Seeing Big Markets: Insights from Hustle Fund's Shiyan Koh

Shiyan: [00:00:00] It's hard to build a big business if you don't have a big, you know, end addressable market.

margin is your ability to make mistakes, right? And if you already start out with a low margin com very competitive. Uh, market, then you don't have a lot of room to make mistakes and you don't have money.

I think of it in terms of like, do, what would it take for this company to get to a hundred million in revenue?

I want to understand the thought process that you took to get there, right? Not the, Hey, I saw this thing, or I read about this thing over here. And I thought, Oh yeah, we can like copy and paste this over here.

we want to think of every stage of financing as proving something, de risking something in the business

Shiyan: Welcome back to Understanding VC. I'm your host Rahul. Understanding VC is a perpetual MBA on a single subject, Venture Capital. Today I'll be having an in depth conversation on the importance of seeing big markets with Xi'an Co. Xi'an is a co founder and managing partner at Hustle Fund, a VC firm that [00:01:00] invests in pre seed software startups in the US, Canada, and Southeast Asia.

Now as a one quick note, are you looking to refresh your digital presence? Digital Prism, the Singapore based digital transformation expert sponsoring this episode has a fantastic offer. The first 10 listeners to contact them get 20 free consultation hours. Just mention Rahul Sendhu. Also learn more from the link in the show notes.

Now let's talk to Sheehan.

Rahul: Hi Sheehan, thank you so much for joining me today.

Shiyan: Yeah, excited to be here. Thanks for having me.

Rahul: Yeah. So our topic of discussion today is, you know, um, seeing the importance of seeing big markets. Something that I'm very personally interested to discuss with you. So why do you think this is important?

Identifying big markets?

Shiyan: Well, I think in general, people who want to raise venture money want to build big businesses. It's hard to build a big business if you don't have a big, you know, end addressable market. and often I think, you know, we talked about this a little bit before is people get so excited about idea.

They just start going and they don't sort of take the time to stop and think about like, [00:02:00] hey, Is there actually a big enough opportunity for me here that if I were going to spend four to six years of my life pursuing this idea, I can actually get the kind of outcome that I want? And I think this is important, uh, specifically on the topic of venture backed venture scale businesses.

of course, if you want to build any business and you're passionate about solving that problem, you should go do that. But I think that's a different question from saying, I want to raise venture money and I think I want to go get 100 X outcome. and so you can think about it.

If I want to get 100 X outcome, I need to be pretty sure that there is a path for me to say, get to 100 million of revenue within five to seven years.

And

obviously you're not going to own 100 percent of the market, right?

So then let's say you even optimistically own 10 percent of the market. Is there a billion dollar market for the thing that you're selling? or ideal, you know, some people, they're always like, my address of market is everybody in the entire world can use this.

It's, you know, multi trillion dollar market. I only need to own 0. 0001 percent of [00:03:00] it and I can still do it, you know, which is a bit ridiculous. Um, but you know, I think that's the kind of idea which is like, is there even a big enough opportunity? and I think it can be useful to think about that, before you start committing.

time, energy resources to pursuing an idea.

Rahul: And, and what percentage of founders you come across actually think about this?

Shiyan: That's a great question. I think a lot of people tend to justify their decision after they've made it. so everyone, I was there, everyone like has the same slide where you're like, the Tim is huge and they all have the same like forecast slide.

And I forecast, you know, I'm going to do this hockey stick growth. Um, but I think. Uh, second time, you know, repeat founders, I think often, do it because they might have made a mistake the first time around. I think people who have might have worked in very competitive industries often think about it.

and so I [00:04:00] think apart from market size, there's also market dynamics. Um, and so I think if you talk to a lot of people who maybe cut their teeth in e-comm, you know, they sort of come out of it and say, there's no way I am starting another business in e-comm, because you

Rahul: can't beat Amazon .

Shiyan: Well, margin is your ability to make mistakes, right?

And if you already start out with a low margin com very competitive. Uh, market, then you don't have a lot of room to make mistakes and you don't have money. Right. Yeah. So, you know, I think you're trying to find places where you have room to make mistakes and you have a big opportunity. and so I think, I think those are the types of founders you tend to see who have spent more time thinking about the market is like, I was in a market situation where every day I felt like I was fighting for my life.

And those who are like, Hey, I spent five years building this thing. But what I learned was there actually wasn't a big enough opportunity there. And so I sold it or, you know, [00:05:00] I exited to other founders. And, you know, then my next go around, I really want to try to build something big.

Rahul: So, as a VC, like, but how do you, uh, define a big market?

