Latest / The Learning Corner by Precursor / Episode #59: Pivots Rarely Work, Missionary Founders, Does Seattle Hate AI?

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Episode #59: Pivots Rarely Work, Missionary Founders, Does Seattle Hate AI? · The Learning Corner by Precursor

• 0:00
  I think the thing that's missing sometimes in this pivot conversation is sometimes the best
• 0:03
  thing to do when you realize the thing that you're working on isn't working is to actually
• 0:07
  take a pause.
• 0:07
  Take a beat, step back, and say, hey.
• 0:09
  We tried something.
• 0:10
  It didn't work.
• 0:11
  What are we gonna do?
• 0:12
  Are we gonna try to build for the same customer with a different product?
• 0:15
  Are we gonna try to redeploy the same product to a different customer?
• 0:18
  Are we gonna, like, change markets?
• 0:19
  I find these wild pivots are really hard.
• 0:21
  It's the week of December 8.
• 0:23
  Welcome to the Learning Corner, a Precursor Ventures podcast.
• 0:31
  Welcome to the Learning Corner by Precursor.
• 0:33
  I'm Mia Farnam, and I'm joined by RGP and managing partner, Charles Hudson, and also one
• 0:38
  of our graduate interns, Youssef Benor, to talk through this week's Goodreads and articles.
• 0:44
  Welcome, Youssef.
• 0:45
  Thank you, Mia.
• 0:46
  Thank you, Charles.
• 0:47
  This is a dream come true, so thank you so much for having me.
• 0:49
  I always enjoy this conversation, so super excited to dive deep into it.
• 0:53
  We're excited for you to be here.
• 0:54
  Our first topic is a LinkedIn post from Ben Kosnoca, cofounder and GP of Village Global,
• 1:00
  who reflects on how his thinking has shifted after backing hundreds of startups.
• 1:05
  Conventional venture wisdom suggests you should back exceptional founders even if their initial
• 1:10
  idea is weak, assuming they'll eventually pivot into something better.
• 1:14
  Ben says, quote, the popularity of the concept of the pivot in startup lore exceeds the rate
• 1:20
  of success in practice, and even great founders often fail when starting in bad markets.
• 1:25
  Ben observes that the strongest companies typically had compelling day one ideas, while
• 1:29
  teams with weak initial theses struggled to build.
• 1:33
  He breaks down the dilemma investors face when encountering a great founder working on a
• 1:38
  questionable idea, highlighting four things he evaluates.
• 1:42
  One, the founder's openness to iterating their version one idea.
• 1:46
  Two, whether entry valuation reflects the risk.
• 1:49
  Three, whether the round size avoids early overhiring that makes pivoting harder.
• 1:55
  And four, whether the founding structure allows flexibility in future decision making.
• 1:59
  The conclusion is that founder quality matters, but idea quality matters more than investors
• 2:04
  like to admit.
• 2:05
  Strong companies usually start with strong ideas, not weak ones that somehow get
• 2:09
  transformed later.
• 2:09
  Before we go deeper, Charles, how do you personally weigh powder quality against ideal
• 2:14
  quality, specifically at Preseed where we spend times It is so early, we think that pivots will
• 2:19
  inevitably happen.
• 2:20
  So how has your view shifted as you've seen more companies try to master the pivot?
• 2:24
  I get this question a lot, especially from LPs.
• 2:27
  It's all about the people.
• 2:28
  Right?
• 2:28
  I'm like, yeah.
• 2:28
  But a couple of things I've observed, most really good founders I know don't pick bad
• 2:32
  ideas.
• 2:32
  They simply don't because they can usually sniff out what makes a good idea, market size,
• 2:37
  market opportunity, market structure, all these things.
• 2:40
  So I find, in theory, oftentimes if I find somebody who's a smart person who's working on
• 2:45
  a bad idea, sometimes they know it's just a starting point too.
• 2:50
  But I would say, for a long time, would tell people the idea matters.
• 2:53
  They're like, why?
• 2:54
  This founder is awesome.
