Investor Tips
Reading Rainbow Review: The Tipping Point
A couple months ago, I finished a book that had been recommended to me for years — Malcolm Gladwell’s “Tipping Point.” So much has been written on the insightful manner in which Gladwell breaks down how small ideas or trends turning into social epidemics. However, for me, the key concepts from the book such as the “Law of Few,” the “Stickiness Factor,” and the “Power of Context,” resonated to me as essential characteristics that every venture capital investor should look for in a startup. In the introductory chapter, Gladwell poses two questions that drive the purpose of the book, “Why is it that some ideas or behaviors or products start epidemics and others don’t? And what can we do to deliberately start and control positive epidemics of our own?” From that page on, I read the rest of the book with the lens of how can this make me a better identifier of tipping point companies — startups that are on the verge of creating enormous value.
I came to understand Gladwell’s three components of change as similar language that traditional early stage tech investors look for in high potential startups:
Law of Few: Startups that have found a small group of loyal (and paying) consumers are well poised to build upon that growth if those early adopters can influence more mainstream consumers.
Stickiness Factor: After establishing a product market fit, I look for startups who’s products create high user engagement and/or long customer life cycle. One of my favorite quotes from the books explains this concept best, “The lesson of stickiness is the same. There is a simple way to package information that, under the right circumstances, can make it irresistible. All you have to do is find it.”
Power of Context: Another important factor I like to examine when conducting due diligence is whether the startup has identified (and secured) a small number of partnerships that can magnify the messaging, sales, or growth of the company.
I recommend this book to every entrepreneur who is looking for an outside perspective on how to change the world through their product or business. The book ultimately goes against conventional thinking that you must start big to create big change. “The paradox of the epidemic: that in order to create one contagious movement, you often have to create many small movements first.”
Earnest Sweat is a Startup Adviser and Business Ops professional for various accelerators. Sweat specializes in sourcing, managing and mentoring startups within the fin tech, ed tech, and real estate tech sectors. If you have any questions, comments or requests please connect with Earnest through LinkedIn, Twitter, or AngelList.
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