Ep 04

Startup Ideas That Attract VC Funding

Ryan and Robert chat with John Zeratsky, Author of Sprint Book & Make Time. Learn what founders need to do first in order to attract venture capital, signals that John looks for when looking to invest in startup ideas, and more.

Presented by
Ryan Hatch
Head of Product Strategy & Innovation
Robert Kaminski
Senior Product Strategist
John Zeratsky
Author & Investor
John Zeratsky
Author & Investor
Andrew Verboncouer
Partner & CEO

Robert Kaminski: Hey everyone. Good morning. Good afternoon. Thank you for joining us for exploring product. I'm Rob Kaminski and joined by my cohost Ryan Hatch. And we are super excited to be hosting John's Zeratsky today. We're going to get into the world of venture funding of his time at Google ventures. We're going to talk a little bit about his angel investing and the approaches that he takes.

And then obviously all the things that kind of go into support that underneath whether it's design, sprints and early phase validation. John, thank you so much. We're thrilled to have you excited to pick your brain today. 

John Zeratsky: Yeah, thanks for having me looking forward to it should be fun 

Ryan Hatch: Welcome.

Robert Kaminski: Of course. For everyone who's joining us online, be sure to add questions. We'll roll through the question list when we get near the end. And so as we're walking through, please populate your questions for John today. And so to kick us off, John, I think, you know, everyone kind of knows Design Sprints, but I don't think anyone or everyone knows a lot about how it kind of came to be out of google ventures. And so maybe you could tell us a little bit, like how did you wind up at Google in the first place to kick us off? 

John Zeratsky: Yeah. So, I guess I'll just tell you my whole life story and try not to make it too long, but I grew up in Wisconsin in a small town, went to UW Madison. It was in the early two thousands. So there wasn't really a lot of formal education around web design, web development, that kind of stuff. But I managed to find a professor and a couple of grad students who were kind of really into that world. So just started to hang out with them and learn about how to build websites. 

And it was kind of early days of blogging and online publishing and started to do web design on my own, you know, had a little web design business. And after graduating from UWU Madison moved to Chicago and it was funny. I, you know, I had been sort of doing essentially client work, you know, building websites for small businesses and nonprofits and that sort of thing in Madison and I was like, well, okay. I'll just like apply to some of these new digital marketing agencies that are around some of the interactive agencies in Chicago. I applied to maybe like four or five of them got rejected from all of them. I don't even think, I think I got like one phone interview at one of the companies just, you know, it was like not a fit for whatever reason.

And and on a whim, some friend was like, Hey, I heard about this cool startup in Chicago called Feed Burner. And I was like, okay, seems interesting. So I found their website. I applied for the job. Got the job. It turns out I was like the 8th employee or something like that. They had just raised a series, a nd suddenly I'm just like thrown into the world of, you know, startups.

Which was pretty cool. Cause I had, you know, growing up in rural Wisconsin, I had like convinced my parents to get a like subscription to wired magazine. Like, you know, it's sort of following the whole tech world, but you know, here I was now working in like a venture backed startup. And a couple of years later we were acquired by Google.

So then, you know, again, sort of found myself in this unexpected situation was inside Google, which this was 2007. So it was a big company already but nothing like it is now and bounced around from between a few projects. The design discipline at Google was pretty immature. So, you know, it was kind of like you'd show up on a project, just sort of - you kind of had to navigate and sort of scrape and figure out how to be helpful.

You know, which was...it helped me develop a really good skillset around identifying opportunities and needs and problems. Did that in Chicago for Google and then moved out to San Francisco. And I was at at YouTube and I was a design lead for the YouTube channels platform. So basically when YouTube went from sort of being like, you know, it was kind of this quirky website for cat videos to being like a true platform where people are building brands and audiences.

I was, I sort of was the design lead for that - the launch of that platform. And then from there joined Google ventures. So, so GV was one of the first big VC firms to really take kind of a value add approach to investing. So, you know, this is now pretty common but at the time it was really unusual for a VC to do much more than just write a check, join your board of directors, you know, be there if you need you know, kind of, you know, friendly voice on the other end of the phone, but GV said, okay, what can we do to be different? What can we do to be really desirable? A really desirable source of funding for startups? And they said, well, we've got access to all these talented people at Google. Engineers product managers, designers. And so they started to pluck people out of Google, bring them to Google ventures, make them full-time partners with the focus of supporting the portfolio companies. So after the investment was made me and my team there, we would be available to the portfolio to help support them.

And at first week we kind of just approached it the way that we had all always approached work at Google, which was like, okay, show up, kind of get oriented, and figure out what needs to be done. But as the portfolio expanded, as GV invested in more and more companies, and as the range of companies really grew as well from being, you know, kind of pure software, digital type stuff to being robotics and some food and beverage companies and, you know, deep tax versus, you know, more consumer facing things.

We just started to have this sense that like, you know, I think as anybody in kind of a service oriented business does, we started to have the sense that we needed a structure. We needed like a process to go and do those engagements. We couldn't just rely on our you know, inherent abilities to show up and try to figure things out.

So we had we had known Jake Knapp and Jake had started to experiment with some early versions of the design sprint at Google. He had basically, you know, he would do these brainstorming sessions and then he would do like a hackathon. Come up with some ideas, try to build them real quick. And we're like, that could be really interesting for startups.