Is there a number,

Shiyan: I think of it in terms of like, do, what would it take for this company to get to a hundred million in revenue? Yeah.

Rahul: Okay.

Shiyan: And so you can back into that, right? Which is like, are you selling a hundred KACVs? Okay. Then do I think there are enough businesses who can pay a hundred KACV that you can go capture a percent of that, right?

Or you're saying I'm selling some subscription, 10 a month. How do I back into a hundred million? Like, do I think that's a reasonable number? And I don't think this is a precise science because often people are attacking markets that don't already exist. Or are in the earliest stages. And so

[00:06:00] you might say, for example, I think there's all these famous, um, there's all these famous quotes that they always, publish, you know, it's like, Oh, when the first PC came out, right? Like who wants a personal computer, right? Like, how many people would ever, and you never imagined, Oh, So the cost of the PC is going to go down, plus the utility of the PC is going to go up.

And so that actually increases the size of the market, right? And so you can kind of like picture that. or even the iPhone, right? I think when the iPhone came out, everyone's like, this is a really bad phone. It, you know, Blackberry has a better keyboard. You know, there's all these other things that are better, but they never thought about like, oh, the app store and the ecosystem and how that would drive demand and You know, all these other sort of attendant factors.

And so it, it, it is more art than science. Um, but I do think that you, you have to kind of squint a little bit to think about, Hey, are there so many [00:07:00] people that want this, that if I can make it work, um, everyone will buy it. Right. Yeah. Like, like if I told you, instead of saying like, look at this iPhone, I think the first iPhone that came out was probably like a thousand dollars.

If I was like, Hey, you could have a super powerful computer in your pocket. You can talk to anyone, you can play games, you can take photos, and it's going to cost you 200. Would you want it? How many people would want that? I think that's like an easier kind of thing. So you, you can't look at the, the exact thing that the founder is pitching you today.

You have to try to use your imagination to say, if all these things go right in their business, is there possibly a big opportunity here?

Rahul: Yeah. So I've seen, uh, the founder of Shopify talk about, uh, his experience of running into OBC, uh, years later, he rejected, Shopify. Uh, so the reason for rejection was that, you know, there are not enough businesses that would want an e commerce store, but then actually e commerce, Shopify solved a [00:08:00] problem for a lot of like, uh, businesses to a point where like new people want to create an e commerce store.

Similar to what you said about, uh, iPhone, right?

Shiyan: Yeah. so, so I think, yeah, I think that's part of the, the art process is like trying to figure out like how big that can be. Yeah. and so it's a combination of like the size of the market, but then I think there's also the competitiveness of the market.

And what are things that benefit startups versus things that benefit incumbents? right. So I think the aphorism is always like, does the startup get distribution before the incumbent gets innovation? and I think, you know, with this recent AI boom, you've really seen incumbents push out AI features at a really high rate.

Yeah. and so even though tons of AI startups are raising lots and lots of money, I think there's still an open question about whether or not And no, obviously we're like, well, what's the market size on intelligence? Like if you believe the cost of intelligence is going to go down, right? Which I think we all believe, [00:09:00] like the market size on, on that is even hard to calculate.

It's, it's hard to even imagine, right? But you still have to do the work to build the products, to get it into people's hands, to turn it into. economic benefit to people. and that costs money. Um, and so, you know, I think market size is just one part of the underwriting question that BCs are trying to ask themselves as they make investment decisions.

Rahul: Yeah. So what is your process like, uh, when you're specific process, when you come across?

Shiyan: Yeah. So when I meet companies, typically, you know, you get on a call for the first, first meeting. And, um, most people have a deck, but my preference is normally to talk more casually rather than, you know, march through a presentation.

And where I like to start with folks is just to tell me why, like, how did, this is the market question, right? Like, why'd you pick this [00:10:00] problem? Yeah. Right. and, I think it's always interesting because there's opportunity cost, right? Like if you're doing this, it means you're not doing something else.

And so you must think this is the best use of your time. And I want to understand the thought process that you took to get there, right? Not the, Hey, I saw this thing, or I read about this thing over here. And I thought, Oh yeah, we can like copy and paste this over here. Like I really want to understand what that thought process is because You're going to be in a business relationship with these people if you do the investment for the next 10 years.

and so hopefully they have a strong thought process and, they have some insight. So part of the, like, why are you doing this is also the, tell me what you learned as you talk to potential customers, right? Like, how did this problem uncover itself for you? And what insights have you gleaned along the way that give you the confidence to say, Hey, I'm I'm going to go build something to solve this in a way that other [00:11:00] people can't do or, you know, eat can't easily do like, what is that about it?

