Forget painful problems. Skyscrapers vs. Strip Malls. Small bets, small outcomes.

Hey,

This is Jakob, author of the Founder Flywheel newsletter - every week I write this email to help you level up your entrepreneurial game.

Let's dive in.


Everyone in the startup world tells founders to focus on finding painful problems. Last week I got the chance to pick Vitruvian Forms founder Jon Gregory’s brain and he told me this is bs.

Here’s why:

  • There is already a solution to every problem so if you focus on finding a novel problem to solve you will get stuck.
  • Instead, founders should focus on three things: picking a market, choosing a business model, and providing maximum value.
  • He spent years studying what makes a great business while focusing on elementary building blocks like the market the business operates in and the revenue model. So when it was time for him to start his latest business, he picked a huge, rapidly growing market (fitness equipment) and the best possible revenue model: subscription revenue.
  • Then all it took was an idea how to provide maximum value. Vitruvian Forms now offers hardware, software, and services to make in-home workouts more convenient.
  • It’s definitely also possible to come up with some story how Vitruvian Forms solves a specific painful problem. With enough creativity that’s always possible but, according to Jon, not the right way to think about its success.

Here’s another interesting observation Jon shared with me:

  • If you decide to play the VC game, you have to consider all parts of the equation. It’s not just about what customers want but also what VCs are willing to fund. Here again, a great market and revenue model help a lot.

My take: Jon’s reasoning might be a bit extreme but it’s definitely refreshingly different. I think he’s right that a narrow focus on painful problems isn’t always helpful. For many businesses there are better lenses to understand why they are successful.

Market First

  • Take Justin Jackson’s podcast hosting service Transistor.fm ($1m+ in ARR) as another example. It doesn’t solve one specific problem competitors aren’t and doesn’t offer any revolutionary new solutions. Instead, Justin and his co-founder started by picking a great market. They noticed that podcasting has a lot of momentum and are since then focused on providing maximum value.
  • Justin argues that being too innovative is actually a disadvantage. Quote: “if you're creating a new category within the podcasting space, you're going to have to spend so much energy and time communicating, explaining, convincing people what that thing is.”
  • Another related observation by Justin is that simply being a new player in an old, boring market is enough to differentiate your business. As long as the market is big you can carve out just a tiny little bit for yourself and make a good indie business.
  • To quote, Sahil Lavingia from Gumroad: "The market you're in will determine most of your growth.
  • Justin also has a cool framework to think about this approach: The founder is the surfer. The product is the surfboard. The market is the wave. The wave matters most. A good surfer on a bad wave is screwed.
  • Hence it makes a ton of sense to focus on finding a great wave.
  • To do that, keep an open mind, do research, and participate in communities.

The following questions can help to find promising waves:

  • What new products and services do you see companies buying?
  • What trends are coalescing into larger market movements?
  • What categories are picking up steam?

Once you’ve picked a wave, it’s time to find your surfboard. Justin recommends to brainstorm around the following angles:

  • Eliminate obstacles in their path.
  • Give them progress at work.
  • Provide them with status.
  • Generate good feelings.
  • Remove future threats.
  • Bestow superpowers.
  • Take away friction.

Business Model First

Jon’s and Justin’s approach also reminds me of how Sam Parr decided to launch The Hustle (which has recently been acquired by Hubspot in a deal that's rumored to be valued between $25 to $30 million).

  • He spent weeks researching different business models and tracked them all in a spreadsheet.
  • His goal was to figure out what style of business model fits his interests but also would help him succeed faster.
  • Many businesses seemed cool from the outside but after diving deep he noticed its not for him or it would be needlessly tough to win.
  • One model he looked at is monetizing content via an agency, like VaynerMedia (Gary Vaynerchucks company). But when he looked at the numbers he quickly noticed that it’s far from optimal. To scale, you have to hire loads of employees and are only able to pay them relatively little. This is not what he wanted.
  • Another example he looked at is Thrillist's business model. They started with email newsletters and expanded to clothing (Jackthreads).
  • They made millions in revenue with 50% margin and a relatively small number of employees. To Sam that seemed a lot more promising.
  • And this is how he settled on The Hustle’s business model. It started with a content based email newsletter, generated early profits via ads, had a small team, and eventually launch a paid product.
  • So in summary, just like Justin and Jon, Sam didn’t focus on finding a painful problem. Instead, he focused on finding a business model that would make it easy to win and was aligned with his skills and interests.
  • “Business News” was an old and established category just like podcast hosting. And like for Transistor.fm, simply being the new player was enough to differentiate The Hustle.

The Takeaway

There isn’t the one optimal approach you have to use to find winning business ideas. Instead, the key is to keep an open mind and explore different approaches. They all can work and have worked for different people.

Some successful businesses start with a painful problem, some with a promising market, and others just with an attractive business model.

The painful problem approach tends to get overemphasized compared to how many successful companies really started with one. It’s a very compelling story and hard to argue against since it makes so much sense in theory.

But business is still all about selling to fellow humans and human behavior rarely makes much sense. After all, people buy Red Bull even though it tastes horrible and is completely overpriced.

So simply introducing a fresh but not necessarily innovative offer in an established, old market can be enough of an idea. This is what Justin Jackson did with his podcasting service Transistor.fm and Sam Parr did with The Hustle.

And if you do indeed start with a promising market and business model plus introduce some real kind of innovation, you’re facing a potential billion dollar idea just like Jon Gregory does with Vitruvian Form.


My favorite founder reads and opportunities this week:

// earned insights

The 9 common traits that create successful products

Nathan Barry

Nathan is the founder of ConvertKit and has launched dozens of products over the years. Super interesting to read about the patterns he noticed that set succesful products apart:

Read the thread

// framework

Skyscrapers vs. Strip Malls

Jay Clouse + Nathan Barry

"a lot of creators want to build strip malls. And what I mean by that is that you get 5,000 subscribers on an email list, you know, 'okay, let me sell them this.' And a certain number of people buy that. 'Okay, let me add this other thing.' And a certain number of people buy that. 'Okay, now, let me add this third thing.' You have all of these different 'properties' built out on your real estate, and look, you're earning a great living. You know, we're now at $50,000 or $100,000 a year from that. But it's all spread."

Read the post

(h/t my friend John Bardos who runs the awesome Idea Economy newsletter and shared this framework with me.)

// framework

How to Get to Ramen Profitability?

Jakob Greenfeld

This week there was an interesting dicussion on Twitter about the best strategy for getting to "Ramen profitability" (i.e. earning enough from your projects to pay for your living expenses.)

The discussion was started by an interview with Chris Frantz (founder of Loops) on the Indie Bites podcast who argued that you need a single focus and ditch your portfolio of projects.

"Small bets, small outcomes."

I then started a poll asking:

What strategy has the best odds for getting to "ramen profitability"?

  • A: Going all in on one project and sticking to it no matter what.
  • B: Doing experiments in sequence (e.g. 12 in 12)
  • C: Carrying out experiments in parallel (i.e. managing a portfolio of small bets)

So far it looks like Option B is the clear winning with 50%+ of the votes.

// opportunity everywhere

Dog Poop In Jars

Alex Feinberg


I hope you enjoyed these ideas. If you have a minute, please let me know what you think by replying to this email.

Talk Soon,

Jakob

P.S: I rely on word-of-mouth for growth so if you enjoyed the content, I'd love it if you could share it with someone in your life.

Please do share with your friends. I spent 5+ hours on this so it would be nice if a few people read it.

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