Lenny's Newsletter · Product & Work
TIER 5 2021-10-26
> ## Q: I’m hearing from investors that I need a wedge, to narrow our product focus and our GTM. What exactly is a wedge, and how do I pick the right wedge? Whenever I think of wedges, I think of this guy: [Watch on YouTube](https://www.youtube.com/watch?v=jbtBRvqAFPA) A wedge in business is the same idea—you drive a wedge into the market and then use that wedge to win the market:  Twilio started with an API to send SMSs and is now the de facto communication API platform, worth over $60B. Airbnb started out allowing people to rent their extra rooms and now accounts for a fifth of the $90B vacation rental market. Amazon started out selling books and now represents about 40% of *all* U.S. e-commerce. If these companies had gone at their massive markets head-on, they’d arguably have had a much harder time. But by using a wedge strategy—focusing all their energy at one precise point—they were able to break in, build momentum, and win. > #### “The wedge metaphor to me is most useful in making sure you’re not a blunt instrument trying to chop into a market by being everything for everyone, but instead the sharp blade with extraordinary focus on a specific persona/use case to start.” > > #### —Sarah Tavel, GP at Benchmark ### What exactly is a wedge? A wedge is simply a strategy to win a large market by initially capturing (1) a tiny part of a larger market or (2) a large part of a small adjacent market.  In business, as in rock cutting, a wedge is made up of two parts: (1) the right tool and (2) the right place to strike. In other words, the right initial product and the right initial market. Tesla’s wedge (into the larger transportation market) was a luxury car targeted at affluent early adopters. Robinhood’s wedge (into the consumer finance market) was a commission-free trading platform targeted at millennials. PayPal’s wedge (into the payments market) was an online payment platform for eBay sellers. ### Do I always need a wedge? I don’t think so. Companies like Zoom, Slack, Workday, Notion, Datadog, Spotify, and Peloton went straight at their respective (large) markets with an amazing product and won. You can argue about semantics, but in practical terms, as far as I can tell, these companies didn’t use a wedge strategy—they attacked a large market straight-on.  > #### “We kept hearing that to enter a big market, you need a wedge—something really sharp and really specific, and then you expand from there. It turns out for some classes of problems, such as infrastructure management, which is what we do, the wedge doesn’t work. There is a large amount of stuff you need to do from day one if you want your product to be useful. Our initial product was positioned as a very broad platform to bring multiple teams together, and actually didn’t have that wedge aspect. That disconcerted some investors.” > > #### —Olivier Pomel, CEO and co-founder of Datadog ([source](https://www.thetwentyminutevc.com/olivier-pomel/)) ### When do I need a wedge? A wedge seems most essential when you’re going after a market that is (1) entrenched or (2) crowded. When it’s hard to break in head-on.  The more entrenched and competitive the market, the more valuable a wedge will be. Chime needed a wedge to get a foothold in the entrenched banking market. Stripe needed a wedge to break into the entrenched payments market. Airbnb needed a wedge to get traction in the competitive accommodations market. You could certainly attempt to go at it head-on, by raising more money and building a 10x better product, but starting with a wedge has many benefits. ### Why is a wedge useful? A wedge gives a startup a number of advantages over its competition—primarily driven by having a narrower, more precise focus: 1. With a more focused value prop, your pitch and sales process become quicker and easier, which drives more revenue that you can reinvest in growth and the product. 2. With more customers, you can more quickly build social proof (e.g. traction, logos, and testimonials). 3. With early revenue, you can avoid having to raise a lot of money and thus keep ownership and control longer. 4. You can build, launch, learn, and iterate toward product-market fit more quickly. 5. Once you’ve “wedged” into a company, you can expand revenue by offering additional products and services. > #### “When I say it needs to have a good wedge, I’m looking for an entry point that provides some sort of power to the startup.” > > #### —Ann Miura-Ko, GP at Floodgate In marketplaces (and any network-effects businesses), starting with a narrow focus is even more essential, as [Mike Duboe](https://twitter.com/mduboe), GP at Greylock, explains: > *“Many marketplace founders focus on the sheer size of a market. But I view too broad an initial market as a flag. I would much rather see a founder communicate a deep insight into a narrow market wedge where pull is strong. A few reasons why:* > > 1. *Liquidity is the name of the game with marketplaces. It’s faster to build liquidity in more narrowly defined market segments.* > 2. *Building density in one subvertical helps a team more effectively build a playbook before expanding to the next.* > 3. *The narrower the initial focus, the more likely one is to build a deeper and differentiated product.* > 4. *Narrower market → deeper end user empathy for founders & product teams. Conversely, too much breadth can introduce noise in early user research & product work.* > > *Overall, starting narrow improves one's likelihood to discover & solve a precise pain point.”