Derek Hall

2X Entrepreneur & Investor in 50+ startups
🇺🇸|🇧🇷

[Derek Hall @DerekWayneHall]

@kiko_himself Faz sentido

[Derek Hall @DerekWayneHall]

@GEVS94 Awesome pic!

[Derek Hall @DerekWayneHall]

@francolfelipe Picadinho for the win!

[Elon Musk @elonmusk]

@paulg The fundamental error of socialism, which smart people still fall for, is shifting capital allocation from highly effective entrepreneurs to astonishingly ineffective government.

This dramatically reduces total goods & services output, which determines our standard of living.

[Derek Hall @DerekWayneHall]

@kiko_himself I often think about @fredwilson 's post "What a CEO Does" https://t.co/UkqkjJidQd.

[Derek Hall @DerekWayneHall]

@francolfelipe Pois é

[Jack Altman @jaltma]

Hierarchy of investors

Level 1: Actively sabotage portfolio companies
Level 2: Push bad ideas that lead founders down wrong paths
Level 3: Distract companies with random obligations, ideas, etc that have to be fended off
Level 4: Hands off, neutral, and generally supportive
Level 5: Contribute in big ways in small number of key moments
Level 6: Have sufficient context and experience to be an ongoing valuable member of the CEO’s team

[Derek Hall @DerekWayneHall]

@BrazilBrian Mmmm gostoso 😋

[Tim Ferriss @tferriss]

"Suffering is a moment of clarity, when you can no longer deny the truth of a situation and are forced into uncomfortable change. I’m lucky that I didn’t get everything I wanted in my life, or I’d be happy with my first good job, my college sweetheart, my college town. Being poor when young led to making money when old. Losing faith in my bosses and elders made me independent and an adult. Almost getting into the wrong marriage helped me recognize and enter the right one. Falling sick made me focus on my health. It goes on and on. Inside suffering is the seed of change."

— @naval in Tribe of Mentors

[andrew chen @andrewchen]

Here's a common startup situation. A team busts their ass for months building the first version of their product. It's almost done. Now a big question emerges -- how do you get the first people to use your product? Hmm...

If you find yourself at this moment, then you are already in a bad place.

99% of startups are not differentiated on their underlying technology, and there is very little engineering risk involved. (I'm ignoring deep tech and foundational AI research companies, for the sake of this conversation). Because technology differentiation is no longer a real factor today start ups, it turns out that most products are succeeding or failing due to core product/market fit followed by the distribution strategy. There are over 9 million mobile apps. There are a billion websites. Figuring out distribution is key.

This is why I think startups end up needing both:
1) an insight about customers that gives them product/market fit
2) an insight about distribution that creates traction

People building products often have an easier time product/market fit because they are building for themselves, or a customer that they already know well. But the latter, about distribution, is often super difficult because once you onboard your friends and family, and look to expand the next set of hundreds of customers, you then dive into the world of growth marketing strategies and tactics which are its own very particular learned skill set.

Sometimes when there's a new breakthrough technology, as with what is happening in AI, or the Apple vision Pro, or Web3, it's simply enough that the product has a "it works" feature. By simply being there on the scene when adoption of a new platform is happening, distribution happens automatically. I think that's why we see that so many new great startups are launched right at the beginning of the platform.

But what happens when you are trying to launch the 9,000,001th mobile app? The first thing you do, naturally, is to try to read what's out there. The other counterintuitive thing, is that although most of the knowledge in writing out there pertains to channels like SEO or paid marketing or influencer campaigns, many of these tactics best fit already successful products that have money and aim to accelerate growth. Many of these tactics simply won't apply to you because they'll be too expensive, or they will use mature marketing channels that just won't be that effective. I often joke that by the time there's a case study about a new marketing tactic or channel, the advantage has already been arbitrage away, and probably no longer works.

So what should you do instead?

Ideally the product and the distribution hypotheses happen at the same time, and reinforce each other. The Dropbox founders describe to me at the inception of their product, that sharing folders was part of the vision and was built in quite quickly. And later years this drove a significant amount of growth. Uber has natural virality because you often ride in a car with other people, or you ride a car to see somebody, and naturally you'll mention the service. A product for creators, like Substack, will naturally encourage people on the platform to write and share content, attracting an audience who ultimately may also be writers themselves. Zoom, and other apps that help collaboration in the workplace, have natural features that cause you to bring in your coworkers as you use the product experience.

These are all examples of the best form of distribution, which are baked in to the product idea itself, rather than bolted on at the end.

