#01 Validating a Problem | Alice Bentinck | Slush 2023

Good morning, everyone, and thank you for joining me so early, bright and early in Helsinki. Um, to start off, I'm Alice Bentinck. Thank you to the hosts for a very kind introduction, but I would love to know who you are. So can you give me a hands up if you are a founder? Okay, good, excellent. Shout out to the founders. Hands up if you're an investor. Okay, a couple of investors. You can always spot the investors. I was at Heathrow Airport yesterday and it was very clear, uh, in security who the investors were. Um, hands up if you're thinking about being a founder one day. Okay, these are my people, these are my people. And this talk is specifically designed for you. So as I was saying, I founded Entrepreneur First, and also me and my co-founder last year wrote a book called How to Be a Founder. And in this, we talk a lot about ideation and where ideas come from. I think the word idea is actually pretty unhelpful because Google is an idea, Stripe is an idea, but also you probably had an idea in the shower yesterday. These are all ideas, but they are obviously at totally different ends of the spectrum. So even talking about ideas, I think, sometimes can be unhelpful. What we're going to go through today is how do you develop a a unique idea? How do you validate a problem that is different, differentiated to everything else that's out there? I've been an investor for a long time, a founder and investor for a long time, and I've worked across 7 different geographies across 3 different continents. I'm always amazed when I do investment committee, and I might do one in Bangalore followed by one in Paris followed by one in New York, you hear the same ideas again and again. So when you're a founder, one of the things you've got to assume is that whatever you're building, somebody else is trying to build it too. So what we're going to go through today is how can you give yourself some green space? How can you find an idea? How can you develop an idea that no one else is working on? So just a little bit of context on Entrepreneur First. So I founded Entrepreneur First now 10 years ago. It's pretty much what I've dedicated my career and life to for the last 10 years, and we are a talent investor. We invest in the very, very earliest stage. We invest in individuals before they have a company, often before they have a team, and often before they have an idea. When we get people to apply to EF, we don't ask them for an idea. What we found is that when we ask people for an idea, you can have incredible people who are super smart, very talented, wonderfully skilled, but their ideas suck. And we found we were making a bunch of really bad selection decisions because we were saying, this person seems great, but have you seen their idea? This is crazy, and not good crazy. So we're very, very purists in that we believe in talent, we believe in founders, but we also believe ideation is a process. It's something that you can learn, it's something that you can get better at. We're lucky to be backed by some of the world's best founders and investors, and I believe I've got the best job in the world because I spend a huge amount of my time with people before they've even started a company and get to spend a huge amount of my time with some of the best founders and investors in the world. And my job is to work out how this group can become more like this group. So what is an idea? One of the kind of key concepts that we're going to talk about today is secrets. And how can you as a founder find a secret? Now, this is a concept that comes from Peter Thiel. What valuable company is nobody building? Every correct answer is necessarily a secret. So why does he say this? He says this because he doesn't believe in competition. He's pushing founders to find spaces that aren't crowded. And this is the problem with problem-based ideation. I'm sure many people, when you say, where do I find an idea? How do I find an idea? People say, think about a problem you've experienced. The challenge is that problem is typically a problem that many other people have experienced. Think about food delivery, ride-hailing, holidays. Dating— man, I've had so many dating ideas in my time. It's very, very hard to have a truly differentiated idea, and what that means is you're going to have a huge amount of competition from day one. So what we encourage our founders to do is to find a secret. And so today we're going to be talking about how to find that secret. So what counts as a secret? Many of the world's best ideas are founded on secrets that are non-obvious, they are controversial, and they're often laughable. If you think about something like Airbnb, the idea that you could get strangers to stay in another stranger's house and pay them for it willingly seemed totally crazy at the time. Reid Hoffman is on our board and one of our early investors, and he was one of the first investors in Airbnb, and his partners told him he was crazy to make that investment. Because nobody would be so crazy as to do that. If I think about one of the companies in our portfolio, we have a company called Tractable, which is one of the largest computer vision companies in the world. Now, they started Tractable in 2013. The secret that Tractable was founded on was that humans— was that computers would become as good as humans in visual classification. Now, that seems totally obvious 10 years later, but at the time, it was a real secret. And again, they