Right? and so they kind of go through that and I'm always really interested in that customer experience. So like, okay, who's the buyer? What is on their mind right now when they're facing this problem? What other alternatives have they considered to solve their problems? And, you know, the best is when they're like, oh, well today the buyer solves their problem with.

Some sort of process that involves a fax machine or like pieces of paper, you know, something horribly inefficient and they're still doing it because that's the only thing that they know and you guys are going to come in and, you know, make it mobile, make it easy, whatever it is, you know, faster, cheaper, better, that kind of thing.

Um, I think that's like the sort of prototypical type of thing. And then we will go and dig in and talk about it. What that conversation sounds like with that customer. [00:12:00] Like, well, so you told me you've done a hundred customer interviews, right? Like when you went and pitched this idea or you showed them some prototype, like what did they say?

What were their questions? What were their concerns? Right. You're trying to get into the head of that buyer. And then I want to know for the people who said no to you, why did they say no? Right. So you can kind of try to understand that go to market sales motion. and then we'll dig into unit economics, right?

How do you think about pricing? Right. Why? how much does it cost you to serve that thing? Um, and try to understand, like, obviously it's early days, right? We're pre seed investors. So a lot of these things aren't dialed in, you know, they'll have some semi arbitrary pricing. They don't really know what CAC is.

Um, at least you kind of want to just see how they think about it and have they thought about what it should look like in some ideal end state. Um, I think people in region are getting better about this. I think. Five [00:13:00] years ago, maybe? When there was a lot easier to raise money, I think people were very growth oriented and did not really look at unit economics as much, or they always kind of made the assumption that like at scale, it'll be better.

But I think that that they kind of let themselves off the hook a little bit in trying to think about like, is this the right customer? Is this a good customer? Sure. I'm growing top line, but if I'm losing money on every customer, like. That's not a great long term situation to be in. and so, you know, something we talk about with founders is like firing your customer, right?

Cause at the beginning you, you have a theory on who your customer is. So you kind of like sell to a bunch of people, but then you need to take the step to do analysis to be like, okay, I thought my customer was the SME, at least 50 employees. But when I look at the data, actually, my best customers are 150 employees and up.

The sub 50 employee company is actually a terrible [00:14:00] customer, right?

Rahul: Yeah.

Shiyan: They are high cost to serve, way more tickets, they cost me more, yeah. And so actually, uh, I should A, raise pricing on them. Fire them, right? Like either move my cost structure to match the type of customer they are or fire them. and I should really focus my sales team or my marketing team on this segment that I actually know to be profitable.

And I think that's a periodic review exercise that you constantly have to do. just to make sure that you are being honest with yourself about, hey, who, who is a good customer for me? Um, yeah, so we'll go through unit economics, and, and then we'll go through the team, right? So we'll talk about like.

Hey, how'd you pick your co founder? Where'd you guys meet? How do you split responsibilities? how are you thinking about building out this team? Who are the next sort of two or three hires that you have on your list? do you have candidates? Do you know who you'd want to work with? and I think the best signals are around like, Oh yeah, you know, I've got.

Two or three [00:15:00] people in the, you know, waiting room. We used to work together at my old company. They're ready to jump on board once I raised the round and I can pay them, but they've been working for sweat equity so far. They helped us build our MVP or something. I think all those are like good signals around like someone being thoughtful about building out their team.

Yeah. And then I think the other thing we, Talk about is like, well, what's the roadmap, right? Like, okay,

let's say you raise this round 500 K million dollars, whatever it is. What is important to you to prove with this money?

Like what do you want to get done? And sometimes people will say things like, Oh, I'm going to spend half of it on engineers and 25 percent of marketing.

And I was like, okay, that's fine. But what do you want to validate to yourself? What is the outcome we want? And

we want to think of every stage of financing as proving something, de risking something in the business, right?

And I want the founders to think that way.[00:16:00] because maybe you added revenue, but it was bad revenue.

So you didn't prove anything, right? Maybe you hired five engineers, but you didn't prove anything other than you can spend money on five engineers. Right? So I think trying to. Dial in on like what you want to get done in this round that is going to de risk this business for you is, is a really important thing for founders to be able to articulate to themselves, right?

Like it's back to the opportunity cost question, which is like, if I'm going to spend the next 18 months of my life on this, what do I need to prove to myself that this is worth my time, right? That my thesis about this business is correct.and so we talk a little bit about roadmap and how, how's this round going to go?

