In episode two, host Chris Fenwick and Nash co-founder Fabio talk with co-founder of Flybridge Capital and Harvard Business School faculty member Jeff Bussgang about product/market fit and the importance of community in startups. Flybridge Capital provides seed-stage venture capital for founders by leveraging the power of community. A few of their recent success stories come from MongoDB, Codecademy and Chief.
Chris: Welcome to Beyond the Chain, the podcast from Nash that takes a deep look into blockchain technology and connects the dots between decentralized finance, business and the wider world. I'm your host, Chris Fenwick and each week I'm joined by a Nash founder and a special guest. This week here with me is Nash co-founder Fabio Canesin.
Fabio: Hey, nice to join you guys.
Chris: And we have as our special guest this week, Jeff Bussgang, general partner at Flybridge, one of the VC funds that have invested in Nash and an important partner since the beginning.
Jeff: Thanks for having me. Good to meet!
Chris: So Jeff, would you mind telling us a bit about your background?
Jeff: Sure. So as you noted, I'm a general partner and co-founder of Flybridge Capital. We invest in seed stage and young companies often really at inception. Where we work with them closely in the company building journey, we've invested in companies like MongoDB and other very successful companies.And we were excited to meet Fabio back when he was in Cambridge, where I'm based in the Boston area and have the opportunity to learn about Nash and invest in Nash early on.
Fabio: I think it's really interesting as well that Jeff also has an academic foot so if you could speak a little bit so that our audience could understand your theoretical background as well, Jeff.
Jeff: Sure. So on the side I teach and am on the faculty at Harvard Business School, where I teach entrepreneurship to MBA students and my focus is to teach about startups and venture capital. I have a class called Launching Technology Ventures that I've been teaching for all the 10 years that I've been there. That's become a well-received class by founders and startup joiners who are interested in the journey of launching their ventures and finding product market fit.
Chris: Before we move on, perhaps, could you maybe tell us a little bit more about how you first found out about Nash and what drew you to the project?
Jeff: Well, we were keen investors in open source and in blockchain, and we learned of Fabio's great work in the Neo ecosystem at City of Zion and were attracted to the founding and the vision that Fabio and his team had. And we thought it would be a fantastic fit for our similar vision around decentralized internet and free exchange and using blockchain as a financial platform through the future of finance and to drive accessibility and transparency into all financial systems globally.
Chris: Great. Thanks. Let's start by talking a bit about product market fit and successful startups, which you just mentioned you teach at Harvard Business School, perhaps for some of our listeners who aren't that familiar with business terminology, maybe you could break things down really, really simply. So could you let us know what is product market fit and why is it important?
Jeff: Sure. I'll back up for a minute and just articulate how we teach about startups at Harvard, which is to look at startups as experimentation machines. Startups are trying to succeed with very constrained resources and a very constrained amount of time and in order to do that effectively, they need to take a page from experimental design and 18th and 19th century scientific method and build a startup that is able to execute on a series of experiments to test the series of hypotheses and to iterate from there before they scale. And so the journey for searching for product market fit the journey for getting your product to be a fit with the market that you're targeting is really a journey of a sequence of experiments that you run to test all aspects of your business model.
Fabio: What I think is interesting and a lot different from what our crypto users might be used to is the concept of not scaling. Could you talk a little bit about why product market fit is so important for scaling and you see investments in scaling regarding reaching that phase?
Jeff: Yeah, it's a great question Fabio and I loved how you phrased it. It's sort of counterintuitive to an entrepreneur to not scale. And it's counterintuitive to an entrepreneur to not write code. Particularly crypto entrepreneurs and technically driven entrepreneurs, but our advice and our experience is that you want to iterate on your business model and on your value proposition through a series of experiments where you really test who is my customer, what is it that I'm providing with them? How do I provide it to them? And how do I deliver value to them? And you want to run those tests in a way that invests the minimum amount of resources to execute those tests. And so you don't want to spend a lot of money, scale a big team, write a lot of code to execute those tests. You want to do it in a lightweight fashion with a small team where you can stay nimble and you can expose customers to prototypes and minimum viable products or MVPs or alphas or betas just as Nash has done very effectively and continue to learn and iterate from there. If you invest a ton of money and time in building a team and building out technology and platforms before you really test the value proposition, you're going to eliminate your likelihood of succeeding.