were ridiculed, seen as a bit naive, and they struggled to raise their first round. So when I speak to founders about early ideation, instead of thinking about it as the moment where you have the idea, we think about it instead as a process of finding the idea. And this is one of my favorite quotes about ideation, even though it has absolutely nothing to do with startups. This is a quote from Michelangelo, one of the world's greatest artists. And he says, you know, every block of stone has a statue inside it, and your job as the artist is to chip away, chip away, chip away at the layers to find the angel, David, whatever it may be inside. And as a founder, that's what you have to do as well. The other way I think about it is as an onion, layers of an onion that need to be unpeeled so that you can get to the secret in the middle. Typically, the layers for that onion is stuff known, by people outside the founder space. And this is often where I find lots of founders stop, weirdly. We get founders that come to us at EF, and they begin pitching ideas where it's like, there is a massive problem in healthcare. People are dying because of X. That's not a secret. Everyone knows that. The next level in your onion is telling me things that, if I was in the space, I would probably know. So sometimes, as an outsider, you can be like, wow, yeah, that sounds really cool. But the minute that you talk to somebody in the space, they're like, yeah, known problem. The next level in is knowing stuff that other founders in the space know. But that's still not sufficient, because then you're just competing. So you have to go one stage further and really get to the core of what your secret is, which is something that no one else knows. So let me take you through an example. Let me see if I can get the clicker to behave. There we go. Think back 7 years ago. 7 years ago, we had 2 amazing founders, Jacob and Laurence, join EF. They didn't know each other, they started working together, and Jacob was passionate about antimicrobial resistance. The World Health Organization had said that overprescription of antibiotics was causing this massive challenge within health, And how do we stop it? This is the first layer. They spent 3 years trying to solve this problem. And as they dug into this problem more, they realized that actually there were a bunch of multifaceted reasons why doctors couldn't stop prescribing antibiotics. It only started working when they began to spend more and more time observing doctors and actually understanding the challenges that doctors were experiencing day in, day out. They then realized that it was a communication problem. It wasn't about antimicrobial resistance. The thing that was holding back health outcomes was that doctors and patients couldn't effectively communicate. But a bunch of other founders knew that in the space. It wasn't until they realized that it was as simple as doctors couldn't send SMS text messages to their patients to remind them to take their pills, to help them book an appointment, to tell them to come in for a repeat, prescription, whatever it may be. Accurix went from 3 years of sort of, you know, in the wilderness, as founders often find themselves, to being in every single primary care practice in the UK within 18 months. One of the fastest-growing health tech companies. So they— Accurix got there through 3 things. They used their edge, they relentlessly spoke to customers, and And they created a behavior explosion. So we're going to go through each of those 3 things so you can understand how to get as quickly to the core of the onion. You're all going to think I'm obsessed by, by onions by the end of this. So use your edge. This is a key EF concept, and it's something that we talk about a lot in How to Be a Founder. Your edge is your personal competitive advantage in solving a problem compared to other founders. And it comes back to this idea of whatever you're building, whatever idea you have, someone else probably has it too. So how can you make sure you have an advantage? Your edge is important as well because it's a constraint. If you look at any of the research on creativity and idea generation, constraints actually increase both the quantity and quality of ideas that are produced. Sometimes when you're an early-stage founder, You know, you could work on anything. If you take the problem-based approach, you have millions of problems every day that could be solved. So how are you meant to know which one to solve? By using your edge, it gives you a starting point, and it gives you a starting point that you already know something about. This is Barney. Barney joined Entrepreneur First after having worked at Wonga for a year. Wonga was a big fintech startup in London in the 2010s. When he was at Wonga, he realized that the world of fintech was very much set up to serve an older demographic and not millennials and Gen Z. He used his edge, which was sufficient experience in fintech. He only had a year. This is not about deep experience. He used his sufficient experience as a starting point for his idea, which was Clio. Clio is now the fastest-growing fintech app that Europe has ever seen, and is making $80 million a year. Some of the best secrets, some of the most unusual secrets, come from combining 2 people's edges. At Entrepreneur First, we're massive believers in co-founders. I've had an amazing co-founder for the last decade or so, and people come to EF to find a carefully screened, carefully