And then I try to get a sense of prioritization. So the problem with startups is there's just always like a million things to do and there's never enough time to do it. And the fact of the matter is only [00:17:00] one or two things in your startup are existential. Everything else, if it's not a hundred percent, it'll probably be fine.

Right. But it's not like, okay, your startup failed because you didn't get the color right on your logo. Right. Right. Yeah. or, or something like that. and so I asked them, you know, what are, you know, at the end of the year, right? So like right now we're, we're at the end of June, right? So let's say we're just meeting right before Christmas.

What is the one thing, one or two things that you absolutely would be thrilled to have accomplished?and so you try to, and then, you know, sometimes people try to tell you 10 things and you're like, no, no, no, you're not gonna be able to do 10 things. It's just, just one or two things. and so you're just trying to get a sense of like how good they are at prioritizing what really matters to the business.

and then I think the, the last thing, you know, we try to dig in on is like, well, what's the dream,

Rahul: what is opportunity,

Shiyan: like

Rahul: best case scenario,

Shiyan: best case scenario, everything goes right, what does this [00:18:00] business look like, because I think sometimes in the beginning, you'll get really in the weeds, you're like super tactical, which is great, because you've got to get things done, if we're going to believe there's a big outcome, like how's the world different, how's the world better, because you succeeded, like, what did you succeed in actually doing, right?

and, It isn't that like you made a bunch of money. That's a byproduct of succeeding and delivering a lot of value, hopefully. so I think that is something founders often struggle with too, which is like, well, how do I tie my thesis together to like a bigger picture? What happens if I succeed and give people confidence that.

I can actually go do that thing. Um, because I mean, most of it sounds insane, right? Most of it's just like, you want to do what? Like why?but I think that's kind of part of the fun of things.

Rahul: So, so what are some of the mistakes that you've really heard from founders where they are like maybe overestimating the opportunity?

mean, [00:19:00] I don't

Shiyan: know whether it's necessary that they overestimate the opportunity and it's more that they. It's going to take way longer. It'll be way harder than you think it is. And you're going to run out of money before you get there. and so like a common one is

FinTech or anything finance related. People always try to make the math work with cross sell they're like, okay, I have this initial product and I'm going to give it away free or to me, like super cheap, whatever it is, but to make the LTV number work, Uh, once they're using my app regularly, I'm going to cross sell them all these other things.

And we know that all these other things, you know, financial institutions will pay big money to acquire like credit card loan, blah, blah, blah customers. And they underestimate how hard it is to actually cross sell. Like cross sell is actually a hard thing, but you know, they put in their Excel model and then they added it all.

They're like, Oh, great. It totally works. So I think that's like the underestimate how hard cross sell is.

Rahul: think if you've never done marketing,

Shiyan: you can often underestimate how [00:20:00] hard marketing is.because everyone's like, Oh, I'll just go viral on TikTok or I'll use Facebook ads or whatever it is, right? And those are tactics. Everyone uses them, but, you don't have that much money. You actually don't have that great an idea of who your customer is yet.

So you can actually burn a lot of money serving ads to people who aren't going to convert. and that's part of you trying to figure out what it is, right? But marketing is another thing. It's like it takes longer and costs more than you think it's going to take. and so that's like another thing where it's like, Oh, you know, the conversion isn't reasonable for what you think it's going to do.

Um, and as a startup, cash is rarely your advantage, right? So that's not a dimension you're going to win on. Like you can spend money, but everyone's going to spend money. So you need to think of some other way to win on that, on that dimension. Um, enterprise sales. [00:21:00] I think if you've never done enterprise sales before,

Rahul: it

Shiyan: always takes longer.

Rahul: also something that you mentioned, the dynamics, uh, specifically going back to FinTech or EnsureTech, the incumbents already own all the, you know, the most profitable customers.

Shiyan: Yeah. So that's an interesting one, right? Because I think it depends on the market. So I think like

in developed markets, I think it is often true that. incumbents own the most profitable customers because they've, they've shed the unprofitable ones, right? Like there's a reason why subprime customers don't have a lot of choices because they don't make money. And so why would we make products for them?

I think that is less true and emerging markets because incumbents and emerging markets have generally been more protected from competition. And so they wound up serving like higher income customers, but there's actually a whole class [00:22:00] of. perfectly credit worthy and good customers that are unserved or underserved, uh, before you even hit the like lowest, like bad credit, unbanked, whatever.

And so I think there is opportunity in emerging markets, um, for FinTechs. Um, but it does go back to this question of like, do you know who your customer is and how do you tell? Um, and so my background's in personal finance and we always, you know, I It's an interesting thing to learn where someone who searches for the search term credit card.

