The Best of Erik Torenberg (Part 1): Big Ideas From His Last 3,000 Tweets

Dear Everybody,

Erik Torenberg is Co-Founder of early stage venture capital firm Village Global. He’s also Co-Founder of On Deck, an online community of entrepreneurs and investors, and host of the Venture Stories podcast. He was the first employee and part of the founding team at Product Hunt.

I organized and distilled his “meta thread” of Twitter threads into a summary of his big ideas, in two parts:

  1. (This Letter) Careers, Company Building, and Management

  2. (Next Letter) Venture Capital and Building Communities

For more depth on these topics, read Erik’s excellent newsletter, in particular his posts on Career as a Product, Personal Moats, and Asymmetric Bets.

Young people, don’t be afraid to look dumb…

  • You can follow a safe path that caps your downside, not realizing it also caps your upside

  • Safe paths are often tournament-style competitions, and perhaps not as safe as you think

Early in your career…

  • Value substance more than status

  • Enter markets that are small or don’t exist yet

  • Build relationships with peers and up-and-comers

Don’t worry about finding your passion early…

  • Your passion may not be invented yet

  • Premature self-labeling closes off hidden opportunities

Undergo unique experiences, and get good at something with no playbook…

  • Take high upside bets others won’t take

  • Figure out what’s hard to reverse engineer

  • Pick something that isn’t big now, but will be in the future

  • Quadruple down on what feels like play to you but looks like work to others

Get so good they can’t ignore you…

  • Build a unique accumulating advantage

  • Work on what is durable and compounds over time

  • Acquire rare and valuable skills that give you a moat

  • Don’t optimize on building your network until you already have a great reputation

Learn continuously and forever…

  • Deploy your learning as you learn more

  • To find the right answers, ask the right questions

  • The goal is to look smart at the end

On Finding Startup Ideas, Co-Founders, and Raising a Seed Round

To find startup ideas, get exposed to new problems…

  • Lead an interesting life and be curious

  • Put yourself in a position to viscerally feel problems

  • Look at ideas that were tried before but failed

  • Ask why you might now have a different outcome

Figure out what’s now abundant and scarce…

  • Leverage enabling technologies

  • Unlock new supply using a fixed physical asset or new digital asset

  • Look for the constraints that go away and what 2nd order effects might emerge (when what was previously scarce becomes abundant)

Find where you have an unfair advantage…

  • Don't pursue double miracle startups (or "bank shots")

  • Pick something that’s so boring, but hard or big, that other people just won’t do it

  • Find a little thing you can execute for the next few months, that could lead to a larger thing

Don’t be afraid to share your idea with others…

  • Truly good ideas don’t sound like they’re worth stealing

  • The feedback you receive is worth more than the benefits of keeping the idea private

Find the right cofounder…

  • Build top of funnel by telling the world what you’re thinking

  • Treat your search like any other recruiting process

  • Find someone who can help you solve core risks to the business

Look for someone who agrees with you on first principles…

  • Look for complementary skills (how do you together have an unfair advantage)

  • Look for value-mission alignment (what success looks like)

  • Look for company alignment (who makes decisions, which tradeoffs to accept/reject)

Once you’ve found a potential cofounder, date before you get married…

  • Meet their spouse and/or parents if you can

  • Go on a road trip or other intense experience

  • Do a hackathon or work together in trying conditions

As early as possible with the founding team, figure out…

  • Goals

  • Equity split

  • Non-negotiables

  • CEO / tie-breaker

  • 5-20-year vision for your lives

  • Extenuating life circumstances

  • Personal runway and salary need

  • What success looks like (outcome, culture, roles)

  • How each cofounder wants to scale with the company

Ask each cofounder…

  • Who has the vision?

  • Who should be CEO?

  • In what ways are you crazy?

  • What are your failure modes?

  • What’s most important to you?

  • If this didn’t work out, why not?

