The Startup Landscape: Waves, Dams, and Rivers | Rob Snyder

Hey, welcome to the yet unnamed podcast, YouTube, something. I'm RC. You can think of me as Rob Schneider's sidekick. Rob, you want to give a quick intro?

Yeah, I'm Rob. I write the newsletter on product market fit and been a founder a bunch, think about this nonstop. Awesome.

So, well, and for context, Rob and I went to business school together. We're both founders. I've been helping out Rob while I'm figuring out my own startup. Rob's done a couple startups that he's exited. Is that true? Have you— like, how would I phrase— like, you're in the middle of one, you're building another, and you exited the first?

Yeah, the first one exited. Yeah, so I think that's pretty fair. And I've Basically, the context is that the first startup right out of business school raised a bunch of money and then just got punched in the face for like 2 years when it didn't work and I didn't understand why it didn't work. And that was terrible. And then we went $0 to $4 million ARR in the next 2 years, which you would think would have been better, but like, I didn't understand why it worked when it worked. And so I've just been spending the last whoever knows how long, 5 years plus, trying to figure out why startups work when they work. And so yeah, I've been writing this newsletter. The thought of this, these, this singular recording or this set of these, if we decide to keep doing them, is basically I get a shit ton of questions from people and comments and stuff trying to better understand the newsletters. And so we're going to try to dig a little deeper into them so that I don't have to write 10,000 words a week and you don't have to read 10,000 words a week.

Sweet, because I'm not gonna do that. I don't think anybody else would. Uh, and, uh, we'll, we'll call this episode the cringe episode, uh, because eventually we will look back at it and be like, what in the world were they thinking, or were we thinking when we recorded it? Yeah. Um, so this week we're talking about waves, dams, and rivers. Uh, why don't we— so basically Rob's got a newsletter. It's coming out on his Substack. We'll put the link in, in the description. You can also follow him on LinkedIn, Rob Snyder. Basically, we jump into 3 different types of startups where they find themselves, which Rob uses the concept of wave, a dam, and a river. But why don't we start out with that, like an early concept that you introduce, which is you sell to one customer and demand aggregates. Can you tell us a little bit more about that, Rob?

Yeah. So, the main challenge that I see in startups is how do you build something people actually want and pull? And the main thing that we do wrong is that we think about people in aggregate. And so, we think about markets and niches and abstractions like personas. And none of those things ever actually buy anything, which means we never really are selling anything anybody actually wants. And so what I've found is that basically the only way to build something people want is to focus on a single person and what's on their to-do list. What is on their to-do list determines what they are trying to do, obviously, what they are prioritizing. And if we fit into one person's to-do list, right, then we look and say, okay, that one person We're building something they actually want, and that replicates across people. And then once we understand how one person does it and what replicates, we can then zoom out and see the structure, like a broader structure of demand as it aggregates.

So if we think about the phenomenon of demand aggregating across multiple people, like, why does that happen? Like, why is it— so we start, we start with like, one, you know, you talk about a lot about case studies, there's one to-do list. Like, why do other people have the same to-do list? Or what, like, what's behind that phenomenon?

Yeah, I mean, it's, there's a variety of things behind it. But like, let's, let's just go with an example. Right? When COVID hits, everybody has a lot of similar projects hitting their to-do list all at once. Things like, I don't know, how do I work remotely and be remotely productive? And a variety of other things like that. Or when a new government regulation passes and you're, like, trying to figure out, okay, how do we comply with this regulation? Everybody's figuring that out all at the same time. And so that's an example of why people have similar projects. Another, like, I mean, a dumb one is when we start a startup, we wind up with a project at some point of how do I collect someone's money? And so that's not something that happens all at once. But basically, anytime you start a startup, hopefully you get to the point where you have to collect someone's money and figure out how to do that.

Yeah, that's interesting. Makes sense. And that's kind of a nice bridge into the Wave concept, which, like COVID is an example, probably government regulation that you brought up. Why don't you tell us, maybe we introduce like real quick Wave River Dam, just like as a Wave Diver Dam River, whatever, we can go with many different combinations there. But why don't you like give us the overview of that? And then we'll jump into Waves.

