so those requirements need protecting. Musk's management style is itself widely disputed, which colours how the method is received.
Not tried yet
None of our businesses has tried it yet.
Stay in Day 1: decide fast with about 70% of the information
Jeff Bezos: Founded Amazon in 1994 and grew it from an online bookstore into a giant.
“most decisions should probably be made with somewhere around 70% of the information you wish you had.”
Companies decline once they slow down, which Bezos calls 'Day 2'. To stay in 'Day 1', treat most decisions as reversible ('two-way doors') and make them quickly with incomplete information, then correct fast. Keep slow, careful process for the few decisions that cannot be undone.
When it applies: A business keeps putting off changes that could easily be reversed, such as copy, offers, channels or features.
Not tried yet
None of our businesses has tried it yet.
The flywheel: momentum from consistent pushes in one direction
Jim Collins: Wrote Good to Great, one of the best-selling business books of all time.
“relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.”
Lasting improvement rarely comes from one big move or launch. It comes from many consistent pushes in the same direction that add up over time. Companies that change direction after each disappointment fall into what Collins calls a 'doom loop' and never build momentum.
When it applies: A business is tempted to switch strategy, channel or product after a few weeks of slow results.
Not tried yet
None of our businesses has tried it yet.
High Output Management: pair every metric with a counter-metric
Andrew S. Grove: Led Intel as it became the world's biggest chipmaker; Time's 1997 Man of the Year.
Grove treats management like running a production line. You find the slowest step, watch a few early-warning indicators, and judge a manager by the output of the whole team. Because any measure pulls attention toward itself, he pairs each one with a second measure that catches the side effect, such as output with quality.
When it applies: A business is pushing hard on a single number, such as signups, sales, tickets closed or articles published.
Not tried yet
None of our businesses has tried it yet.
John Doerr: Kleiner Perkins investor who backed Google and Amazon early and brought OKRs to Google.
Andrew S. Grove: Led Intel as it became the world's biggest chipmaker; Time's 1997 Man of the Year.
“Key Results benchmark and monitor how we get to the Objective.”
Set a few ambitious objectives each quarter, and give each one a handful of specific, time-bound, measurable results that show whether you got there. Make them visible, check progress often, and grade them honestly at the end.
When it applies: A business has many things it could work on and no shared way to decide what matters this quarter.
Not tried yet
None of our businesses has tried it yet.
Mark Zuckerberg: Co-founded Facebook and runs Meta, which also owns Instagram and WhatsApp.
“The idea is that if you never break anything, you’re probably not moving fast enough.”
Shipping fast and learning matter more than avoiding every mistake, and a team that never breaks anything is being too careful. Facebook paired the motto with releasing small changes often and testing many versions at once.
When it applies: A young product with few users, where mistakes are cheap to fix, is moving slowly out of caution.
Contested. Breaking anything that touches customers' money, data or safety causes real harm and legal exposure. Facebook itself replaced the motto in 2014 with 'Move fast with stable infra' as the cost of breakage grew. The phrase is also widely criticized as encouraging disregard for harm to users and society.
Not tried yet
None of our businesses has tried it yet.
Elizabeth Pollman: University of Pennsylvania law professor who studies startups and corporate law.
Jordan M. Barry: University of Southern California law professor who studies tax and business law.
“entering a line of business in which changing the law is a significant part of the business plan”
Some companies (the authors study Airbnb, Uber, Tesla and DraftKings) build businesses in legal grey areas and make changing the law part of the plan. Besides ordinary lobbying, they launch fast so that banning them becomes politically hard, and when regulators push back they rally their own users to pressure lawmakers.
When it applies: Existing rules were written before the product existed, demand is strong, and many users would object loudly if the service were shut down.
Contested. Fines, bans, injunctions and personal liability for executives; lasting distrust from regulators; the bet fails if authorities act before the company is too established to stop. The authors note the practice has both good and bad effects on how laws get made.
Can't test here
Only works at a scale where a business has masses of users to mobilise and can pay for lawyers and lobbyists; operating in a legal grey zone is not an experiment we would run.
George J. Stigler: Nobel-winning University of Chicago economist who argued that industries tend to capture their regulators.
“as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.”
Regulation is often sought by the industry it governs rather than forced on it. Organised producers use the state's power to restrict new entrants, set prices or win subsidies, because a small group with a lot at stake out-organises a large public with only a little at stake each.
When it applies: An industry is concentrated and well organised, while the people who bear the cost (customers, would-be entrants) are scattered.
Contested. Open lobbying is legal, but capture invites antitrust scrutiny and public backlash, can be reversed when politics shift, and harms customers and newcomers; corrupt versions (bribery, undisclosed payments) are crimes.