• 2:55
  I was like, but in a pre seed round, you're not raising that much money.
• 2:58
  You're raising money for, we'll call it, twelve to twenty four months.
• 3:01
  And if you start off with a terrible idea, you don't have a lot of time unless you instantly
• 3:07
  realize the day the money hits the bank that the thing that you pitched all those people on
• 3:11
  was a terrible idea, which which has happened to me, but not that often.
• 3:15
  You're gonna spend some of that money going in the wrong direction.
• 3:18
  Then the question's like, how much money and time do you waste going the wrong direction?
• 3:22
  So I tell people, you need to be in the zip code of a good idea.
• 3:25
  I don't expect the original idea to be perfect, but you do need to be in the zip code of a good
• 3:30
  idea.
• 3:30
  And when I look at our best portfolio companies, there are very, very few examples of
• 3:36
  pivots.
• 3:37
  Almost all of them are essentially doing the thing that they said they would do.
• 3:41
  Maybe not in the exact same way, but they're generally building in the same market for the
• 3:46
  same customer architect that they pitched us on.
• 3:48
  And I think that's part of the process.
• 3:51
  Ironically, I think there are two ways you can do this.
• 3:54
  One is you can do kind of more like what South Park Commons does.
• 3:56
  You And can just say, we're gonna find people before they have an idea, and we're going to
• 4:00
  take no opinion on the idea because the idea doesn't exist.
• 4:03
  And we're gonna work with them through the iteration with the belief that they will come
• 4:06
  out the other end with a good idea.
• 4:08
  I think that model works.
• 4:09
  The other model is you assume that the person has spent some amount of time thinking about
• 4:13
  the thing that they wanna build, and it's come to this conclusion.
• 4:15
  The other thing that that Ben said that I agree with is I care less about the initial idea if
• 4:20
  the company's raising a $5,000,000 round.
• 4:22
  That's kinda like two shots on goal in one.
• 4:25
  And as long as you don't overhire or overscale the company, you can you can explore and try
• 4:31
  things.
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  The challenge is those rounds often come at high valuations, and so the thing that comes
• 4:35
  out the other end has to be worthy of it.
• 4:38
  So I tell people, it's like sixty, forty, seventy, thirty team two idea.
• 4:44
  And so the last thing I'll say is, I think there's like a spectrum of ideas.
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  There's like amazing, incredible ideas.
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  You hear them like, that's such a good idea for a startup.
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  And then there are truly terrible ideas.
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  I don't think most people have truly terrible ideas.
• 4:57
  I do think there's, like, for me, some minimum threshold where I I tell you, well, I have to,
• 5:00
  like, not hate the thing.
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  I have to think it has, like, a reasonable chance of succeeding.
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  I don't have to love it.
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  Because there have been things I didn't love, that I didn't understand, that turned out to be
• 5:07
  very good ideas, and we didn't invest in them.
• 5:09
  So I don't think you wanna overweight the idea either.
• 5:11
  Charles, the other flip side of the $5,000,000 round too is that there's probably this belief
• 5:15
  that there is enough resources to probably deploy heavily in one direction.
• 5:20
  And then if we need to pivot, we can.
• 5:21
  So there has to be a little bit of striking a balance there.
• 5:24
  Right?
• 5:24
  Yeah.
• 5:25
  I mean, we've we've had companies in our portfolio that have raised larger rounds that
• 5:28
  have started in one direction and pivoted, and they were resourced to do it.
• 5:32
  And I think that's great.
• 5:33
  Now I think it still means the pressure is high to build something of consequence when you do
• 5:37
  that, but, like, it's possible.
• 5:38
  Do you agree that pivots rarely succeed?
• 5:40
  And if so, what distinguishes the rare pivots that do work from the many that don't?
• 5:45
  Yulad Gil's book has a really good framework for pivots that I really like.
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  And, you know, most of the time, when our portfolio companies, Yousef, come to us and
• 5:52
  they tell me how to pivot, I'm like, are we pivoting or are we flailing?