Chris: Yeah, Fabio already hinted at the fact that this might not be the usual approach within the cryptocurrency blockchain space. Do you have any observations maybe about what characterizes the approach in that space and perhaps whether it's wise or, or unwise than you would like to see.
Jeff: Well, one thing that's been really exciting about the blockchain space is that the blockchain and the token economics ecosystem represent a new type of business model. Usually startups need to sell their software through an advertising based business model or a SAAS based business model or a transaction and payment based business model. And there are a limited number of options that startups have. What's exciting about the blockchain is that companies can fund their experiments through the issuance of tokens, just like Nash has done. The challenge of course, is to not mistake the ability to access a lot of capital through the issuance of tokens and the excitement around your project with the importance of discipline and the importance of running these lean experiments.
And so the lesson that we try to convey to our companies, is don't confuse the amount of capital that you raise with the amount of capital you should spend to run those experiments act as if you've raised almost no capital in the earliest days when you run those experiments, because the leaner those experiments are the more effective and flexible and likely to succeed that they'll be.
Fabio: Yeah, it's very interesting. I think one thing that is really tied to the blockchain, which is different, is that almost all startups in the blockchain, since they have these new crypto economics alternatives they can build really powerful communities around their projects. When we have both community and token economics playing at the same time how do you see the confusion around those two?
Jeff: Well, The question that you're hinting at touches on the concept of network effects, which many of your listeners probably understand, but just to restate the network effect, business is one where the value of the network is proportional in an exponential fashion, to the nber of people in the network. So that the more people who join the network, the more valuable that network becomes. And all of us are very familiar with those businesses like Facebook or Snapchat, which are products that are really valuable when all your friends join and you can interact with them. What's interesting about communities, which we have spent a lot of time at Flybridge on and write about and invest behind as thesis is that communities are like network effects on steroids because communities allow you to attract customers and support each other and drive engagement in a way that's a self perpetuating flywheel without the company having to generate the energy. But rather the energy comes from the community. And one of the things that impressed us about Fabio and his team was that he had figured this formula out at City of Zion, which was this great community of developers focused around the Neo ecosystem.And he applied a lot of that in building the Nash community. And to your question, Fabio, the thing about blockchain communities is there's a loyalty and an ethos around the values that a community represents in all cases. But it seems particularly the case in the blockchain and these communities are global in nature and involve a wide range of developers and third parties in the ecosystem and the ability to drive your community, to take the intended actions that you want them to take. To support each other to acquire other members of the community are really intentional actions that any, anyone, any project designer or any project leader must think about and take, as they embark on trying to find product market fit and trying to build their community around their platform.
Fabio: Could you talk a little bit about all the communities that you are actually involved with and how do you try to make these not overarching communities but it's smaller communities that have a shared goal or shared vision.
Jeff: Yeah, one of the best ones, as an example, around shared vision and shared goal that I can cite is the company, Chief, which is a community of female executives, C level executives that we invested in that originated in New York city, but now has spread throughout the United States. And the insight from the two founders was that women, senior women in executive roles desperately seek out community, even though they're incredibly busy and incredibly stretched, seeking out peers and supporting those peers as they advance in their careers is a very powerfully shared goal. And so the company was able to form this community of senior women who were excited to be with each other and to support each other who pay a membership fee to be in the community, often paid by their company and who invest tremendously in bringing other women into the community because they recognize that the more powerful the network of female executives join Chief, the more valuable the community is. And in many ways that the community itself becomes the product. What's interesting about Chief is that your original hypothesis was that the clubhouses would be a very important part of the product offering the physical spaces where the community would gather for events, but in the age of COVID clubhouse has gone virtual and it turns out the value in the product is actually the community itself more than the physical space. It's the network and relationships that the women have with each other and supporting each other than any physical manifestation of that.
So those, those examples, like Chief, like what you did at City of Zion, like what we've seen happen at MongoDB and other communities that we've been involved with really has got us thinking more and more about the importance of community and the value of community and what the playbook looks like to execute on building a community around your company.
Chris: Just to back up on the notion of community for a moment. You mentioned COVID, but I wonder, could you maybe comment on how the internet and social media in general might have changed the way communities organize around brands and products over recent years.
