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eriktorenberg's profile
Erik Torenberg
Erik Torenberg
Erik Torenberg
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@eriktorenberg

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Erik TorenbergVerified account

@eriktorenberg

Co-CEO @beondeck, Co-founder @villageglobal. Hiring: http://beondeck.com/careers 

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eriktorenberg.substack.com
Joined June 2013

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    Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

    A common trope in VC is to ask whether the most important thing is the product, market, or team. @pmarca @eladgil @arachleff agree: Markets are most important But how to evaluate and pick markets? @nujabrol and I are working on a definitive guide. Some preliminary thoughts:

    12:52 PM - 2 Jun 2019
    • 345 Retweets
    • 1,656 Likes
    • Achitra Borgohain Vivek Ponnaiyan محمد Amey Syed Adil Cory Kiyega ryan rosztoczy Andre Stephenson zliyclh.eth
    36 replies 345 retweets 1,656 likes
      1. New conversation
      2. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        “When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.” — Andy Rachleff

        2 replies 44 retweets 238 likes
        Show this thread
      3. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Conversely, “Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn't matter -- you're going to fail.” - @pmarca

        1 reply 12 retweets 107 likes
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      4. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        While markets are the most important thing, we barely have any frameworks for how to evaluate them. It’s relatively easy for founders and investors to evaluate teams & products--but it’s unclear what makes a great market.

        2 replies 10 retweets 83 likes
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      5. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Traditional advice can be to target markets that are large and / or growing quickly--but that’s too vague. Founders have an intense need to pick a good market - they are dedicating 5-10 yrs of their life to their startup, and while VCs are diversified, founders have one shot!

        1 reply 11 retweets 92 likes
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      6. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Consider two frameworks: The Peter Thiel approach + Keith Rabois approach Thiel - pick a niche they can monopolize and expand outwards from there Rabois - go “horizontal” - find trillion dollar markets + build full-stack, vertically integrated solutions. Go big or go home.

        7 replies 41 retweets 236 likes
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      7. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Thiel approach (Vertical): Own a small specialized market. Don’t go for large markets because there’s too much competition

        1 reply 10 retweets 79 likes
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      8. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Niches can be defined by demographics, geography, jobs-to-be-done, among other things. Facebook famously started with Harvard as a niche, then dominated all college campuses, then grew from there.

        1 reply 7 retweets 67 likes
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      9. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Rabois approach (Horizontal): Consider his startup Opendoor: He went to market with no specific customer type in mind - could have been retirees, families, millennials, etc.

        2 replies 6 retweets 56 likes
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      10. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Which approach to use--Thiel or Rabois? Understanding how many large companies the market can support at scale is important. Doing so allows you to understand what is the right approach and approximate how large the opportunity can be.

        4 replies 11 retweets 83 likes
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      11. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        It’s important to think about market structure and apply the frameworks accordingly. Monopoly - Peter Thiel approach (niche) Oligopoly - Rabois (general) Monoplistic Competition structures — Either

        1 reply 11 retweets 60 likes
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      12. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Monopoly - One company owns greater than 75% and the entry of new companies are prevented or highly restricted. In other words, “Winner take all”

        1 reply 7 retweets 40 likes
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      13. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Oligopoly - Small number of winners Payments (Stripe, admen, PayPal) Ridesharing (Uber, Lyft) Storage (Dropbox, Box, AWS) Payroll (Gusto, ADP, Paychex)

        7 replies 13 retweets 80 likes
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      14. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Monopolistic competition Imperfect competition - many cos sell differentiated products, no perfect substitutes. Limited barriers to entry, but more crowded spaces. Unlikely to have enormous outcomes. E.g. Hotels, restaurants, designer clothing

        1 reply 5 retweets 38 likes
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      15. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        For Thiel approach, you want a niche. Niches can be: Boring (packaging) High-end (Black car) Unfamiliar (drug development) Weird (online dating) Needs to be some reason why it’s not already a huge market.

