Mike Maples Jr. on Disruptive Investing

In a compelling conversation on the 10x Capital podcast, Mike Maples Jr. of Floodgate Capital discusses his investment philosophy, focusing on backing "pattern breakers" who challenge the status quo. He highlights his early investments in Twitter, Lyft, and Okta, emphasizing the importance of non-consensus ideas and the power of founder-future fit. Maples also shares insights from his book, "Pattern Breakers," detailing how breakthrough founders harness inflections and insights to create revolutionary businesses. The discussion underscores the significance of authentic founder alignment with future visions and the strategic role of venture capital in nurturing transformative ideas.

• Startup capitalists create value by changing the subject rather than persistently compounding.
• The focus is on proposing radically different futures rather than creating competitive advantages through traditional means like economies of scale.
• The concept of "pattern breakers" is central, where startups impose new rules and force a new playing field.

"A startup capitalist creates value by changing the subject... the incumbents will persist."

• This quote highlights the necessity for startups to innovate and redefine the market landscape to succeed against established players.

• Pattern breaking involves creating products or services that are incomparable to existing ones.
• Successful startups avoid the "comparison trap" and instead force a choice between entirely different options.
• Example: Tesla Cybertruck, which defies traditional comparisons with other trucks.

"You can be on team F-150 or you could be on team Cybertruck, but you can't really reconcile those two things."

• The quote emphasizes the importance of differentiation and creating a unique value proposition that stands apart from existing alternatives.

• Investing in startups often involves backing ideas that may not initially seem viable or have a clear business model.
• The focus is on the potential of the idea and the founder's ability to pivot and adapt.
• Example: Twitter, which started without a clear product or revenue model.

"He says you say what you're doing and oh, in 140 characters or less... there is no road map."

• This illustrates the willingness to invest in ideas that are still evolving and may not have a defined path to profitability.

• Inflections are external changes that provide radical empowerment for startups.
• Insights are creative ideas that harness these inflections to create new opportunities.
• Successful startups leverage these to bend the arc of the present towards a different future.

"The inflection was a GPS locator chip in the iPhone 4S... you could do Airbnb for cars."

• The quote explains how technological advancements (inflections) enable new business models and insights that were previously impossible.

• A significant portion of startup success comes from pivots rather than the original idea.
• The initial product is often a reference implementation, and the real value lies in the founder's ability to adapt and find product-market fit.
• Example: Twitch, which pivoted from Justin TV to become a successful platform.

"More than 80% of our exit profits had come from pivots."

• This highlights the importance of flexibility and adaptability in the startup journey, where the original idea may not be the one that succeeds.

• The concept of "founder future" refers to the founder's authentic connection to the future they want to create.
• Founders who are deeply aligned with their vision are more likely to succeed, even if the initial product is not viable.
• Example: Justin Kan's vision for Justin TV, which eventually evolved into Twitch.

"Justin KH was incredibly authentically matched to the future he wanted to create."

• The quote underscores the significance of a founder's personal alignment with their vision, which can drive the startup's success even through pivots.

• The concept of "founder future fit" is crucial in evaluating seed round investments.
• Successful founders often solve personal problems, leading to innovative solutions.
• Investors should focus on the founder's ability to notice unique opportunities and navigate them to product-market fit.

"Time and again I found that the most powerful signal that you can tune into during a seed round is founder future fit and how authentic of a match is that founder."

• Emphasizes the importance of assessing whether a founder is uniquely suited to pursue a particular future vision.

"You don't know what play they're going to run necessarily, but you're betting on the fact that this guy's in the entrepreneurial field is kind of like Patrick Mahomes."

• Highlights the unpredictability of founders' paths and the importance of betting on their potential.

• Product-market fit is crucial; if a company is unsure, it likely doesn't have it.
• Companies with product-market fit face challenges of hypergrowth.
• Pivoting involves changing implementation or audience while maintaining core insights.

"If you're not positive you have it, you don't have it. Companies that have product-market fit just have a fundamentally different kind of drama."

• Stresses the clear indicators of having achieved product-market fit.

"When you pivot, you either need to pivot on the implementation of your insight or the customers that you're talking to about your implementation or both."

• Explains the dual dimensions of pivoting: changing how an insight is implemented or to whom it's targeted.

• Insight involves recognizing new inflections that create empowerment.
• Founders must identify what new conditions allow for empowerment and who benefits from it.
• Stress-testing startup ideas involves questioning the inflections and insights they harness.

"I can ask what was the inflection, what was the specific new thing that was introduced that didn't exist before that you're harnessing to create empowerment."