Jeff: Sure. There are two things that we've noticed as macro trends. One that have driven this notion of community. One is what professor Robert Putnam from Harvard Kennedy school referred to as bowling alone, which was a famous book that he wrote about a decade ago, where he talked about in American society, and this is true in many other societies, globally membership has gone down. People don't go to church as much as they used to. They don't belong to civic organizations as much as they used to. The benefit of the internet is that everyone receives their own personalized content channel. The downside is we don't have that shared experience as a global society and a global community.So that was one interesting trend is that as social animals, we're becoming lonelier. And the second trend is that, and you hinted at this with your question, Chris, that tools have emerged with the web and with broadband that have allowed communities to form in a very efficient fashion. Slack is an obvious one that many of us use and other fors and social media platforms are similarly situated where online communities can be created very efficiently and you can now follow into communities of shared values and communities of shared interests, not just communities of shared geography. And so those two forces, on the one hand, feeling more disconnected thanks to technology and seeking out social connections and on the other hand, the tools for online social connections being more readily available have led to this opportunity we think of community formation using the modern digital tools, and certainly the pandemic has accelerated that progress and has been a catalyst for that development.
Fabio: So when you talk about the physical space, uh, not needed so much for the value of, Chief I think that's like really hit the point, because right now establishing the needed the connection is really, really cheap, right? So you don't need a physical place anymore. You need just some way to get together and I think if you can manage to sync that notion of the value and actually make it super simple that one community member can bring you out to the other. Right? So this exchange should be frictionless, let's say. I think that this is really important catalyst for communities and it's something that, for sure we want to grow a lot, in Nash and you will really see when people is sharing like if they are frictionless when sharing how some members, they start to be become a bright light in your community and they contribute so much. It's a phenomenon, really. What we have started doing at Nash is try to identify these people, bring them closer as ambassadors to the brand but at the same time, we have to fight with this notion that we don't want to alienate the other bright lights that are emerging in the community. Right? So how do you see someone moderating a community to take on the challenges of keeping this channel diverse without alienating members?
Jeff: I think the way that works best is if there's a shared purpose and set of values for the community, but not necessarily a shared or a homogenous profile. One of my mentors likes to say, we should eliminate the term cultural fit and replace it with values fit because to build a diverse community you want many cultural misfits. You don't want to have everyone be homogeneous in their culture, but you do want to have a shared purpose and a shared set of values. And so I think if you want to build an open, transparent, diverse community, you have to focus on values over culture. And then the second part of your question around engagement and different levels of engagement. I think one of the things that. A mistake that many entrepreneurs fall into is they focus on applying the marketing funnel to the community and they force community members on a march, a forced march up Mount Everest, to the equivalent of the marketing funnel to get them to behave in exactly the way they want them to behave. And in truth, community members more typically want to engage in a variety of activities at different points in time based on their goals and their profile and where they are in their lives. And that's okay. That should be a part of community. A good community design is that community members can move in and out at different phases and different levels of engagement and at each of those levels of engagement, they're valued. And at each level of engagement, they're encouraged to move to a more intense level but not forced or pushed in any way.
Fabio: If we have this community, we have managed to get shared goals and shared values and we know very well how people are using their product, so, let's start scaling this. How do you see marketing and community business development going as you reach market fit?
Jeff: The most powerful way to grow a community is to have it generate self perpetuating energy and growth where a community members attract other community members and there's a set of actions that you want your community to take your community members to take to do that whether it's sharing on social media, whether it's reaching out to the key community leaders that are active spokespeople. One of the community managers at Codecademy one of our portfolio companies which is the largest online coding school said to me that you know these communities they typically exist already So you're not in many ways sometimes you're not as much creating a new community as much as you're trying to organize, engage and support an existing community and harness it. And so finding where the members of this community live, what they read, who they talk to, what Reddit fors they attend. That's the magic is, is getting those community members to come and pay attention to your platform and your value proposition.
I'll say one, maybe one more thing on that, which is I'll say one one more thing on that which is taking a page from Reddit interesting flywheel You know Reddit is is this has created this interesting flywheel effect where the content created by the users itself generates more user traffic because it's discoverable on Google through search engine optimization and often share it through social media and so if you can create in your community this flywheel where the actions taken by the members of the community in turn generate more energy a really powerful design.
