The Secret To A $50M Acquisition? The Mom Test
GM! It's Tuesday, January 24th - Today, we're covering Citadel's record $16b profits, banks teaming up against Apple Wallet, Microsofts $10b investment, ChatGPT passing American professional exams, and the cheat code to build high-value businesses.
Hedge Fund Citadel Made $16B In Profit Last Year
> Ken Griffin's hedge fund Citadel made a record $16B in profit last year
> Banks are teaming up to fight Apple Wallet & PayPal, including Wells Fargo, JP Morgan Chase, and Bank of America.
> U.S FDA proposes a shift to annual COVID vaccine shots.
> Microsoft confirms a $10b investment into Open.ai, the creators of Chat GPT.
> Spotify cuts 6% of its workforce - read the memo CEO Daniel Ek sent to staff.
> Activist investors begin to move on Salesforce.
> Egg prices rose 60% in 2022. One farm group claims it’s a ‘collusive scheme’ by suppliers.
> Apple wants to manufacture 25% of its iPhones in India.
> Sam Bankman-Fried said he had $100,000 left, but the government seized $700m
> This 'Cryptoqueen' scammed investors out of $4b. Then boarded a plane and disappeared.
From $0 to $50M Acquisition In 18 Months
Chris Bakke sold his last business for $50m just 18 months after starting it.
Actually, 4 of the 5 businesses he's worked on have been acquired for tens-of-millions.
The Track Record
- CEO at Laskie (job marketplace generating $4m in revenue)
- Founder at Interviewed (HR tech company, acquired for $50m after 18 months)
- COO at 42 Floors (commercial real-estate platform, acquired for $50m after 2 years)
- Director of Business Development at RentJuice (acquired for $40m)
Why It Matters
Every big business starts small. To become a big business, you have to build a system that solves problems people are willing to pay for.
The challenge is that most people don't have a reliable system that maximizes the upside while limiting the downside risk of losing it all.
Here's The System
Outlier growth can only happen if you invest the time upfront to find product-market fit. So how do you know you're solving the right problem? Introducing 'The Mom Test' - A process of engaging customers and crafting questions to know if your customers really want your product or are lying to you.
This process can be broken into 3-steps:
Step 1 - Learn
Your objective here is to speak with as many potential customers as you can to deeply understand your customer's problems, but here's the secret:
- Never mention your business idea (at least at first).
- Only discuss specific problems they've encountered in the past.
Chris scheduled over 130 'problem interviews' to discover ideas for his new business. These people ranged from Army Rangers to the Head of HR at Sony. When he started speaking with HR leaders, he discovered a recurring problem.
Problem: When HR leaders are recruiting for a role, they will spend endless hours filtering through resumes.
Step 2 - Confirm
At this point, you've spent $0 (or very little) to discover a problem. Now that you have a problem to solve, it's time to validate it.
Don't jump right into building. There's an iterative process you can follow to make sure you build the right solution without burning resources:
- Show them your idea: literally, just show them. It could be a slide deck with designs or a piece of paper with a sketch on it. Every week take the idea one step further, incorporating feedback each time.
- Always Get A Commitment: At the end of every meeting, you must ask for a commitment. This is a critical piece of data to determine how valuable your solution is.
There are 3 types of commitment:
- Money - "Do you want to pay for this?"
- Time - "Can I sit down with your engineering team to make sure it solves the problem?"
- Reputation - "Can you introduce me to your companies leadership?"
After 100+ conversations with hiring managers, Chris devised a solution that hiring managers were continually willing to pay for.
Solution: A suite of job simulation tools for hiring managers to give candidates to demonstrate real-world skills.
Stay in this stage as long as you can and only move to step 3 when you have consistent commitment.
Step 3 - Scale
Only start this step when you have a small group of people that love what you’ve built.
With step 2 completed, you’ve done the pre-work and now have evidence. You can confidently say, “Look, you don’t have to believe in me. I’m as skeptical as you. I had to convince myself that it was worth my time. During that process, I built this and received 20 commitments."
Scale: As the only salesperson, Chris scaled the business to $2.5m in annual recurring revenue (ARR) in just 18 months, which was quickly followed by a $50m acquisition.
Chat GPT Passes Most Challenging American Professional Exams
I think we haven't fully absorbed the fact that careful academic papers have found ChatGPT clearly passes some of the most challenging American professional exams:
🩺United States Medical Licensing Exam
🎓MBA-level Operations exam
🧑⚖️The Bar Exam (based on typical exam questions) twitter.com/i/web/status/1…
— Ethan Mollick (@emollick)
Jan 22, 2023
You should know:
- ChatGPT performed at more than 50% accuracy across all the Bar Exams, Medical Licensing Exams, and an MBA-level operations exam.
- Microsoft just agreed to invest $10b into ChatGPT parent company Open AI.
- The company is exploring new monetization initiatives, most notably a product called ChatGPT Professional, at a price-point of $42/mo.