Bubbles and Terrelle Pryor

I spent a large chunk of last week at Google, participating in a design sprint with some members of their UX research team and eating far too much free food. During one of those gorging sessions, I struck up a conversion with a partner at Google Capital and like almost any discussion about startups these days, the conversation quickly turned to discussion of bubbles.

While her specific thoughts on bubbles weren’t all that provocative or divergent from mainstream – and thus not really notable for the purposes of this post – what really struck me is something she said about the companies that were pitching her: although Google Capital is a growth-stage investment fund for proven businesses, she felt that a lot of the entrepreneurs that she met with really didn’t have much understanding of the fundamental metrics of their business.

This floored me. How could that be?

It struck me later in the day that there is an irony embedded in growth, particularly the kind of growth that will ultimately enable you to reach a size where you need growth-stage capital. That kind of explosive growth is such a fortuitous rocket ship that it tricks you into thinking that explosive growth is possible forever and that stoking that growth once you’ve found it is the only¬†important thing.

Now obviously the former is false and the latter is debatable but both wash out at the same point: eventually that growth vector you’ve found becomes saturated. When it does, you may have a real problem, particularly if you’ve spent zero time on understanding your acquisition costs, mapping it across channels, building a proper reporting infrastructure, and getting an iron-clad picture of your LTVs. There’s only so many times you can raise money on the pitch of “Well, we’ve got a shit ton of users!”, especially as markets turn downwards.

The additional irony here is that so many seed and Series A-level companies have those basic unit economics down cold. They have to. If you’ve got a very finite amount of capital to work with, you better believe you’re maximizing the return of every dollar spent. They might not be able to get over the Series A hump because they don’t have the explosive growth I previously mentioned, but I believe 100% that most of these companies know their fundamentals better. My friend at Google Capital will never see them though, since a majority of them will never find the product-market fit to grow large and grow quickly enough to eventually need investment in her criteria.

The sports analogue here is Terrelle Pryor, one of the most talented high school athletes to come out of Pennsylvania and QB at Ohio State, the Oakland Raiders, and elsewhere. Pryor was such an athletic freak that he simply destroyed the competition at the high school and college level, using his innate gifts to dominate without properly learning the fundamentals of the position. This was his ultimate downfall; once he got to the NFL, his throwing mechanics and decision-making were far below acceptable standards.

Compare that to any number of QBs who came to the table with far less natural gifts, but instead focused their energy on learning as much as possible in the film room, grinding away in the gym, slaving away on the practice field – only to find out that what was once a rather average set of natural talents was now a rocket ship when paired with a clear understanding of what it takes to succeed.

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