• 5:55
  I think the thing that's missing sometimes from this pivot conversation is sometimes the best
• 5:59
  thing to do when you realize the thing that you're working on isn't working is to actually
• 6:02
  take a pause.
• 6:02
  Take a beat, step back, and say, hey, we tried something.
• 6:06
  It didn't work.
• 6:07
  What are we gonna do?
• 6:08
  Are we gonna try to build for the same customer with a different product?
• 6:11
  Are we gonna try to redeploy the same product to a different customer?
• 6:14
  Are we gonna, like, change markets?
• 6:15
  I find these wild pivots are really hard.
• 6:18
  And oftentimes, they're not well thought out, and sometimes you have a team that doesn't make
• 6:22
  sense for that new company.
• 6:23
  I don't know that every founder takes pivots seriously, but I understand the desire, like,
• 6:27
  hey, the thing we were working on isn't working.
• 6:29
  We gotta find something else and fast.
• 6:31
  But I'm like, the worst thing you can do is go from one bad idea to immediately pivoting into
• 6:36
  something else that's equally poorly thought out.
• 6:38
  Give yourself time to make sure that that new thing is good.
• 6:40
  Or in some cases, just say, hey, we don't and this is happening more and more in our
• 6:43
  portfolio.
• 6:44
  We don't have a really good new idea.
• 6:46
  This is what used to happen back in the day.
• 6:48
  You would just say, hey.
• 6:49
  The thing we were gonna build didn't work.
• 6:50
  We're going to send the money back.
• 6:52
  We're gonna wind the company down.
• 6:53
  The hypothesis was wrong.
• 6:55
  And I think, like, Slack and a few other and genie.com pivoting into Yammer.
• 6:59
  I think we have enough lore stories now that people are like, I could be one of those, but
• 7:03
  most people aren't.
• 7:03
  That's a good segue into our next piece, which comes from investor Aaron Harris from Magic and
• 7:08
  Company titled missionary accountants.
• 7:10
  Harris challenges one of the venture capital most persistent cliches that the best founders
• 7:15
  must be missionaries deeply and personally passionate about the problem they're solving.
• 7:18
  Harris argues that this narrative is overstated and often unfair.
• 7:22
  Many great companies are built by highly capable founders who are motivated by
• 7:26
  opportunity, craftsmanship, or entrepreneurial skill rather than emotional or morale
• 7:31
  attachment to the problem.
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  He uses the idea of a missionary accountant to highlight the demanding passion in every
• 7:36
  category.
• 7:37
  In reality, most successful accounting or infrastructure founders weren't spiritually
• 7:41
  called to those industry.
• 7:43
  They were simply excellent builders who understood the market need.
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  Harris warns that placing too much emphasis on mission can become a subtle form of
• 7:50
  gatekeeping, dismissing founders who don't fit the etype.
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  So his core point was what matters is whether a founder can understand the market, execute
• 7:58
  well, strong economics, and iterate with clarity, not whether they profess deep personal
• 8:02
  love for the domain.
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  How do you distinguish between genuine founder conviction and a narrative crafted to appeal to
• 8:08
  investors who over index on mission?
• 8:10
  Yeah.
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  I also wanna hear what Mia has to think on this one too.
• 8:12
  I mean, for me, I've always thought, like, nobody wakes up passionate.
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  No one says at at eight, I wanna build a CRM.
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  Uh-huh.
• 8:18
  Right.
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  You know, in high school, my dream was always to build an ERP system.
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  Like, nobody says that.
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  But what matters are the things that Aaron mentioned.
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  Like, are you good at building?
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  Do you have attention to detail?
• 8:27
  Do you care about your customer's problem?
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  And I think it's okay to say, like, hey.
• 8:30
  This problem's interesting to me because this customer's interesting to me or because I find
• 8:34
  it intellectually stimulating, not because my grand you know, I'm a third generation ERP
• 8:38
  developer.
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  We've talked in the past about a few things in venture that people wish were true.