        2 replies 10 retweets 105 likes
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      16. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        For Rabois approach, you need - a lot of capital - low NPS for incumbents - Highly fragmented market - Can vertically integrate w/ radically simplified solution (to control entire experience and get a high NPS score)

        3 replies 11 retweets 116 likes
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      17. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Similarities across frameworks: Timing matters in both cases. Why couldn’t you do this two years ago? Why not two years from now? Why now? Good why now answers: Tech - emerging tech, platform shifts, patent expirations, exclusive rights

        2 replies 14 retweets 98 likes
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      18. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        (Good why now answers cont.:) Infrastructure - changes in regulation, gov’t incentives, competitor exits, shakeouts in adjacent industries Data availability, new sales distribution channels, shifts in consumer behavior, new communities, unit economics (Instacart vs web van)

        1 reply 6 retweets 60 likes
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      19. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        A why now often requires a “secret” -- something you believe that very few people agree with you on. It’s important but unknown, and hard but doable The key element of secrets is that they give you an edge. If it won’t give you an edge, it’s not a secret.

        3 replies 13 retweets 88 likes
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      20. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Where do we find secrets? “where no one else is looking. Most people think only in terms of what they’ve been taught; schooling itself aims to impart conventional wisdom. So you might ask: are there any fields that matter but haven’t been standardized and institutionalized?”

        2 replies 7 retweets 71 likes
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      21. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Thoughts on GTM / execution in Thiel World Once you went to market, monopolized your initial niche, and built up a durable assets, it’s important to deliberately expand into adjacent niches.

        1 reply 4 retweets 42 likes
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      22. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Sequencing markets correctly is underrated, and it takes discipline to expand gradually. The most successful companies make the core progression—to first dominate a specific niche and then scale to adjacent markets—a part of their founding narrative

        3 replies 13 retweets 70 likes
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      23. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        You want to be smart about what niches you expand into -- ideally related and slightly broader markets that allow you to leverage existing built assets and avoid competition as much as possible.

        1 reply 4 retweets 41 likes
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      24. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        The lure of greater market share is a powerful one, which has caused many successful specialist companies to sacrifice their distinguishing characteristics and dilute their competencies in a headlong pursuit of growth, only to end up in the ditch.

        2 replies 10 retweets 55 likes
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      25. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        As we have pointed out, such strategies are viable only if a clear, unblocked opportunity to occupy a generalist position exists. If not, firms would be far better off deploying the same resources into a geographic expansion within existing niches or creating new niches.

        1 reply 6 retweets 32 likes
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      26. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        GTM in Rabois world At Opendoor: “We stayed fairly laser focused on our core product - selling to Opendoor - and focused on that until we had grown significantly.

        1 reply 3 retweets 32 likes
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      27. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        “Only after our series C / after expanding to multiple cities, did we start to focus on our buyer experience, and we acquired Open Listings to speed that along. Opendoor is only now launching mortgages to expand the product offering and increase LTV of our customers.”

        2 replies 3 retweets 33 likes
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      28. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        “As far as customer expansion goes, since started with Keith’s horizontal approach, so didn't need to expand customer types too much (the exception being first-time home buyers, which we previously ignored since they didn't have a home to sell)."

        1 reply 3 retweets 24 likes
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      29. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        As this approach is more capital intensive, it’s important to capture value once established. Think about it in terms of payback time, a function of (revenue) * (margin), compared to (outlay). This equation works if either your cost is initially low or your margins are great.

        1 reply 3 retweets 19 likes
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      30. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        You want to know what’s going to change over time. You don’t want to fund a permanently low margin business, but want to understand when will new dynamics kick in that create and unlock greater margins (thx to durable assets).

        1 reply 4 retweets 32 likes
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      31. Erik Torenberg‏Verified account @eriktorenberg 2 Jun 2019

        Rabois mentions it’s reasonable to identify what are the step functions are to improve margins, triangulate what they will likely to get to, and then not worry initially because you know they will improve.

        2 replies 3 retweets 32 likes
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      32. Show replies

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