Successful disruption is difficult to spot. Ideas are endless, talk is cheap, and some founders flourish, while many others fall to the wayside.
How can anyone be sure what will be a truly successful venture, and what’s simply hype (or talk)?
We asked Joe Medved, a Partner at Lerer Hippeau, a highly active seed-stage investment firm that funds innovative founders across nearly all industries. He came on the #FlipMyFunnel podcast, where Dave Knox interviewed him as part of Dave’s #TakeoverTuesday series.
Here’s what we’re unpacking today:
- Venture capital funding
- How to determine whether a venture will be successful
- As a VC, what key trends does Joe see on digital disruption?
- What is at the foundation of disruptive brand creation?
- Are emerging digitally native vertical brands going to expand, or get acquired by bigger players?
- How is voice going to impact brands?
- How can business leaders evaluate new entrepreneurs with ideas they have no experience in?
- How Twitter helps you keep up with disruption
As a VC, what key trends do you see in digital disruption?
Joe Medved: The pace of change has accelerated so rapidly. You can no longer ignore technology, because it’s dramatically changing not only the way you operate, but the way your consumers are acquiring everything they’re purchasing. Whether it’s a car, whether it’s some kind of a service for their home or an insurance product, whatever it may be.
As a result, every major industry has been forced to focus on innovation. At this point, you can no longer ignore what’s happening from an innovation perspective, because it’s not just that someone’s going to nip at your heels and take away some of your business. You have the potential to be massively disrupted in a very short period of time if you’re ignoring what’s happening in the technology landscape.
How do you determine whether an outside has the potential to be a disruptor?
Joe Medved: People have been successful with all types of backgrounds. It could be someone who’s been in the industry for decades or someone who’s never been there and is naive enough to believe they can do something wildly disruptive.
If there is any kind of common thread amongst a lot of the founders we’ve backed:
Often, it is an individual who was perhaps a digital native, or they generally had a love for technology, and they operated within a business that was fairly traditional, and they just raised their hand early to focus on this technology innovation.
What’s the foundation of disruptive brand creation?
Joe Medved: A key thing is obviously the way consumers are acquiring goods. They have a founder who knows how to build an incredibly authentic brand narrative around a high quality product.
So if you look at the backstory of Allbirds as an example: 1 of the cofounders had been a soccer player in New Zealand, and he discovered this amazing wool that created these incredibly comfortable shoes.
When people wore it, 9 times out of 10 they would tell all their friends “This is the most comfortable shoes I’ve ever worn in my life!” As a result, the company had such a massive advantage from an economic perspective in terms of acquiring customers at an insanely low cost. Because, there was this great product with a compelling background story, which the company shared through a variety of means on social media. So, I think the key for us is identifying not only the market opportunity, but the individual who can drive the brand forward — And an incredible brand story.
Joe’s quick anecdote: We were having a partner discussion a couple of weeks ago, and we were looking at a new direct-to-consumer brand. We were talking about the product and the unit economics and all that. Our partner Ben said:
“Wait. Stop. We’re having the wrong conversation. Every great bet that we’ve made in the direct-to-consumer space has been based on the quality of the founder.”
It’s almost like identifying emerging artists. It’s someone who has the ability to develop that narrative around an incredibly unique product that is going to be amplified in today’s landscape around things like social media with younger consumers who are looking to purchase these items online.
Are digitally native vertical brands going to expand or get acquired by bigger players?
Joe Medved:I think it’ll be a mix, right? Consider some of the ones that have really scaled — like Casper as an example. They really started with just mattresses, but they’ve broadened their scope to sleep in general.
They’ve reached significant scale where they can have vertical products alongside their core initial product. They’re starting to establish their own stores. They’ve partnered with retailers like Target.
So, there are companies like Casper that may grow into massive independent brands within their verticals. Then there are others that will just, rapidly build out a high-quality product, maybe in a specific niche.
How is voice going to impact brands?
Joe Medved: I think it’s going to be a few years before there are lots of transactions driven by voice. I think a bridge to getting there — embracing conversational commerce — is more likely to happen in the messaging world first.
You’re seeing more companies that are trying to help drive commerce through transactions that are happening in the messaging world. Sme of it’s through bots, and some of it’s through more interactive conversations.
How can business leaders evaluate new entrepreneurs in industries they have no experience in?
Joe Medved: We’ll look at most consumer and enterprise categories, and we’re one of the most active seed investors in the country. We have the benefit of seeing a lot of deal flow, and we tend to see waves innovation around specific segments.
Blockchain is an example which could impact so many different industries.
The way we’ve thought about that segment is we want to make a handful of bets in people who we deem to be great, very smart founders. Maybe they’re people we invested in in other segments in the past Perhaps they’re great technologists, or maybe they’ve developed great products. Or, maybe they’re just very smart people who are diving into these industries, and they’re people we think are eventually going to be nodes in these networks.
Honestly, from our perspective, their first or second ideas might not work, but we want to back the smartest people in those segments, which will strengthen our network and our expertise.
How Twitter helps you keep up with disruption:
The other thing you can do as well: Twitter — it’s the greatest tool for people in our industry. I use it regularly to track emerging ideas across all the leaders in our ecosystem.
If you are specifically interested in a new segment, you can fairly easily go in and figure out who the influencers are in that space.