I first met Andy Johns at Twitter in 2010, when he joined the on-boarding team after working in a similar role at Facebook. Soon after, Andy formed part of Twitter’s first growth team—before the term “growth” came to dominate the startup lexicon.
Andy and his team were instrumental in growing Twitter from 30 million to 150 million active users. After Twitter, Andy went on to lead growth at Quora, as well as growth and product at Wealthfront. Wherever Andy worked, the companies all grew exponentially in consumer adoption. This gave him a singular viewpoint in terms of how to build and scale generational companies.
Now, Andy is a partner at Unusual Ventures, a VC firm that invests in early stage companies and isn’t afraid to roll up its sleeves to help them build great products. I caught up with Andy to talk about how the coronavirus has impacted his investing thesis, building a venture firm with principles, growth hacking vs. product-market fit, and what it’s like to turn from an operator into an investor.
This interview has been edited and condensed.
First off, how has COVID-19 changed what you are looking for in terms of companies to invest in? Are there any industries you’re more interested in as a result?
I look for software-heavy, high-margin, capital-efficient businesses propelled by organic growth. That hasn’t changed. Whether markets are up or down, these types of companies can weather the storm better than most businesses.
But I have thought a lot more about a few sectors that are either existing or emerging. I’m seeing four types of trends.
The first type are false trends: something skyrocketing right now like watching Netflix with friends at home, but something I don’t think is a durable or sustained behavior when the world returns to ‘normal’. If you think about Geoffrey Moore’s technology adoption curve, this is like taking a customer demographic that is not the target customer for your product today and jamming them into it artificially through an exogenous event
For example, in 2009, Zuck went on Oprah and showed her and the audience how to create a Facebook profile. We got a million sign-ups in one day from the “Oprah effect.” But when you looked at the Oprah cohort 30 days later, 92% of them had churned.
It’s good to be aware of when you’re dealing with an externality that doesn’t happen often. Reality is temporarily suspended and as a result, a bunch of non-target users are jammed into a product that either wasn’t ready for them yet, or they were never really the ideal customer profile to begin with.
The second type are new trends where the effects of the externality are enduring. For example, many young people nearing college age, currently in college, or recently out of college are rethinking their career prospects and the role of a traditional university education. Our current market externality has made them realize the value of having skills that allow for lucrative independent employment, such as learning technical skills through Lambda School.
The third type are stunted trends, e.g. the next wave of travel startups. Just because travel right now is limited doesn’t mean it’s a dead industry. There are a few very compelling travel startups that showed real consumer demand before COVID-19 and I suspect will rebound strongly once travel becomes feasible again.
Then there is the fourth type of trend, something like grocery delivery, which is a real trend experiencing additional acceleration.
Are you looking for the same growth metrics that you were looking at before? Are there any things you’re more concerned about now when evaluating companies?
For me, nothing’s changed. I’m looking for metrics that are indicators of product-market fit. The most obvious is exponential organic growth.
Now, this gets to my point about stunted trends. There are some products that were growing really nicely but the market eradicated their business overnight. Some travel startups fit this definition. It doesn’t mean that the trend wasn’t real. I would expect the demand for those services to accelerate even more once the market comes back. As a result, some investors are considering investing in these companies prior to the trend re-emerging once life resumes.
How are you supporting existing portfolio companies during this time?
Our firm is designed around early-stage company building and that’s where the name Unusual comes from—we offer an unusual amount of hands-on support.
Generally speaking, before all this, the average investor might’ve been spending 80% of their time playing “offense”—looking for new companies they could invest in—and 20% of their time playing “defense”—supporting their existing portfolio. That’s just an average; some firms are different.
For the last four to six weeks that’s been flipped on its head for many investors. A lot of companies have taken a significant blow and need to completely reforecast the business, change the business model, make huge headcount and operating cost changes, and they need support throughout this time. In addition to getting tactical, in some cases we’ve been helping find new job opportunities for some of the employees who have been let go.
This hasn’t been a massive shift for the Unusual team. Our mission is to provide hands-on company building services and support, so the past few months have been an exercise in doing more of what we do best—help startups build and scale.
Switching gears, Unusual Ventures lists socially conscious LPs as one of the firm’s core philosophies. Where did this principle come from?
This philosophy is the product of first principles thinking at the founding of the firm. We wanted to feel good about who we accepted money from—and consequently generated profits for—and we didn’t want to be in the business of making somebody who’s profoundly wealthy even more wealthy. We recognized that we’re fortunate to have access to a lot of potential investors, so we wanted to help out good people representing good causes, and that really aligns all of the incentives across the board.
How does this message resonate with founders? Is this communicated to them early on in the process of talking to them?
We figured some founders would care, but we’ve been surprised with how strongly it resonates with today’s founders. We conducted a survey and found that 70% of founders ranked the quality of our LP base as one of the top two or three factors that they considered when choosing us as a partner.
When I talk with founders directly, I can see them perk up and lean in when I describe the principled approach to our LPs. We work with university endowments to help them supply tuition for folks who come from underprivileged families. A few of our LPs are historically black colleges—institutions that do not typically have access to venture capital. We also work with medical foundations which perform research for seriously ill children. So across the board, our LPs represent exceptional causes and it motivates all of the team to do our best as investors.
You recently wrote about how now especially is the time for true innovation. Could you speak more specifically to how you think product teams have to shift their way of thinking?
If you go to Google Trends and look for worldwide search results on the keyword “growth hacking” versus “product market fit” over the last 10 years, you will find there’s roughly four times as much relative search interest in growth hacking as there is in product market fit.
That tells us everything that is wrong with the mentality around how to build something great within the tech ecosystem. It doesn’t mean we couldn’t build great stuff before an abundance of data or A/B testing tools. It just meant there was a different method, which was, in the words of Steve Blank, ”Get out of the building and talk to your customers.”
