The Asymmetric Likelihood of Winning

Since last Saturday, I received a lot of positive feedback from the last article on Shrinking the Surface Area of Success. If you missed it, check out this article.

In the article, I introduced two concepts that startups should do - shrink the surface area of success, and find a lever and a fulcrum.

Since writing that, I realized that I needed to do more justice to each concept. So, in this article, I am taking the concept of shrinking the surface area of success and bringing it more to the street level. In the next article, I will cover the second concept - leverage - how to use a lever and a fulcrum.

Let’s dive in.

It’s All About An Asymmetric Likelihood of Winning

The concept that I call the surface area of success is all about creating an asymmetric likelihood of winning in the market.

It is orchestrating the circumstances and context of the startup where the likelihood of success moves from highly unlikely to highly probable.

Let me say that again - when a startup shrinks the surface area of success to be as small as possible, it helps a company move from a world where success is highly unlikely, past a 50/50 coin flip, to success actually being highly probable.

I asserted in the previous article that founders should move to make the startup’s surface area of success as small as possible.

So, what is the surface area of success, and what isn’t it in practice? To share this, I think it’s most helpful to share from a story. Then, we’ll dive into the strategy around the surface area of success and how to determine it.

The Example of Blue Line Battery

In 2021, Tundra Angels invested in a startup named Blue Line Battery. The company is fantastic example of a company that had a very expansive surface area of success, and then moved to shrink the surface area of success to be as small as possible to it’s benefit.

In so doing, it moved the likelihood of success from unlikely to a much higher likelihood of success. I’ll set up the background.

Blue Line Battery sells lithium-ion batteries for industrial use, namely for forklifts in industrial operations.

When Tundra Angels first invested, the company had a few key enterprise customer accounts. Over time, the company’s ax into the market started to get dull. Blue Line reached a point where they trying to execute in too many directions - they had many battery SKUs that they were selling, each that would be sold to different customer segments across the market, for different use cases, each of the SKUs with a different manufacturing process and timeline, etc.

In short, many SKUs, lead to selling to many different customer types, which meant that the small sales team couldn’t properly sell to all of the customer types well. The end result of this was that there was a lot of dullness to tip of the spear of the company’s overall strategy.

In fact, in the previous article, I noted that founders are overachievers, and their default setting is to “wage the war on too many fronts.” Crazy enough, I didn’t mention it in the previous article, I actually first used that phrase in the context of Blue Line Battery and the challenges that they were facing. When I used the phrase in the moment in the past, I was trying to explain something that I saw happening at the company when I was talking with the company’s leadership.

Fast forward in time.

At one point in the recent past., an individual who was close to Blue Line Battery asked me to grab lunch. We met at a local gyro place in Green Bay.

This individual told me how the board of Blue Line Battery voted to overhaul the company.

I stopped eating, put down my gyro, and started intently listening.

This individual went into details about all of the things above, and many others, that were not working, and had not been working for some time. The board decided to take action.

This individual detailed how going forward, they were making a number of strategic changes, at the leadership level and then also at the strategy level.

First, they had done a review of Blue Line’s product line. They observed that Blue Line Battery had numerous battery SKUs, some were selling better than others. Yet with those SKUs, Blue Line had a number of like-competitors in the space that were vying for the attention of the same prospects. But the board identified one SKU that was different - it solved a use case of a problem that was prevalent in the industry. Importantly, the customer demand for this SKU was hot! And crazy enough, this SKU didn’t have any competitive products on the market.

I liked what I was hearing. This individual and I started to unpack the implications of this trade-off.

It meant that which meant that the company went from selling 5-6 SKUs to one SKU in a defined use case. This focus on one SKU simplified the target market persona that Blue Line was going to selling to, which simplified their lead list and the types of customers that they are calling into. This collectively then, simplified the manufacturing line and process to build the products, which then simplified the staff that they need to manufacture the products.

Collectively, this all had the downstream implication that the business needed drastically less cash to run operations than it did before. As this individual told me, “We get the burn lower enough to keep the lights on and then we push really hard.”