selected co-founder that could help turbocharge their business. One of the things that people often underrate about a co-founder is that your cofounder will help dictate the quality of the idea that you produce. So they're not just about increased productivity, they're not just about having, you know, an emotional support system so you can get a beer at the end of the day. It's about generating a better idea. And it often comes when 2 edges combine, that's where you get the magic. This is James and Sasha. They've built an amazing company called Unitree. James had a background, uh, in computer science. He had a PhD in machine learning, uh, and then had worked at Meta. He'd been a content moderator for a long time, and that was his edge. You know, he'd seen how difficult content moderation and keeping harmful content out of social media platforms was. Sasha did her PhD with Stephen Hawking on black hole theory. They're a really interesting combination because they were able to come up with technology that that no one else was able to do by combining their edges and generating a secret that was based on technology. They were able to beat off some of the much more developed and experienced content moderation software to win major contracts with big social media firms that I can't name, but you would know. Or an alternative example. Here you've got Xena and John. Xena and John created Synantic, Synaptic creates the world's most emotionally realistic voices. Some of you may have seen them in the press recently because they helped Val Kilmer get his voice back for the Top Gun film. Again, this is a really interesting combination of backgrounds. We've got John, who had a PhD in machine learning, and then you have Xena, who'd been working with autistic children for the last decade. All throughout being a teenager, she'd been working with autistic children, and she was able to use her knowledge about voices expression, and combine that with John's PhD. Synantic was bought by Spotify for a very large sum of money about a year ago. So if that's your edge, and using your edge as a starting point, what next? Relentlessly speak to customers. And if there's something that founders always undervalue and always don't do enough of, it's this bit, because it's hard and sometimes it's pretty frustrating. To be honest, the pushback I always hear— oh, and this is how you get into the, into the heart of the onion— the pushback I always hear is, well, Henry Ford says that if he'd gone to his customers and asked, do you want a car? They would have said, no, I want a faster horse. Henry Ford, you're doing your customer development wrong. You are not asking the customer for the solution. You are trying to find out the secret that that the customer holds. You can't crowdsource an idea. You can't crowdsource a product from a group of people. What you need to do instead is build intuition about what the answer should be, what the product should be. One of my least favorite things is when a founder says to me, in my survey, 70% of people say that this is a massive problem, and 90% of people say that they would pay $15 to solve it. Bullshit. If it's in a survey, it doesn't count. If you've done a survey, you've missed the point of customer development. This is not about building an argument about why you're right. Customer development is about truly understanding how somebody thinks, feels, relates to a particular problem. So the very best people do customer development through speaking. There's an amazing book on this that is definitely the kind of best-in-class book called The Mum Test. Has anyone read The Mum Test? Excellent, got some Mum Test fans. And what I love that Rob Fitzpatrick says about this is that instead of thinking about customer development as a, you know, a business moment where you're, you know, you're writing things down and ticking boxes, customer development should be like when a friend comes to you and says, I've just broken up with my partner, and I'm gutted. And you go, wow, that sucks. Tell me everything. How does it feel? What do you think? What are going to be the next steps? What could you do instead? This is how you do customer development well, by really understanding how somebody experiences a problem and then beginning to get ideas about how you might be able to fix it. This is Rafi and Nitish. Rafi and Nitish were on Entrepreneur First many years ago, and they are building something called Genie AI. I bumped into Rafi recently at a dinner and asked him how things were going. He was super excited. He said, we've reached product-market fit, and we're beginning to see a massive inflection in adoption that we can barely keep up with. Product-market fit is always one of those things that people say, how do I know if I've got product-market fit? And the answer, which is one of those unhelpful answers, is, you know when you've got it. If you think you might have product fit, product-market fit, you don't have it. You know you've got product-market fit because the product is flying off the metaphorical shelves way faster than you can cope with. I said, Rafi, how did you get there? What did you do? Was there like an aha moment where it all came together? And he said, no, it was tiny incremental nudges to improve the product every week, every month for the last 5 years. One of the things that he did that is super impressive and that the very best founders do, is that every Friday he'd spend 5 hours doing customer development. Every Friday he