A question commonly asked in consulting interviews is something along the lines of: How do you conduct market research on a specific population to understand whether or not they will buy a product or service? You only have 24 hours. This is a behavioral question and is commonly considered a “brain teaser”. Typically, intelligent MBA candidates fumble around, mentally thinking through technical approaches as the interviewer prepares to respond with the most optimal and painfully simple approach: You ask them. I am reminded of this often, particularly as it relates to investing in companies with minority founders or services that apply to minority consumers. Default and lazy assumptions like “This is too niche” or “Black people want X” are table stakes, only to later return to the same — inaccurate —conclusions: I can’t find any Black founders or worse I can’t find any Black founders building scalable businesses.
Lately I’ve been thinking about Black maternal health and companies that operate in this space quite often. These businesses have had difficulty gaining traction in the venture capital ecosystem and I’m very quickly reminded why. Few of us have asked if investors presented with these ideas (Healthcare-focused or otherwise) have taken a poll of just five black women who have had, plan to have or are expecting babies. The poll could be a single question: “If there were a service that would improve your chances of living post-childbirth, would you pay for it?”. Very few investors have done this work. Work I might had that takes very little time. It’s easy to understand then why even the most educated and experienced among us would assume this market doesn’t exist or can’t be validated. False assumptions too often believed to be true. The same can be said for any other category that’s either unexplored or underinvested.
Two years ago, I listened to an episode of How I Built This in which John Foley, CEO of Peloton was met with laughs and eye rolls on Sand Hill Road in his early days of pitching a digitally connected stationary bike that allows consumers to participate in workout classes at a time that works for them. He notes that he asked himself the question after receiving early investor rejections: Who am I to think that this named person at this named shop was wrong?. I’ll tell you who he is today to think that: the now billionaire founder of a publicly traded company valued at $30bn. For reference, Peloton’s first valuation upon fundraising was $1.6mn. Imagine the financial loss for those given the opportunity to get in early. How difficult would it have been for early investors to text or email five people who already owned in-home workout equipment with questions like, “What if you were able to use this equipment to participate in a live class?” or “Would you be interested in taking a spin class even after leaving the office late at night?”. In thinking about this, one thing is strikingly obvious: It’s not the hard questions we don’t ask. Why aren’t we asking the EASY ones? I personally have owned a Peloton since 2018, have been bullish on this company for years and am grateful to have shares in this company today. The value proposition was obvious to me early, many years before I ever became a full-time venture investor. While I too am guilty of leaning heavily on my own instincts or acquired knowledge, I default to curiosity and trying to understand human behavior. For context, Peloton’s stock has appreciated over 400% since the company went public. Even ahead of its IPO (or before any of us had even heard of the COVID-19 virus), Peloton reached a $4bn valuation in the funding round that preceded it.
The lesson? Life’s most persistent questions are answered very simply, as any McKinsey interviewer will share with you. If you want to know. Skip the complexities. Just. Ask. Assume your livelihood and your track record depend on it. There are very few circumstances in which you won’t find the truth.
See you in blog post #17.