So we recruited Jake to join our team. And then the rest was history pretty much. We like from, he joined in early 2012. And then that just kind of became the model for how we worked with the companies that we were investing in. Some, you know, some of those years we were running a sprint almost every week, the design sprint and, you know, obviously did a lot of interesting work, worked with a lot of amazing companies, but also probably more importantly doing that over and over again, within that same structure allowed us to really improve the process itself. So to tweak and refine, and we ended up running in the years of Google ventures, we ended up running about 150 design sprints with a huge range of really successful companies like Slack, Nest, Uber, 23andMe, Flatiron Health, and you know, really got the process, the design sprint itself to a point where we were just confident in you know, its ability to be embraced by really any kind of team working on something big and new.

And that was sort of what led to the, wanting to share with the world in the book. 

Robert Kaminski: Terrific. I'm curious about the stage of those companies like when Google comes on as an investor, like, are they already pretty far along? Like  where are you applying the sprint process to like what problems in there?  

John Zeratsky: When I first joined GV the firm had only been around a couple of years and so it was investing largely at the seed stage. So I mean, some of the investments we were doing were a hundred thousand dollars, really small investments from a very large organization. And so we really, I think honed our approach and honed our method, the design sprint, at that stage at that seed stage which for me still is my favorite place to work. I think it's the place where I can have the most impact on the company as you can truly sort of change the trajectory that they're on. Because at that point, I think the questions are the most ...I should say the product market questions are the most a cute, you know, it's like, as you get bigger, it's sort of like, how do we operationalize?

How do we grow? How do we do resource allocation, whatever. But when you're an early stage, you know, a seed stage startup really, apart from raising money and hiring, the thing that keeps you up at night is...will the product work? Like if we build this thing, will anybody care and will we be able to find those people in a repeatable way.

And so that was really where it started, but as GV became more and more successful in terms of making investments the parent company, which was Google and then eventually, you know, alphabet right. Basically wanted GV to invest more and more. And so GV through the years that I was there moved to later and later stage.

And so like, you know, Slack, for example, I don't think we invested into like the series C or the series D. And so the nature of those types of projects was different. So with Slack, for example, it was about expanding the target customers from being the kind of early adopter, other tech companies who embraced Slack early to now being trained to go out and sign up law firms and newspaper editorial offices and accounting shops, and like all these other kinds of businesses to use Slack.

So it was much more about like, kind of expanding and rethinking the go to market strategy. And that kind of changed over time but you know, really it began at seed stage and for me, you know, in the work that I'm doing, day-to-day, you know, I still think that's kind of the ideal place to apply the design sprint and the sort of opportunities that get me the most excited.

Ryan Hatch: That's awesome. I'm curious as to when you were with Google ventures, you know, were you applying this stuff and more thinking about the filtering of prospective deals and you know, which deals do we and don't we do. And how do we evaluate the funnel and the or is it more of, we've already made an investment and now it's like, how do we help shape them and help make these product market? The decisions? 

John Zeratsky: It was really more of the latter. So the offering of our team at Google ventures to the portfolio companies, that was like a carrot, you know, it was like, you know, actually let me back up for a second, you know, in the startup world, like, the vast majority of companies, you know, they to be frank, like they'll be happy to raise money from anybody.

Like they need to raise money, got to keep the lights on, got to pay the team. But there's this really weird dynamic at that sort of the top of the market. So let's say the top 5% of the best, highest quality entrepreneurs, the ones who are going to go on to produce the multi-billion dollar exits, the dynamic switches there and those startups, they can raise from whoever they want.

They're in the driver's seat. Like they get to like, sort of design their cap table, their, our set of investors. We wanted to play in that world. We want it to be, you know, we wanted founders to choose us. Not because they needed the money, but because they could choose from anybody and we were offering something really special. And so -  

Ryan Hatch: You really had to compete for those top deals. 

John Zeratsky: Exactly. Yeah. And we were, you know, Google is, you know, nobody feels bad for Google, but like, you know, coming into the venture world, it was a little weird because. A, we had no track record as an investor. And B people were like a little worried about taking money from Google.

They were like, are they going to steal our ideas? Are they going to try to like buy us out on the cheap? Are they going to like lose interest after five years and you know, not be around for the longterm. So we really felt like we needed to go above and beyond to compete, to get into those companies.

And so our services, our support. The design sprint, you know, and I shouldn't pretend like it was just us, like with our marketers there, there were engineers, there, there was a big operational team. Those people were really the carrot. So it was like raise money from Google ventures and you will get access to all these amazing people.

We participated to a certain extent in the sort of investment decision-making process. And you know, basically we would bring the lens that we had as designers and as operating partners, we would bring that to the decision-making process to say like, okay, great. Like, this is a huge opportunity.

It's like a really strong technical team, but it doesn't seem like they've thought deeply about how they're going to acquire customers, for example, like, and that was something that we were just acutely aware of as designers, because those were the types of challenges that we were helping companies solve every single day in the design sprints that we're running. So we brought a very different lens to the review process, but, you know, I think I think our assumption at that time was that most founders would not be willing to like run a sprint with us before we made the investment, because it would just be like, Hey, I'm just trying to close my round here.

Like, let's like, I'm excited to work with you later but like, I don't know if I want to jump through those hoops now. And that was our assumption then, and my thinking on that is sort of changing. And I think, you know, now I often, when I'm considering, you know, investing in a company or working with a company, I sort of use elements of the sprint process as kind of early opportunities to engage, to say like, Hey, maybe it's not, maybe it's not a full design sprint, but like, Let's spend a day together getting to know each other and let's do like an opportunity sprint or let's do like a, just sort of a you know, structured ideation around, you know, a set of product features you're considering to build.

And it's a way for the entrepreneur to get the value, yeah, but it's a way for us to get to know each other. And then I think, you know, if I do move forward with an investment, then you know, I feel that much more confident and excited about that relationship. 

Robert Kaminski: Yeah, no, I love that. 

Ryan Hatch: How coachable are they, do they welcome the feedback too, right?