would have meetings with different customers to hear how they were using the product, meetings with prospective customers to understand how they might use the product. And this is how he built up that intuition. It's not about building a data set, it's about you as a founder building up that intuition. And this is why you can't outsource customer development. It has to be something that the founder does themselves. that the founder owns. If you think back to that example about Accurix, Accurix as well really, really understood their customer, because they worked alongside them in the doctor's surgeries every day for about a year. Then when they got their own offices, they actually built in their office a doctor's workstation with a sort of, you know, National Health Service 1990s-style computer to really understand what it would be like for their customer to use their software. When we talk to founders about customers, one of the pieces of advice we often give is that you need to love your customer. And founders always say, yeah, yeah, no, we love our customer, we love our customer. Sometimes I think what founders mean is, I think this customer could make me lots of money, so I love them. Being a founder is a resilience game. Being a founder takes a long, long time to succeed. I've been doing this for 10 years, and I feel so lucky because I adore our customer. I want to spend time with our customer. My job is going out and meeting incredibly bright, ambitious young people and talking to them about what they want to do with their lives. I could do that for the rest of my life very happily. The best founders want to spend time with their customer, so think carefully about who you choose to be your customer, because you're going to be spending a lot of time with them. One of our internal mantras at EF is strong beliefs weakly held. It's really hard to get to the core of the onion. It's really hard to get to a secret. And often what we see people do is they sort of have many things that they believe. And particularly if you've got a co-founding team, you can see people having slightly different beliefs. What we see the best founders do, and what we encourage our founders to do, is to commit to a strong belief that is weakly held. What does that mean? It means putting a line in the sand today about what you think your secret might be, what you think the problem might be, and what you think the solution might be. And understanding that it's probably all wrong. And it probably is, unfortunately, all wrong. But that's because ideas don't come out fully formed. They are a process that you go through of getting better, developing and iterating. The weekly held bit is about getting that input from your customers. No one has the answer. No one has the right answer. The only way to understand what is the right answer is to get whatever you're doing out there, speak to people, and get that feedback. Often in the early days of founding a company, I'll be, you know, doing an advisory session with 2 founders, and one's saying, oh, we should go this way, and one's saying, oh, we should go this way, and they're really butting heads on it. Basically, they're both right and they're both wrong. Who knows? They just need to pick one direction, not both directions, and begin getting it out there in front of customers. A very common mistake that we see people make is when they try to keep everyone happy in their founding team by saying, like, cool, we'll just simultaneously test everything. That is not a strong belief weakly held. That is splitting your time across too many things and not focusing. The final point is create a behavior explosion. And this is often where some of the most exciting companies in the world come from. The quintessential example here is Uber. So I think most of you probably would have heard the example that if you look at the original market size for minicabs in San Francisco, Uber totally blew that out of the water. They created a new market. They augmented the existing market. And if as an investor you had discounted Uber because because the market wouldn't be big enough, then you'd completely misunderstood the importance of the behavior explosion that they were about to create. Airbnb is another great behavior explosion where, OK, no one would have guessed that people would want to stay in other people's houses and pay them for that. But even more importantly, I don't think anyone would have guessed the behavior explosion where people then wanted these authentic experiences, where if you're a Gen Z, you kind of get ridiculed if you stay in a hotel. you know, real travelers stay in Airbnbs. And it means that Airbnb has become the world's most valuable hotel company without owning a single property. It's amazing. The way that— or the statement that you need to answer to create a behavior explosion is, if X were easier, cheaper or faster, there'd be way more demand to it, and we'd be the gatekeeper. So let's look at a couple of examples. This is Dishpatch. Dishpatch is an EF company that was funded by Andreessen Horowitz a couple of years ago. The behavior explosion that Dishpatch was creating was— and it was formed during the pandemic, as you can probably tell from the idea— was that it's really hard to get amazing fine dining at home. And there's a bunch of people that, for whatever reason, can't leave home to get fine dining. And I'm talking sort of Michelin-starred fine dining. So wouldn't it be cool if they could get a meal kit