Yeah, so the insight is, I've been watching startups that have grown really fast. And trying to understand what are the mechanics behind them. And fortunately, I've had like front row seat to see a lot of startups that go from zero to $5 million ARR in a, you know, a matter of 12 months or something like that. And then I've seen a lot of other ones that have kind of struggled. And it's not necessarily about what the founder is doing. It's about something outside. It's a, it's It's not even if they can find one customer who says hell yes. It's about the, the structure of demand, like this, this aggregation of demand. And so in watching startups grow, I've noticed that there are a couple different kinds of structures of demand. One is what I call a wave, where like COVID, it's a new project that comes on everybody's to-do list. It's not something that we were dealing with before. I've never thought about how to work remotely before then, and most people haven't. And so it was like, okay, COVID forces a new project onto everybody's to-do list. That's not something we were really dealing with before in any large shape or form. That's one. Then there is a DAM, which is, it's not a new project, right? I think a really good example of this is like Lovable or Bolt, which are these where you can, like, type in a prompt to create a website or a web app, right? Before Lovable or Bolt, people had projects on their to-do list to create websites. Everyone basically, for a business, creates a website. But what was happening is the path to creating a website was brutal before this. You'd have to use some sort of, like, an editor, and I have no patience for editors. I would rather hit my head against a wall than use an editor. And so what happened was, there was like a bunch of people who were kind of stuck. They had existing options, but those options weren't good, but there really wasn't a better option. Existing project running into kind of a wall, and this new technology basically enables all of those people to have a, like, much better solution where instead of just clicking around a million times, I can, like, just write a prompt and I get a pretty darn good website. If I don't like it, I can just say more things. I can basically give feedback. So that's a dam. Where a dam is— think of it as pent-up demand, but it's existing projects on to-do lists with relatively bad existing options. Then there is a river. Which is like, like I mentioned, when you're starting a startup, there's, you know, there's a bunch of things you need to do. And collecting customer payments is one. Collecting customer testimonials is another example. These are just like things you need to do. And if you're like, hey, I looked at the existing options for collecting payments or collecting customer testimonials, I think I could build a better option than what's on the market. Then what you're doing is, you know, it's, it's a somewhat better option. It's not like, it's not like a dam bursting. It doesn't feel like a dam bursting. Just feels like you're kind of reshaping a little bit. You're kind of like carving a tributary off the river where you're like, I'm just going to peel off this piece of demand. And that's, that's fine. There are some rivers that are really fast growing, like payroll or collecting payments or things like that. And you can kind of carve off a path of that. But then there are very slow-moving rivers where, like, they're just lazy rivers where demand really isn't flowing very hard. And that's very hard to build a company behind. So anyway, monologue over.

Is it like thinking about the relationship between these three? Is it a, is it the wrong way to think of it as a life cycle? Like something starts as a wave it, you know, sequentially overcomes a bunch of dams. The dams, after they've, you know, 3 years down the line, after like they've— a bunch of different people have tried to solve the same thing given a technological shift, it becomes a river that's either fast or slow moving based on how big the market is. Or is that like— is that the wrong way to think about it, or what's wrong in that?

Yeah, I don't know. I think it's right to think that things evolve in time. I don't know if there's a law of the evolution necessarily. I don't know. I just haven't thought that far about it, honestly, about like, is there an underlying principle of markets where starts as wave sequence of dams into rivers and lazy rivers? Like, let's think through an example of this where, basically, websites initially were a wave. Because when there just became an internet, this was a new thing people were doing. So, everyone wanted to build a website. But it was hard. And so, sequence of dams of it's now 10x easier to build a website. —now 10x easier. Then came along Squarespace and it was then 10x easier. Then came along whatever, Framer and all these other ones. And it was, you know, for different parts of the market. And then came—so again, I don't know if the thing is, it's just a sequence of dams being broken forever or if it's, you know, at some point everything turns into a lazy river. Yeah, I'm not sure. But it does change in time. Like markets do change in time. And what often happens is everyone chases the wave that just passed and it just no longer behaves like a wave.

