Building expertise in other markets as a founder, The NBA's MVP race and build versus buy, and just listening to Buffet on Index funds
Stretch Four Insights Volume 19
Happy Saturday everyone,
This week Whitney and I again spent most of our days at the hospital with our son. As frustrating as it can be to have your child in the hospital we cannot be more thankful for having some of the best care, being within a five minute car ride of him and to see our little guy increase his stamina while feeding on a daily basis. He should be home sooner than later.
Sleep comes in doses and even though Cain is not home with us yet, our bodies are already in primal mode with the expectation of having an infant by our side 24/7. This means, I have definitely dragged a bit on fitness, diet, and of course sleep. This also means I have not been consuming as much content but this week I want to highlight three things:
How startups founders need to be experts not only in their own industries but adjacent ones as well.
The top three leaders in the MVP race and the build versus buy strategy of nurturing stars versus recruiting stars in professional sports
Countering The Power Law with simply Sticking to Index Funds
Let’s dive in.
Build expertise beyond your vertical
Last week I got an odd introduction from an investor who passed on investing in my business. This was already an odd occurence, I typically have a rule to keep those investors far from my frame of mind but he introduced me to a company I had heard about in passing but did not think much of.
Well, I decided to take the meeting and I learned a lot. This company, which I thought was just getting started, had already raised $60M (unannounced) and claimed to already be doing $50 million in revenue. This opened my eyes to a few things that many founders may not understand.
First of all, you need to know adjacent markets. This company is building a “Credit Karma as-a-service” type platform that they sell to financial institutions. Currently at ModernTax, we are focused more on decision-related data services product meaning we want to help financial institutions gather alternative data (i.e. tax, government benefits, etc) to make decisions on financial products faster and more transparently. The obvious next steps for our platform is to build on top of the decisioning engine and data and build more insights and analytic related products (i.e. a marketplace of financial products that can be offered to users based on a set of criteria). There is overlap but this company is already far ahead in this so does it make sense to join forces, keep building or partner?
The second thing is to be ahead of the game. As a founder it is not enough to know your business, customers, and market. You need to know every company in and around your market that is likely selling to your same customers. Only the paranoid survive in the high-stakes game of startups and doing deep diligent research or having someone on your team take the charge of knowing every company and competitor no matter how early you are will help. This was an enlightening conversation for me and whether they buy us, we partner, or we end up competitive is something you have to constantly evaluate.
The NBA’s MVP Race and building versus buying your team’s future
The Joker
Nickola Jokic rides horses when he’s back home in Serbia, and is notoriously known to have some of the most physically imposing brothers by his side 24/7. Additionally, he is statistically the most dominant player in the NBA. As much as he has performed this year, I think it is hard to crown him as the back-to-back MVP just yet as the Nuggets are teething as a play-in team. Whether he wins or loses, he continues to overachieve as a 46th pick by the Nuggets in 2014. When Jamal Murray and Michael Porter Jr. return next year there’s a good chance Denver returns to the top of the Western Conference.
The Process
Joel Embiid has wowed us with a spectacular year. He’s remained healthy and put up obscure numbers all season. Embiid is only 28 but it seems like he’s been around forever. There is a bit of rivalry between he and Jokic being that they were drafted in the same 2014 draft. This is the first year I have noticed just how dominant Embiid is. He and The Joker are bringing back the true NBA big man and if I had a vote, Joel would be my choice this year.
The Greek Freak
Giannis Antetokounmpo is having an amazing 18 months, he dominated the NBA Finals last year en route to his first NBA championship and he has not let up. Giannis is often overlooked but his statistics this year have been nothing short of amazing and at 27 and with his physique he will likely keep up this domination for years to come. He is my dark-horse to win the MVP and could potentially cap it off with another championship.
Build versus buy
With these top three MVP candidates it brings up another point related to professional sports. Building teams and cultivating talent in-house versus outsourcing by recruiting stars has become the two strategies many teams apply. With Jokic, Embiid, and Giannis you see three guys that were all drafted by their respective teams and developed over a 5-8 year timeframe. So much press is dedicated to teams recruiting the next free agent, but these three unicorns shed light on how building in-house talent pipelines by making good draft decisions, and building around young stars. I hope this is a sign to more teams to draft well, scout well, and build around the in-house players as opposed to over-indexing on free agents.
Personal Development: Index Funds
I started a new book this week after finishing up the Power Law. Not by my plan, but Trillions is counterintuitive to chasing the best venture capitalists and hedge fund investors to have manage your money. Trillions focuses on the opposite. It says you should simply put your money in low cost ETFs and passively watch your money return at 8% over a long duration of time. It kicks off with Warren Buffet’s bet on index funds over investing with top fund managers. Buffet won the bet. This book counters expensive fund managers and the chase for alpha with making simple bets in ETFs and index funds leading to higher returns over time. I am just getting started but it is fairly interesting so far.
What’s Next
ModernTax: Q1 Update + fundraising
With less than a week left in Q1, I will be putting together my Q1 investor update. I am also in full fundraising mode and pitching my third and fourth tier investors. I am thankful to have an understanding wife considering our son came over a month early, she gets that I still have to work and has been supportive over these past few weeks.
Stretch Four: long form + podcast + more
As I get back to my normal writing with weekly newsletters, I do plan to finally get my next long form post out in the next month. I have a commitment from a friend building a company in an adjacent space. Additionally, I am going to add audio to the newsletter, which will start by me reading the long form post and expand into a series of interviews with top 10 employees at unicorns across the valley.
Your feedback means the world to me so drop me an email at matt@stretchfour.co on what you would like coverage of, provide us with feedback on my format, and what you think is the best day of the week you would like to hear from us.
Lastly, if you found this newsletter interesting and know someone else who would, please forward it to them or tell them to subscribe here. It would make my day if you do!
Back to the trenches.
Best,
Matt