Pattern Breaking Startup Ideas

The 3 Powerful Forces Most Often Overlooked

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A Lucky Fool?

Roughly a decade ago, I needed to make an important choice:

Retire from seed investing because I was a lucky fool?

Or dive deeper than ever to learn about what was really going on? 

This was a legitimate question: I had seen great success as a seed investor, eventually finding myself on the Forbes Midas List of Top 100 VCs eight years in a row. Yet I had noticed that more than 85% of Floodgate’s exit profits came from “pivots” – namely startups that started with one idea and then ended up course-correcting to something very different.

And it’s not as if all these wildly successful startups followed the established best practices. Do you think Justin Kan had a business model canvas when I met him in a coffee shop with a camera strapped to his head and wires going into his backpack? His "internet reality show" called Justin.tv eventually went on to become Twitch. Or what about Lyft, which wasn’t even clearly legal when it launched its ridesharing service after pivoting from a corporate carpooling service called Zimride?

Nassim Taleb’s book Fooled by Randomness was a crucial influence in my early seed investing days when I got started in 2005, almost a decade prior. Taleb talks about the “lucky fool,” someone who benefits from a disproportionate share of luck but attributes his success to some other, generally very precise, reason related to his skill. I thought maybe he'd put me in that box. And I couldn't say for sure he’d be wrong.

I had also taken from him that recognizing you're in a game combining luck and skill might clear your head, which could, in turn, improve your outcomes. 

What Was Going On?

Something else bothered me: Many startups I worked with did everything “right” but got nowhere.

They analyzed markets for underserved segments of opportunity.

They talked to customers extensively.

Often, they got funds from the best investors in Silicon Valley and excelled at everything they should – customer development, team building, and lean experimentation.

Yet, despite their hard work, many failed. They gave their best years, only to face layoffs and sinking morale. One by one, early believers lost faith. They felt the hurt, the weariness of watching their startups slowly die.

Many startups that didn’t make it would’ve been a case study in how things should be done - except for the fact they’d failed. I saw it happen again and again.

What's worse than failure is when founders realize their ideas won't break through while they are in the midst of building their startups. They're stuck, bound by promises to investors, employees, and their pride. They keep going out of obligation, not desire. Those are the saddest endings.

I studied this for many years in obsessive detail. It wasn’t just about making money. When you invest at the very beginning of a startup, you feel more like a co-conspirator than an investor. These people become “your people.” It felt like it would be valuable to better understand what ideas were worth pursuing and which should be avoided, not just for buy low and sell high reasons, but for the opportunity to help these founders who make me feel so alive.

A wave of clarity

It finally hit me one day on a surfboard, which is surprising since I’m a terrible surfer. 

It struck me that outlier startups didn’t usually happen by following a recipe or best practices. Powerful forces acted like a gathering wave below the surface of a breakthrough startup idea—forces even more important for startup success than the initial idea itself. These forces could be understood and founders could use that understanding to improve their odds of surmounting the barriers to exceptionalism that startups seek. Suddenly, seemingly disconnected aspects of what I was seeing began to come together. 

The key forces that emerged were inflections, insights, and living in the future. The power of these three forces and a founding team’s ability to harness them to create a pattern-breaking idea provides the best explanation I’ve found for why some startups do so much better than the rest.

I call this interaction of powerful forces Inflection Theory.

The basic idea is this: 

An Inflection is an external event that creates the potential for radical change in how people think, feel, and act. Like a surfer needs a wave, a pattern-breaking idea needs an inflection. 

An Insight is a non-obvious truth about how one or more inflections can be harnessed to radically change human capacities and behaviors. A surfer can’t control waves in the ocean, but a skilled surfer can control its surfboard once it’s found a wave worthy of surfing. Insights are like this.

Most pattern-breaking insights come from Living in the Future and building what’s missing in the future rather than trying to think of a startup. Living in the future best tilts the odds in your favor for finding outlier startup ideas. 

A pattern-breaking Idea is built on top of these three forces to propose a radically different offering. Founders iterate by iterating their pattern-breaking ideas while staying grounded in their initial insight.

You might notice that I don’t classify the “idea” itself as one of the three key forces. This is because so long as the underlying forces are real and powerful and the insight is valid, the idea may change several times before the founder finds success.

This also helped me understand what confused me so long about pivots. The pivots had worked not as a completely random outcome - it was because the underlying insight was right and powerful enough to deliver a breakthrough. By iterating the product’s implementation and honing in on the right target customers, what seemed somewhat random made more sense to me. 

Let’s briefly describe each of the elements of Inflection Theory, starting with Inflections.

Inflections

An inflection is an external event that creates the potential for radical change in how people think, feel, and act.

Humans, as we’ve noted, are habit-forming creatures. The ways we go about our daily lives tend to crystallize into stable, repeatable patterns. 