We went into way more implications, but you can see the trend.

Then, this individual told me that they brought on an strong outbound sales person. The individual told me, “This sales guy is a beast. He pounds the phones and is super hungry.”

So net net, in the short and mid-term, Blue Line Battery became a single product company selling into a customer base that demands the product, alone in a category of product that had no competitors. Oh yeah, and the guy that is doing the selling is a beast that is super hungry. All of this with a sustainable burn rate to give them appropriate time to execute on this strategy.

Now, in laying all of that out, does this scenario sound like one that is unlikely to succeed, or one that has a high likelihood to succeed?

Sitting there, chatting with this individual at this gyro place in Green Bay, I had this powerful feeling of conviction - Blue Line Battery was going to be successful. I just knew. And I still believe it.

Sure, macro and micro variables exist that can be threatening.

✅ The asymmetric power of shrinking the surface area of success is that the startup only chooses to control a limited number of variables in order to tilt the likelihood of success in favor of the startup.

All of the other variables, which in essence are like faucets that pour out risk and require attention, are turned off. ✅ 

Shrinking the surface area of success acknowledges that the most constrained resource a startup founding team has is time and attention.

3-5 Trade-Offs Define the Surface Area of Success

If we look at the underbelly of the surface area of success, here is what you will find:

The surface area of success is comprised of 3-5 key trade-offs that the startup intentionally makes.

These trade-offs undergirded the strategy of Blue Line Battery. Just as we unraveled in the story above, those 3-5 key trade offs have multitudes of downstream trade-offs and implications.

In fact, the phrase that typically accompanies these trade-offs that define the surface area of success is:

Trade-Off 1: We are going to do [this and not that], which means that [implication 1], which means that [implication 2], which means that [implication 3]….

Trade-Off 2: We are going to do [this and not that], which means that [implication 1], which means that [implication 2], which means that [implication 3]….

Trade-Off 3: We are going to do [this and not that], which means that [implication 1], which means that [implication 2], which means that [implication 3]….

You get the idea.

But what are you trading off? It is an exchange of what?

It’s a trade-off of time relative to impact.

My contention is that many, many startups never arrive at this place because they seem to live in this world that trade-offs are the enemy of progress. That’s a flat out lie.

The investors fund their startups to go and capture the world. The founder wants to move fast and scale baby. But they don't realize that their surface area of success is far too expansive, relative to the constraints of the Three T’s of Startups (a small team, in a limited time frame, trying to maximize as much traction as possible) can support. Unknowingly, they create a situation where they make their likelihood of success very low.

Where the Surface Area of Success Starts

✅ Defining the surface area of success must always start with the customer need and work backwards. ✅

It working backwards from the customer need in light of the Three T’s of Startups - a small team, in a limited time frame, trying to maximize as much traction as possible.

It begins with the founders fundamentally holding the conviction that they cannot be all things to all people.

So, “Which people need which thing(s)?”

Blue Line Battery didn’t just pick the single SKU randomly. It wasn’t trying to sell a product to an unvalidated or unknown market problem. It also wasn’t a SKU that had yet to be developed, as if they believed that, “This will be the winning product, we just need to build it.” No, such thinking would have broken the Three T’s of Startups - that would be too many inputs and too expansive of a surface area of success relative to the small team, in a limited time frame, trying to maximize traction.

It was a SKU that was in market and yet underutilized and undersold because of the then previous breadth of the product line of other SKUs.

Where It Shouldn’t Start…

A major caution I will raise is when the surface area of success doesn’t start with the customer need and work backwards.

Importantly, it's not a definition of where the startup founders think they should play based on their capabilities and resources, independent of the customer need.

If you don’t work backwards from the customer need, then you will have an outcome like I did in my FinTech startup.

In my former startup, we had developed bond trading decision support software. Many financial institutions trade bonds, some for balance sheet liquidity, some for financial gain, etc. When we started, one of the many challenges we had was determining the type of financial institution to build our solution for. That’s totally backwards, but so was a lot of things I did as a founder, hence the reason I write this newsletter!

