“From one thing, know ten thousand things”
― Miyamoto Musashi
One of my core themes with early stage investing is to invest in companies that have a singular focus, as we like to say, “companies that do one thing great”. It’s a common theme among investors, some describe it as obsession or passion, others call it single mindedness, but in either case, it needs to be there. Yes, a business can and should have an idea of how it will evolve into various areas/products over time, but it’s all too common for us to hear a founder describe their business as being a set of “slashes” and to do so at an extremely early stage. What do I mean by this?
“Founder A” begins their pitch by telling us a little about themselves: where they come from, what motivates them, how they arrived at this spot, etc. All important things. Typically, we will ask the founder , “Describe to us what your business does.” Occasionally, there’s a short pause and then a sequence of “slashes”. “Well we’re a CRM for professional athletes, ’slash’ a point of sale system, ‘slash’ a media agent, ’slash’ [insert variable here].” This happens A LOT and it seems to be a common theme among first time founders, and we understand why.
It’s easy to see the potential offshoots of a great idea. Where it might lead, what customers might ask for, etc. and to immediately believe that you need to build for it. But it’s usually very rare that such products are necessary for success and in most cases, these endeavors become a tremendous distraction.
As a point of clarity, these “slashes” aren’t just general product features, instead, each “slash” represents something that could be an entire business. So, this isn’t an “Airbnb for bathrooms” situation, rather it’s a “We’re a taxi company/that sells shirts/and 401k plans/and…”
It’s impossible to be everything to everyone, and it’s common to think that you need to be in order to win over customers. However, though extremely difficult, being the best at one thing is absolutely attainable and doing so creates incredible value. It’s our experience that when a company has done one thing great, there’s a market reaction that is usually immediate and overwhelming.
We’ve spent countless hours with some of our companies working through go-to-market strategies, anticipated customer demographics, and more, but there’s one thing that I’ve noticed about companies that have hit the nail on the head with doing one thing great. It’s that you can never anticipate all of the potential situations where someone might find value in what you’ve built.
I’ll give you an example. A year and a half ago, I invested in a company called Dor Technologies. Dor Technologies designs and manufactures a peel and stick sensor that mounts above a commercial retail entryway. The sensor monitors foot traffic in and out of any retail location. Now, neither my business partner nor myself have any real-world experience working in retail operations, so we knew virtually next to nothing about the industry Dor is tackling. However, after a few short calls with people we know who do work in retail, it became abundantly clear that there was a huge need. Why? Because believe it or not, until now, it has either been extremely expensive ($5k+) to have a hardwired sensor installed at a store’s gate or extremely inefficient (i.e. a high school student counting heads in and out). This means that retail stores have lacked the opportunity to see many of the basic KPIs that SaaS companies often take for granted. Top of the funnel metrics: How many people came into the store today? Average time inside the store? Avg time to purchase? And more...
At the time I invested, there were plenty of competitors trying to do something similar to Dor, but most, if not all, of them were in my opinion trying to do too much like Heat mapping, individual customer tracking, behavior analysis, you name it, they were trying to do it. But they all failed to recognize that there was one key variable that would unlock 90% of the total value, and you could deliver that single variable at a fraction of the cost and do so right now.
So, what does this have to do with “slashes”? Dor focused on ONE key metric (people count) and drove it so far down to perfection that within days of launching the product, they had people reaching out from industries we had never even thought of targeting: Commercial real estate developers (yep they’ve never known how commercial space is actually used), Automotive Dealerships (how do our techs move around the shop?), Hospitals (where and when are people moving), the list goes on.
Many founders would have seen the technical whitespace around Dor and started building to capture as much of it as possible, but in doing so they would have buried the lead within their feature set, spread their resources too thinly, and crippled their ability to be successful.
I like to think of it like this.
What is the probability of success on Project A when you have 100% of your time dedicated to it (~10%)? Now imagine you add another project, Project B, how much time can you independently dedicate to either of them? Every “slash” decreases you and your team's ability to focus, and it’s hard enough to be successful at one thing, much less five.
At the far end of the “do one thing great” spectrum, Google sees about 3.5 billion searches a day. 15% of those searches have never been searched before. That’s 500 million queries a day that are completely new. When you do one thing great, customers will find an overabundance of needs for your seemingly limited product (it was just a search engine after all).
It goes without saying that as an investor, it’s very difficult to believe that an entrepreneur can be successful at multiple endeavors when success at one thing is already an outlier.
So, we don’t invest in “slashes”.