  • What was it like working with ex co-founders?

Treat each cofounder relationship like a marriage…

  • See a coach

  • Communicate effectively

  • Read relationship books

  • Respect and trust each other

  • Don’t hate going to work every day

  • Work on the relationship consistently

  • If it's too much work, it might not be a fit

  • Maximize time spent on finding product-market fit

  • Work well together in accomplishing company goals

To raise a seed round, answer these questions…

  • What's your unique insight?

  • What is the biggest risk?

  • Is the business defensible?

  • What have you proven so far?

  • What are the unit economics?

  • What's your unfair advantage?

  • How does this become a $10B business?

  • What is the Go-to-Market strategy, now and over time?

Understand the VC business model…

  • Out of ten swings, VCs get seven strikeouts, two base hits, and if lucky, one home run

  • The base hits and home runs pay for the strikeouts

  • VCs require a credible potential of a 10x gain

  • Winners need to pay for the losers within 4-6 years

  • If you don't want to 10x in 4-6 years, don't raise VC!

Paraphrasing Paul Graham…

  • Pretend you’re a VC, keep your VC incentives in mind, and convince yourself you'd invest

  • If you can do that, you can convince your partners too

Before starting the process, consider meeting with 3-5 friendlies…

  • Give them a “first look” in exchange for feedback

  • Ask them, "What would you need to see to invest?"

While fundraising, it's always a no until it's a yes…

  • Time is your enemy and the VC's friend

  • VCs want to lower risk, so their incentive is to let time pass

  • They want to get more information on the traction and the fundraise

  • Meantime, nearly all investors say no but you only need one or a few to say yes

  • You're going to feel like a total failure until someone says yes, then you’ll feel like a huge success

Run a tight process to maximize momentum…

  • Be 100 percent focused on raising

  • Get referrals from other founders

  • Get referrals from strong deal sources

  • Get referrals from existing investors

  • Do 20-50 meetings in 2-3 weeks, back-to-back

  • Parallel track angel investors and venture capital investors

  • Tell angel investors you can secure their allocations if they commit early

Prepare like mad…

  • Research firms in depth

  • Talk with founders in their portfolios

  • See what else they’ve invested in

  • Understand their deal size and deal cadence

  • Maintain the confidence of someone who's going to raise easily alongside the paranoia of someone who won't

Know your milestones and how the money will help you get there…

  • Before product-market fit, raise enough to get PM-fit (enough = money than you think you should)

  • After PM-fit, raise enough to exploit the opportunity and get to profitability

Never wing it and your pitch will get better with each meeting…

  • Every pitch meeting in which you don't consider updating a slide in your deck is a missed opportunity to learn.

  • Keep an "objection handling" document, update it after every meeting, structure concise answers to common concerns, and practice before every meeting

Don’t read your deck to investors…

  • Make it a conversation

  • Unconfident fundraisers talk 90 percent of the time, hammer home hand-wavy talking points, and grasp at straws for what they think VCs want to hear

  • Confident fundraisers listen 50 percent of the time, ask questions, and admit the risks to investing as well as what they have and haven't proven yet

During pitch meetings, ask…

  • Have you invested in the space before?

  • What's interesting to you about this business? What's unclear?

  • How exactly does your process work?

  • Do you believe there will be a multi-billion-dollar company in the space?

  • In the context of our improvement, how would you pitch our business to your partnership?

Ask and answer, “If this failed, why?”

  • In addition, ask, “What do you suspect the reason we will fail will be?"

  • You’ll get feedback

  • You’ll learn if they know something you don't

  • You’ll learn if they’re smart too

Consider the biggest reasons an investor might *not* invest…

  • Pre-emptively address those reasons

  • If you’ve solved for them, point to evidence

  • If you haven’t, point to how you’ll address them, and the moat you’ve built to date

Simplify it for investors…

  • Say something like, "In order to invest, you'd have to believe that we can execute on X, so that we have Y, which will lead to a multi-billion-dollar business."