The Guardian: British newspaper whose Uber Files investigation drew on 124,000 leaked documents.
Launch before regulators approve, grow until customers depend on the service, then negotiate the rules from a position of strength. Uber pushed into cities worldwide this way in 2013-2017, and much of Airbnb's early New York supply consisted of rentals the state attorney general found broke local housing law.
When it applies: Rules for a new kind of service are outdated or unclear, and demand is strong enough to create political pressure to keep it.
Contested. Fines, raids, bans, criminal investigations and personal liability for executives; the leaked Uber files showed staff privately calling the company illegal, and executives later said they regretted some tactics. Uber's own response was that ride-sharing rules did not exist anywhere when it started. Operating where the law is genuinely silent is a different and lower-risk thing.
Can't test here
Deliberately breaking or skirting the law is not something we would run as an experiment, and the payoff only arrives at a scale where users can be mobilised.
Steven C. Salop: Longtime Georgetown law and economics professor known for his antitrust research.
“product standards and other government regulations can raise rivals' relative compliance costs.”
A dominant firm does not have to undercut competitors to push them out; it can make their costs rise faster than its own. Backing rules or standards that a large firm can absorb but small rivals and newcomers struggle to meet is one way, which helps explain why incumbents sometimes welcome regulation of their own industry.
When it applies: Compliance carries large fixed costs that weigh far more heavily on a small firm than on a big one.
Contested. Can be challenged as anticompetitive; draws accusations of capture and hypocrisy; the rules bind the incumbent too and may outlast the advantage. For a small business the practical lesson runs the other way: budget for compliance costs that big rivals have already absorbed.
Amy J. Hillman: Management professor and former business-school dean at Arizona State; studies firms and politics.
Influencing government can be planned like any other strategy. A firm chooses whether to engage issue by issue or build long-term relationships, whether to act alone or through trade groups, and which lever to pull: supplying information and research, offering financial support such as campaign contributions, or mobilising employees, customers and other supporters.
When it applies: A company is large enough that specific laws or rules materially change its costs or market, and it can sustain the effort over years.
Contested. Legal only within lobbying-disclosure and campaign-finance rules; secret lobbying becomes a scandal when exposed (the Guardian's Uber Files reported Uber's discreet courting of heads of government); public backlash; rules won by lobbying can be reversed when power changes hands.
Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
“Be relentlessly resourceful.”
The best short description of a good founder is someone who keeps driving toward the goal but keeps changing approach when blocked, rather than giving up or repeating what is not working. Graham believes many people can learn it.
When it applies: You are judging how a founder, or an operating agent, responds to obstacles.
Can't test here
It describes a founder trait used to judge people, not a specific action whose effect a business can switch on and measure.
Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
“Startups rarely die in mid keystroke. So keep typing!”
Most startups die because founders get demoralized and quit, not because they run out of money mid-work. Keep shipping and stay in touch with peers, find even a handful of users who love the product and grow from them, and avoid side commitments that quietly replace the company.
When it applies: A launch got little response, morale is low, or attention is drifting to other projects.
Not tried yet
None of our businesses has tried it yet.
Ben Horowitz: Co-founded Andreessen Horowitz; earlier ran Opsware, sold to HP for $1.6 billion.
“Peacetime CEO aims to expand the market. Wartime CEO aims to win the market.”
Leading in calm times and leading in a crisis call for opposite styles. In peacetime, with a clear lead in a growing market, a leader grows the market and delegates. Facing a threat to survival, the leader narrows everything to one mission, gets into the details and breaks protocol if needed. The skill is knowing which mode you are in.
When it applies: A business faces a threat to its survival, such as a collapsing channel, a strong new competitor or cash running out.
Can't test here
It describes a leader's personal management style during an existential crisis. That cannot be switched on as an experiment, and crises cannot be scheduled.
Founder mode: stay in the details, not just manage through reports
Paul Graham: Co-founded Y Combinator, the startup program behind Airbnb, Dropbox, Stripe and Reddit.
Brian Chesky: Co-founded Airbnb and has led it as CEO since 2008.
“In effect there are two different ways to run a company: founder mode and manager mode.”
The standard advice for scaling is to hire strong managers and leave them alone. Prompted by Brian Chesky's account of running Airbnb, Graham argues founders often do better staying directly involved in the details and reaching past the org chart, for example through skip-level contact, as Jobs did.
When it applies: The founder of a growing company feels the business slipping after handing it to layers of managers.
Contested. It easily turns into micromanagement, and Graham himself predicts that founders who cannot delegate will use it as an excuse. The idea rests on a few founders' experience, not systematic evidence.
Can't test here
It is about how a founder runs a company with layers of human managers. It plays out over years, and its effect cannot be isolated as a business metric.