Alfred Lin: evaluation

Transcript context

…Do you find that founders know this at the seed stage? David and I know this from meeting with very early-stage founders, that so much is going to change in the dynamic market over the next 10 years. Do great founders know what the right picture looks like? Is the Brian Chesky of today able to fully articulate that they’ll overtake hotels? I think it’s easy to look back from now when it was obvious. At the time it was not always obvious. What they will articulate is that people should do this, this way. The way I view the future is a far superior future. That’s the dream that you have to be able to riff on and if that’s the future, can you build a really large company? In some cases it’s more obvious because the market is so large. If you get just even a slice of the market, you’ll be in a good position. In other cases, it’s less easy because you actually have to dream that the market gets bigger, that you’re going to change behavior, you’re going to take away from a different way that people used to do something. Both can happen, and we generally like the more non-obvious markets where they’re good tailwinds, the markets could be small at the beginning, and it can grow over time. Everybody knows where all the large markets are, and it’s generally a bloodbath when you enter those markets. I’m not saying that competition is not going to happen. In every company, if you’re afraid of competition you should just get out because if you’re at all successful, someone’s going to come after you. For a startup, you want some air cover at the beginning. You don’t want to go into a competitive market and go head-on with a large competitor on day one because they’ll just crush you. You need areas of white space. You need a market entry strategy where people think, that’s a little company. That’s kind of cute. Go ahead, you can take that. In Innovator’s Dilemma, they talk about all the low margin stuff. The big companies always give the low margin stuff to the startups because the startup sees it, who cares, not a lot of margin in that. They get really, really good at that because they figured out how to make money with low margin, they go up market to the higher margin stuff, and then eventually they overtake the industry. That is one way (obviously) of entering the market. There are other ways of entering the market just with a superior product, so you get more and more people to talk about you. If it’s 10 or 20 times a better product, everybody’s going to talk about you and will migrate to you. There are other ways by having a completely different strategy if everybody thinks this is the future, and maybe someone else’s buck. Not everybody is the same. You’re not going to capture 100% of the market in something as big as travel. It’s the ability to differentiate yourself from a current trend (sometimes) that makes you successful. In both Airbnb’s and DoorDash’s cases, that is exactly what happened. I’m super curious and I’m sure everybody listening is too right now. When you’re debating that question within Sequoia, like is Brian right? Is this going to move beyond air beds? When the conventional wisdom is ‘this is cute’ and you’re debating ‘is this going to be more than cute,’ what does that look like inside the firm?…

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