Yeah, I love that for a transition. And you're, you know, you talk about the waves when they happen, the people that ride the wave or surf it. I don't know how far we want to go with that analogy, but they're often like teetering around at the frontier like they, they have an idea. I don't know if they— sometimes they might see the wave, sometimes they might think there's a wave coming. Sometimes they might actually be chasing something else and they happen to be at the place where the wave breaks. Like what's— when you see startups that are doing the wave, like what are they— and they're not reacting to a wave that's already been revealed where the entire market has like a front row seat to it and everybody's flocking to it and all the VC money is pouring in like Who's out in front and why are they there?

Yeah. So, this is like, I've been thinking about this a lot because I read Mike Maples Jr.'s book called "Pattern Breakers," where he uses a phrase. I think it's probably been used before elsewhere, but it's like, "Live in the future and build what's missing," which is not helpful. It's like a theoretically interesting It sounds cool, but, but like, I only started to make sense of it when I realized, okay, there are these waves of demand and they crash unevenly. So some people use— it's not— most things aren't like COVID, right? Like when you're, when you're building AI agents in 2022, you are very early to that. And as you're trying to build AI agents to solve problems in your own business, you're running into new projects. That are difficult to do with existing technologies and solutions. So, whether it's kind of hard to do credit-based billing or something like that, or it's really hard to do observability on these AI agents because they don't behave like traditional software does, and so existing tools don't work. There, you are playing early in a technology, and you're talking to other people who are also playing early, and you're all kind of sharing best practices there, and like, what had been, like, what solutions you found. And that's where kind of you find a new project. And you're like, okay, maybe observability is a real thing for AI agents. Maybe this is a project that everybody's gonna probably hit at some point because if we just take a rough guess, AI agents are here today and they're gonna be here tomorrow. Okay, and everybody who's going through that is gonna run into this. So that's the wave coming and maybe we should build a solution. Maybe we should build some supply to fit that demand.

Yeah, AI is an interesting one. Like going to your COVID example, the, you know, it's like when I think about that period, it's like Zoom wasn't built after COVID launched. It was like Zoom was already a thing. They thought there was a direction for, you know, virtual meetings. And then there was a shock to the market external that was actually not predictable unless you want to get real deep into conspiracy theories. I was calling it since 2012, actually. And you made no money off of it. In fact, you had a major setback to your business, so didn't do a very good job of that. But yeah, and so it's like in that case, it was literally like they were developing a technology that because of something that was unforeseeable, unforeseeable, like they just got boom, like picked up and, you know, swept downriver. Is that the— how do we think about the difference between those, like, two examples?

Yeah, I mean, it's, it's basically like sometimes there are waves that are somewhat predictable, and sometimes there are waves that are totally unpredictable. And so It's hard to know if you can actually predict a wave. I've been thinking about this. Like, if you had kind of teleported us back to 2018, 2019, we would have said, all right, the two waves I am certain about are the metaverse and blockchain, right? And quite wrong, perhaps in timing, about the metaverse and perhaps in timing as well about blockchain, although things are kind of like seem to be trending in an interesting direction now. So can you predict waves? I've seen a couple actual examples of where you can start to predict waves, which is if you are literally tinkering at the frontier, like you are trying to solve things in your business with AI agents, or you found specific use cases in your business for, in like some startup that you're working for, on, for blockchain, and you found, oh wow, this is actually like, this solves an actual problem, and we're kind of at the frontier. We are, we are ahead of the rest of the market, and my hunch is the rest of the market is going to run into this in a year from now. That's, I think, the best way to predict it. But that said, it might not be a big wave at all. It could just be a little ripple, and It's, you kind of have to do the exercise. Do I think every business is going to be doing, it's going to have this project on their to-do list, or a lot of businesses are going to have this project on their to-do list in the future?

Interesting. Couple, let's maybe go over a couple quick examples of like, what are, what cause waves? So how would we, you know, you mentioned regulation. You mentioned technology shifts. You know, I would say like World War II or like major, like international conflicts that change economies. I put COVID in that same bucket. Are there other ones?

