Once upon a time, I met a startup team. Let’s call it Company Y.

In first few seconds, I just knew that this would be an interesting call…

When I joined the Zoom call, someone was already on. The man seemed visually uncomfortable the moment that I hopped on the call. 

“This is going to be interesting,” I thought to myself. 

He didn't lead out with anything, so I tried to diffuse his discomfort by asking questions.

The guy’s name was Kevin. Kevin wasn't the founder, but he said, “Just the finance person on the CEO, Timothy’s, team.” 

Timothy, the Founder and CEO, finally joined. He was the opposite of being visually uncomfortable. Timothy came in boisterous and hyper-confident.

The tech play was a four-sided platform for an antiquated market that clearly did seem to be ripe for disruption. The company was seeking $2.5M in the short term but was looking to raise $18M overall in a raise.

As Timothy got into his pitch, his style quickly became clear. He went into his background and touted his accomplishments: 

As the conversation went on, it felt that Timothy was trying too hard. He touted his business experience as if he expected me to be very impressed. But I wasn't.

Here is what Timothy didn't realize:

✅ Timothy thought I would be really impressed by his last company exit, but he overestimated how much it mattered to me. ✅

The company he built and sold was in a mundane industry. It had nothing to do with technology or software. 

Any time somebody builds, scales, and exits a company in any industry, it's a terrific accomplishment. But I’ve seen that this experience does not transfer well to building a tech company. It just doesn’t. There are too many unique variables that are specific to technology that are not present in other non-tech sectors. But fatally, sometimes people with successful non-tech company exits enter the tech space as if they're just going to replicate the same success with the same playbook. The crossover actually works pitifully.

The more he droned on about his previous business success, the less I believed he had what it takes. 

The market problem was a problem that the CEO had experienced personally. Company Y’s vision was a four-sided platform with four distinct market actors. 

In any multi-sided model, the different sides represent great opportunities for defensibility, but the hardest part is the beginning. Each of the four market actors had a distinct audience that had distinct value, and the question is always how to address them and who to address first.

Timothy kept on talking about the model, but there was something that I didn’t hear anything about - the niche market that they would start with.

In this book Zero to One, Peter Thiel writes to start with small markets. He writes, "The most successful companies make the core progression - to first dominate a specific niche and then scale to adjacent markets - a part of their founding narrative." 

In so doing, a startup finds their ground of early success when they play in such a small market where the market cannot compare them with anything else. For their customers, they are the only game in town. That’s an asymmetric way to win early.

Even just a "simple" SaaS business where a SaaS company is selling to a single end customer, establishing a beachhead in a niche market is paramount. 

But in a four-sided model like Company Y, it was even more critical. For a platform like this, it's not as easy to find a niche market and solve a problem for one or maybe two sides.

✅ Where I’ve seen startups do this well is when they focus on one market actor and pull apart certain use cases to solve that exist for that one actor, a use case that is independent of the other sides. ✅

There are some multi-sided markets with problems where you solve something for one, you have to address it for another.

I’m talking about a specific use case for one actor that can be solved and add value to one actor that is indepdendent of the other sides of the model.

So, I was waiting to hear something around building out a beachhead with one side of the ecosystem. But I didn’t ask anything about it. 

There are some times in conversations with founders where I hold in tension a thought or question to see if the founding team brings it up organically. 

I, and other investors, often don’t like to show our mental cards during a Zoom call. In this case, I didn’t want to ask Timothy a leading question like, “Are you going to address all four sides at once?” If asked in that vein I’m leading the witness. A person would pick up that the right answer is “No,” and go that direction. “No, we're going to start with this one side.” 

And here is what is key - a leading question would not have given me an understanding of his real strategy. If I asked Timothy a leading question like this, I would never have known if he was answering me because he knew it was the right answer to my question, or if that was the company’s actual strategy. There is a mega difference, and one cannot afford to mistake one for the other.  

So, I just kept my mouth shut to see if he would organically bring up the fact they were starting with a single beachhead market actor. He didn’t. 

Based on how a lot of his pitch was around the amazing opportunity of disrupting the entire ecosystem, I inferred that no, he's not going to start with one. It seems like he’s going to hit all four at the same time - a strategy that from my previous experiences and from market wisdom, would fail miserably. 

Up until this point, Timothy had been doing all the talking for about 15 minutes, hardly letting me get a word in. Kevin, on the other hand, was strangely silent. In fact, while Timothy was talking, I frequently shot looks over to Kevin’s camera screen, and he was largely unengaged. He was clearly doing things like responding to texts on his phone, etc.

“Why are you here?” I thought.

But that all changed with one word.

Towards the end of the call, I asked Timothy, “What’s your revenue model,” and then a weird thing happened. 

Timothy’s response was a single word. “Kevin?” 

Timothy handed it off entirely when I asked about how the company made money. It felt awkward.

Kevin picked up the cue and walked their revenue model involving fees at different tiers, very convelutated and confusing, etc. 

But I wasn’t honestly paying attention to what Kevin was saying. 

I was caught up in the fact that I asked the startup’s Founder and CEO about the startup's revenue model, and he immediately deferred to the finance person with a one-word handoff. 

It’s not like I asked a specific, nuanced question about a line item on year four on their financial projections. I was asking about the revenue model, how the company makes money. It’s a 101 level question, and the CEO handed it off. 

This was off-putting to me. It gave me an insight into the way that Timothy seemed to roll. Everything that he shared during the conversation thus far was high on vision. Pre-product, yet talking like they the company is going to reach the moon and back. I asked one question money related, and the hand-off indicated that numbers weren’t his thing or something. 

Plus, I had never heard a one-word cue from a team member before. It was as if Timothy summoning him to do his bidding. Very weird. Very odd behavior from a CEO, but unfortunately, seemed to fit into the overall picture of Timothy’s style. Maybe when you have an American Express Black Card, you think you can treat people like you live in your own kingdom.

I ended up passing on Tim and Company Y. I noted to him in my email that there was too much risk at the early stage, specifically to him being pre-product and pre-launch.

Most of the time, I give founders specific feedback around patterns that I see that should be corrected. A natural piece of feedback that I could have given in this case would be to such as to start with a niche market, one side, in their model. But in this case, I didn't that feedback.

Timothy didn't give me the impression that he was open to correcting any of his strategy. 

After all, he had sold his company, and was encouraging me to not miss investing in the next Uber. He was a high flying millionaire with an American Express Black Card.

So I didn’t share any specific feedback.

I thought my simple advice wouldn't be considered interesting unless it came with a $10,000 annual fee.

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