“We invest in good ideas that look like bad ideas”
~Ben Horowitz, Founder – Andreessen Horowitz
What makes an idea that looks bad, good? As opposed to just being a bad idea. It’s the sauce. Secret sauce that is. You hear investors talk about it all the time: “What’s the secret sauce inside?” “What’s your unfair competitive advantage?” I myself have asked entrepreneurs numerous variations of this question. My go to form of the question is: “What makes this hard and why can you do it easily when others can’t?” Almost every entrepreneur I’ve talked to sincerely answers with great conviction about their totally unique and very secret sauce.
Last week I attended the Illinois Venture Summit. Ben Horowitz from A16Z spoke and as usual got me thinking. During the next presentation (which frankly was not as interesting as Ben’s), I jotted down the following list. It’s a list of things that I believe spawn legitimate secret sauce. These are not secret sauces. They are ways people devise or discover their secret sauce. It’s also not exhaustive, so send me your thoughts and let me know your thoughts.
Outlier Experience/Knowledge – Ever met a doctor who was also a lawyer and software engineer and lived in Zimbabwe for three years? Face it, even if he or she was a saint and fun to hang with, inside you were annoyed at somebody with that breadth of experience and knowledge. They’re outliers. Some people just have almost bizarrely unique training, experiences, connections. You know them when you meet them. These people see the world differently at a very fundamental level. This allows them to see things others don’t. That in turn can become a secret sauce.
Ultra-Deep Experience/Knowledge – Like the genius scenario above, ultra-deep knowledge in an industry or technical area can generate a secret sauce. It’s not the case as often as people claim. Not everybody with 30 years of industry experience is the same. You’ve got to pay attention and thoughtfully look things others don’t see. Usually competitive experts can replicate things quickly. But occasionally someone breaks out with something truly unique that would be very hard to replicate.
Proprietary Data/Research – Once in a while an entrepreneur has the foresight to research something that nobody has looked into before. Biotech and other heavy science startups often have this type of origin story. There’s usually a “Doc Brown” [add link to Back to Future bio] involved with some sort of flux capacitor. You also see this with odd ball market research. My favorite is the “my Fortune 100 Company, former employer did this research, but didn’t pursue the project because of _____ (fill in the blank, stupid corporate reason). They leave with research nobody else has. A common variation comes from simply listening to customers more closely.
Integrative Experience/Knowledge – This is more of a team generated secret sauce. A team of individuals, each with really deep, very specific knowledge, collaborate in a way such that the whole is vastly greater than the sum of the parts. This is why VCs go on and on about co-founders and teams. A group of normal people can be an outlier team and create secret sauces of an epic nature.
Persistent Experience – “I just kept working at it until I figured out it out. Everybody else gave up.” Sometimes persistence and repetition unearth a secret sauce. It doesn’t always take money or unique knowledge. Sometimes it just takes time.
“We zigged when everybody else zagged” – Early in an innovation process, there are forks in the road. Nobody knows which direction is best. Lots of smart people look at the different paths, pick a direction and hope they’re right. In some cases, an entrepreneur will be a contrarian and go the direction nobody else is going. If they happen to be right (for whatever reason, including luck and stupidity) and everybody else is wrong, then they have the secret sauce. The alternative of course is also true. Sometimes the contrarian path is just wrong. Ask me about my Wireless USB investment sometime.
Luck, Fate, The Hand of God – Hey, sometimes it happens. In fact, in most entrepreneurial journeys, the secret sauce needs a little luck to be discovered. Zigging when the market zags is often a specific case of luck. Genius scientists have accidents in the lab. The right team comes together because their kids randomly end up on the same t-ball team. On occasion persistence works simply because an entrepreneur lasts longer than competitors and finally gets lucky. Stuff happens. Sometimes we don’t know why.
Concluding, cautionary thought – Researchers have beaten the idea of sustainable, competitive advantage about to death. A startup’s secret sauce is not the same thing as a sustainable, competitive advantage. What I’m describing is the equivalent of the DNA in a seed. Secret sauce is what gives a startup initial life and sustains it through adolescence…kind of like parents create, nurture and define a child. Businesses, like kids, cannot grow and sustain a long life based on their youth. An initial secret sauce may not get you to an exit or the Fortune 500. Gates and Allen had MS DOS. Microsoft has Office 365 (etc. etc.) Jobs and Wozniak had the Apple I. Apple has the iPhone (etc. etc.)