  • Frame things simply so they can pitch their partners

On Building Communities

Community is the new scarcity.

-David Booth, in conversation and exploration with Erik

We know communities…

  • Reduce marketing costs

  • Generate new sales leads

  • Increase repeat purchases

  • Reduce customer service costs

  • Provide feedback and idea generation

  • Help employee recruiting and retention

  • Increase retention of existing customers

More broadly, communities are valuable because…

  • Members stay longer and spend more

  • Members help each other, resulting in high gross margins due to a lower cost of service

  • Members help acquire new members, resulting in lower customer acquisition costs and a tight viral loop

A community is…

  • A group of more than two people with a common sense of identity

  • A group of people who participate in ongoing, shared experiences to meet their needs

  • A group of people who build relationships with each other in the process

Communities first bring people around *value*, then hook them with *values*…

  • *Value* is acquisition (members get some utility that helps them solve a core problem)

  • *Values* is retention (members build their identity around common mission or interest and bond with others who share it)

A person becomes a member of a community when…

  • They know how to participate

  • There is a reward for their participation

  • The community aligns with their identity

  • They trust that the community will bring them value

The most vibrant communities…

  • Meet regularly

  • Create identity

  • Distribute ownership

  • Give early users status

  • Transition early users into new roles or alumni over time

  • Build community in public!

Before creating community, know…

  • Who you’re targeting

  • What the community’s about

  • What the goal of the community is

  • What type of community you’re creating

  • What do members gain from joining

  • What principles they’re unifying under

Start by inviting everyone yourself, one at a time…

  • Ask to feature someone

  • Ask people to be founding members

  • Get to know everyone individually, until you can't

  • Ask for specific engagement that solves a problem or gives them status

Especially in the early stages…

  • Set an example

  • Fake it until you make it

  • Set norms and enforce them

  • Recognize great contributions

  • Identify most valuable early users

  • Ask new members what they can offer the group

  • Ask new members what they want to get from the group

  • Respond to people who engage (it’s even better when other people respond, not just you)

Make it as easy and attractive as possible for others to engage…

  • Suggest topics

  • Remove friction

  • Celebrate people who engage

  • Help solve their problems

As you gain momentum, keep building…

  • Create unique shared experiences and rituals

  • Generate positivity floods: have people introduce each other

  • Create avenues for person-to-person shared knowledge exchange

  • Onboard all community members with friendly self-disclosure rituals

  • Have a narrative about why the community started and share that story

  • Identify the active members who you can later distribute control to, otherwise you can't scale

The best content is content *about* the community…

  • Interviews & AMAs

  • Community newsletter

  • Community announcements

  • Spotlight community members in real world

Know what stage you’re in…

  • Inception: <50 percent of activity is generated by the community

  • Establishment: the community generates between 50-90 percent of activity

  • Maturity: the community generates >90 percent of activity

  • Mitosis: the community begins to split into smaller subgroups or separate communities

Remember, building communities takes time…

  • Don’t scale too fast

  • Focus more on the activity of members than the number of members

  • Focus on the sense of community members feel

  • If there’s too much demand, have a waitlist or break into sub groups

  • Find ways to make people feel even more special

On Management & Leadership

Good management matters more than ever…

  • Today’s employees need to be both productive and creative

  • To do that, they need to be inspired and internally motivated

Management gives you leverage…

  • Optimizing management creates ripple effects

  • Managers dictate the experience of most people at a company

  • Leverage is the art of making small changes that have huge impacts

  • Remember, employees optimize for their managers as much as the specific company

Founders, own management and leadership…

  • No one cares like you care

  • No one’s going to have credibility like you do

  • No one's going to personalize emails or sell in person like you will

  • You own functions initially, while building out processes that scale beyond you