Talk to 100 potential customers in an open-ended conversation, and eventually you will find patterns of behavior there. The vast majority of startup employees today are unfamiliar with that pre-A/B testing tool approach to building products. Consequently, they are quite poor at going from 0 to 1, but they are very good at going from 1 to 1.2.
If I interview a product manager today, they can talk on and on about statistical significance and experiment design. But if I then ask about customer development I would only get a couple tweet-length statements, revealing they know next-to-nothing about traditional customer development.
That’s a problem. I’m not saying you shouldn’t be data savvy. We just have this ecosystem full of optimizers who have come to believe that is the way to succeed, and as a result, we have fewer people capable of understanding the value and the approach to taking big swings based on intuition, customer research, taste, and original insights.
In the last decade we’ve seen a lot of operators become investors. When and why did you decide to take this route and what have you learned during this transition?
Honestly, it was unexpected. After quite some time in the startup grind, I eventually took a breather. I almost had a heart attack at age 34—that was a wake up call. So I took a break and it was through an introduction from Andy Rachleff, one of the former founders of Benchmark, that I was connected to my now partners at Unusual. In listening to the vision they had for the firm, I could tell there was an opportunity for me to be a part of that on the consumer side. It felt like I was listening to a startup pitch. Unusual is a startup equivalent of a venture firm.
I liked that they wanted to target a narrow set of entrepreneurs and be very hands-on. My startup sense was kicking in, and it felt like there was something to this approach and these were the people to pull it off. It felt like lightning was striking and I felt the need to give Unusual a shot and try to be a part of something great.
When you look at other operators who’ve become investors, do you notice any functions—whether it’s growth, product, data—that help incubate good future investors?
The number one function by far is somebody who’s founded a company before. You have a level of understanding and knowledge of the ups and downs of building a startup. That is always going to be very appealing to a founder. There’s a sort of blood bond that’s immediately established when a founder connects with another founder.
The others are product and growth leaders because in order to succeed you need to build something great and you need to scale it. If you have a lot of experience in product and growth at an executive level, you not only have tactical level knowledge, but also knowledge around company building. These skill sets are quite compelling to a founder.
What was the genesis of the Unusual Ventures field guide? Where did the idea come from and why did Unusual decide to put it out there publicly?
The genesis behind our Field Guide goes back to our first principle to help founders. The origin of our firm stems from the desire to provide company-building services, education, and information that early-stage venture capital firms typically don’t provide. This is why we produced a lot of interesting detailed tactical content information in our field guide. Frankly, a lot of this info should just have already been broadly available to entrepreneurs.
You see examples of these guides every now and then. Like when Social Capital put out the growth accounting framework. This was a growth measurement framework that we incubated at Facebook, but when Social Capital wrote about it and made it available to the entrepreneur community, founders went nuts for it because it was so useful. I’ve seen investors put out similar bits of information and tools for an e-commerce financial model. Great knowledge and information shouldn’t be kept private. Keep sharing useful knowledge and don’t stop! That’s the idea behind our Field Guide. There should be an assembly line of incredibly detailed “how to’s” and tools that help founders solve startup problems and we’re set on building that assembly line.
Is there an area or two of fundraising that’s most often overlooked by seed stage founders in terms of difficulty?
The first one is just how time-consuming it is, unfortunately. It’s the nature of the beast. I think the other is how important storytelling is. Think about it: you’re a seed stage company, so you may not have much traction or even a product in the market. How can what you’re building be evaluated? It could be evaluated based on how experienced or compelling you are, and it can be evaluated on the story you tell about what you’re building and how it can transform the way people should be thinking about your market.
If you’re not compelling as a storyteller, fundraising is going to be very difficult. Most pitches look and sound the same. Fairly cookie-cutter, uninspiring, maybe it’s too obvious or too tactical of a concept or an idea. Firms like ours don’t want to play the approach of giving everybody in Silicon Valley a $100K check. We pick a few companies a year that we’re really passionate about and put all of our weight behind them. As a result, we’re looking for that combo of great people with a great story.
If you don’t find the right way of packaging your narrative through the right collection of words, tone, and style, the investor may not understand. There could be huge potential there but if the story is being told poorly, you just don’t know. This is one of the key points we made in our recent Field Guide on early-stage fundraising.
Are there any particularly great storytelling entrepreneurs you’ve encountered?
I remember sitting down with Evan Spiegel in 2010 or 2011, before Snap was what it is today. What I heard from him was this incredibly elegant story around why disappearing messages matter, or as he calls it—ephemerality.
It was one of those rare conversations where I realized I was sitting next to somebody who was truly exceptional when it comes to product. He could have easily said, “We have disappearing messages that go away after 10 seconds.” But that wasn’t the story. It was this narrative around how people naturally share and communicate. They don’t grab the megaphone and stand on a table and scream at everyone like you do on these large public platforms like Facebook and Twitter.
He helped me understand that the way most people naturally communicate is intimate and ephemeral, which encourages them to let their guard down and share more openly and freely. When you combine that with this generation that finds so much more visceral satisfaction from sharing through images—and remove all these cognitive barriers inherent to sharing in public platforms like Facebook and Twitter—and you allow this visual message to just disappear, you realize that the value created is that now people aren’t afraid to share with each other anymore.
It more closely reflects how people naturally share and communicate with each other in real life. Snap’s software was designed in a way to accentuate that. It wasn’t creating some new behavior. They just understood some existing behavior and built software to accentuate what people were already doing.
I want somebody to tell me a story that evokes goosebumps and makes me think, “I hadn’t thought about this nearly as much as this person has.” And all of a sudden I find myself convinced that they know what the future looks like and I had no clue. That’s the art of storytelling.
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