Riding Waves
why your market matters more than your hard work and execution
What you work on matters more than how hard you work.
This statement shouldn’t be controversial, but it is, especially for anyone that grew up on Gary V hustle culture.
Saying that something else matters more than hard work goes against the American ideal that hard work leads to success. Against the deeply held values of the protestant work ethic.
In reality, hard work is a necessary but on its own worthless variable in the success equation.
Side Note: Most people aren’t even in a position to play the game, let alone consider how to win it. They’re fighting for survival instead. Too far down on Maslow’s hierarchy to have the time to think about playing games and achieving outlier success. Being able to play the game is a privilege we all too often take for granted.
The limits of hard work really hit me after getting into tech in my early 20s.
Before that, I paid my way through college working an assortment of blue-collar jobs ranging from stocking grocery store shelves to driving delivery trucks to fixing vacuum cleaners (I really sucked at that one).
The most money I ever made in that period was a little over $11 an hour. When I worked overtime, I got paid time and a half, meaning I could make over $16 an hour. At the time, that felt like incredible money.
Fast forward to my most recent job, my salary was multiples of what I made back then, and working from a laptop is far easier than breaking your back moving boxes for a living.
While my work today is probably more stressful, I wouldn’t trade it for anything. Working in tech is a privilege.
The point is that where and what you work on has an order of magnitude impact on the outcomes you can achieve.
This applies to nearly every level of the game of capitalism.
Especially for starting companies.
I would argue that the market a founder chooses to build in is more important than the quality of their execution once in the market. Where you choose to build is one of the most important decisions you’ll ever make.
Bad Markets Will Kick Your Ass
This conversation links to the classic startup argument of what matters more – “great founder or great market.”
The obvious answer is both, but it gets less obvious when you have a great team operating in a shitty market. This happens more than people admit.
I’ve spent ~5 years building and investing in startups. There’s a hell of a lot I don’t know. I’m not here to act like some Twitter thread boi wanna-be-expert summarizing a Wikipedia article.
All I’ve got are some lessons I’ve deeply internalized.
The market you pick and the waves you ride are more important than your execution.
I’ve watched incredibly talented, hard-working people spend years of their life working on ideas in shitty markets with little to show for it.
I’ve watched less talented, less hard-working people achieve incredible business growth and financial outcomes by being in the right market, riding the right wave, at the right time.
My first company was the former.
The Bad Market that Kicked My Ass
My first company was a bad idea in a bad market with negative headwinds. The world moved against us, not for us.
We started a low-speed electric vehicle company called Olympus selling neighborhood EVs.
Our goal was to ride what we believed would be a wave of shifting consumer preferences for smaller, more walkable suburban communities and lower-carbon footprint commuting options.
Six months into operating, we got hit by tariffs from a trade war with China which compressed our margins and forced us to rethink our supply chain.
Worse, the world just wasn’t going in the direction we thought it would. Instead of the niche but fast-growing space we thought we entered, we were in a small, slow-growing market.
So we pivoted to selling recreational EVs instead. Though a bigger market, recreational EVs are way more competitive and had no compelling headwinds that could have created opportunities for a new startup like us.
We ended up in an established industry with moderate growth, tons of competition, entrenched incumbents, a high cost of capital, and a trade war that destroyed gross margins.
The full story of what happened with that company should be a separate post but if you’re curious — we sold it to a small PE group that focused on a more traditional recreational vehicle dealership model. They made the hero product an electric golf cart, but at least they kept the neighborhood EVs.
That startup was a painful lesson in picking markets.
Wave Hunting
So picking good markets matters a ton. But what makes a good market?
There are a lot of MBA case studies and analyses that I’m sure are relevant, but the most important framework I’ve encountered is hunting for waves.
You want to pick a market with waves that are driving change. You want the world to be moving in your favor. You want a rising tide that lifts all boats.
This is what the “why now?” startup question gets at.
Much of my thinking about hunting for waves has been influenced by this essay by Ayokunle Omojola.
In case it’s unclear, a tsunami carrying an average swimmer will win 10 times out of 10 in a race with even Michael Phelps. This resonated as I thought of what didn’t work at my last startup and where we could have done better. We spent 4 years building an incredible amount of things and doing a (in my opinion) better than average job of micro-optimizations to make the product and business work. We read all the things, worked all the hours, spent all our savings and it still didn’t matter.
I think our biggest headwind was working on something that didn’t matter, in a domain that wasn’t growing in any macro sense.
I spent 2014 through 2019 working on Cash App, and I think we out-executed for the most part and did (and still do) a good job. I also think Square/Cash App rode (and are still riding) a few massive waves that cut across rapid technology adoption, new technologies becoming widespread that weren’t before, and discontinuous changes in the economic structure of financial services. A large domain with lots of growth and macro change is a force multiplier for strong execution. Example waves (from my time on Cash) are below, but they’re meant to be illustrative.
He expands into his framework for picking startup ideas — “Problem selection = Hunting for waves”
Today when deciding what to work on, or learning about what friends are working on, or talking to other founders who are optimizing for maximum impact, I push pretty hard on problem selection. The hierarchy I like to use is
best case: find a large market with lots of growth and change.
Failing that, find a small niche with lots of growth
Failing that, find a large market with lots of change
Failing that, find a large market
Don’t fail that.
For many tech companies, the pandemic was a huge wave.
Deel became one of the fastest-growing companies of all time (20 months to $100M ARR) by riding the wave of remote work and globally distributed teams.
Hopin rode the wave of all events and conferences being forced online.