Even once you have a basic theory for how your product will naturally distribute itself, you'll still need to identify the first generation of users to help iron out all the issues, and give you feedback on whether your hypotheses were correct. In my years of studying new product launches, I can confidently say that the early years are often very idiosyncratic, and constantly changing. The reason for this of course is that marketing channels change all the time, but subscale ones that help you get your first couple thousand users, change even more so.

A few years ago you saw a trend were products would launch a huge conferences like SXSW. These days you see more effort on getting influencers involved early. Or "building in public" which makes yourself into an influencer. Several years ago many consumer products (like dating sites, new photo apps, etc) would launch on college campuses via the Greek system, because they were organized ways to reach thousands of undergraduate students. These days the organizations are often inundated with start up requests, and it's become less effective. As a result all of these initial channels change all the time, and it's up to the founders to figure out how to take advantage of what might work today.

The problem with these initial channels is that they eventually tap out.

Thus starts the journey of startups to grow and expand their portfolio of distribution channels, beginning with small and highly relevant ones, into the biggest channels.

I sometimes imagine a X Y axis, where X is volume of the channel, and Y is responsiveness. Early channels are often very low volume. But you want that. The reason is that they are highly relevant and they are small enough that larger companies do not focus on them. As I mentioned influencers are often an example of this, but so are niche newsletters, or or event marketing. However if you find this channel to be successful, you'll also eventually one more scale. This involves you jumping onto the next set of channels, which will provide more volume but be much more competitive as a result.

Often times this is a period where you have one channel that kind of works, and you're testing a few other channels simultaneously. Your efforts here should be experimental and iterative. You can often look at direct competitors as well as adjacent products and see what they're doing, to inspire you on the right channel. The natural cadence of products will indicate to you the channels that are most likely to work. If you have episodic usage, you'll probably need to do SEO/SEM, affiliate, or referral -- something that helps you target high intent users. If you're product is social or helps with workplace collaboration, then you might lean into referral programs and viral growth. Products in commerce naturally lead you towards paid ads, contact creators, etc. You can often learn a lot by talking to other people in your industry or an adjacent industries to see what works.

This is where sometimes I'll see people working on episodic usage apps, like travel/health/etc asking the question, how do I make my product virally? I want free users! Of course the problem is, there's a natural fit between a product and it's distribution channels. Even though you might want free distribution, only very specific niches of networked products are able to grow freely. Generally everybody else must pay for their distribution, whether via referral or advertising.

Eventually you want to move on the XY axis towards volume. There are only about a dozen large scale distribution channels that can propel a product to scale. Advertising is on that list, SEO too, and so is viral growth. But these larger channels, by their nature, are both highly scaled but also have low responsiveness. As a result, you end up competing with some of the most famous brands in the industry as a result. Who wants to buy ads against the same audiences as major credit card or airlines? They have insanely high payback periods, and huge marketing budget, and are not that cost sensitive.

Ironically, this is where great products become to dominate. I started this discussion with the dual requirement of product/market fit, and distribution. But in the end, product/market fit actually dominates.

The reason is the following -- the ability for a company to operate out in these most expensive and highly scaled channels comes from having a great product that generates a ton of word of mouth. More natural usage, the less marketing that has to be done. And the marketing costs that do exist end up being blended in with the large number of organic users.

The journey of a new product is to move, from unscaled and relevant, to highly scaled. And at the end, great products win.

[Marcelo Claure @marceloclaure]

Entrepreneurs are WORLD CHAMPIONS in enduring short term pain for long term gains (Corporate suits are the opposite, they love short term gains but at the end they realize long term pain).

[Latitud @latitudglobal]

Derek Hall and Miguel Burger-Calderon weren't born in LatAm but saw just how many opportunities the region has. 💪

Hear how they went from founders to angels for companies such as Clara, Cobli, and Nowports to, last but not least, VCs at the firm BFF 👉 https://t.co/o74J3WGD7a

[Tyler Todt @tyromper]

@elonmusk If all your beliefs fit into one political party THEY AREN’T YOUR BELIEFS.

[Derek Hall @DerekWayneHall]

@thesamparr Would love to see @geoffreywoo talk about this with you on the podcast

[Derek Hall @DerekWayneHall]

@stephmui Seems like a reasonable strategy

[Matteo Franceschetti @m_franceschetti]

“It is all about having a great product and the hustle to move it” Jay Z

[David Sacks @DavidSacks]

Investor sentiment in Silicon Valley is the most negative since the dot-com crash.

[Sam Altman @sama]

colleges prioritized making people feel perfectly safe over everything else and produced a generation afraid to fail, and thus afraid to take risk, and thus on pace to accomplish extremely little

[Jason ✨👾SaaStr.Ai✨ Lemkin @jasonlk]

We do startups to do something great

The rest do them for a job

[Derek Hall @DerekWayneHall]

@youderian I feel you