Building Codiga: Don’t believe the hype
Note: This post is part of a series about building Codiga.
In the startup world, you can see many fads come and go. A lot. Careers are made and destroyed in a few days. And if you cannot prove what you promise, reality will be revealed one day or another.
Remember Juicero? Founded in 2013, this Silicon Valley darling startup was supposed to change the beverage industry. The company raised $120M but closed in 2017, after a journalist reported that the machine was only extracting juice from a pack (and you can do it manually). Investors believed the company could become a billion-dollar company, and some customers bought a $699 machine to squeeze plastic packs.
Or think about the now-infamous Theranos story: a company that gave hope to patients and promised to make breakthroughs in health technology. Founded in 2003, it took more than 10 years to find the technology did not exist, and some patients were misdiagnosed (as reported in Bad Blood). Investors put more than $724M in a company without tangible results.
More recently, FTX, a crypto exchange, was allegedly the biggest financial scandal since Maddoff. The company raised billions from the most prestigious venture capital firms and, after three years of operations, shut down.
All these startups were considered innovative and impossible to pass on. The media made articles about these “genius” founders. Venture Capital investors gave them millions. Only to find it was all a scam from day one and no one did their due diligence.
As a founder, you will get rejected. You will be told your startup needs to be more innovative. Investors and wanna-be entrepreneurs will tell you what to do and how to do it. But most of the time, they have no idea and take advice from random people on Twitter while taking a dump in the bathroom. People who jump on the trendy bandwagon will get funding, and you will get nothing.
If you were a tech founder working in 2020-2022, you would have seen a lot of crypto and web3 companies getting funding. Millions were thrown away to “build the future of the internet”, focusing on decentralization (hint: the internet was initially designed to be decentralized, it got centralized for a reason). And yet, to this day, despite claims from grifters that web3 is the future, no investor can tell us how to build a web3 application besides sharing a monkey picture on some centralized NFT marketplace.
I believe that building great, iconic companies relies on principles and habits that persist over decades. Great companies that last and are built on strong fundamentals. The book “Good to Great” gives a good overview of the principles of great companies. Always come back to the core principles and think if your value still resonates with today’s world and if you need to adapt.
Focus on user value
Your product must always provide value to your user. A product should make the user's life easier, more productive, etc. It must bring something of value. Aaron Levie, CEO of Box, summarizes it in the tweet below. Levie founded Box (a cloud-storage company) in 2005. In 2022, the company, now public, has a market capitalization of $4B (at the time of this writing).
It’s easy to get on the train of the current trend. But trends go as fast as they come. If your product does not provide value, you will one day face the harsh reality that your product is not useful and worth nothing. web3/crypto products were a solution in a search of a problem and did not provide any value. These companies are almost all going to zero.
A great example of a company that kept focusing on user value is Apple. They would have had multiple opportunities to focus on useless products and trends, but didn’t, and stayed focused on their core values and mission. In early 2010, when netbooks were widely available to the public, Apple backed down and decided these devices were not good enough for the user. Instead, Apple kept focusing on building great products users love and eventually released the MacBook Air: a very lightweight and fully functional laptop.
Avoid trends
How many web3/crypto startups have emerged in the past three years? How many of these companies are providing a service to end users? What is the real value brought by web3 company today? Does it justify an overhype and dedicated funds?
We saw the same trends ten years ago with machine learning startups. In the 2010s, a lot of machine learning companies emerged with the promise to revolutionize how the industry worked. The hard truth is that many of these companies were doing nothing apart from using traditional algorithms and labeling them as A.I.
While fundraising, I had a call with an angel investor. He declined to put money in our seed round because they invested in a competitor that claimed to be much more innovative than us, since they relied on Machine Learning (ML). He asked me to look at this company to test the product and report how good their Machine Learning system was. I was curious, intrigued, and to be honest, scared that we would have a strong competitor in front of us. Not only I found that this competitor was not using ML, but they were using 10 years old open-source tools. While they pumped investors and claimed to be a Machine Learning company (with some ML specialist to justify a huge raise), it was all fake from day one.
I am not saying that new technology is not useful, far from it. My point is to use new technologies not because they are trendy, but because they provide value to your user. New technologies need to mature before providing real value to the user. It took ten years to see usable applications of Machine Learning and provide value to the user (autopilot on a Tesla, healthcare improvements such as improved cancer diagnostics). But unless there is a clear value to the user, using the latest trendy technology will not help you.
It applies (especially) to investors, too
I met one investor in a well-known venture capital firm when raising funds for my company. This person told me my solution was not interesting and told me why. He then went on to explain how they invested in a cloud-based browser from a repeated founder that would give him a great return. His words were (approximately): “this person is so great that I do not even need to check what the company is doing, it will be a unicorn”. They praised the founder (very prolific on social media) and told me this person was so great that there was no doubt they will build an iconic company and product. In 2022, this company closed down. Two months later, I was selling Codiga. You would have listened to all respected investors: they would never have bet on me but on the other “trendy” company.
Similarly, thousands of great founders were rejected by well-known investors. These investors tell you repeatedly they have a very strict diligence process and only accept founders with a strong product-market-fit, great work ethics, and strong economics. Still, well-known investors like Sequoia invested in FTX when the founder was playing a video-game (League of Legend) while pitching them. And Softbank invested more than $1.7B in WeWork, a business that was proposing nothing else than renting offices. They all drank the Kool-Aid like 3 years-old watching Cocomelon in the morning.
Am I angry at these people? Not really. Their behavior is human. They all fell for the current thing, the latest technology trend (crypto) or founder (Bankman-Fried or Neumann) that has been overhyped. Being rejected is part of the founder’s life and should never discourage us. And I strongly believe the job of a CEO is not to fall into these traps but stay focused and obsess on delivering value to the user.