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  And I think the flip side is I've met a lot of really passionate mission oriented people who
• 8:46
  are working on music related startups, And that is a domain, and there are a lot of things in
• 8:52
  consumer that attract people that have, like, real mission attachment to those problems.
• 8:56
  And in many cases, the the economics of those businesses are more powerful than people's
• 9:01
  missionary attachment to the problem.
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  And so I don't know.
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  I think a lot of VCs would love to believe that this is true.
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  But what I will say is when you do find someone who has deep mission attachment to a problem,
• 9:11
  it usually means they're gonna fight harder and work harder to make it happen than the average
• 9:15
  person, and that is usually a good skill.
• 9:17
  I don't know what
• 9:17
  we're I'd agree.
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  I think, specifically, when I think about health care, it's funny.
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  I think there's so much passion that comes into a lot of digital health and tech enabled
• 9:25
  services companies that come up.
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  They're built through a lived experience of not having the support they needed in the care.
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  There's tremendous amount of opportunity in the back end infrastructure data interoperability
• 9:36
  side of health care, which is the least sexy area to go.
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  But we can't even start offering new capabilities for truly personalized care unless
• 9:43
  the rails of health care are rewritten.
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  And so that's there's been a wave of really wonderful companies that have come up to really
• 9:49
  be like, what's the root cause of the reason why I can't deliver end health care?
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  It's because EHR, CRMs, all of that is completely broken.
• 9:56
  The fact that you can't control any part of your data when you move from one practice to
• 10:00
  the next, I felt this a lot.
• 10:02
  Looking at women's health for a long time, and so I think we still have lots to go, but I
• 10:06
  don't think any person, to your exact point, woke up and was like, oh, I'm so passionate
• 10:09
  about EHR and CRM capabilities, which is why I wanna build here.
• 10:13
  But I do like a balance.
• 10:14
  I do like when you hear the stories from the founders of knowing, like, I acknowledge that
• 10:18
  this is the least sexy area, but we can't even start scratching the surface on delivering
• 10:22
  better care unless we start here first.
• 10:25
  I think there's one other dimension.
• 10:26
  I've just worked with some people who are just very competitive, and they just like winning.
• 10:30
  And if you put them in any game, they're gonna wanna figure out how to win.
• 10:34
  And I think for some of these market I think at the end of the day, startups are hard, so
• 10:37
  something has to get you through the hard days.
• 10:39
  It can be attachment to the problem and the mission.
• 10:42
  It can be the people you work with.
• 10:44
  It can also just be your inner desire to win and beat other people.
• 10:48
  And we have some people in our portfolio where I just think, like, I could put them in charge
• 10:51
  of a chicken coop.
• 10:52
  They want that chicken coop to be the most productive chicken coop, and they'd wanna beat
• 10:55
  every other chicken coop on the block.
• 10:56
  And it's more this is the vehicle for exercising some inner desire to win than it is
• 11:01
  about, like, the specifics of that business.
• 11:02
  And I guess my last question here is how do we balance that with I think these missionary
• 11:07
  founders are usually pretty good storytellers too Yeah.
• 11:10
  That's what you wanna lead.
• 11:11
  And so I think it goes back to the first topic that we had.
• 11:13
  I think this is something that venture would like to believe to be true, that these are the
• 11:18
  types of founders that we fund early on.
• 11:20
  But to your chicken coop analogy, that execution skill set is so important when you
• 11:25
  have limited of cash to work with.
• 11:27
  So, I mean, does this missionary founderism cause investors to overlook the pragmatic
• 11:33
  operationally excellent founders who might execute better?
• 11:36
  Yeah.
• 11:37
  And I I've met some mission oriented founders who just couldn't execute to your point, Mia.
• 11:40
  They had all the passion and attachment to the problem, but they couldn't figure out how to
• 11:44
  connect the dots.
• 11:45
  And so I think there's a danger in, like, over indexing on mission.
• 11:47
  Whenever we meet a founder, always ask myself, why is this person working on this problem?
• 11:51
  Why does it matter to them?
