I think of outlier markets as new markets that are both outside the purview of the masses and growing quickly with the potential to be massive. I’ve spent time learning about people who took innovative approaches to finding outlier markets and helping them reach their full potential. This led me to learning about Jimmy Iovine.

He’s a producer turned record label executive turned tech start-up founder. He cofounded Interscope Records, which helped usher various music genres to the attention of the masses. His method was to partner with little-known musicians and independent label owners who understood these genres better than he did. His role was to help them navigate the politics of the music industry and handle marketing and distribution. Interscope has been a massive success. It’s been home to artists and record labels such as Death Row Records, Maroon 5, Lady Gaga, Dr. Dre, Tupac, Snoop Dogg, Nine Inch Nails, Eminem, 50 Cent, Kendrick Lamar, Limp Bizkit, and others. All have been huge successes and had a big impact on the music industry. Hip-hop alone has gone from being an outlier genre to dominating global charts.

Jimmy went on, with Dr. Dre, to form Beats Electronics, which he sold to Apple for $3 billion. Jimmy and Dr. Dre saw that streaming and headphones were markets with huge potential. They built Beats to take advantage of this insight. The headphones were a big success, but the Beats music app was what Apple wanted. The technology is the foundation for what’s now known as Apple Music. Apple doesn’t break out the revenue for Apple Music, but the category that includes this service generated $19.6 billion in revenue for the quarter ending June 2022. Apple Music alone likely generates multiple billions of dollars in revenue quarterly.

Jimmy has a knack for outlier markets—they’ve had an outsize impact culturally and generated outsize financial returns for him. His approach was tailored to music, but I think there are elements of his playbook that can be applied to other spaces, such as start-ups or venture capital.

Luck can play a big role in the life of a start-up. Especially in the early days. The right, seemingly random event can materially change a company’s course. I had a chat with a friend recently about luck. He thinks luck is random. I disagree.

One definition of “luck” is “favoring chance.” Said differently, it means favoring the possibility that a particular outcome will happen.

Luck is about probabilities. What is the probability that something you want to happen will happen? Depending on the outcome you want, there could be ways to skew the probabilities in your favor. A simple example is the power of staying top of mind with people. I have a close friend who many people consider lucky because he’s regularly presented with great opportunities. He’s been successful because of these opportunities. What people don’t see is the consistent effort he puts into staying top of mind with lots of people, which increases the likelihood that people will think of him when new opportunities arise. My friend creates his own luck by increasing the odds in his favor.

What actions can you take to increase the probabilities you’ll get the outcome you want?

I just finished reading The Power Law: Venture Capital and the Making of the New Future. I’d pieced together the history of venture capital, but this was a fascinating chronological account of the industry with lots of details. A few takeaways:

• Family office origins – 1946 was the year venture capital investing was begun by wealthy families. The Rockefeller and Whitney families started to experiment with investing in risky early-stage businesses. It took time for others to embrace this model and put the right structure behind it.
• Angel investing – Google raised $1 million from individuals in 1998, which was unheard of at the time. This contributed to the rise of angel investing.  
• Sequoia – Founded in 1972 by Don Valentine, this firm has been at the top of its game for many decades. It has continued to evolve and expand the ways it invests by being curious and intentional. There’s an entire chapter dedicated to Sequoia because of the impact it’s had on the industry.
• China – The evolution of China’s venture capital industry is well chronicled. China’s tech industry was heavily influenced by American venture capitalists who found work-arounds to invest in promising companies.
• Ownership – In the early days of venture capital, investors would routinely own a significant percentage of companies in early founding rounds. A six- or low seven-figure investment for 40% of the company was not outside the norm. Over the years, these figures have come down as more capital has flooded the industry.
• Larger funds – Funds have exploded in size. The book details the impact of this fact on the industry and on founders.
• Networks – The industry was (as still is) highly dependent on who you know, for better or worse.
• Disruption – Even though it invests in disruptive companies, venture capital didn’t evolve until it was forced to because of disruption. Love them or hate them, investors such as Yuri Milner (DST Global), Chase Coleman (Tiger Global), and Masayoshi Son (Softbank Vision Fund) forced the industry to change. It’s likely time for more disruption in the industry.

This book is full of details and information about the industry and the most prolific investments over the last few decades. This book filled a lot of gaps for me, and I highly recommend it to anyone curious about the industry and how it evolved to what we see today.

I caught up with an investor about evaluating early-stage technology investment opportunities. Specifically, I was interested in his process is to get conviction. He went deep and shared things that made sense about timing, technology advantage, etc. And he described an interesting approach to evaluating founders.

He developed a concept that most founders fit into one of a few “buckets.” As he talks to them, he’s trying to figure out what bucket to put them in. He’s looking for founders who fit into a bucket he calls “builders.” This bucket is a mix of visionary and early-stage execution with a unique twist.

Builders can tell you what they believe the world will look like in five years and can get you from zero to one based on a unique insight that others have missed. The magic with this person is that they understand that the first step to a successful company isn’t linear. The first step is nonobvious. They have a contrarian insight on going from zero to one that others haven’t thought about. They also recognize their limitations and will surround themselves with other people who complement their weaknesses. For example, they aren’t master executors and won’t get a company from one to five, so they add execution ninjas to the leadership team.

This investor believes that other founder profiles can lead to success, but based on his experience, builder founders are key to a company having an outsize outcome.

One of the most impactful things for me as an early founder was connecting with other founders—those who had done what I was trying to do, and those who were still attempting to. Some of those conversations were pivotal. They led to key hires, experience sharing, and idea generation. I had access to these people because I was a member of Entrepreneurs’ Organization—EO, as it’s known.