Someone who Googles the search term best credit card is a good credit. Nice. and, and that makes sense if you thought about it, right? Which is that if you are searching for best credit card, it means you actually have choices. You're trying to decide amongst a range of credit cards, and you only have choices because you have a good credit score.[00:23:00]

Right? If you're just Googling any old random, who's gonna give me credit, any old random credit card, you probably have bad credit. Yeah. and, you know, the LTVs associated with those two segments are pretty different. but I think that is that you have to figure out what the analogous sorting criteria are for emerging markets to figure out, like, you know, sometimes people are like, oh, iPhone user versus Android user.

You know, iPhone users are hard credit.but there's all these other things that people are trying to use to, uh, build alternative credit profiles to figure out, like, who are better customers or worse customers. Um, but yeah, I think there's still opportunity emerging markets to serve credit worthy people who are unbanked or underbanked.

but you still have to be, you still have to be careful there. I think the one interesting thing about emerging markets is, often digital acquisition is not the cheapest way to acquire people.so I was in Bangladesh earlier this year, and I heard this, I mean, it was such a weird, fun fact [00:24:00] in Bangladesh, even though there is quite high mobile penetration, people often share phones in a family

Rahul: phones.

Shiyan: Yeah. And so, uh, digital targeting often doesn't work very well because multiple people are using the same phone.and so a number of startups. They hadn't been seeing ROI from digital acquisition through like a Facebook or an Instagram. They actually set up physical sales centers and they got much better return on ad spend of like a physical sales center for, for what, outside of the capital city, like in tier two, tier three, because they were like, People are used to buying things that way.

Yeah. With a physical interaction. Um, Real estate's not that expensive. Labor's not that expensive. And, you know, you can sign people up. But I was like, oh, yeah, I mean, it'd be crazy, right? If you're, you're coming from a developed world. Social media marketing, you wouldn't necessarily be like, Oh, I thought I [00:25:00] was marketing to a teenage girl, but why did this middle aged man pick up the phone?

You know, that kind of thing. So, yeah, I think people have to kind of think about, their, their channels and, and the efficacy of it and, and be willing to kind of, you know, Think out of the box there.

Rahul: And see, one of the things that you mentioned during your assessment is looking at the customer experience, right?

Shiyan: Yeah.

Rahul: This is, uh, maybe I'm interpreting this wrong. So VCs often talk about, uh, you know, product, team, and, the market, and often the preference is the least for the product.it is, it's more important to, to bank on the, the team and also look at the market.it's often that product that really makes a difference, right?

Like that the experience, I remember the first time I, uh, had a, went to stay in an Airbnb, that was an experience. Only then you really understand that, okay, there is an opportunity here.

Shiyan: the product is, I think, related a little bit to the [00:26:00] team's orientation around the customer. Right. And back to like, understanding who your customer is.

Um, like, do you understand your customer at the sort of like, Slide level or you understand them in like, I know what kind of clothes they wear. I know what music they listen to. Like, I understand this customer level. and so I think that

teams that are very close to their customers. willbuild better products because they'll be able to discern what is your customer really saying or not saying

and risk and they'll instrument their product to measure that and they'll really get through to, okay, well, what's the thing that actually is helping that person make a decision?

I don't want to overweight product in that. I think product and engineering people are Founders are biased [00:27:00] towards product as a lever, and product is important, but not sufficient, right? Because you still need distribution. but I think product is one of those things where

what is delightful about this, you know, is convinces someone that they should ever even try a new thing, right? Like what, if it's just going to be like a frustrating experience, then why bother?

Rahul: I think, okay. Um, and as example, uh, this is, I'm, I'm quoting Jason Calacanis here. He says that, you know, he was, uh, this is in reference to calm meditation app that best products induce a market to manifest itself.

He was basically saying that at that point when they were building that app, uh, there's no market for meditation. Nobody paid for a meditation apps. Then they created this huge thing where now there's a lot of these competitors and a market.

Shiyan: Yeah.

Rahul: So in scenarios like that, how do you assess?

Yeah, I mean,

Shiyan: I'm not a big consumer investor. So [00:28:00] take this all with a grain of salt, but I think we still go back to like, If this thing really did the thing that they said they could do at a reasonable price, would you want it? And I think for calm, right? Maybe like consumers don't wake up and say, I want a meditation app, but I think humans in general are like, I would love to feel more balance in my life.

and not everyone can afford a therapist. and so if someone says, Hey, I tried this thing, it really helped me. And it's only 10 a month. I think it probably induces trial. Right? And I do think that like, It's one of those things where people would be happy to share it with others, right? Like, it's not embarrassing to be like, Oh, I'm stressed and I found this app and it made me less stressed.