Chris: I have a question which is about these sort of macro effects that we've been discussing. your fund is very interested in sort of open source projects and you've spoken about how you like the sort of the frictionlessness of exchange. So how do you see this tendency characterizing maybe the future of entrepreneurship and particularly which countries or regions might emerge as global leaders, if any. So I'm assuming you would agree that there will be a shift away from, for example, the US as having a hegemony in this kind of region which it developed in the 20th century for various historical reasons. But do you see these tendencies leading to much greater global diversity in terms of which regions are centers of entrepreneurship?
Jeff: It's a great question, Chris. And I'm not sure I have the crystal ball on being able to prognosticate which countries and which communities will emerge most effectively I do know that there are a few advantages that open societies have which are freedom of expression freedom of thought freedom of press freedom of intellectual engagement and debate communities that have those and I think that the countries and the communities that have those freedoms are more likely to have and foster strong entrepreneurial activity in this age of, of community formation. If one is raised in a society where freedom of expression and debate and conflict and challenge is looked down upon or suppressed, I think can be very difficult to generate that entrepreneurial energy where as you know, entrepreneurs are iconoclasts, entrepreneurs challenge the status quo entrepreneurs are disruptors and only in a free and open society in a, in a liberal democracy if I can use that old fashioned term, do you encourage that behavior from when, when folks were very young.
Fabio: if you think about the future, I will not say there will be a flag on entrepreneurship, you know? It's much more a profile in, as Jeff said, like, if you have that mindset then where you are, and as technology evolves, and I think COVID is like a demo of this remote work, remote communities, these things will become so powerful. There's no reason you can't create a billion dollar company from your home anymore and that wasn't even imaginable just a few years ago, right?
Jeff: I agree with that. It's also interesting to note that I agree with that. It's also interesting to note that many of our companies are widely distributed and Nash is a great example of that. Fabio and Carla started in Cambridge; now they live in Austria. Many of their teammates are spread out throughout Europe and the U.S. and Asia and they've been always a remote first company and a company that was distributed at its core and it's those kinds of design principles that I think are going to be most effective in the future and I think the companies that can embrace those design principles really in their formation will be successful.
Fabio: You know, it's always good to look back and think where you are in the theoretical frame, right?
Jeff: Yeah. And one of the things that when I talk about product market fit, I think you've heard me say this before but there is a sequence that matters and the experiments that you choose and the sequence of your those experiments is effectively your strategy of those experiments is effectively your strategy. And so you can't just run these experiments and choose them willy nilly. You need to really be deliberate and I think Nash has been a great example of that where go to market Fabio and team worried less about go to market and about scale and and pricing and business model and really focused on value proposition first and running a number of experiments around value prop and who the customer was and what is it that they wanted and where their pain was and how does Nash address that pain and that takes time to iterate your way through that cycle but once you once you hit that iteration and once you get a few hundred and maybe then thousand customers to really love your product and platform then you're ready to scale. But until you can get a thousand people to love love love what you're doing which is a quote that the Airbnb founder likes to cite as a piece of advice he got from Paul Graham of Y Combinator, you know it's much better to get a thousand people to love what you're doing than a million people to like it. And I think Nash and Fabio and team have done a really great job of zeroing in on that part of the formula and then leveraging the power of community to scale from there.
Chris: Jeff, do you have another good example of a company that has designed experiments very effectively and is maybe further along the road then Nash is right now?
Jeff: Well, one example that we teach a lot in our class at Harvard Business School is the example of Dropbox. And the way that in the early days Dropbox would test various features and various capabilities in a very intentional fashion in the way that they designed virality into the product as you know when you use the product and share a file you're encouraging the person you're sharing that file with to open up an account and Dropbox made it very easy to do that and made it free to do that. So really reduced in a very intentional fashion friction and it induced in a very intentional fashion a design principle of virality into the product and ran many many experiments throughout its early days to get that right rather than spending a lot of money In fact any money on sales and marketing they just kept driving forward the product eventually leading to a success that we now have a category that we refer to as product led growth that other companies like Slack and Atlassian fall under which are companies that create a product that's so compelling and design these capabilities and virality into it in such an elegant fashion that the product itself, the usage of the product itself drives growth of the community that wants to use the product and so that's another I think really strong example many entrepreneurs like to try emulate and try and observe and study.