EO, an elite network of high-quality people, facilitates the free flow of information, connections, and ideas. Member companies pay an annual fee. The impact on members is material. Because certain revenue criteria must be satisfied before admission to EO, though, membership isn’t accessible to all founders. Most early-stage companies are excluded from this high-quality network.

Early-stage founders in Atlanta need more free-flowing information and relationships. Some great groups are trying to fill this void, but I don’t think it’s something a centralized group can tackle. I need to think more about how you solve for this, but this void is one of the missing ingredients in Atlanta’s start-up ecosystem reaching its full potential.

I’ve talked to many emerging and established venture capital investors over the last few months. They confirmed that starting a venture capital fund is very much an entrepreneurial endeavor. When funds are first getting off the ground, these partners are no different than any other founder. I’ve heard consistently that there’s no playbook for starting a venture capital firm.

I’ve dug into this, and I haven’t found a playbook. A few programs offer to help emerging fund managers with specific challenges. That’s not a playbook. Many emerging fund managers are relying on word-of-mouth information and figuring things out as they go. Some have the benefit of being coached by seasoned fund managers who help guide them along their journey. But that’s the exception.

I’m not convinced that the world needs more venture capital investors, but this got me thinking. What impact would a playbook have if it were put in the hands of people with a unique perspective who’ve identified high-potential founders or early markets outside the purview of venture capital networks and start-up ecosystems? How would that change the impact entrepreneurship could have on society?

I had independent chats with two people who work remotely full-time, one for a tech company, the other for a non-tech company. Headquarters is thousands of miles away for both people, and they work mostly from home. The tech employee is part of a team working to complete projects but is the only person in his city working for this company. The non-tech worker is an individual contributor (he doesn’t need others to complete his work), but he has coworkers in his city (though he rarely sees them). These conversations were enlightening. The tech person loves his work, but there’s a bit of feeling like he’s on an island (my words, not his). The non-tech worker loves his work setup and wouldn’t change a thing.

I’ve been a proponent of remote work for over a decade. My first full-time hire at my start-up was someone in Europe. She was an A player with my company for seven or eight years and opened my eyes to the quality of talent available remotely. We hired more people over the years in a hybrid model. Some were in-office in Atlanta and others were remote working in various cities worldwide (including Atlanta). I made mistakes managing this hybrid team but learned a lot. The biggest learning was that some roles (and personalities) are better suited to remote work than others. Individual contributors and those who like working alone tend to thrive in this environment.

Remote work is here to stay (in some form or fashion). I think every company must figure out what that means for them and their culture.

Harj Taggar discussed why being a partner at Y Combinator (YC) is so powerful for an investor. He’s done two stints as a partner at YC, so I was curious to hear his thoughts. During his interview, he shared that working with hundreds of companies a year allows a YC partner to learn more, faster, than a traditional venture capitalist can. Learning what works and doesn’t work is accelerated, and YC partners feed those learnings back into the companies—all with a goal of reducing the overall failure rate over time.

Harj’s interview made me think of what a good friend said: the faster you learn, the more successful you become. Harj’s thoughts on YC being a place of accelerated learning, which leads to more success, make a lot of sense. It’s a feedback loop of sorts. The learning is compounding with each YC cohort of founders.

This has me thinking . . . what are other ways are there to create feedback loops for outlier entrepreneurs—those outside the purview of venture capital networks and start-up ecosystems?

The path to success at my start-up was product. We sold automotive products to consumers but didn’t want to buy lots of inventory. (In fact, we couldn’t.) We needed to work with manufacturers and distributors to sell their inventory in their warehouse infrastructure. We knew who the big, established players were—the ones who had the best inventory—but they wouldn’t work with us. No return phone calls, no responses to emails. They had enough business to keep them busy and didn’t want to bother with some pesky start-up.

Realizing we needed to work with partners who needed us, I went to the other end of the spectrum. I found the suppliers who didn’t have as much business and hadn’t adapted to the changing times. Those players embraced us with open arms. We learned from them, and they learned from us. Testing until we identified the optimal way to work with them, we built software to systematize and add scalability. And we provided them with reports detailing where their operations fell short of our expectations so they could improve.

We gained a solid reputation with customers and early suppliers. When we again approached the established players, they were eager to work with us. What had changed? We were no longer an unknown entity doing things differently. We had some street cred. They’d consistently heard great things about us and knew we were growing quickly. By the time our paths crossed again, they knew they needed to work with us because of the weight of the momentum we’d built in the industry. Negotiations with them were easier, too, because other suppliers had told them what they’d negotiated with us.

We ended up winning by thinking like a cheetah: we went after the slower, weaker players in our space first.

If you’re a founder trying to get something off the ground and need others to play ball, consider thinking like a cheetah. (But remember that your objective is different—your goal will be to find someone willing to work cooperatively with you, not someone to eat for lunch!)

As an early founder, I’d built a manual operation and was having a hard time growing it while maintaining operational consistency. Our workflow was complex, with many potential points of failure. It was expensive, and it couldn’t scale. I figured technology could help make our processes consistent so we could grow. There were other benefits I didn’t realize.

After we built technology, things got predictable. I began to model growth scenarios, and something jumped out at me: the incremental margin. As revenue increased, our costs went up, but not nearly as quickly as revenue did. With every additional dollar of revenue we earned, a bigger fraction fell to the bottom line. Said differently, the more we grew, the more profitable we became —mainly because of the efficiency gains from the software we’d built. For the first time, I could clearly see the profit potential of the business.

Seeing the impact that the incremental margin could have on the business was a big aha moment. It was as if I could see into the financial future of the company and I just needed to figure out how to grow to get there.  

Side note: I had assumed that customer acquisition costs would stay flat, and that assumption proved incorrect years later because our market wasn’t growing. Nevertheless, thinking in incremental margins is something I do to this day.