John Zeratsky: Totally. Yeah. Cause I think, you know, there's this whole narrative around like the vision driven founder who has this like amazing idea and all they need to do is like raise money, build the product. And then like, you know, everybody will be banging down their door to use it. But I think the reality is that, you know, while we...those stories stand out to us because they're so exceptional. But the reality is that pretty much every successful company is not built that way. It's built by somebody who sees an opportunity but is really honest that they don't know what they need to do. Like they don't...whatever vision they have, they know that's just a starting point and it's this very methodical, very iterative process of. Build something, you know, try something, test it with customers. Do it again, you know, identify a question, figure out how to answer that question, answer it. Okay. What's the next question. And just sort of working through that step-by-step and so that's something else that you totally see when you work with a company in the context of something like a sprint is if they spend the whole week kind of pushing back and "Well, that's not my vision, that's not what I had in mind. That's not like what I've been dreaming of..." That's like a bit of a red flag, you know, because I just don't think that maps to the success, you know, the big success stories that I've seen. 

Robert Kaminski: That's super interesting. Is that something that you embraced, you know, as you got into investing or did Google ventures also have that lens on when they were evaluating entrepreneurs coming to them?

John Zeratsky: You know, I...it's hard for me to speak for like the firm as a whole or the team as a whole. But I will say that some of our most infamous failures you know, failed investments, I think really , they were teams or founders who had embraced that sort of vision, you know, vision at all costs type of thing, where it was like, I've got this beautiful vision. I want to bring it into the world. And they were willing to, you know, cut corners. They were willing to bully people, they were willing to, you know, stretch the truth a little bit in order to bring that vision into the world. And you know, there really aren't too many cases where that works out.

And so I think we actually saw that a couple of times at GV, you know, we saw it work once with nest, you know, like nest was started by Tony Fidel, who was on the iPod team. There's a blast from the past for you. And he was like the sort of entrepreneur who just had that really rare ability to like, yeah, spot an opportunity to develop a vision. And then he had enough credibility as an operator to raise a bunch of money, to hire the best team and to spend two years or whatever it was bringing the nest thermostat into the world. And it was like, okay - yeah, like that worked. But...and that was one of GV's early investments which was acquired by Google.

It was a really good result for us as investors, but then later on, we invested in a couple of companies where that approach totally flamed out. And so, you know, I think those experiences really. , you know, influenced the way that I think about investing. And I think, you know, probably, you know, to be fair to a large extent influenced the way that other at GV think about it as well.

Robert Kaminski: Gotcha. Maybe you could tell us a little bit how you, how that transition happened. You know, you're working at Google ventures obviously in the weeds at times, but getting this very, like meta view of things that come into the portfolio, things that work out don't work out for you, like, what was that step into, like, I'm going to just invest and kind of take this ...What did that look like? 

John Zeratsky: It was not the result of any plan or it was sort of like this very roundabout, like set of decisions that kind of led me back to this place of being really interested in investing and in supporting companies in that way.

But I think that the thing that probably started to like open that door was publishing the book. So, you know, I had been at, I joined GV in 2011 and between 2011 and 2015, it was really just like heads down, like work with companies, you know, participate in that sort of, you know, the overall operations of GV, deciding what to invest in building the brand and the reputation of the firm.

But then once we started to see the benefits of reaching a broader audience with our work and decided to publish the book. I think that just shifted my perspective a bit and ended up writing another book. So I wrote a book called Make Time also with Jake Knapp. So same co-author and good friend of mine. And one of my partners at Google ventures, he was the one who originally came up with the design sprint concept when he was still at Google. Which then kind of further opened my perspective and got me exposed to like different kinds of people working on different things, people who cared about different things, you know, I would have, I would write about especially because of make time, I would write about like, you know, techniques and structures for focusing your time on, on work that matters, for example. 

And like, so I would get, you know, entrepreneurs who are building tools for, you know, productivity apps or like, you know, tools for you know, managing your attention and not getting distracted by all the stuff on your phone, like those types of founders would just reach out to me and be like, Hey, read your stuff. Like, is there a way for us to work together and for awhile there wasn't and ...but it was just sort of like percolating, just sort of building.

And then I ended up leaving GV in 2017. Not for like, not basically for no like huge reason other than that, my wife and I were both ready for a break. And we wanted to do some traveling. So we ended up taking this long sailing trip which is not super relevant to anything we're talking about here but took some time off, just kind of stepped away from that world. 

Yeah, exactly, a sabbatical. And then as we came back from that. That was when we moved to Milwaukee. So from San Francisco to Milwaukee and you know, at first just kind of dabbled in like consulting and advising and stuff. But what I realized was that I really loved the work itself.

So I really loved continuing to work with startup teams to help them focus on the work they needed to do - what they need to do to answer those key questions that they face at early stages. But I didn't really love doing it as a consultant and you know, no, no disrespect or offense meant to you guys as sort of, you know, an agency, but like for me as an individual I just didn't like, you know, pitching myself, you know, negotiating kind of what's the project, what's the budget. And then what I really didn't like was when we got to the end of a project and it was like, okay, like, do you want to keep paying me? Or like, I don't know. I just felt like that stuff kind of got in the way.

And so, you know, but I still, like, I thought back to like the GV days and I was like, Oh, that was, you know, when we were investing, we were, we owned part of the company and there was a real sense of alignment. It was a true ownership. And I felt that the work that we could do in that model was really was more powerful, frankly.

And so what I wanted to do was keep the work the same, but put it in a different business model. And so that's kind of how...that sort of was the light bulb, if you will, that inspired me to focus more on investing and continuing to do the work but doing it sort of through this business model or this structure of an investor.