Right. I think that's different from like, Oh, you know, I have erectile dysfunction and I found this pill and it helped me. You're not going to tell [00:29:00] anybody that, right? Or, or, but like there's these sort of methods of marketing and word of mouth that if the thing really does what you say it does and people can tell others about it, Then I do think that has real potential and it does sort of induce more demand for it.

Um, probably like Duolingo, right? Where lots of people want to learn language. There's always been one way of doing it, but then, you know, there's a way that people are like, Hey, I'm actually making progress. It's fun. It's achievable. You should try it. it makes me look smart.I mean, what, what are products that you've been surprised have, Uh,

Rahul: there's a lot of things the first time that I, uh, used it like Airbnb and Uber is like, when the first time I used, I was like, Whoa, this is an insane experience.

Um, and also going back to this whole Shopify thing that I mentioned, right? Like, I think maybe, if you look at the solution itself, [00:30:00] uh, then maybe the market is small, right? You're looking at people who want, you're looking at maybe, uh, small businesses who wants to start an e commerce store,

Shiyan: but

Rahul: like you said, if you focus on the problem, similar to what we mentioned with the Calm as well, then you see the opportunity, right?

Maybe that's a way to think about it.

Shiyan: Yeah, I mean, I think it's, it's, there's so many ways to, to solve a problem, right? And so it's sort of like, how do you define the problem that you're solving? and is there a larger group that You know, would use it.I mean, I think this AI have you seen all the AI character bots, you know, where people are talking to AI bots?

you know, when they launched the GPT store, I think like half of the GPTs were just girlfriend GPTs that you could talk to. And at first, you know, you're like, Oh, is this like some sort of. NSFW use case or whatever. But I think there's this broader sort of idea around [00:31:00] loneliness and people feeling disconnected.

Yeah. And Oh, here's like an easy way to talk to something that makes me feel more connected and less lonely. And you sort of, you can sort of see like, Oh yeah, like, yeah, people want that. Yeah. That's a very human need. Yeah. and so if you kind of get over the, like, why am I talking to a bot on my computer and just sort of say, like, would I want to interact with something that makes me feel less lonely?

I think that makes a ton of sense.

Rahul: Yeah. Yeah. I think that's the way to look at opportunities. So yeah. Now, how can founders go about and doing this, you know, when they are working on a startup in your opinion?

Shiyan: I think it just kind of goes back to like spending time with customers, right? Like if, let's say you.

You ran into some problem and you were like, Oh, generally people run into themselves, right? They're like, Oh, this is so frustrating. I hate this. But then you're like, okay, am I a weirdo or are other people experiencing this problem as well? I think it's to go talk to other potential customers and be like, Hey, like, are you, what [00:32:00] happens when you try to do this?

and, and try to find like heat around that. Right. But also try to understand what is the ecosystems of Yeah. Yeah. Things that created that situation, right? Is there a reason why, um, I'm trying to think of like, what's a good example that would illustrate this, but like, um, here, I've got one.I have a company in the U.

S. They. Do chronic care management software. And one of the issues with countries getting richer is like the big thing isn't like you get hit by a car. The big thing is like you get diabetes and heart disease and you like slowly decline, right? So it becomes this management of these chronic diseases. And you know, you could ask yourself the question like this, such a rich country, like why aren't they able to manage this?

And. Partially, it's the incentive structure, which is doctors are paid to treat you. They're not paid to be like, Hey, are you exercising? Are you [00:33:00] eating healthy? Do you check your blood pressure? Like, you know, so there's like a compensation aspect to it. Right. And our portfolio company originally, what they started out with was they were going to start out trying to help people have higher adherence to their medication.

Because if you don't take your blood pressure medicine, everything's worse, right? And so the theory was like, Hey, if, if patients just took their blood pressure medicine more regularly and had higher adherence, you can really improve outcomes. Right? And so, you know, the founder started doing a bunch of like research around it.

So he went to insurance companies. I was like, Hey, if I was able to improve this rate of, um, adherence, would you pay me? And insurance company, like, yeah, sounds great. Right. Because then they have fewer bad outcomes. Right. And then, so his idea was like, Oh, I'm going to make doctors help me enforce this. And doctors were like, I have no interest in helping you enforce that.

