Mike Maples Jr.: Dare to Do Legendary Things [Entire Talk]

TL;DR

Exceptional startups combine computing advances or network effects with an ambition to create a category-defining outcome. Because startup returns follow a power law, a tiny number of companies generate nearly all industry exit value, so founders should pursue work worthy of their strongest talents and build proprietary, product, company, and category power.

Transcript

so so before I get started I'm just curious how many of you have ever heard of the term Thunder lizard before okay so a few so why don't I get started just level setting on that for a little bit so um yeah so Thunder lizards so the metaphor actually comes from Godzilla so I'm interested in not just companies that are doing a startup but companies t... Read More

Key Insights

• A Thunder lizard is a startup with the potential to become hyper-exceptional, adaptable, fearsome, and disruptive. Such a company may begin as a poorly understood "radioactive atomic egg," making its eventual product, identity, and market impact difficult to predict at the investment stage.
• Moore's law states that computing performance doubles every 18 months at a given price. Its compounding effect can eventually breach the advantage of an incumbent of any size, sustaining a continuous supply of technology companies capable of changing markets and perceptions.
• Metcalfe's law states that a network's value is a function of the square of its number of nodes. Each added node can connect with all prior nodes, producing increasing returns that approach exponential growth as the network expands.
• The startup power law means a very small number of outcomes dominate industry value. Among more than 10,000 startups created in a typical year, ten companies generate 97 percent of all exit value, according to the figures presented in the talk.
• The best startup in a given year is generally more valuable than all other startups created that year combined. The second-best outcome can likewise exceed the combined value of every remaining outcome, creating a return distribution unlike a normal asset-class distribution.
• Technology entrepreneurship works by leveraging Moore's law, Metcalfe's law, or both to create an extraordinary outcome. Founders who are not pursuing one of the year's top companies compete with thousands of other startups for the small fraction of value left behind.
• Proprietary power is an unfair advantage that helps a startup avoid direct competition. It forms the foundation of the value stack, with product, company, and category powers building upon lower layers to multiply the startup's capacity to create and capture value.
• Management debt is created when a startup postpones necessary management systems, just as technical debt follows expedient technology decisions. Excessive management debt leaves a fast-growing company without the internal capacity and organizational ability to scale as quickly as its opportunity develops.

Questions & Answers

Q: What is a Thunder lizard startup?

A Thunder lizard is Mike Maples Jr.'s metaphor for a hyper-exceptional startup that becomes large, adaptable, fearsome, and disruptive. The metaphor comes from Godzilla, which hatched from a radioactive atomic egg before emerging with destructive power. At the earliest investment stage, such companies can be difficult to understand because their eventual identity, product, and market impact remain uncertain.

Q: Why should startup founders pursue legendary outcomes?

Founders should pursue legendary outcomes because startup value is concentrated in a remarkably small number of companies. The talk states that ten companies generate 97 percent of all exit value among more than 10,000 startups created in a typical year. A founder should therefore build something worthy of their talents and representing the strongest gift they can offer the world.

Q: How does Moore's law create opportunities for startups?

Moore's law creates opportunities by doubling computing performance every 18 months at a given price. Because this improvement compounds, enough time can erode the advantage of an incumbent company regardless of its initial size or market strength. The law therefore sustains the technology industry's capacity to produce new companies that change how people view the world and disrupt established businesses.

Q: How does Metcalfe's law explain network effects?

Metcalfe's law explains network effects by stating that a network's value is a function of the square of its number of nodes. Every new node has the potential to connect with all nodes already participating. As more nodes join, the number of possible connections rises rapidly, creating increasing returns that, although not always perfectly exponential, can approach exponential growth.

Q: What does the power law mean for startup investing?

The power law means that a few exceptional investments can dominate all other returns in a startup portfolio. Maples says an angel fund earned more than 500 times its investment in Twitter, making other public companies in that group comparatively unimportant to total performance. He also says Demandforce returned three times an entire fund by itself, illustrating the same concentration.

Q: What is the startup value stack?

The value stack is a hierarchy of powers designed to convert exponential market potential into an exceptional startup. Each higher layer builds upon and amplifies the force of the layer below it. Its four components are proprietary power, which creates an unfair advantage, product power, company power, and category power, which concerns defining and shaping the market category.

Q: What is the difference between technical debt and management debt?

Technical debt arises when short-term technology decisions, such as cutting architectural, detail, or bug-fixing work to meet a deadline, create greater costs later. Management debt is the organizational equivalent, caused by failing to establish necessary management systems. If growth accelerates, accumulated management debt can prevent the company from developing the internal capacity required to scale with the opportunity.