Chris: That's a very good example.
Fabio: So when you are in the iteration cycle, right? If you are experimenting your hypothesis might be false, right? That's an outcome. So how, how does the business change when that happens?
Jeff: Well the exercise of adjusting your business model which is often referred to as a pivot and sometimes referred to just simply as a tweak if it's a smaller iteration, is a critical part of the of the product market fit journey and companies like Nash need to have an open minded approach to taking in the data from the experiments and adjusting appropriately. There are some times when a founder of a strong product oriented, technically oriented founder has a vision for their product that they ignore the data that comes back from the experiments. And that can be a very dangerous thing that you have a preconceived notion as to what you're trying to build and what the value is and what your customer thinks before you really do the deep inquiry and the hard work and so the advice I give is to really be open minded about everything is on the table. Anything can change, our pricing model can change our product and change, our go to market can change even our team can change If we discover that we have the wrong approach or the wrong target or the wrong solution and that openness to change is a mindset that's difficult to develop but for vision, powerfully passionate entrepreneurs who have an overall vision but an openness to adjusting and and as I said pivoting along the way. That's a really important dual mindset that great entrepreneurs tend to have.
Fabio: I think this is amazing. It's something that when we were thinking about capital in Nash in the beginning we really wanted to do something related to the company, not a project. Because as you might know Jeff, in the crypto businesses there are a lot of businesses who, uh, issued tokens or I will call raise capital right using a white paper. So they were promising some kind of model of some kind of delivery, and now it seems that you tied your outcome right in the beginning where you are trying to form your team and get capital to start, now you'll have these expectation of building a cookie cutter solution that you wrote in a paper a couple of years ago.And I think that that doesn't fit very well with this method, which is known to work. So I will say that I may be a little strong here, but I think a lot of the failures in crypto so far, and the failures I say, like the company that didn’t last long, they that are because there was a commitment to a product to be built are there was no demand for that product there was expectations around it but people just built something because they said they would build it not because it was needed.
Jeff: It's a fine line between a vision led founder and product and a user led. As Steve jobs liked to say you know if back in the day Henry Ford had asked what people wanted they would have told them faster horses and smoother paths so the invention of the automobile really was a top down visionary invention just like the invention of many of Apple's products were top down and visionary. So you don't want to you don't want to lose the vision but you also desperately need to listen to your users and be open to change and be willing to have a growth mindset as Carol Dweck from Stanford likes to say a growth mindset, which allows you to evolve and learn and be open to feedback and open to data from experiments that you run early in the startup days.
Chris: I think perhaps an extension of this principle that Fabio mentioned of just building a thing because you advertise it in the white paper is just the funding mechanism itself. It's many projects that created the token or a utility token say that really didn't need a utility token, but were driven to it as a means of raising capital.
Jeff: Yes it's a little bit of a tail wagging the dog which is letting your financing strategy drive your business strategy as opposed to having your business strategy and the construction of your business model drive your financing strategy.
Chris: Fabio, maybe you could comment more on how Nash tried to avoid this problem in terms of the way in which we designed our token and also how that token is deliberately focused on returning value to the community.
Fabio: One thing that we did rightI think it was the design of the token around revenue of a core function of the company, which was the exchange. So while it was really complex to issue the security it did give us the chance to change the product. Right? So a lot of our users know the mobile app and they love it. So we have decided to invest more on the app and build products on top of that. So we are focused on the cash position offering the Nash cash and on the payments position on Nash Pay and this is something that we can feed back to the exchange and in the end the exchange works, not as this trading hub, that we need to have people with three monitors trading on a desk, but actually the place where we put and take liquidity for people buying with cash and for people paying with crypto. So at the core we can bring back value to the people that invest in us to the token holders at the same time, we can have a different business than what it was imagined to be the main driver initially.
Chris: There's certainly been a lot of great insights shared in the conversation. So thanks to both of you. Thanks for being here today Fabio.
Fabio: Thank you, Chris, for having us this was an amazing chat Jeff. I have so many ideas for our community right now.
Chris: And Thanks also to Jeff!
Jeff: My pleasure. Thanks to all!
Chris: And thank you to everybody for listening to Beyond the Chain. Don't forget, you can subscribe with your favorite listening stream and you won't miss an episode. The full text of today's podcast can be found on podcast.nash.io