Like, I don't get paid for that. Like what? [00:34:00] And I don't want the liability. Like, why would I do that? Right? so then that's part of like, okay, you saw this problem. You kind of like, okay, there's some heat around it. But once you sort of zoomed out a little and talk to all the different stakeholders, you're like, Oh, okay.

I have to figure out how to get all of these other people to play. Okay. Nicely right in order to get this thing to work and so they actually pivoted the business, which was like they built software that enabled doctors to do the monitoring and follow ups in an automated way, but enabled them to use lower cost para health professionals to do it instead of the doctor's time.

You could do it with like someone that the doctor supervising. And they made the math work so that they could get reimbursed for it, right? So doctor gets paid. Patient gets followed up.

Rahul: It's covered by insurance. Insurer

Shiyan: gets better outcomes, right? But like, it took time to figure out how that works, right?

So I think for founders, it's sort of like, [00:35:00] okay, you found some sort of problem. You still need to figure out what's the shape of the solution you're trying to find, right? And I think that's alongside these other questions about like, is this a big enough market? And you're like, yes, actually the U. S. has.

Tons of overweight people who have hypertension and, you know, It's the

Rahul: dynamism is the problem here.

Shiyan: Yeah. Yeah. So it's trying to get all those pieces to

Rahul: click.

do founders, uh, struggle to articulate, uh, the, the opportunity? Uh, if yes, like what advice?

Shiyan: I think you just have to keep practice articulating it.

I think sometimes founders are so deep in the problem that they forget that other people haven't spent as much time thinking about it.

And so they need to kind of zoom out to help contextualize what the problem is to help that person understand what it is.

and I think the more you practice and the more different types of people you practice on, the easier it is to adapt your story. And I think often like, [00:36:00] When I'm listening to someone pitch me, even if I don't invest, I feel like probably the greatest, like most useful thing I can do for them is just to play the story back to them.

I was like, okay, you talk for half an hour. Let me just tell you what I heard in like three sentences. Is this accurate or not? Because that gives you a little bit of feedback on like, okay, how is the story resonating with someone? And are there points that are really unclear? so I think you just have to talk to more people, and more different people with different backgrounds, because I think different people will respond differently and you'll start to see Where your assumptions about what people know or don't know, you know, will become uncovered.

Right. Which is like, oh, no, like, you know, the average person doesn't know what capitated care is. Maybe I should explain that before I, you know, if your whole thesis is that the move towards capitation is going to help your [00:37:00] business or whatever it is.

Rahul: Yeah. So in terms of, uh, now the execution of this opportunity, right.

I, okay. People talk about big opportunity, but as a startup, you can't really, like capture that day one. Right. So you, what then is a strategy? It's usually capturing a small market. A subset.

Shiyan: Yeah. I mean, I think one step at a time. Right. So, so I think there's like the back to our question.

I'm like, what do I want to accomplish with this round? Right. You can sort of segment that down even more. Right. Which is like, Hey, if in five years. I need to be here. What are the steps that I need to prove to get there? Right? I think so. In the beginning, there's sort of like, okay, can I even build the product?

Right? Okay. We're gonna build the product. Can I get anyone to buy the product? Okay. I got someone to buy it. Can I get 10 people to buy it? Can I get a hundred people to buy it? Right? And along the way, you're building the machinery that helps you scale those things up. Right? and so [00:38:00] I think in the pre COVID days, what I used to have founders come to my office.

Yes. Um, huge whiteboard and we would sort of sit and diagram the whiteboard like, okay, I have one of the levers in my business, right? I have, I have, just make something up. I have traffic, I've conversion rate and I have revenue per conversion. Okay. Traffic. What are my levers? Okay. Conversion rate.

What are my lovers? Revenue per conversion. What are my levers? And then we kind of talk and we say, okay, these are the one or two traffic levers I want to try to pull. And here's what I'm going to try to do in Q1. You know, I'm not going to worry about conversion rate for now, because if I don't have traffic, who cares about conversion rate?

And let's say, uh, price per conversion. the more traffic I can drive, the better price I'm going to be able to get because I can show my volume to people and I can negotiate better pricing, things like that. So, And every business has this, right? If you sit down, you can diagram every business as a series of drivers, [00:39:00] and you're not going to be able to work on all the drivers at the same time.

You're going to look at that and say, okay, here are the one or two drivers. I'm going to understand and characterize in Q1, Q2, Q3, Q4. And then once I get it, it's like, okay, can I do this repeatedly? Right. Can I go from 10 K MRR to a hundred K MRR to, you know, a million MRR and all of that company building, just.