Ryan Hatch: And how did that, as you shifted into this angel role or away from this maybe consulting kind of role, how did that ownership - part ownership - in the company in your mind, how did that alignment change the dynamics when you work with the startups? 

John Zeratsky: I think there's two things that come to mind. One is just that I think that the discussions can be a lot more honest because. I don't know, because there's already an ongoing relationship there. Like you're not starting from scratch. And so there's so much shared context. There's so much shared background on, Oh, remember when we tried that and it didn't work or, you know, remember this idea or whatever. The other thing is that I think, you know, I found that I can just be much more flexible, much freer in terms of the types of engagements that I then put together.

So. You know, if I was doing it as more of a consultant, you know, I would, if there was somebody I wanted to pull on, I'd have to say like, Oh, do they have budget for this? Or do they like, you know, sort of change the, it would add friction, I think, to those discussions. Whereas now, you know, I can...just to give you a concrete example, I'm working with one of my portfolio companies. Who's a like a coffee like a beverage brand both D to C and also retail distribution. And they're working on like a brand refresh and a packaging redesign to kind of, just make their packaging a little bit more appropriate for the retail context.

And, you know, with them, like, they're not paying me to like help out cause I'm, you know, I'm an investor in the company, but I'm just like helping them find like a facilitator to run a, like, to run a packaging design sprint, and then like reaching out to a bunch of random designers that I happen to know who like might be interested in joining that sprint.

And it's, I don't know, it's just like, it's it just feels like a much more free form fluid type of engagement that, comes from having that relationship as an investor, as an owner, instead of, you know, the relationship of, you know, purely client consultant. 

Robert Kaminski: Yeah. That makes sense. That's such an interesting pivot. I love how you looked at it with really just like you said, a shift in business model. I think that's pretty unique. Tell me about the companies that you look at when you're investing. Like, is it, you know, angel investing, you know, to me, where does that land on your scale of, you know, it's early, but where, and how are you sourcing deals like that? And what do you look for? 

John Zeratsky: Yeah, a lot of companies, like I was saying, come to me. And that's one of the things that made me interested in, in, you know, making that business model shift was like I said, because of the books and because of the, you know, the work that I had done speaking, you know, writing whatever, like a lot of people just reach out to me.

So there's a lot of kind of organic inbound from companies who tend to be, you know, already sort of aligned in terms of the ways of working and the philosophies. And then I also, you know, from working in this world for, you know, almost 20 years now,like, I have you know, a really good network of other investors, but also, you know, a lot of founders, a lot of makers, a lot of people who, you know, maybe they've been at Google for a long time as a designer. And they're thinking about leaving to start something of their own. And you know, I think one of the things that I try to do is I try to be a person that they can call and that they can talk to. With no strings attached, like let's just get on a call for an hour and let's just, you know, I'll try to help you think through you know, some of the opportunities and the challenges with what you're doing and then start, you know, maybe try to give you some advice on how you might answer those questions, how you might tackle those challenges.

And that, you know, I think having those conversations outside of a fundraising cycle or outside of a, you know, pitch process for, you know, in either direction. I think it's just a really good way to engage with people. So those are probably the primary ways that I meet the companies that I ended up working with.

And then, you know, I obviously as like an individual investor, it's, you know, it's fairly early in the life of the company. But you know, I...you know, I struggle when I see somebody who like has an idea, but hasn't really started working on it, you know? And I think that there's you know, I know you have to start somewhere and like, you know, obviously not everybody has the ability to like, not take a paycheck to work on starting a new project or, you know, so I'm definitely like , you know, I try to be really sort of, honest and open-minded about the different scenarios, the different situations that people might be in when they're starting something, but at the same time, like, you know, I think ideas are pretty easy and you know, and even good ideas are things I think are pretty easy.

And so people tend to undervalue if they haven't done it before people tend to undervalue the work, you know, the the work of designing a first version of a product or a prototype and putting in front of customers, having those customer conversations, learning , being really rigorous and methodical about the questions you need to answer.

And so if somebody hasn't already been doing that work it's difficult for me to you know, it's just difficult for me to really have a good sense of what they're going to be like as an entrepreneur, you know, because again, I think anybody, not anybody, a lot of people can come up with a good idea. They can spot an opportunity, but you know, starting businesses is not about spotting opportunities. It's about doing the work to take advantage of those opportunities. And that's the thing that you, as an entrepreneur that you live with for years is the work that you're doing in that space. It's not the opportunity itself. 

And so, I, you know, basically that's a super long and wordy way of saying that there needs to be some of those early steps, early traction, the early progress. And then, you know, it's a bit of a intuitive field type of thing, but it's like, there needs to be some sparks, you know, there's gotta be like , wow, this is working.

Like maybe people aren't paying for it yet. Or maybe it's, you know, maybe it's still only a few customers, but like, there needs to be something that when you look at it, you're like, wow, I think you might be onto something here. You know, there's a metaphor that, that I came across somewhere, which is like, it needs to feel like you're rolling a boulder down the hill and you're like just trying to run to keep up with it.

You know, I think it, that a lot of entrepreneurs have this metaphor of like pushing the boulder up the hill. And like, you know, certainly there's some kind of work there's, you know, there's hard work, necessary work that feels like that. But the business itself should have that momentum. It should have that energy that, you know, it almost feels like this runaway boulder that you just need to try to keep up with. And so I just try to look for kind of those little sparks with little indicators that's happening.

Robert Kaminski:  So this is great. I'm glad you brought this up too. It's like how you evaluate folks that you talked to - some that aren't quite ready, but what I'm hearing a little bit in how you evaluate is that the people or the team counts, you know, I don't know what I sort of hear in that is like they had to have done at least some of the - not just of the work, but like have had experience going through an entrepreneurial process is what I heard in that.

