All posts in Mental Models

No business delivers value to the end customer all by itself. In reality, a business does very few things within its boundaries. Everything else must come from other businesses: from renting servers on AWS to leasing offices, and from advertising on Google to buying laptops from Dell. Most of the time, such dependencies emerge naturally and evolve without any conscious effort. However, sometimes some business dependencies can (and should) be deepened explicitly through partnerships.

If nurtured well, business partnerships create positive feedback loops that help rapidly grow a business. Consider the case of Apple, a famously vertically integrated company that makes its own OS, processor, and many other phone components that other companies typically purchase from vendors. However, their iPhone App Store is proof that even Apple realizes that it can’t thrive without partners. Apple supports many thousands of 3rd party software developers who create millions of amazing app for the iPhone. These apps wouldn’t have been possible without the underlying technology supplied by the iPhone. Similarly, the iPhone wouldn’t have been as successful as it, if it didn’t provide the multitude of functionality that its users have now come to expect because of all the 3rd party apps available on the platform. So, the iPhone helped the developer community build a business on top of it, and with that, iPhone benefitted massively. ...  Read the entire post →

All startups live in an ecosystem where different businesses directly or indirectly support one another. For example, in the case of the automotive industry, the ecosystem consists of car manufacturers, car parts manufacturers, petrol stations, car service centers, car insurance companies, and government regulators.

All of them mutually support the entire ecosystem, which means the growth or decline of one business will directly impact all other businesses.

Ecosystems are not always as easy to spot as the automotive industry. Often they are hidden and only apparent in retrospect.  ...  Read the entire post →

Entrepreneurs are irrationally attached to innovation. In some cases, fresh ideas are absolutely required but an attachment to originality and the corresponding aversion to exploring ideas pioneered by others can often lead to a significant delay in success (or even failure).

This desire to innovate everything in-house even has a Wikipedia page: not invented here.

Startups can fail for many reasons. Even if an entrepreneur gets everything right but errs on a specific aspect (say distribution, pricing, onboarding, or even the choice of technology), it’s possible that her entire project fails.  ...  Read the entire post →

Entrepreneurs are always in a hurry. They want the product to be out so that they can get customer feedback sooner.

This hurry is understandable yet misguided because it prioritizes getting the idea out in front of customers over everything else. The initial excitement about an idea can easily lead to months of wasted development effort. Imagine discovering major flaws in pricing, distribution, design, or market after all that effort.

Isn’t it much better to flesh out ideas with a few weeks of research than to spend months developing them? ...  Read the entire post →

People have busy lives and they usually don’t think much about the products and services they use in their lives. It’s a myth that people are on a constant lookout to (marginally) improve their lives. The reality is that unless the value delivered by a new product or service is substantially higher, most people will not change how they live their life and by virtue of that, they won’t change what they buy or use.

It doesn’t mean that people don’t want to improve their lives at all. New products arrive in the market and replace the old ones all the time. But displacement of existing solutions happens only if people expect that the new product will have a material difference in their quality of life (at work or at home). The important keyword here is material. Slight improvements over existing solutions are usually not worth it for people to overcome inertia, change their habits and start using your solution. ...  Read the entire post →

Most markets are like the car market. Some people like bigger cars, others like efficient cars and then there are some who like premium cars. That is, markets aren’t homogeneous. They consist of different sets of people who value different aspects in a solution.

Because different segments value different aspects, an improvement in one aspect will only be appreciated by that segment and get ignored by everyone else in the market. For example, if the customers in a particular segment are price-insensitive, your discounts won’t work on them. In your mind, a discount should clearly work but for a certain segment of customers, it may actually decrease the appeal of your product for them. But, if a customer segment is price-sensitive, and you give them a clearly higher quality product at slightly higher prices, they may not care enough about the quality to make a switch from what they usually use. ...  Read the entire post →

There’s always a temptation to launch a fully built product with more features and capabilities than existing competitors. It’s exciting to build the next Google, the next iPhone or the next SpaceX, isn’t it?

This temptation is dangerous because even the most successful products in a market had simple beginnings. No product arrives in the market fully fleshed out. The company behind a successful product has developed its internal capabilities and know-how about various tiny but important details over a long period of time. On day 1, a startup simply cannot match such capabilities.  ...  Read the entire post →

There’s an inherent tension between how an engineer sees the product under development and how a potential user sees it. Engineers get excited by the technological advances and the number of options exposed in the gadget. A user sees all such complexity as overwhelming and off-putting.

It’s easy for a creator to forget that the user has a life to live and using their product isn’t a highlight of her life. Rather, it’s likely a chore.

People want their desires to be fulfilled in the most convenient manner. So, if someone wants to go from point A to point B, the most perfect solution would be instant teleportation and not starting the car and driving on the road. People care about their problems, and your solution is only an incidental means to solving those problems. ...  Read the entire post →

It’s common for entrepreneurs to cast a wide net early on and imagine their market to be huge. The logic goes something like this: if the market is worth a hundred billion dollars, then even if 1% of it is captured, the company will be making a billion dollars.

All this sounds good in theory but in practice, it never works this way.

Why would the market leader – the big fish in the ocean – let you take even 1% of the market? In fact, as soon as your startup shows first signs of success, the big fish will do whatever it can to crush you and snatch whatever market share you may have won by that time.  ...  Read the entire post →

There are two ways an entrepreneur can fail: a) launch a product that nobody desires; b) launch a product that people desire but with no significant advantage over established competitors (hence give no strong reason for a customer to switch away).

These two failure modes have their analogous success modes: a) culture-led startup success where a new desire is discovered and fulfilled; b) technology-led startup success where new technology is used to fulfill an existing desire.

Let’s explore culture-led startups first.

They are the ones in which the entrepreneur is able to observe a pattern of new derivative desires that didn’t exist before. Such trends are very hard to spot because initially they can be mistaken either as fads or insignificant.  ...  Read the entire post →