Takes time and effort, takes people, right? It takes trial and error. And so,I think the execution piece is really breaking everything down into smaller parts and being able to Admit to yourself when something's not working, to try something else.because I think often people spend too much time on things that aren't working.

but it's hard, right? Because you can tell yourself these stories, like, Oh, it's not working because [00:40:00] I didn't run the experiment properly. It's not working because I didn't have enough money. I just, there's all these things you can tell yourself, right? But, That's the challenge is that you're not going to have endless time or endless money.

And so you need to make a decision, like, is this working or not? And if it's not, I gotta go find something else that works.

Rahul: Yeah. You know, the one thing that I've been trying to answer, which you've asked me, like any company that I was surprised that worked.

Shiyan: Yeah.

Rahul: I can't find an answer, but I would like to ask that question back to you.

Like any startup that you think, um, you know, initially you thought was not a great opportunity, which turned out to be like wildly successful.

Shiyan: Oh, I would say Airbnb, right? Yeah. So I remember early Airbnb when it wasn't even like a whole apartment. It was like someone was staying in a room in your house, right?

And I mean, Airbnb was founded in San Francisco. So we saw all the earliest parts of that. And I just thought the moment someone gets assaulted or murdered, This business is dead. [00:41:00] And I think what I failed to see was like, they could actually productize trust and safety. Nice. and you know, they put in that insurance policy, there's like a million dollar insurance policy for, for the people renting and things like that.

And of course they've had to deal with all these other things along the way, which is, you know, people trash houses because they're throwing parties, like bait and switch and all that kind of stuff. But I think the core thing that I missed was that they could productize trust and safety. Yeah.I think that was a very, I didn't have enough imagination, right, to picture that, because it's a weird idea, um, because, you know, VRBO, all these things already existed, but they were like vacation houses, right?

They're like, okay, yeah, like, and they had like, you know, property management and all that sort of stuff. It was like slightly more professionalized. but the idea that you could let strangers come stay in your house.it was, it seemed [00:42:00] kind of far fetched to me. Um, but I don't know. I mean, I was an Airbnb host for, for many years with our house in San Francisco, and it was a great product.

And, you know, we met lots of great people through it. I don't think I've ever been an Airbnb guest as a room guest though. Like personally, that makes me uncomfortable. Like I would rent a whole Airbnb apartment, but I wouldn't like rent a room with the other people still in the house. That makes me a little.

Rahul: Okay. Actually, my first experience was a room as a room guest and I thought that was really great because I was in Dublin and then I stayed with a French couple.

Shiyan: Yeah.

Rahul: It was wonderful to just talk to them about Dublin and their experience and then have breakfast with them and things like that.

Shiyan: Yeah.

Yeah. I mean, I think like, yeah. Different people have different levels of tolerance. I think also, I think traveling as a single man is really different than traveling as a single woman. Um, and so, you know, I think there's like, what's your comfort level? And you're like, maybe I would rather go to a hotel.

I think that one Airbnb totally [00:43:00] surprised me. and I love that product. I think it's a great product. what else has surprised me?

think some of it is generational, like

Snapchat. Don't understand it.

Rahul: I still don't understand it.

Shiyan: But that's probably generational. Like I'm too old for it. and so you kind of have to just watch what young people are doing. but something like my first boss told me in venture was like, it really doesn't matter whether you use it. If people are spending time or money, you need to pay attention because I know if other people are using it.

Right. And then you have to go figure out, well, why are they using it? Like, what's the appeal?

Rahul: mean, I think most, most consumer internet things are pretty,

Shiyan: they're pretty straightforward in the sense, like, are they entertainment? I get it right. People have endless desire for entertainment. Does it make them look good? does it help them, you know, dream and fantasize about their world? and I think that's a little bit like these AI bots and things like that, right?

Which is it helps with fantasy. [00:44:00] but. There are non AI versions of this, you know, like you're probably too young. Do you know what Wattpad is?

Rahul: I've heard of it,

Shiyan: but it's like UGC fanfic.

Rahul: Okay.

Shiyan: You know, so people write stories about their favorite characters and stuff like that, and other people read it, but that's like another exercise in like imagination and fantasy and like AI bots are just the like interactive version of that.

Right. Yeah. so, and those probably go all the way back to the earliest bulletin boards. so I think, yeah, I think there's a lot about just like trying to understand human psychology and like what people care about and what they want to spend time on. And can you monetize that?

Rahul: Yeah. Yeah. This has been great.

Uh, she, and thank you so much for taking the time to do this.

Shiyan: Yeah. Thanks so much. This was fun.