CEOs, mind your responsibilities…

  • Recruit people

  • Hold people accountable

  • Nail down the strategy for the company

  • Deliver the capital to pursue the strategy

  • Decide what the company will and will not do

  • Communicate the hell out if things, within and outside the company

Create cultural infrastructure…

  • Hire for culture upfront

  • Be known for something or be known for nothing

  • Culture is more like gardening than architecture

  • You plant some seeds and pull out weeds that aren't working

  • You can't be involved in every decision as the company grows

  • Culture is what people do when you're not there and they don't know you well

Set goals and communicate them…

  • Often problems come up that seem like communication problems, but they're planning problems

  • There are different ways to set goals, just make the process clear and transparent for everyone

Allocate enough time to recruiting…

  • After you raise money, your job is to hire people who can build

  • More than 50 percent of your time should be spent hiring

  • Spend time with ideal passive candidates, recruiting over a long time horizon

  • Whatever your hiring process is, codify it, and make sure everyone has access to it

Take your time hiring…

  • Hiring should be a last resort

  • Make sure you have a good job description and need to hire

  • Don’t decide too quickly whether you should hire a person or not

  • Understand if the role is for value creation or for value preservation

  • Get the first 10 hires right (each employee will replicate themselves ten times)

Draft Tom Brady in the 6th round…

  • Calibrate raters

  • Hire in-house recruiter early

  • Treat recruiting like a funnel

  • Diagram the experience and identify potential leakage

  • Qualify leads (i.e. comp expectations, ideal role, location)

  • Find people Google isn’t chasing but have even more talent and grit

  • Pick five qualities that you want to hire for and design questions for every quality

Some qualities to look for in hiring…

  • Drive and grit

  • Bias to action

  • High integrity and low ego

  • High slop and learning velocity

  • A person who is long-term oriented

  • A micro-pessimist and macro-optimist

  • People who are good and who are known as good (attract other great people)

Treat recruiting like a scientific experiment…

  • Try different channels and double down

  • Have a control group and keep criteria the same

  • Ask candidates the same questions in the same order

  • Evaluate them on the same qualities so you can compare them

  • Have a "scorecard" with attributes per position and how much the attributes matter

Statements and questions for candidate references…

  • It's a cross check

  • Rate 1-10 but not 7

  • Describe the ideal role?

  • Last performance review?

  • If this didn't work out, why not?

  • How do they react to frustration?

  • What would that person's critic say?

  • Is this person in the top 5 percent of people you've worked with?

  • How can we make sure the candidate is successful when they join?

  • We really like X and we'd be excited to work with them. Curious to ask questions to best set them up for success. (see body language)

Before interviews, have questions ahead of time…

  • If you joined and then left in 3 months, why would that be?

  • What was your last boss like? How would they describe you?

  • If you were me, what kind of candidate would you be looking for?

  • What were your accomplishments and struggles? (go through last five jobs)

  • Who did you work closely with and how would they rate you from 1-10, in your opinion?

Don’t just interview the candidate, *sell* the candidate…

  • Quality interviews

  • Social time with the team

  • Consistent communication

  • Make them feel special, not a cog

  • Transparent and sensible process

  • Clear expectations of role across team

  • Respect their time, particularly with take home work

To close candidates, sell the mission, the team, and the opportunity…

  • Aim for about a 70 percent close rate

  • Enlist a reference as an ally in closing

  • Only make an offer when you're sure they'll accept

  • Ask the candidate, “If we give you X,Y, and Z, would you accept?”

  • Identify who influences their decision and take them out to dinner with the candidate

Have an investor close the candidate by describing…

  • Why they invested

  • Why it'll be an enormous outcome

  • How they think about the team from an "unbiased" POV

  • How the investor likes to invest in employees’ career success (perhaps even back their eventual startup)!