But every so often, there’s an event that introduces something new—a new technology, a new regulation, a new idea—and that new thing has the potential to radically change how people think, feel, and act. These major change events are inflections.

The inclusion of a GPS chip in the iPhone 4s serves as a good example of an inflection. This chip allowed smartphone applications to pinpoint users’ locations within one-meter accuracy. Before this change, creating a widespread peer-to-peer ridesharing network would have been nearly impossible, as riders and drivers would have struggled to locate each other precisely. The embedded GPS chip in the iPhone 4s created the potential for radical change, which start-ups like Uber and Lyft capitalized on. 

Business is never a fair fight. The default is an unfair fight where the status quo has an advantage over upstarts. The fight tilts in favor of the startup when it takes the competitive initiative to rewrite the rules of what customers can expect. Rather than compete by the current rules, pattern-breaking founders harness inflections to deny the premise of the rules – to change the subject entirely. This is where insights come into play.

Insights

An insight is a nonobvious truth about how one or more inflections can be harnessed to radically change human capacities and behaviors.

It’s not enough to build a better mousetrap because lots of other start-ups and incumbents are likely doing so, and that will cause most of your upside opportunity to be competed away. The path to greatness is to be both non-consensus and right about an opportunity to change how people will think, feel, and act in the future.

As you might expect, powerful insights leverage the power of specific inflections. But, unlike inflections, which are externally driven change events, insights come from the creativity of startup founders.

Continuing with the ridesharing example, companies like Uber and Lyft had the insight that the availability of GPS locators in people’s smartphones made it possible for people to share rides the same way Airbnb made it possible to share housing.

A powerful insight contradicts conventional wisdom, which means lots of people will usually disagree with it. At the time, most people thought it was crazy that people would want to stay in a stranger’s house or ride in a stranger’s car.

It’s actually a positive sign if lots of people disagree with your insight. If everyone agrees with your insight, it’s more likely you have an idea that’s already embraced by the consensus. This also suggests you're playing a game by established rules. These games favor incumbents, which will later put you at a disadvantage. The best insights polarize people. Most are uninterested and hostile to them, while a subset of people are rabidly excited about them.

Discovering compelling insights is where the true artistry of breakthrough entrepreneurship lies. It takes creativity and independent thinking to understand how new technologies can bring about radical change.

Living in the Future

People often ask, 'Where do insights come from?' Every breakthrough startup is as unique, but there’s a common thread: living in the future.

To grasp what it means to 'Live in the Future,' it helps to recognize the unseen limitations we face in the present. Entrepreneurs often try to brainstorm startup ideas by speaking with customers and scouting for unmet needs in underserved markets. Well-intentioned advisors, and even your own instincts, might point you to this approach. But years of humbling experience have taught me this mindset carries an unnoticed limitation. It confines you within current thought patterns and the competitive landscape's existing rules. 

To live in the future, you immerse yourself in the new technologies at the edge of what's coming. Grappling with the challenges they present sharpens your sense of what's lacking—steering you toward unique insights about what needs to be built. 

There are different ways to live in the future.

Some live in the future and build what they personally want to use based on what’s missing in their own experience. Marc Andreessen and his colleagues at the University of Illinois National Center for Supercomputing Applications (NCSA) did this when they created Mosaic, the first popular internet browser. So did Steve Wozniak when he designed the first Apple personal computer.

Some work with customers who live in the future and build what their customers find is missing. Todd McKinnon and Freddy Kerrest of Okta are a great example. They both worked at Salesforce in the company’s early years and therefore knew a lot of the early adopters of cloud computing. They were ideally positioned to identify the struggles these customers were encountering (in Okta’s case, cloud identity management).

Some intentionally catapult themselves into different futures, like Maddie Hall, who founded Living Carbon. She didn't rush into brainstorming startup ideas. Instead, she spent a year at the side of OpenAI CEO Sam Altman as his Chief of Staff.

Living in the future primes your mind to notice shifts and the monumental opportunities they bring before everyone else sees them.

How Can Founders Use Inflection Theory?

Entrepreneurs are very optimistic by nature. Once they get down the path of pursuing an idea, they get irreversibly committed, maybe without even realizing it. So, having a way to stress test ideas can be very valuable. Inflection Theory can help founders avoid pursuing ideas that seem good on the surface, but that lack breakthrough potential. It can also help founders safeguard ideas that might be dismissed by others as too unconventional or even foolish, despite the hidden potential they possess. 

What questions does this raise for you?

I’m still on my journey, seeking to grasp the very heart of startup greatness.

I want to hear your thoughts, questions, and even doubts about:

• What constitutes an inflection worth pursuing?

• What is the difference between an idea that embodies an insight versus most startup ideas? And why are insights important in the first place? How do you know if you have one?

• What does it really mean to live in the future?

There’s so much more to know.

See you next week when we drill down on inflections.