Instacart rode the wave of everyone wanting to order groceries from home.
SnackMagic went from $0 to $20M in 8 months after pivoting from office lunch delivery to personalized snack boxes for remote workers.
As you pull the thread further, you’ll discover that most successful startups rode one or multiple waves to unicorn glory.
Uber and many others rode the smartphone wave.
The entire SaaS industry has been riding the cloud computing wave for nearly 2 decades.
All of fintech has been riding the regulatory headwinds created by the Durbin Amendment for the last 13 years.
Bitcoin/crypto rode the wave of post-2008 institutional distrust (and arguably the decline of organized religion).
Nike rode the cultural zeitgeist around running culture in the 1970s and 80s. When that wave crested, they got into basketball, riding the success of MJ and Air Jordans.
I could keep going.
Once you see this pattern in one place, you start to see it everywhere.
Seeking Waves
So you’ve got to pick a great market with great waves, but that’s actually more difficult than it sounds.
I’ve been thinking about this a lot in the context of my own career over the past few weeks.
These are the variables that keep surfacing:
Personal Conviction
Enduring Waves
Space to Pivot
Survival
1. Personal Conviction
In an industry obsessed with finding the next big thing, we bounce from one reflexive cycle to the next.
One day it’s the creator economy. The next it’s web3. Then it’s American Dynamism. Today it’s AI.
It’s awe-provoking to watch the speed by which consensus can rise and fall.
It’s all incredibly mimetic.
From 2021 to spring 2022, web3 dominated the narrative in technology. Everyone had massive FOMO. Everywhere you looked people were quitting their jobs and going “all-in” on web3. Founders were raising massive rounds at massive valuations. Investors were fighting, scratching, and clawing to win deals.
Then the bottom fell out. While web3’s long-term verdict is still out, many founders are left working on problems that look a lot less impactful today than they did 12 months ago.
My point isn’t to shit on crypto. My point is that picking a legitimate wave is really hard. It takes years before you know if you’re right. There’s no way to be certain.
If you’re going take the risk of building a company, make sure you’re building it on your own convictions, not just the current consensus of VCs or tech twitter.
2. Enduring Waves
What happens if your wave flames out?
Most of the pandemic success stories I mentioned earlier are now struggling.
A company I helped incubate while working in venture took off like a rocket ship in 2020 after pivoting to selling rapid response COVID testing products. We signed big deals with state governments and Fortune 500 corporations. The challenge we knowingly faced is that the market for COVID testing would only last for a few years at best.
Nothing lasts forever. The question you have to ask yourself is what happens when the wave inevitably ends?
Riding a wave that only lasts for a few months or years might not be long enough for you to build a business that captures meaningful value.
When seeking waves, you have to take the long view. You want conviction in the long-term future of the market.
If the wave feels like a flash in the pan that’s never to return, you want to keep looking.
3. Space to Pivot
A great market has endless opportunities.
A question I learned from my friend and investing partner Hunter — when evaluating an early-stage investment, ask yourself:
“If this idea fails, are there interesting opportunities that this team can pivot into?”
If the answer to this question is no, we typically pass.
A great team in a great market can keep pivoting until they find the right problem to go after.
A great team in a bad market will struggle to find something high quality if their initial idea fails.
It’s rare for a company to successfully pivot markets.
There are exceptions (Slack being the first that comes to mind), but in my experience, most startups fail to do that.
If you’re pivoting markets, you’re practically starting over. You’ll likely have to fire some or all of your founding team. For those that stay, you’ll have a lot of emotions to manage. It’s unlikely for all of them to be the right fit for the new market. If you’ve raised capital, your existing investors might not be who you’d want to raise from for the new space you’re entering.
In most cases, you’d be better off shutting down the company and starting from scratch.
On the flip side, if you’re in a great market, the opportunities feel endless. At the startup I previously worked (Capital, fka Party Round), our market felt like it contained endless opportunities. Our challenge was finding the most important problems to focus on. Our brand and initial product gave us a wedge on which we could land, expand, and launch many products for our customers.
Before you go all-in, ask yourself where do you go if the initial idea fails? Are you still excited? Do you still see endless opportunities?
If so, you likely have high conviction that this is a great market. If not, there’s a high chance you’re in a bad market.
4. Survival
Even if you picked the greatest market with the best headwinds, it’s all meaningless if you don’t survive.
You have to stay in the game long enough to let your vision play out.
To the victor goes the spoils. The market doesn’t care about your 10-year vision if you’re insolvent today.
Riding a wave can be a great opportunity to raise funding, build a team, build a brand, get traction, etc., but you also have to stay humble and conservative enough that you aren’t dead if the world suddenly changes.
There are numerous companies that faced this challenge and survived because they were conservative with their cash and, as a result, have been able to pivot to another wave or wait for the wave to come back around.
Don’t buy your own bullshit. Play to win but exercise pragmatic judgment in getting there.
Understand when the world changes. Ride the wave but don’t lie to yourself.
Survive so that you can thrive.
If you’re starting a company, picking a great market with massive waves is one of the most important things you can do to increase your odds of success.
It’s more important than your execution and your effort.
It’s finding the fast-moving water. The place where the forces of the universe are moving in your favor.
Don’t fight a fair fight. Stack the deck in your favor.
Find a great market, with great waves, and ride them.
Thanks to Erik De Stefanis, James O’Brien, Evan McCracken, and Vicky Han for feedback on this piece.
nice post. Markets and timing matter.
Such a great piece! Favorited this