At one point in the startup journey, I observed that there was a lot of bond trading technology at the larger banks and asset managers. So, with good intentions, I tried to find a surface area of success that we could succeed in. One of our advisors at the time had worked in finance for several community banks. This person observed that community banks have a need for our product.

I shrunk my surface area of success on community banks, but with very little evidence that we could actually be successful there.

As I had more conversations with community banks over the months, bank CFOs were kind, but no one was moved at all by the product. I later discovered that the hosts of smaller community banks that we had initially made our surface area of success traded bonds so infrequently than they didn’t care about having a bond trading specific product.

I had defined my surface area of success and it gave me clarity on execution and far less stress in my execution. However, it didn’t matter, as I had defined the surface area of success completely absent of a hot customer need.

I didn’t start with the customer need and work backwards.

Examples of the Trade-Offs When Developing The Surface Area of Success.

I wanted to provide some examples of trade-offs that I’ve seen that help define a startup’s surface area of success. Here are three, but there certainly are more…

Find a Spot in the Market Where Your Solution is the Only Option

One of the best trade-offs a startup can can make, in light of the Three T’s of Success, is to find a spot where their product is the only option. That is the beauty of Blue Line Battery’s surface area of success.

This by far is one of the most common ways that a startup founding team has a small surface area of success.

However, again, the cautionary tale from my example is that you need to find a spot in the market where your solution is the only option AND the market cares desperately about it.

The best say to have a high likelihood of success in your startup is you are the only startup selling a product in a market that highly demands your product with no competition.

Control a limited set variables in order to tilt the likelihood of success in favor of the startup.

Shrink Your Solution to Have Very Few Touch Points

If a startup expands the surface area of success of your product, you expand the touch points that you need to focus on to deliver it successfully, as in the story that I wrote about in the previous article of the two founders looking to build more rather than sell an existing product that the market desired.

Shrink the scope of the product, shrink the touch points required to deliver it.

Not Setting Your Goals Too High

Founders don't realize when they set too high of goals and metrics, they set themselves up for failure. When you set goals, your employees and investors hold you accountable to them.

It's way better to come back and say to investors, "We've hit our milestones with each year!" Rather than, "We wanted to get $1M in ARR with this fundraise but we only hit $650,000. But will you invest in us again?”

No matter how you slice it, investors will see that statement as underperformance. They might even know that the $1M in ARR was a highly audacious goal to begin with.

Tundra Angels portfolio founder, Dan Abel, Co-Founder and CEO of Pilot Project Brewing, recently told our investors in an investor update, "We've hit all of our financial projections within a 1% of our goals each time." That’s a statement that gives confidence in the founder and team. But it’s also a window into how Dan sets goals and the degree of realism that he has about the numbers and metrics that he puts out.

It’s way better to underpromise and overdeliver.

Closing Thoughts

Shrinking the surface area of success acknowledges that the most constrained resource a startup founding team has is time and attention. So, startups should shrink the surface area of success to be as small as possible.

This happens when the startup only chooses to control a limited number of variables in order to tilt the likelihood of success in favor of the startup.

All of the other variables, which in essence are like faucets that pour out risk and require attention, are turned off.

Then, as time goes on, a startup deliberately expands the surface area of success in certain areas, but with the same mindset and relative to the Three T’s of Startups.

Blue Line Battery won’t always be a single product company, nor should it. But it’s using the surface area of success as a way to stack short-term success in their favor, which unlocks the next opportunity. By that point, they would have won the trust and belief from many more customers in the industry, which can lead to bigger and better opportunities.

But don’t lose sight of one of the most important things - the surface area of success must always start with the customer need and works backwards.

Making the surface area of success to be as small as possible, relative to the Three T’s of Startups, is one of the best ways I know of to gain an asymmetric likelihood of winning in the market.

We’re all here to win. But on that path, only a few will choose to asymmetrically engineer and increase the likelihood of winning.

Shrink the surface area of success.

Control the variables. Control your outcome. Control your destiny.

Click here to access the rest of the newsletter articles.

Here are some of the recent ones!