So we talk to and work with a lot of startups that are, they're doing it for the first time. And we get questions a lot of like, should I raise money? How much money should I raise? And we ended up, you know, coming back to some of those conversations that you talked about with like, giving them the benefit of the doubt. Like where would you start on this? I guess my question in all this,and you started to pull them out or like those sparks, those traction pieces, like, what are you really asking these entrepreneurs to do? So like, what might you tell that entrepreneur who's in that phase? Who's like just trying to start. What should they be doing? Like in those early steps? Cause I think that's where everyone's like, well, I need money to do stuff, but we all know they need to do stuff before they can actually get the money. You know? How do you look at that? 

John Zeratsky: Yeah, that's a great question. And it's it's a tough question because you know, I think that is...I mean, starting and growing a new businesses, it's all hard, but I think that's the really hard part is like, how do you get going when there's nothing? When there's no money, like there's very limited time. And for me, it comes back to really two things. One is , you know, engaging - is reaching and engaging with potential customers.

And we actually were talking about this a little bit before the events started , like I would much rather have people go out and collect a bunch of customers, you know, build demand, and then build a product to serve that demand. Then do it the other way around, then build an amazing product and then have to go out and market it, which is the typical way that the product development is done and is the traditional way that it had to be done in sort of an industrial era where it was, it took a lot of capital, you know, you needed to sort of do a lot in order to build anything.

And that's why I think there's a big trend now in, in entrepreneurship, which is sort of the community led or community-driven c ompany, which is where you see creators or influencers or, you know, experts in the field, basically build an audience first around the writing, around their videos, around whatever it might be, and then start to develop products to serve that audience instead of the other way around.

And so that's the first thing is I think any work that you can be doing that basically puts you in touch with customers and starts to build, even if it's just a hundred people who read everything you post on LinkedIn, you know, and like, and they just are obsessed with what you post - they're, your super fans. You know, some signs of that. 

And then the other thing that I look for is really somebody who is already in the cycle, the loop of identifying questions and answering the questions because that's kind of what a startup is it's just this, like, it's just a series of answering questions.It's like, you know, especially at the seed stage, I often think of like the, you know, the pre-seed stage is being about discovery of opportunity. The seed stage is being about coming the validation of that opportunity. Series A being about sort of the rapid scaling of that of that solution. And then beyond that, it's really about kind of operationalizing the things that you're doing so that it just continues to run and grow. Even if, you know, you get hit by a bus or, you know, whatever. And so really at the seed stage it, you know, it's - everything you  do as an entrepreneur should be focused on - I'm learning. You should be focused on answering a question about the business.

And so it's one of the things that we do at the beginning of a design sprint is we write down a list of questions that we want to try to answer. And some of those questions we can answer in the sprint, but a lot of them, we can't...a lot of times, you know, we have to pin those for later and say, okay, we, we answered this question about how customers react to this value proposition, but you know, there's this other question about whether they would be more likely to click and sign up for this or that, and that maybe is answered better with an AB test or a false door test, or some other type of, you know, test. 

And so basically I want to talk to entrepreneurs who are like, like, look I've got these people, I have this way of reaching these people. And here's what I've tried so far. I've done this little thing. I started this scrappy little, you know, tool or app or newsletter or whatever that like is, you know, it's - there's some sparks, it's catching on a little bit. But I think those are the key things for me is customers and validation.

Robert Kaminski: Yeah, that resonates to us. Like you're speaking to our world. It's interesting, you know, working with folks who are in that group really how the mindsets, it really becomes a critical aspect. I like how you put it with like, continuing to be open, to answering questions and finding answers.

Like, to me, it's a little bit of humility, you know, you talked about ideal personas to a degree. Well, I guess this is something we get a lot of...like, it's not the same question, but it's sort of similar as like, when do you know, it's time to raise money? I mean, you've talked about the sparks, but like, I guess what advice would you give someone who is like, they're bootstrapping, what should they raise? And maybe they're starting to answer those questions. Like, is it a, it's something you do in parallel or is it something you stop and say, I can't go further until I've raised at least some money to keep me going. 

John Zeratsky: My view is that bringing in outside capital is - it should be an accelerant. So it should be a way of accelerating or scaling. Really maybe amplifying is a better word of amplifying, whatever it is you are already doing. And so when you seelike, really good pitches from entrepreneurs there, they have very specific plans for what they want to do with the money. They say, like, we want to hire this person to help figure out this with this milestone in mind or this goal.

Or, you know, they'll say we've seen early success with this type of ad that we're running. And we think if we spend this much more on it, the results will look this way. So they have really specific plans. It's not just like, yea work on it for awhile, you know, it's like, it's pretty specific.

And so I think it, and I think it speaks to that idea that like, you know, capital is a multiplier. It's an amplifier to what you're already doing. But I think it's - just to zoom out a little bit - one of the themes that I think about a lot is like, is leverage. And you know, a lot of times I think  when we use the word leverage, we're talking about financial leverage, which is debt, but like, there are a lot of kinds of leverage, you know, equity based, you know, capital investment. That's a form of leverage. That's, you know, different from debt. 

But another form of leverage is, you know, is...so if people, you know, using people, whether they work for you or they are just fans to like, again, to amplify what you're doing - ideas or intellectual property or content can be an amplifier. I mean, think about you know, the leverage that you can get if you write a b log post that goes viral. You know, one person can reach hundreds of thousands or millions of people with a single article. That's huge leverage. And then of course technology itself is a point of leverage and, you know, from a way kind of zoomed out, you know, economic point of view, like that's why.