• Describes the process of identifying the foundational changes enabling new opportunities.

"If you have a valid insight, it's axiomatic that somebody should exist who's desperate for the empowerment that that insight provides."

• Emphasizes the necessity of a strong insight to create demand for a product.

• Inflections often drive market opportunities; timing is crucial.
• New technologies can lead to various applications, as seen with the GPS locator chip.
• Successful innovations often involve recognizing and leveraging these inflections.

"There are multiple ways that an inflection can be harnessed to create empowerment."

• Illustrates the diverse potential applications of a single technological advancement.

"The inflections are a good way to diagnose the why now because they help you understand the new thing that just happened that creates the conditions for a new thing that will happen."

• Highlights the role of technological inflections in determining market readiness and opportunity.

• Business models often stem from insights and can disrupt existing markets.
• Airbnb's model exemplifies turning an incumbent's strength into a weakness.
• Radical empowerment through insights should naturally lead to monetization opportunities.

"Airbnb not just offered an empowering new product, but it was positioned differently."

• Discusses how strategic positioning can differentiate a new business model from traditional competitors.

"If you provide a radical empowerment that people are desperate for, there should always be a way that they're willing to pay you."

• Suggests that significant innovations inherently possess monetization potential due to the value they offer.

• The breakthrough sequence includes insight, product-market fit, and growth breakthroughs.
• Insight is the foundation, determining the uniqueness and potential of a startup.
• Growth breakthroughs involve scaling rapidly to dominate new categories.

"The first breakthrough is the Insight. The Insight answers a question: What do I know about the future that's powerful and not obvious?"

• Outlines the initial and critical step in the breakthrough sequence for startups.

"How can we grow at an extraordinarily rapid and predictable pace to dominate the new category that we're defining?"

• Describes the objective of the growth phase in the breakthrough sequence, focusing on market dominance.

• The strategy involves leveraging insights to create breakthroughs, which then drive growth.
• Success in one phase leads to success in the next, similar to energy transfer in Newton's Cradle.
• Growth is achieved by educating consumers rather than spending on persuasion.

"We're creating value by multiplying the effect of our ability to create this breakthrough."

• This quote highlights the approach of amplifying the impact of insights to drive value creation.

"By the time you get to the growth breakthrough, you're just tearing into the market at incredible speed and rapid progress."

• Emphasizes the momentum gained from successful value creation strategies leading to rapid market penetration.

• Founders should create movements that challenge the status quo, similar to social movements.
• Movements harness the passion of a minority to drive change.
• The approach involves co-creating the future with early adopters and positioning the status quo as problematic.

"A movement basically harnesses the passion of the minority against the tyranny of the status quo majority."

• Describes the power dynamics of movements in challenging established norms.

"Startup founders have an insight about the future that's contrarian... they co-create the future with them."

• Highlights the role of founders in leading and shaping new futures by aligning with early believers.

• Founders need to authentically align with their mission to effectively create and lead movements.
• Authenticity helps attract early believers who resonate with the founder's vision.
• The combination of thinking and acting differently is crucial for progress.

"An authentic founder authentically matched to the future that people believe in is more likely to attract believers."

• Stresses the importance of authenticity in gaining support and building a following.

"Thinking different combined with their ability to create movements by acting different is what animates the path of progress."

• Explains the dual importance of innovative thinking and effective action in creating significant change.

• Founders are often driven by an obsession with the future, which can vary from financial gain to personal passion.
• Intrinsic motivation is crucial, especially in the early stages before financial success is achieved.
• The source of motivation can differ, but the common thread is a deep-seated drive towards a future vision.

"Almost all of them are motivated by some obsession they have about the future."

• Indicates that a strong personal drive is a common trait among successful founders.

"What really matters is obsession with the future they're pursuing."

• Highlights the centrality of future-focused passion in sustaining founders through challenges.

• Engaging LPs should not be seen as a sales cycle but rather a collaboration based on shared beliefs.
• Authentic relationships with LPs are built on mutual understanding and shared vision for the future.
• It's important to find LPs who resonate with the founder's values and vision.

"You can't make anybody love you, you can only let yourself be loved."

• Suggests that authentic connections are about mutual alignment rather than persuasion.

"I need to find people who believe what I believe and we're going to co-create that future together."

• Emphasizes the importance of shared beliefs in forming partnerships with LPs.

• Authenticity is key to being hard to compete with; being the best version of oneself is crucial.
• Founders should focus on their unique advantages and not waste time on those who don't value them.
• The best strategy is to engage with those who appreciate and recognize the founder's strengths and vision.

