The Physics of Startups
00:09:13 · Rob Snyder
[00:09:13] S1: Like an example of that, by the way, HubSpot was the second fastest growing software company in history at the time, uh, to Salesforce. They did 0 to 25 million ARR in five years or something like that. And that was considered insane back in the day. Uh again, I don't know the exact stats, but like I know three startups that have beaten them like in the last year, like personally. And so there's no what there is I linked to a great article that's called There's No Speed Limit. Um this is a really important thing because there's no reason there's basically two constraints, which I get to at the very end of the article. Basically, how much pull is there in the market right now? That is the maximum number of people you could sell to right now. Cool. That that's so that that is the ultimate constraint. You should be you, there's no reason that you're not hitting all of that right now. And then the second constraint is just how how good are you at at doing that? It's just your ability to do that. And so um, so yeah, that that is just like a a um common thing. And you know, I've seen a lot of startups that like shoot for some random metric, 30% growth month on month, which is technically fast growth. It's a startup that I was helping out. Um, it's like, okay, cool, looking at these metrics, there's no reason you couldn't double that. There's no reason, there's nothing stopping you from growing twice as fast.
00:10:38 · RC
[00:10:38] S0: Yeah, yeah. Yeah, that's a there's something else there to dig into, but uh my brain's not there yet. So we're just gonna we're gonna keep going. Uh yeah, you you do this thing early in the to to make this um give examples um uh like to help make it uh something that founder can identify with in their own business. Um you write about thinking about bottlenecks um as starting by inversion. How basically asking yourself, if if our goal were to not grow as fast as possible, what are the things that we would do? Um and you you write, here's a couple of them. Serve a bunch of different kinds of customers with a bunch of different kinds of solutions. Exert a ton of effort convincing each customer to buy, uh, which is push instead of pull. Have a ton of drop-off in your sales and post-sales process so that you're spending time on people that aren't successful customers, add unnecessary and counterproductive steps into the buying and post-sale process, build features that are ill irrelevant to sales, spend a bunch of time uh and effort changing things that don't make you grow faster. Um, those sound like sort of silly, but they're also things that happen. Um, and so you know, Rob, what are you thinking? Like, why do you start from inversion? Are there any here that you would you would call out as like actually secretly slipping into you know founders uh you know factory or whatever um without ever being aware?
00:12:07 · Rob Snyder
[00:12:07] S1: Well, I so um I I the this I couldn't find a way in to the to the factory from from here. So this was the only way that could kind of make sense to me to find find a way in to describe just how difficult the problem is, right? Like these are a bunch of ways that all of us do by deep. These are these are it's not like uh you might be doing one thing. I can guarantee you you are doing all six of these things if you're if you're a startup. I would guarantee that you that the majority of your time is spent doing these six things. And that's that but I I want to set that up just to frame how difficult it is to do the opposite of those six things. You basically have to like minimize variation, you need to minimize waste, you need to eliminate unnecessary steps, you need to focus on just pull versus push, and you need to do you need to figure out what the constraint is and and and um and invest every ounce of effort in continuous improvement on whatever the constraint is as it moves. Now that is a that is really, really hard to do if you're just sitting there thinking about it. And and uh and that kind of frames how difficult it is to grow as fast as possible just by thinking about it without the these kind of like training wheels of this model that will tell you, okay, what actually is worth your time? Where where are you not doing the thing that's going to cause you to grow the fastest? Where where is their kind of waste? These things aren't necessarily visible to us unless we have some way to make them visible, make them intuitive to us.
00:14:03 · RC, Rob Snyder
[00:14:03] S0: Yeah. I kind of think about my website. It's like every single day I open my if I opened my website, I could find something to work on there because it was imperfect. And that but that would not uh that fixing my website continually and optimizing it neglects just like the reason that's the wrong thing to do is because it's not the constraint in the growth of my business. Um and you can apply that. [00:14:29] S1: That is a like whenever I find that it's almost a hundred percent the the case that when somebody thinks it's their website or their messaging, it is not like that is a signal that of something way deeper that you're not doing. Um, and uh, but but anyway, that's a that's a aside. [00:14:49] S0: Yeah. Okay. So um established there's a ton of things that you could be doing. Um the objective is find the one thing that is going to change uh that is going to accelerate your growth the fastest or the most. Um Rob, let's let's bring in the case study factory and the machines that are in it. Can you just like explain this thing to us?
00:15:16 · Rob Snyder
[00:15:16] S1: Yeah, so so okay, so the so the concept here is that those six things that are really easy to do to not grow as fast as possible, and they're in the inverted version, which is really hard to do, to minimize variation, minimize weights, compress everything, eliminate unnecessary steps, focus on what actually improves. All of those things are things that manufacturing thinking has focused on in extreme detail for the last hundred years. And so they just give us like they have gifted us all of this thinking. We should accept the gift. And so if you look at your startup as a factory, you can then apply manufacturing thinking to the factory. The important thing though is what the heck does this factory produce? And if you get that thing wrong, you're gonna be optimizing the entire factory for the wrong output. So, for example, common thing is everyone's talking about software factories. Software factory, on my business, I'm building a software factory, right? And it's like that's a subcomponent of the real factory that you're building. But everyone's asking them themselves the question like, how do I know the quality of the output of the factory? And it's like, yeah, you don't, because it's because it's a subsystem in a broader factory. And if you're thinking about lines of code or like the the production of a software factory has to refer to what customers care about. Is it delivering what customers are caring about? So that tells you it's a subsystem and a broader thing. If you just focus on revenue as the output of the factory, well, you can do a bunch of dumb things in pursuit of revenue that crush your growth in the end. And so we know it's not revenue. It and if we focus on revenue, right, we're not going to get that kind of continuous improvement that the the um minimizing waste that's not gonna happen by default. And so the structure of a factory here has to be what does a startup produce? It produces case studies, successful customers, and it produces case studies that are basically identical to one another. Yeah. Because we want to minimize variation. That's the whole point. We want to minimize variation, put a bunch of volume through the factory. As we are able to put more volume through the factory of nearly identical things that don't require us to like scramble around the factory, that's what increases our growth rate.
00:17:48 · Rob Snyder
It's the the output of the factory, the throughput of the factory is what matters. And so it produces case studies. And then there are steps of the factory that go from somebody not knowing who we are to being a case study customer. It's basically the entire customer journey are different steps in this factory. I think of three. First step is pipe one. How do we get people to talk to us or come to our website or whatever? Step two is sales. How do we turn potential customers into actual customers? Or how do they turn from potential customers into actual customers? Step three is delivery. How do we turn actual customers into customers who are successful, who renew, who don't churn, who tell other people about it, right? And that is, they become a case study at that point. And they should look just like our other customers. And those, and basically everything a startup does ladders up to that, that uh those three machines in that overall case study factory.