Tech startups are able to create so much economic value so quickly is that they tend to combine multiple sorts of leverage at once. They use the inherent leverage of technology, which enables a few people to do things that affect millions of people there they use capital to you know, be able to spend on things that they wouldn't otherwise be able to spend on.

And then they tend to not in all cases, but in many cases they use intellectual property, content, audiences, community to sort of propagate the work that they're doing out into a huge number of people to create these just like cascading, you know, sort of multiplying effects over and over. And so I think the more of those things that can be there and then the more that they can be connected directly back to -here's specifically why we want to raise money and why we want to raise this amount. The more that those things can all be in place, the more obvious it is that it makes sense to raise business. 

And I'll just to kind of wrap up that topic cause I'm sort of, you know, ranting that as like compare or contrast it to like opening a coffee shop. And no, you know, no disrespect to coffee shops. Cause I, I love coffee. I love coffee shops, you know, big fan, but like a coffee shop is very low leverage. Like  you know, you need money to open one, but there's probably not really much technology. There's like, you only need to hire like a couple of people. Like you're not going to have this massive audience, like you're going to have... you know, but then again, like the potential outcomes, the results for a coffee shop are pretty limited too -like if you're successful, like, you'll have a nice coffee shop and then maybe you'll open a second one or maybe a third one. And so it's just like, you know, a lot of businesses, you know, small businesses sort of that, that classic ideal of the American small business is like, you know, is low leverage. And it's, I think very much in contrast to like the startup ideal of like high leverage. And so, you know, that's why I looked so much for that leverage at the, even at the earliest stages, because I think it's an indicator that there's the potential for something really massive and really important to be built.

Ryan Hatch: Cool. You mentioned  this, series of almost a discovery of opportunity, right? Discovery validation of opportunity. You mentioned that almost these like stages in your mind of funding and I'm interested in drilling maybe into that and unpacking that a little bit, John, on you know, where do you see yourself as an angel coming in at, where do you see yourself investing and how much money are you putting kind of into  these different stages in your mind? Where do you expect entrepreneurs to be thinking about if they're in the audience, listening, you know, what they need to be coming prepared with and what stagethey need to be at how much they're going to be asking for just a little unpacking of that stages for you.

John Zeratsky: Sure. So I generally don't invest at the sort of earliest stages where there is maybe an opportunity or an idea, but nothing else. So, you know, like I was saying before, I'd like to see some of that progress, that traction, those early sparks. For me, the sort of ideal point is where you know, maybe you raised some money before, you know, maybe a couple hundred thousand dollars, you know, maybe you went through an accelerator program and you're at the point where you really understand the opportunity. So you have a very clear view. You spent a lot of time talking with customers. You're sort of, you're in the world of the market that you're trying to serve. You're not,  not just like, you're not just interested in it, but you're like, you're in it. And you have an early view of of a solution of a product that is going to take advantage of that opportunity. 

But that's kind of it, you know, there's still a lot of questions to be answered. Like what features do we build? Like, how do we grow this? Like how do we reach these customers in a repeatable way? That for me is kind of the sweet spot and it tends to kind of be in that space in between. You know, raised some money to be able to do that early exploration but haven't yet raised sort of a proper seed round you know, which would be, you know, depending on the company and the region would be anywhere from, you know, a million to three, $4 million raised in the seed round, which would usually be then, you know, to be focused on sort of the validation of that solution or of that product. So,  kind of in there sort of, you know, and the names for these things are always moving around in the venture world, which is a little frustrating, but like seed, you know, kind of in that space is where I really like to get involved with companies.

Robert Kaminski: Yeah. Do you have like set you know, when you come in the way that you invest,,do you have set expectations, you talked about a specific plan that you like, you know, what are you going to use the money for, but do you have certain things that you almost always push for as a requirement in the time frame that you're always coming in at, whether it's hiring a certain role  to do something or like making sure you have runway for at least X amount of time. Like, do you have any constraints that you put on the groups that you work with? 

John Zeratsky: I have loose kind of, expectations or things that I, I look for. You know , my view is that  I never want to like get involved with a company and then make them do some stuff. You know, like I want to work with people who are already doing great things and I want to serve as an amplifier or multiplayer multiplier for what they're doing. I want to take somebody who's good and make them great. Take somebody who's great and make them exceptional. So I don't think of them so much as kind of requirements as much as , I don't know, qualifications maybe, or pre sort of, you know, signs of things that I look for.

And there's some, you know, there's some rules of thumb, you know, I think you know, 18 months ish of runway is a pretty healthy amount of time you know,from a  seed round to be able to make enough progress on validation. I think that the team needs to be internally self sustaining in the sense that like you don't want to have, you don't want to have to go to like, outside people to like to do the core everyday work.

Like you know, if you're going to be building like consumer facing product, you know, maybe you engage with an agency earlier on the prototype or the sort of the early proof of concept, you know, maybe you pull in outside people here and there, but like, you probably should have like you know, founding designer and you definitely need to have a technical co-founder like, you definitely need to have somebody who's really good at product. Like you need to have those core skills on the team. And I think the learning that needs to happen at that stage is so deep and so rapid that if the core skills aren't there, you just can't do it. Like you just can't internalize the learning at the, in the way that you need to. So, you know, in terms of the specifics of the, kind of the stage of the company, I think those are the things that I want to be there.

Ryan Hatch: Yeah. And as that team comes on board and becomes  that core, you know, with that seed funding, you know, you talked about being rigorous and methodical, right. And it's about doing the work. How do you teach that, right. If the team doesn't know if you're going to make an investment, do you expect them to pick it up? Do you drop in and do the value add stuff you were doing at GV here? Like how do you equip a team to validate successfully? 

