Yogi Berra was a much better baseball player than he was a linguist. He’s known for all sorts of Berra’isms i.e. sayings that don’t make any sense. Here are a few of my favorite examples.
“The future ain’t what it used to be.”
“Slump? I ain’t in no slump... I just ain’t hittin’.”
“I’m not going to buy my kids an encyclopedia. Let them walk to school like I did.”
There’s a few dozen gems to pick from but there’s one that I find myself sharing often with early-stage founders...
“When you see a fork in the road, take it.”
Too often, I see founders trying to take the fork in the road when they can’t or shouldn’t. They want to go left and right at the same time. The problem is that startups are the least capable of affording fork-taking behaviors.
Big companies can afford to go left and right because they have the resources to do so. The bigger the company, the more directions it will eventually attempt to go in. Like that one time when Colgate launched a frozen food line. They wanted to sell you the stuff that made your teeth dirty and the stuff that cleaned your teeth at the same time.
Nothing says Colgate like beef lasagna, right?
For startups, some forks in the road are understandable. When you have a team of 3-5 engineers but you have a few dozen items on the product roadmap, you may choose to divvy up 2 of those projects amongst your small team of developers. That’s ok. It happens all the time.
That’s not to say that you should always divvy up your staff to get more done at once (which is a fallacy), but it often happens e.g. working on a new feature in parallel to a project dedicated to reducing technical debt.
Yet some forks in the road should never be taken because the startup is better served in the long run by committing to a particular path.
Going left and right is a form of risk mitigation. And, generally speaking, startups should be dialing risk way up. You want to be risk-on, not risk-off.
What you’ll learn if you study the fundamentals of investing is that risk and return go hand-in-hand. If an investor takes less risk, they should expect a lower rate of return. Conversely, more risk may reward the investor with a higher rate of return. That’s why individual investors should expect to earn closer to 3% a year with a portfolio of bonds than the 6% a year they may earn with a portfolio of stocks.
That’s not guaranteed, of course, but if your goal is to put 10 runs on the board you can’t afford to lay down a bunt every other at-bat. You must dig in and swing for the fences if 10 runs is your desired outcome.
Where Yogi’s quote is most relevant is when it comes to a startup’s fundamental posture on business and product strategy. A common example of risk hedging is when I see a startup that has both a consumer division and an enterprise division. Somehow, a small team of 20 people has convinced themselves that they will be able to satisfy two very different customers, using a forked and slightly customized version of their product, and execute well on two very different go-to-market motions.
Nope. Not happening.
Let’s use a hypothetical to demonstrate the pitfalls of this approach.
Imagine there are two startups competing in the same industry. Each has 20 employees. Startup A has taken the fork-in-the-road method and is working on both a consumer and an enterprise version of their product. Startup B has chosen to focus exclusively on the consumer sector.
As a result, Startup B has 20 employees focused on delivering value to the consumer customer. Meanwhile, Startup A has 10 employees working on their consumer solution and 10 employees working on their enterprise solution.
Fast forward 2 years and Startup B has delivered a more compelling solution to the consumer market because of an exclusive focus on the consumer sector, thereby taking a market share lead relative to their less focused competition. Their lead is accelerating so they’ve gone on to raise another round of funding as the clear market leader.
Meanwhile, Startup A has had moderate success with both its consumer and enterprise divisions. Due to the diluted focus, their pace of innovation and tractions has been good but not great, making them a midsized player in both the consumer and enterprise sectors.
As time goes on, Startup A loses more ground in the consumer sector to Startup B. Angst grows internally as Startup A watches Startup B pull further and further away in the consumer sector. The angst turns into in-fighting as employees working on the consumer side of Startup A lobby for more resources so that they can build faster and gain ground into the consumer market. But the enterprise team doesn’t like that because they feel their opportunity is just as big, if not bigger than the consumer team does.
The founders of Startup A find themselves caught in a self-imposed trap. If they maintain the status quo of taking the fork in the road to build both a consumer and enterprise business in parallel, then they continue to build two business lines that have a mediocre pace of innovation due to the diluted focus. Furthermore, If Startup A decides to kill off one line of their business and go all-in on that approach (e.g. shut down the enterprise side and focus on the consumer side) then they need to go through a lot of internal dysfunction (hiring, firing, replacing, and refocusing the team) and work overtime to play catch up with their focused competitor that is running away with the market.
I think you get the point from this hypothetical, which is more realistic than you might think. I saw this play out several times in the early days of consumer fintech.
In the startup world, you’re either really, really right or really, really wrong. And that’s the only way to play the game. Especially when your goal is to build the dominant player in your sector and go on to be a highly valued company.
The downside of this approach is that you may be wrong. In this situation, that’s when you pivot and go all-in on a new direction. That was the case with KaChing when it pivoted to become Wealthfront. There are countless other examples of major pivots leading to large companies.
However, it’s critical to point out that a pivot is not a hedge. A pivot happens after a dedicated approach has failed. A hedge is when two approaches are tried in parallel before either approach has been validated or invalidated. What startups must avoid doing is hedging. Pivoting is great.
Later on, when a startup has tens or hundreds of millions in revenue and a clearly solidified lead in its core market, that startup can afford to push into multiple directions without the same existential risk as it once had since it’s now buffered by the cash cow it has already built (think Google Alphabet as the uber example of taking the fork in the road).
I have nothing else to say on this matter so I’ll leave you with one more quote from Yogi.
“So, I’m ugly. I never saw anyone hit with his face.”
Unlike his other quotes, this one is genius.