Like what causes some of these waves? Yeah, I think it's those things. And then there's probably something around like cultural shifts of some sort. So, right, like there's kind of a slow-moving demographic wave happening right now where not many people are having kids. People's attitudes towards having kids are— have changed. And so society is changing structural shape, which is leading to new stresses being put on different parts. And so, that's an example. But I think the main ones are technological shifts and the implications of technological shifts. And then, obviously, wars and stuff like that don't help.

Wars and stuff. Wars and stuff. All right. Let's talk about Devs for a second. This one feels maybe closer to where a lot of, uh, the founders that, you know, you run around and work with, uh, what they're trying to do, like break through a dam. They see there's a, there's a problem, they're developing a technology with the expectation that make the hole in the dam, more clients are gonna, more customers are gonna come, they're gonna break through it, you know. Is that, is that fair?

So I think, um, the way to think about a demand— a DAM is that it is that like there's a bunch of people who are kind of coping with the status quo. They might have an existing solution that works, they might not have an existing solution that works, but they're kind of coping. And so what you're doing is you're showing up and saying, hey, you've been coping with this, here's a new way that is like infinitely better to help you accomplish what you've been trying to accomplish the whole time. And so my favorite example of that is a company called Jump, which they, they basically started by talking to— or well, the short version of their, their story is that financial advisors used to take notes manually before and after their client meetings and put things into their sequence. And that took 45 minutes, an hour, maybe more per client meeting. Jump shows up with an AI note-taker. Now, the AI note-takers had already taken off in sales, but they just kind of hadn't yet shown up in a form that financial advisors could look at and say, oh yeah, that fits what I need. And so when financial advisors saw that, they kind of had always just been coping by manually taking notes. Jump shows up and they show something that is magical at that point, and the dam bursts. And so the key there is that the people have to kind of have been coping. Just like me trying to create a website, like, I'm shouting at my computer when I'm trying to use one of those editors. It's just infuriating. I can't make the pixels line up. It takes me hours. I hate everything when I do it. And so, I've just been suffering there. And then Lovable Bolt show up and boom, it's like, it's an instant, look, I would never use an editor or I just, I can't fathom using an editor again.

And Lovable Bolt being prompt-based website design. Yeah, website, web app. Yeah, that's interesting. And so, with the wave, what we're talking about is, demand did not exist. Demand was created because something changed. And with the dam, it's demand always existed, it just couldn't be addressed because there was a, probably a technological barrier most frequently that prevented it, or that was, you know, overcome. And now there's an opportunity there. And it's like, in that case, it's actually part of a wave. It's part of like the AI, um, you know, wave that's going on more broadly with LLMs. However, it's applied to a specific demand case felt by the financial industry. Yeah, that's interesting.

The AI wave enabled this dam to burst. Yeah, it enabled something to be offered that burst the dam. But, and I think that's how, like, there are people who are tinkering at the frontier of things and That's kind of like one model. This is just looking for what are people trying to, like, what are people kind of coping with today? And given this new technology or this, this new way of thinking, organizing things on the supply side, what can we offer that causes them to see it and say, oh my God, where have you been my whole life? And boom, like where it would be weird if they didn't buy. I think that's what a lot of people miss here is that offering something that is just incrementally better, like a better UX or a better editor, that is kind of carving out a river versus seeing somebody, having somebody look at it and say, "Oh my God, where have you been my whole life?" The visceral nature of demand there indicates that a dam is bursting.

Yeah, that's interesting. We're going to run up against time here in a minute or two. One other idea, and I think we've kind of addressed the river as we've gone along to a certain extent. One thing that you say in the blog is that a lot of founders, they're not in a river, they're not on a wave, they're not at a dam. They, something like they show up in a desert with floaties. Why? Like that, it sounds ridiculous because it is, but like, why do we do that? Why do founders like go to arid places?