John Zeratsky: So, yeah, I run sprints with the companies that I invest in and if I, you know, just based on the scheduling or the logistics or whatever, if I can't personally run a sprint that they need I will put them with a facilitator from my network, somebody who's really experienced somebody that I trust to run that sprint for them. And if I do that, then I will still be involved in kind of shaping the sprint itself. So figuring out why are we doing this? What are we focused on? You know,  who needs to be involved in the sprint, you know,  what is likely to be the type of the prototype that we build, the type of customer that we test with I sort of, you know, help  them line all those things up.

And then after the sprint help them kind of interpret what they did and what they might want to do next. And so,you  know, I think I also will, and this isn't a huge area of strength for me but, you know, just because I've worked  as a designer for so long, and I know so many designers, I will often  like help startups, hire designers too, like in a, you know, I'm not a recruiter, so, you know, I'm not as good at it as like somebody who does it all the time. But like, you know, if you go on my Twitter, like, you'll see, I'm always posting like -cool startups that I know, or that I worked with and that they're hiring or whatever. So I try to help with that stuff. 

But then, you know, I think that the main way that I sort of support those companies in terms of that validation work that needs to happen is through a mix of doing it, you know, with them. So actually being there facilitating, you know, workshops, sprints, whatever with them, but then also kind of being a coach or an advisor on those things too.

So, you  know, can give you an example, like, talking with a friend right now, somebody who was a very early product manager atFlatiron Health, which is one of Google ventures largest, most successful investments. He left Flatiron a couple of years ago, and he's been working on a couple of different projects and he's got a new concept. He just came up with it about a month ago and. He he's been talking to me and Jake about, you know, sort of this new idea and we're having a lot of conversations with him about what do I need to figure out? What do I need to learn in order to know if this is something and so literally going through like , I, you know, picturing an email exchange with him the other day where he  was like, this is the question I'm trying to answer with this next round of prototyping. Do you think that's right. And I sort of wrote back and was like, I think that's right. But I think there's two questions before that question. Like, I think you need to know these things before it makes sense to try to answer that thing. 

And so it's just that, and then in that particular case, like, Jake  actually like sort of facilitated a sprint with them. Like he wasn't in the full five days, but he would get them started on one day and then like go away and then come back the next day and sort of check in with them. So, that's kind of just to give you a sense of the style and the feel of how we, we try to support companies in that way.

Robert Kaminski: Awesome. Well, I guess John, to kind of wrap us up today, you know, one question that's kind of interesting and I think it brings it kind of back home too, is like you're back in the Midwest. Obviously COVID has impacted things. Like what's your point of view? Like you're in the Midwest, not the Bay area, you're around all venture funding. Like how are you looking at that in today's age? Can people raise and build successful startups outside of the Bay area? I would assume yes, but what are your thoughts on that? 

John Zeratsky: Totally - I think that the, I mean, I don't want to pretend that like, Wisconsin is the same as the Bay area in terms of, you know, entrepreneurial activity. But I think that like even before COVID Wisconsin, you know, the Midwest, like a bunch of different regions, you know, the Southwest, the Rockies, the Southeast, like all these regions that hadn't traditionally been known as sort of like startup hubs have just made amazing progress. I mean,  the resources the shifts in mindsets the kind of shifting expectations around what's  even possible or doable or normal have shifted having capital available. Those things were already like coming along. I think that the pandemic completely changed the game though. 

Like, I think that, I mean that even the like San Francisco Bay area VCs, a lot of them, aren't in San Francisco right now. They haven't been there for over a year. They're, you know, like they're at their, you know, family home, back, wherever they're from, or they're like in a vacation home, or they're like, you know, they're in Southern California because why not? Because the weather is nice. Like people have just sort of fanned out everywhere.

And I actually know here in, in Wisconsin or here in Milwaukee, I should say like, I have started like a list of like, what I'm calling like stealth tech people who are here. Like I have a friend, I just learned actually that he he moved here, he works for Coinbase. Like there's like another, like new friend who like was at this like pretty, pretty major FinTech startup in Seattle who just moved to Milwaukee.

Like there's, you know, I think -once things start to open up and we're able to like gather and we're able to sort of build community in person again, you're going to see a lot of those people in those relationships come out of stealth because there's been over the last year and a half, there's been this like redistribution, you know, like from these lots of people in like a couple of places, it's just mushed out a little bit. And like, maybe the peaks are still like a little bit higher in some places, but the valleys are like, not as low. So there's just kind of like people everywhere. 

And so I think you're going to see that, but I also think like the norms have also totally changed. Like again, even people who are in the Bay area, people who are in New York, they're  like, now - we used to look at companies anywhere, just, you know, like if it was interesting, now we do it as a policy and like, you know, I'm sure everybody listening to this has like, had those conversations. Like, I don't want to go back to like being in the office five days a week. I don't want to go back to like traveling every week for work. Like everybody's just sort of adjusted. And I think even though there'll be some swing back to closer to the way it was before. It's not going to swing all the way back. So I think that's a huge advantage for those of us who are, we're trying to build and support new companies outside of the traditional startup hubs. 

Robert Kaminski: Yeah, no, I love that. Well, John, this has been awesome. I think we're going to go to a few questions that came up during the session. Jacob, do you want to roll those out? Just kind of playing MC here -he can get them up - here's one coming in. I think you could see that John from Daniella, how can a small company with really busy employees implement design sprints as a habit to assure its sustainability. 