delivered by one of the world's best chefs that they can create at home? Now, that's cool, but actually the real secret was that the way to do this and the demand and the behavior explosion that it created was on the supply side. So yes, there were plenty of customers that wanted this, plenty of consumers that wanted this, but the other side of the marketplace, the chefs, who typically were constrained to delivering food within a restaurant, that had a set number of seats saw this as suddenly a really important revenue stream. And so it meant that you had some of the world's best chefs publicizing this on their Twitter, pushing this out and creating this incredible noise for Dishpatch that meant their growth just went through the roof. Another example that is such— it's such a clever idea. This is Scarlet. So in some ways, it's a very, very unsexy idea, but it creates the most amazing behavior explosion. You may not know this, but if you're building a medtech startup and you're building a software product, every time you want to release an update, it has to be approved by a notified body in the EU or the UK. So this means if you're running a medtech startup, even though you should be moving like a software company, you're often restricted to moving like a sort of, you know, a physical products company. You move very, very slowly. Scarlett has completely transformed the process of getting your software updates approved. They've become a notified body, and they've reduced the time for releases from months, like 12 months, down to 5 weeks. The behavioral explosion that they're then creating is it's now way easier, way cheaper, way faster to build generationally important medtech products. So how do you know if you've found a secret? So we've talked about the process of going through a secret. We've talked about how important it is to use your edge, to use that constraint, how important it is to relentlessly speak to customers, and how the very best secrets often create a behavior explosion. But how do you know when you've found it? And again, is it like product-market fit where you sort of know it when you see it? Kind of. There's a couple of questions that if you get this right, you should be able to answer. The first one is, why is this a hair-on-fire problem, and for whom? And we say hair-on-fire problem because if your hair was literally on fire, you're probably not thinking about anything else. That is the problem that you want to solve. When I do investment committees with startups, what I often find is that many of them can't really articulate this. The error mode I see is where someone says, over the last 4 weeks, we've spoken to 50 different customers, and the 50 different customers say X. I'm like, okay, tell me about one customer. Okay, what was their name? What's their job title? What do they care about? How do they think about their budget? Tell me how they think about this problem. What exact words did they use to describe this problem to you? Where do you think this problem sits in their stack rank of problems? It's amazing how many founders do breadth and forget that the most important thing is depth. The next question you should be able to answer is, what is underrated about this problem by other people? Now, if you're working on a true secret, it will be non-obvious, it will be counterintuitive, and it will often be ridiculed. To be honest, this was the early days of Entrepreneur First. We walked out into the London venture capital ecosystem and said, We are going to find strangers, and we're going to put them together, and they don't even need to have ideas, and we'll give them money. And the venture capital ecosystem said, that's crazy. Instead, you should build a careers fair for students. And we're like, hmm, we're not going to do that. And the reason we weren't going to do that was because we were hearing relentlessly from our customer that they wanted our product. For the first 3 years of EF, no one gave us any money. It was impossible to— I mean, we ran on a very, very tight budget for a long time, people thought the idea was stupid. But the great thing was we had no competition for a very, very long time. So yes, it was hard to push through. At times we wondered if we were kidding ourselves, but it actually became the most amazing foundation for our company. Oops. The next point is around market size. So how do you envision this becomes huge? And again, Typically, what I'll hear is, this is a trillion-dollar opportunity, this is a multibillion-dollar opportunity. That's not what I want to hear. What I want to hear is the story about how the market doesn't even exist yet, and that the process you're going to go through is going to explode whatever market there currently is. The story is more important than the TAM. And then the final question: why has no one else done this before? Why now? What's changed? What's special? If you can get through and answer these questions, with some really great strong beliefs, weakly held, you're on the path to having a secret. Oops. If you found this interesting and want to learn more, do buy a copy of How to Be a Founder. It's a great book, a really great book. Won the Startup Book of the Year last year. Thank you so much for listening. You've been an amazing audience. I hope that some of you will consider starting startups if you haven't already. And if you do want to start a startup, do check out Entrepreneur First. We would love to hear from you. Thank you so much. Thank you.