• 11:53
  And sometimes it's, hey.
• 11:54
  I tried to build this at my old company, and they wouldn't let me, and I have chip on my
• 11:57
  shoulder.
• 11:57
  We have all these, like, chip on the shoulder and mission.
• 12:00
  At the end of the day, like, it's important to understand what's this person's internal
• 12:03
  motivation for doing this.
• 12:06
  And I find it very hard to invest in companies where I don't have some sense.
• 12:10
  It doesn't mean I'm right every time, but I find it very hard to invest in companies where
• 12:13
  I don't have some sense of, like, what's motivating this person to do this as opposed to
• 12:17
  go do something far easier and far less risky.
• 12:20
  Not to tie it back to the first piece, but right now with all the pivots tied to moving
• 12:24
  into something dot AI, I feel like that question is coming up so much of, like, maybe
• 12:30
  this wasn't the time for a pivot into an AI.
• 12:32
  Maybe it was return the money back, and then let's pause and breathe and start something
• 12:36
  completely fresh.
• 12:36
  A rebrand, I don't know if it's gonna save face here.
• 12:39
  That's a really good segue into our next and last topic of the day, which is a piece by
• 12:43
  Jonathan Reddy.
• 12:44
  And this topic actually hits close to heart because I actually come from Seattle and I was
• 12:48
  one of the engineers that Jonathan will be talking about.
• 12:51
  So Jonathan Reddy, founder of Wonderful, in his piece titled everyone in Seattle hates AI,
• 12:56
  Jonathan describes a surprising pattern in conversation with Seattle based engineers.
• 13:00
  Many of them are angry and exhausted towards anything labeled AI.
• 13:04
  Ready expected curiosity when mentioned in his AI startup, but instead, he was encountered
• 13:08
  with frustration tied to broken internal tools, horse AI mandates, layoffs justified by AI
• 13:14
  efficiency, and assessed that being on an AI team now function as a protected status inside
• 13:19
  Big Tech.
• 13:20
  He notes that this negativity wasn't directed at him personally.
• 13:23
  It reflects a broader cultural mood in Seattle where AI is increasingly associated with
• 13:28
  corporate dysfunction rather than innovation.
• 13:30
  What struck him is the contracts while engineers in other city respond to AI with
• 13:35
  excitement, Seattle engineer often respond with resentment.
• 13:38
  The issue isn't the technology, it's the way AI has been deployed and messaged inside legacy
• 13:43
  tech environment.
• 13:44
  I'm just curious, Charles, from your perspective, how should investors interpret
• 13:48
  growing skepticism toward AI within legacy tech hubs?
• 13:51
  And what does the internal culture pushback signal about the ecosystem future direction?
• 13:55
  I think this has been a fascinating for the like, there were, like, five people in Seattle
• 13:59
  who Yeah.
• 14:00
  Sent me this article.
• 14:01
  So I don't
• 14:01
  know if all
• 14:02
  of Seattle hates AI, but a lot of my friends were like, this this is it resonated with them.
• 14:06
  There's a couple things.
• 14:08
  I don't know if either of you have had this experience.
• 14:09
  I've I have friends at Microsoft, and I've talked to them.
• 14:12
  I was like, oh, let's do a let's do a meeting.
• 14:14
  I'm sorry.
• 14:14
  I'm gonna have to send you a Teams invite.
• 14:16
  And I'm like, I don't like I'm not a big team of tech.
• 14:18
  And I don't know.
• 14:19
  I've worked at not a lot of time in big tech.
• 14:21
  What I have found is sometimes the company has a product and and the desire to push that
• 14:26
  product.
• 14:26
  You end up saying, no one can use Cursor.
• 14:29
  You gotta use GitHub Copilot because that's our thing.
• 14:31
  And I think there are fewer things that are more frustrating at work than being told to use
• 14:35
  a tool that you know is inferior.
• 14:37
  It's really demoralizing and degrading.
• 14:40
  And in particular, if you're just, like, not in a position to help improve or fix that tool.