Yeah, it's because we don't actually know we should be looking for the water to keep the metaphor going, which is, The way that we are taught to think about startups is to come up with a product idea for the product that we think the world should want. Which is not even just on the supply side of things. It's like, go on an ayahuasca retreat and say, "You know what? The future of CRM is XRM." And nobody knows what the hell you're talking about there. And you're just kind of like, you go out and you design all these fancy mockups. You go and show them to people who say, "Ooh and ahh. Wow, I'd love to hear more when that's ready. XRM sounds like every— I hate CRMs, right? They're so hard to use." Right? And then you just kind of go down this path of building something that nobody wants, that there is no demand underneath. And you look like an idiot when you're kind of in floaties in the desert because you didn't know to look for water. You were kind of— yeah, you were dressed to swim, I guess. I don't know if the right analogy is there, but it's you build a product you think the world should want versus finding actual demand.

Yeah, it's like you, you, you actually don't show up with floaties. You show up with like a submarine and that you've like— you and your team of engineers have fully developed with a bunch of investor money. And then find that there's nothing to do with like that equipment wherever you, wherever you land. Uh, any other thoughts, Rob, uh, on, on this week's that we, we didn't get to?

Yeah, I think like the, the so what is kind of important, which is okay, cool, I understand that demand exists at the individual level and aggregates and takes different shapes as it aggregates. What the hell do I do with that? I think the first is, like, to use this as a self-assessment tool to say, what are we actually— like, one, do we have any n-of-one demand that we understand? If not, let's go and figure that out. Once we figure out some sort of n-of-one demand, figure out, are we in a lazy river? Are we in a— are we tinkering at the frontier of a wave? Or are we trying to burst the dam? And based on that, your playbook might change, like what you choose to prioritize might change from there, which is if you're in a lazy river, there's not a lot you can do to generate growth besides finding a wave or finding a dam, right, and attacking that. If you're attacking a wave, your approach is going to be different than if you're attacking a, a dam. And so kind of knowing what you're doing, like where you are and what opportunity you're trying to tackle, uh, yeah, it's gonna, it's gonna cause you to think about the opportunity differently. Do we need to hunker down and kind of really keep tinkering at the frontier and kind of wait for the wave to come, keep burn low? Or do we think there's a dam that's ready to burst, someone's gonna burst it, and we're seeing in one-on-one conversations that like we're doing one-on-one sales, people are just ripping the product out of our hands. We see there's a demand, there's a dam here. We actually might need to raise to tackle this. Like we might need to go big to tackle this. And so those are the things to like start considering and really just assess, are we tackling a new project or are we tackling an existing project with bad alternatives? Or are we, are we just kind of slightly differentiating from what exists and what do we do from that?

Yeah, that's interesting on like the approach to fundraising with those. Like so much of, you know, VC pitch decks feel like they are raising big money to be ready for a wave when what you're actually saying is the moment to raise is when you've broken through a dam. And that's the, like the very strong demand signal. Whereas it feels like a recipe for like misery to have raised a bunch of money, waiting for a wave. You have to get so lucky on the timing. It's like in that case, tinker, tinker until you find that you're either on the wave or you've actually run into a dam and then really take off.

Yeah. I think you basically raise money to survive until you find a wave or find a dam. And then you raise money because you are barely holding the ship together. You're barely holding things together. And to be able to win the wave, to be able to win the, like, damn, you actually, you have more support requests coming in, you have more customers, you can't even keep up with the demo requests once that happens. And I've seen that happen a bunch of times. And when you, like, it's so easy to raise money for that because obviously it is. It's not, we're going to go and we're going to try to convince a bunch of people they should want this. It is, we can't keep up with the demand. And people kind of invert the causality on raising funding. Where you think, oh, we're going to raise money to cause this to happen. It's like, no, no, you raise a lot of money once this is happening, once there is a wave there to like actually serve it.

Well, like any, like any great media product, uh, we will not fully explore the most useful part of this entire thing, uh, and maybe we can, we can come back to that here in, uh, uh, in a little bit. But, um, Rob, any, any last thoughts? Uh, we'll put the link to the Rob's Substack in the, in the description. If you've got feedback on cringe episode, let us know. Rob, anything else on your mind?

Yeah, I think just we're just playing around with this. This was fun for me. I don't know if this is fun for anybody other than us. And so if you want more of this, let us know. If you want less of this, let us know.

And we'll go from there. Awesome.