John Zeratsky: Yeah. I mean, getting companies or I shouldn't say getting teams to like commit time to a design sprint, or any kind of focused style of work. It's always hard. Like, that's a big challenge but it's kind of like an intentional challenge. Like it's hard on purpose. And it's hard because the norm of you know, norm of work is to be distracted. You know, it's normal to be you know, jumping between email and meetings and, you know, updating your, you know, project tracker and, you know, bouncing between things. And you're getting a ping in Slack and answering it like that's normal. And so to do anything that's much more focused than that is abnormal. And so it's a difficult adjustment. 

And so what we you know, with  design sprint specifically, we always encourage people to identify a huge challenge, like a huge problem. Like,  it should  be the sort of thing that like keeps you awake at night. It should be like this sort of thing that like you've had a million meetings about, but you haven't really made progress on or like,  it's like that thing, that's like an existential threat to whatever you're doing. Because I think when you choose a big challenge, then it becomes, you know, it's still hard to get schedules aligned, but it becomes instead of like a chore, like, Oh, I've got to like clear my schedule to do this thing. It becomes like a relief. It's like, finally we can spend, we can actually focus on this thing, which is the most important thing for our business.

And so that's kind of the bar that we set is like, it needs to feel like a relief to be able to like get the team together and really finally dig in on trying to solve that problem. And then, you know, and also, you know, using it really in,  those moments when it's truly critical, not trying to do it every week or every month, but you know, really using it inside of your company, in those moments where you're at those, like pivotal points those sort of transformational moments where you're like, okay, this is a big thing, kicking off a new project. Like we got to get the team together and really focused.

Robert Kaminski: It's tough. I like that perspective on bringing the focus and making it a relief. It's all, it's like a mindset reframe, trick yourself into bringing that focus. It's good. Yeah. Jacob. I saw, we had a few others, here's one - favorite social media? 

John Zeratsky: Probably Twitter. I dunno. It's a love, hate relationship. I have been most... I would say that like the one that has exceeded my expectations has been LinkedIn, like, you know, LinkedIn as like a platform for people to like share information, has like really surprised me in terms of the value and the quality that comes out of like, obviously just the being able to sort of find people and connect to people.

But also like, you know, there's a lot of junky content that's shared on LinkedIn, but there's a lot of junky content that's shared everywhere, but there's also  like, you know, a lot of real gems and real quality. So I think that one is sort of the, you know, the underdog kind of from behind, you know, favorite for me. But yeah, Twitter is probably just for pure, like, enjoyment - Twitter is my favorite. And then the other one where I do spend a bit of time is YouTube. 

But like I radically, even though I worked at YouTube and I was part of the team that launched the channels platform, I like, I have a really hard time just like sitting and watching a video. I don't know, like if I'm like on the couch watching TV, that's a different thing, but like, I dunno, you know, they are different. I don't have the computer or the phone. Like I just can't sit there and watch for like a minute. I don't know. So, , I don't have a super strong YouTube habit, but I think it's surprising in the depth of content that's there, I mean, you can find like a tutorial on anything. Like you can find people talking about amazing stuff at a level of depth that is hard to find on other social networks. 

Robert Kaminski: Good stuff. O, I like  this one having peaked back into this print book I know Craigslist was not all there for recruiting. You know, you think that's changed a bit. Do you change it in your sprint process right now? Thanks, Joshua. 

John Zeratsky: Yeah, it's  still a good place. I don't, it's not the only place. It's not, it may not be the best place. There's you know, these days, I would say there's two other techniques that I often use.

One is a service called user interviews.com. I think that's the name of it. Anyway, if you go to the sprint book.com/remote, that's our guide to running remote design sprints, and we talk about it there and apologies for blanking on the exact name of it. But  it's really good. You know, just gives you a bit more control on sort of the filtering side of recruiting.

But then the other thing that I've been doing a lot recently is just doing like a social media kind of blast out, like basically between like, you know,  the team that's involved in any like friends or investors or advisors, just create a screening questionnaire for the test. So like create the questionnaire that you would need to the survey to make sure that you're filtering down to the right customers and just ask people to share that out in social and put a really generic message.

Like, Hey, my friend started this new company looking to talk to people, you know about it and you can get a surprising number of responses through that channel as well. I think the challenge is that you don't wanna like lead the audience. You don't want to say like, I'm looking for people who love fitness, you know, like, because I mean, maybe that's appropriate, but if you sort of lead the witness too much, then you end up with people who are like maybe don't accurately reflect like the real world. They're  already fans of what you're doing because of the way that you sort of phrase the question or saying like, yeah, This would be a huge favor to me. Like, please help me out. You know, like then people are just going to like do it to be nice or whatever. So anyway, yeah. Gotta be careful with how you frame it, but it kind of worked pretty well.

Robert Kaminski: Yeah, framing's important. Well, terrific. I want to thank you again for coming on and joining us super enlightening, love, hearing your stories at Google and now really on your own investing. And  I know it's been helpful to Ryan and I, hopefully our audience got something out of it. So, for those of you who dialed in, be sure to check out,John, you know, check him out on Twitter. If that seems like the best place to play and interact, at least for the time being and follow Headway and Exploring Product. And we'll catch you next time. 

Ryan Hatch: Thanks, John. 

John Zeratsky: Thanks everyone. This was fun. See you later.

show notes
  • Sprint Process & Approach
  • ‍Shaping the Market/Decision Making
  • ‍Considerations when Investing and "Opportunity Sprints"
  • ‍Feedback Lens (& Failed Investments)
  • ‍Transition from Google Ventures to Investing
  • ‍Working with Startup
  • What To Look for as an Investor
  • Where to Start?When to Invest
  • Discovery of Opportunities/Preparation
  • Partnership/Multiplier Model
  • ‍How to Validate Successfully