• 14:44
  And the thing that really resonated with me is I think I've worked when I was at Google, there
• 14:48
  were some, like, protected classes.
• 14:49
  There were, like, high profile projects where if you were on that project, you were in this
• 14:53
  elevated status and you got a lot of resources.
• 14:56
  And if you were in a low status project, you didn't get the resources.
• 15:00
  And part of being in a big tech corporate environment is understanding how to migrate
• 15:04
  away from low status, low importance projects, and try to get closer to whatever the center of
• 15:09
  gravity is at the organization.
• 15:10
  And I also think this is something I underestimated at the beginning of this AI
• 15:15
  revolution is that, like, there were a lot of incumbent and are a lot of incumbent companies,
• 15:19
  that have tremendous assets that they can put to use and should give them a huge do you think
• 15:24
  about, you know, Copilot should be amazing because it's tied into GitHub, but it's not as
• 15:29
  amazing as it could be.
• 15:30
  And so I think it's easy to be like, oh, well, big tech sucks.
• 15:33
  Then I'm like, well, explain Gemini three.
• 15:35
  I think people who work in tech are smart, and I think it feels disingenuous when they're
• 15:40
  like, why am I being forced to use this crappy tool when I could be doing my job better?
• 15:44
  To heap insult upon injury, I'm being judged on my usage of a tool that stinks in my mind as a
• 15:50
  basis of my promotion.
• 15:52
  And I can't imagine how this doesn't just generate tons of resentment.
• 15:56
  I I was trying to read this article and had the question in mind of, like, how much do you
• 16:00
  think this just has to do with working at a big, large tech company where every time a new
• 16:05
  project is brought down from the higher ups and you're, like, six, seven levels in between, it
• 16:11
  really is just another thing that interrupts your day to day projects.
• 16:15
  Because it's not like you're working at a startup where it's you and the CEO, or it's not
• 16:18
  like you and Mark at Meta sitting at the table together ideating on what the future looks
• 16:22
  like.
• 16:22
  It's you and your manager, and you probably communicated via Teams or whatever internal
• 16:27
  tool you use.
• 16:28
  And, yeah, and you're thinking about, oh, this is so annoying.
• 16:31
  I have to somehow put this project into slides, share it with the rest of the team, and it
• 16:35
  interrupts everything else that I do.
• 16:37
  It's just another job when you're working at a big company.
• 16:40
  Now, obviously, layer in what you mentioned of Microsoft has other issues of just needing to
• 16:44
  ship stronger product that's more competitive, and that's difficult to convince your internal
• 16:49
  employees to do.
• 16:49
  But I have to believe the sentiment goes broader than just Seattle when you're working
• 16:52
  at a company that just has hundreds of thousands of employees.
• 16:56
  Also, like, the idea that only the AI team has the answers to fixing the AI product.
• 17:00
  It's funny.
• 17:01
  If those people were users outside of Microsoft, they might actually have more power
• 17:04
  and influence to shape the product than an internal user.
• 17:07
  Right.
• 17:07
  They're, like, a very bizarre
• 17:08
  Right.
• 17:09
  Yeah.
• 17:09
  It'll be interesting.
• 17:10
  I think about all my friends who work at their respective tech companies and how little they
• 17:14
  know about other tools.
• 17:15
  And, like, maybe they're using it personally because they're usually not on the internal AI
• 17:18
  team.
• 17:19
  Yeah.
• 17:19
  They're maybe, like, PMs themselves.
• 17:20
  And so by the time they go to their normal day to day life, they're not excited to fire up
• 17:25
  Claude in the way that we do as investors because we live in a bubble.
• 17:29
  It'll be interesting to see how it all fakes out.
• 17:30
  Well, we are all out of time today.
• 17:32
  Thank you, Charles, for stopping in always.
• 17:34
  Thank you, Youssef, for being my cohost today.
• 17:37
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• 17:38
  Please like and subscribe, and we will talk with you all next week.
• 17:41
  Thank you.
• 17:42
  Bye.
• 17:42
  See See you.