"The way to be hard to compete with is to be the best version of you and to do the best you can."

• Encourages focusing on personal strengths and authenticity as a competitive strategy.

"Only spend time with people who either value your advantage or are prepared to value it."

• Advises against wasting resources on those who do not recognize one's unique strengths.

• People often seek validation from those who don't believe in them, which can be counterproductive.
• It's important to focus on those who naturally align with and support one's vision.
• Recognizing and valuing those who believe in one's ideas is more beneficial than seeking approval from skeptics.

"A lot of people subconsciously focus on the people that don't believe in them."

• Points out the common but unproductive tendency to seek validation from skeptics.

"There are always enough people who value your advantage and you're in business."

• Reassures that finding the right audience who appreciates one's unique strengths is key to success.

• Mimetic theory, introduced by René Girard, suggests that people form opinions based on others' desires rather than their own intrinsic motivations.
• Avoiding mimesis involves focusing on one's unique strengths and being one's best self, as this individuality provides a competitive advantage.
• Non-conformity can lead to significant breakthroughs, especially in entrepreneurial ventures.

"Part of being your best self is to avoid mimesis... honor the gift of your time every day by doing your best and being your best self."

• This quote emphasizes the importance of individuality and personal growth, advocating for a life led by personal values rather than societal mimicry.

"Why avoiding mimesis can always be a path to the light no matter who you are."

• It highlights the universal applicability of non-mimetic behavior in achieving success and fulfillment.

• Non-consensus thinking is crucial for making a difference and achieving extraordinary success.
• Being willing to take risks and potentially fail is necessary for outperforming standard benchmarks.
• The venture ecosystem values non-consensus ideas, as they often lead to groundbreaking innovations.

"The only way you can make a difference is to be different... it's your willingness to be wrong that gives you the opportunity to outperform."

• This underscores the necessity of diverging from the norm to achieve exceptional results, even at the risk of failure.

"You can't as an entrepreneur create a breakthrough by pursuing the consensus."

• It stresses the importance of pursuing unique ideas to avoid competition and realize significant breakthroughs.

• Patience in investments can provide a competitive edge, as it reduces competition for assets.
• Long-term holding of assets can lead to spectacular success if the investment is correct.
• This principle is exemplified by the partnership and investment strategy of the speaker and their partner.

"Patience is a form of arbitrage... your willingness to hold an asset for a very long time eliminates competition for that asset."

• This quote illustrates the strategic advantage of patience in reducing competition and achieving success in investments.

"The more patient you're willing to be in the pursuit of valid excellence, the fewer competitors you'll have in that pursuit."

• Patience is portrayed as a strategic advantage, reducing competition and increasing the likelihood of success.

• A successful partnership involves complementary strengths and shared values.
• Reverse negotiation, where partners advocate for each other's interests, is a hallmark of a strong partnership.
• Shared values and mutual respect prevent conflicts over compensation and enhance collaboration.

"We've never argued about that stuff... we've never had some type of issue under the surface that caused problems between us."

• This highlights the importance of shared values and mutual respect in maintaining a harmonious partnership.

"Reverse negotiation where the best partners start negotiating against themselves because they feel the other party deserves more."

• This showcases the depth of trust and mutual respect in a strong partnership, prioritizing fairness over personal gain.

• Understanding one's circle of competence is crucial for making informed investment decisions.
• A competitive advantage arises from knowing more than others in a specific area.
• Access to deals is not always a sufficient basis for investment; a structural advantage is needed for long-term success.

"You need to know something the world doesn't know... you need to depart from the consensus because you know something the market doesn't know."

• This quote emphasizes the necessity of having unique knowledge or insights to achieve differential returns.

"Knowing where you have an advantage and actually having one there is a big part of success."

• It underscores the importance of self-awareness and strategic positioning in achieving success.

• Keeping a venture fund small allows for focused, high-quality investments.
• The decision to remain a seed fund is based on the belief that it aligns with the fund's strengths and values.
• A smaller fund size can lead to greater satisfaction and success by staying true to its mission.

"We can be perfectly successful and happy doing it our way... I don't expect that to change."

• This reflects the commitment to a focused investment strategy that aligns with the fund's core values and strengths.

"We're still a seed fund... we haven't done some major hard pivot to become some gigantic multi-stage kind of thing."

• It emphasizes the fund's dedication to its original mission and strategy, resisting pressures to expand beyond its core competencies.