Q: How can a startup avoid being trapped by competition?

A startup can avoid the competition trap by developing proprietary power, the foundational layer of the value stack. Proprietary power gives the company an unfair advantage and supports the principle that the best way to compete is to choose not to compete directly. Product, company, and category powers can then build upon that foundation and multiply its effect.

Summary

In this video, the speaker discusses the concept of Thunder lizards, which refers to companies that are big, adaptable, fearsome, and radioactive. He explains the three exponential laws of entrepreneurship - Moore's Law, Metcalfe's Law, and the Power Law - that drive startup opportunities. He also introduces the value stack framework, which includes proprietary power, product power, company power, and category power.

Questions & Answers

Q: What is the concept of Thunder lizards?

Thunder lizards refer to companies that are big, adaptable, fearsome, and radioactive. They are like Godzilla and they hatch from radioactive atomic eggs, representing the stage of the market that investors like to invest in.

Q: What are the three exponential laws of entrepreneurship?

The three exponential laws are Moore's Law, Metcalfe's Law, and the Power Law. Moore's Law states that the performance of computing doubles every 18 months at a given price. Metcalfe's Law states that the value of a network is a function of the square of the number of nodes. The Power Law states that a small percentage of startups create the majority of the value in the industry.

Q: How does Moore's Law impact the tech industry?

Moore's Law guarantees that the tech industry will remain magical because it ensures a continuous supply of new companies that can change the way we view the world. It guarantees that even the largest incumbent companies will eventually be overtaken by new companies benefiting from the power of compounding.

Q: What is Metcalfe's Law?

Metcalfe's Law states that the value of a network is proportional to the square of the number of nodes in the network. This means that as a network grows, it becomes more valuable because each new node has the potential to connect with all the existing nodes.

Q: What is the Power Law?

The Power Law states that a small percentage of startups create the majority of the value in the industry. In a typical year, there are thousands of startups, but only a few of them create 97% of all the exit value. This uneven distribution of value is a characteristic of the startup ecosystem.

Q: How does the value stack framework work?

The value stack is a hierarchy of powers that build upon each other. Starting with proprietary power, which gives a company an unfair advantage, then product power, which involves creating a product that people want and love, followed by company power for rapid scaling, and finally category power, which introduces a new category to the market.

Q: What is proprietary power?

Proprietary power refers to having an unfair advantage over competitors. It could be deep technology that is difficult to copy, or it could be a structural competitive advantage that makes it hard for competitors to attack you effectively.

Q: What is product power?

Product power means creating a product that people love and want. It involves achieving product-market fit, where the market pulls the product because it solves a problem or fulfills a desire. The goal is to delight the customer and exceed their expectations.

Q: What is company power?

Company power is about preparing for rapid scaling. It includes having a scalable business model and scalable management systems. It involves having a clear pricing strategy, increasing margins, and creating a strong company culture.

Q: What is category power?

Category power means introducing the world to a new category of product or service. Category Kings are the companies that redefine our point of view and change how people and businesses spend money. They capture a significant portion of the profit pool in a given market.

Q: What is the purpose of a seed round?

The purpose of a seed round is to marry proprietary and product power. It is about proving that you have created something that people love and that is defensible. It also lays the early groundwork for company power and category power in the next funding round.

Takeaways

The key takeaways from this video are the importance of identifying and investing in Thunder lizards - companies that are big, adaptable, fearsome, and radioactive. These companies are driven by the exponential laws of entrepreneurship - Moore's Law, Metcalfe's Law, and the Power Law. To build a successful startup, it is crucial to focus on proprietary power, product power, company power, and category power. These layers build upon each other and enable startups to achieve exponential growth and disrupt the market. Additionally, the purpose of a seed round is to establish a strong foundation for future success by combining proprietary and product power.

Summary & Key Takeaways

• Mike Maples Jr. calls hyper-exceptional startups "Thunder lizards," comparing their beginnings to radioactive atomic eggs whose eventual form is initially uncertain. Floodgate seeks companies with this disruptive potential, as illustrated by early investments in Twitter and Lyft, when their identities, business models, or legal standing were still unclear.

• Three exponential laws shape technology entrepreneurship. Moore's law steadily improves computing performance at a given price, Metcalfe's law describes the increasing value created by network connections, and the power law explains why a tiny number of startups dominate financial outcomes. Together, they give startups asymmetric advantages against established companies.

• The value stack turns exponential potential into organizational power. Proprietary power provides an unfair advantage, product power creates something people want, company power supplies the management capacity required for rapid scaling, and category power helps define the market. Neglecting technology or management systems creates debts that become more expensive later.