When onboarding a new employee…

  • Articulate what success looks like

  • The best indicator of how long they will stay is their experience on the first day

  • Make sure everything's set up so they can ship something on that day

  • Make sure they can understand company priorities and where they fit in

A hire isn't truly a hire until…

  • They've completed a 90-day plan

  • Have a hire write first draft of an annual review and co-define what success looks like

  • Then back into a 90-day plan (which should have been backed into from the job description)

  • If after 90 days the outcome is not good, think about cutting

People aren't born managers…

  • They need to be trained

  • Great individual contributors are expected to become managers, but being a good individual contributor doesn't make you a good manager

  • Let IC's be IC's if they want, and create paths for people to be managers

Have weekly 1:1s…

  • Update an agenda prepped in advance by the reports

  • Align on the top three things to get done by the same time next week

  • Capture and check in on those things next week

Give direct, clear, and concise feedback…

  • Give it during regular 1:1s

  • Make sure you ask for it too

  • You're looking for people to take ownership and show a growth-mindset

  • Make it a good experience for the feedback giver or else they won't give it

Run group meetings well…

  • Make sure people are prepped ahead of time

  • Have a meeting owner to move people along

  • Have a note-taker to track decisions and next steps

Measure performance and pull compensation levers…

  • It’s more important to figure out fair compensation within the organization than within the market, (that's what people care more about)

  • Decouple performance review from compensation bonus (do that before the review)

  • The goal is no surprises - it's a way to retain people, renew commitments, and reset expectations

Double down on your stars…

  • It's how you keep great people who would otherwise leave

  • Promote from within if you believe you have people who have 10x value creation

  • Improving their abilities is more important than trying to fix people who won't create 10x value

Resolve conflicts…

  • When people hate each other it's usually because they're not hearing each other

  • If you can get them repeating back what the other person is saying, you'd be surprised at how conflicts can evaporate

Fire crisply and kindly…

  • Cut the cord

  • Don't negotiate

  • Don't feel too terrible

  • Don't demote (usually)

  • Don't have long transition periods

  • You're letting people go to a different company where they will be more valued, more respected, and more successful

Only when it’s clear you need one, hire an executive…

  • Don’t hire too senior, too soon (or too late)…

  • If you're not sure whether you need an exec, don't hire one

  • Understand whether the role is value protecting or value creating (spec accordingly)

The best executives…

  • Act like owners

  • Act as part of a team

  • Act as primary individual contributors

  • Act to build organizations, often from scratch

Source executives with a firm, but don't outsource your evaluation…

  • Create a 12-18-month roadmap

  • Use data to write specs for the role

  • Identify the people you need to hire

  • Identify the people you think you need to hire

  • Know why you’re hiring and what you're hiring for

  • Hire the best person for the next nine months, not the next three years

  • A great exec hire pays back orders of magnitude more than the cost of a firm

Start early and know what greatness looks like…

  • The average search time is 137 days

  • The odds of a given executive hire working out are about 50/50

  • The odds if you don’t know what you’re doing? Way worse

  • Aggressively meet world-class people at the position, regardless of where they are, so you can calibrate accordingly

Questions for executive candidates…

  • The best interviews are a mix of buying and selling

  • What's the business equation of your last company? (You want them to be strategic)

  • Who are the people you'd bring along with you? (You want them to be a talent magnet)

  • If you were CEO at your last company, what would you do differently? (You want them to be an owner)

  • Bring up comp in the beginning briefly to assure you're in the same ball park, and then don't bring it up again until the end when they're sold

After you hire executives…

  • Manage them

  • But don’t micro-manage them, except temporarily

  • Ask people under them semi-regularly how they're doing

Lastly, don’t hesitate to fire an executive…

  • Judged by output of their organization (are they hiring? training?)

  • When you no longer trust them to build their org and you feel compelled to micro-manage

  • Andy Grove said you always fire a bad exec too late. If you're really good, 3 months too late

Thank you for reading!

If you'd like more Big Idea Summaries like this, please do join the email list.    

And follow me on Twitter!