* Sarah Tavel, GP at Benchmark, has a similar view: ### What makes a good wedge? From what I could tell, a good wedge: 1. **Is narrow and focused**—solves a very specific problem, for a specific group, extremely well 2. **Builds momentum**—can be sold quickly and keeps customers coming back 3. **Naturally extends into a much bigger opportunity**—more product, more revenue, more users 4. **Avoids competition**—the whole point is to give you an easier path 5. **Is hard to replicate**—it is not just about getting in, but also staying in 6. **Educates the market**—sometimes customers aren’t ready for the bigger transformation, and need to start with a small dose > #### “Wedge selection should be very intentional. Don’t just build for the first customer persona you think of or the closest city to where you live. Build for the group that has the most acute pain point, or the highest willingness to pay, or the fastest sales cycles. The more carefully you pick your wedge, the easier it will be to succeed and to expand to the larger market. A product that’s 10x better on average might actually be 50x better for some groups but only 1.1x better for others. Picking the right group will determine whether you quickly find product-market fit or face an uphill battle.” > > #### —Leo Polovets, GP at Susa Ventures ## How to pick a wedge To pick a wedge, find a large market and then: 1. Pick a very narrow (and very painful) problem 2. Pick a very specific segment of people to solve that problem for ### Step 1: Pick a very narrow (and very painful) problem For [Carta](https://carta.com), it was cap table management: > *“Carta’s wedge was cap table management for startups. By accessing the atomic unit of equity ownership, the company could use this data to offer more equity management capabilities, allowing Carta to expand into 409a valuations, total compensation tooling, unlocking liquidity and more—all the while bringing value to employees, investors, and companies both private and public.”* > > —Naomi Ionita, Partner at Menlo Ventures For [Gainsight](https://www.gainsight.com/), it was helping companies understand their customers: > *“A good example of a wedge is what I experienced seeing Gainsight’s journey from their early days when they had a few hundred thousand of ARR. They started out with a dashboard that provides a 360-degree view of each customer. With a few simple integrations—Zendesk, Salesforce, and a website tag—Gainsight would collect a trove of data about each customer and display that data in an easy-to-understand 360-degree view. This drove tremendous logo velocity for Gainsight in the early days.* > > *Over time, Gainsight massively expanded the product footprint to include ‘playbooks’ for CSMs (customer success managers), marketing automation (e.g. to allow CSMs to communicate with customers in an automated fashion), data science (to predict churn), etc. When Gainsight launched initially, the market wasn’t ready for this big of a transformation, but the customer-360 health score was a great wedge to help the early adopters recognize the power of building out a customer success function.* > > *Gainsight’s wedge worked because it was sold to the same buyer, was a fast ‘land,’ which drove lots of usage, and the footprint extension felt very natural. As a result, over time Gainsight was able to significantly increase ASPs (application service providers) from 10-15K to 30K to much, much higher over time.”* > > —Ajay Agarwal, Partner at Bain Capital Ventures For [PayPal](https://paypal.com/), it was accepting payments for online eBay auctions: > *“At the time, we were vaguely aware of the auction use case, but it was discussed along with splitting dinner tabs, student allowances, and a bunch of other nebulous value props. The truth is that we thought ‘emailing money’ was a terrific product idea, but we had no idea who would actually use it or what the market would be.* > > *Our customer service rep forwarded me an email from an eBay power seller. The eBay seller had turned the PayPal logo into a nice-looking button for her auctions and was asking our permission to use it. eBay sellers were desperate for a [payments] solution because their alternative was to wait a week for a check to arrive in the mail and then wait for it to clear. Some of them had already found PayPal on their own. One of them cared enough to make an auction button and ask our permission to use it.* > > *We rolled out other features for auction sellers that made it even more convenient to use PayPal. We dropped other plans and went all-in on the eBay use case. Results were immediate. At the end of 1999, PayPal had less than 10,000 users. By the end of January 2000, we hit 100,000 users. A few months after that, 1 million. By the summer of 2000, 5 million. It felt like the servers were melting. The growth curve looked like a perfect hockey stick.”* > > —David Sacks, Former COO of PayPal ([source](https://medium.com/craft-ventures/the-sharp-startup-when-paypal-found-product-market-fit-5ba47ad35d0b)) ### Step 2: Pick a very specific segment to solve it for For [Twilio](https://twilio.com/), it was Ruby on Rails developers: > *“There were other companies that had similar offerings to Twilio, but [co-founder] Jeff Lawson uniquely identified a new wave of Ruby on Rails developers who knew nothing of other programming languages and infrastructure. He did an incredible job making it easy to program phone infrastructure as a Ruby developer. Back then, this new wave of web programmers was a movement and really didn’t have exposure or the technical chops to figure out the old infrastructure. As some of those startups became big companies, with the on-demand wave (Uber, DoorDash, Postmates, etc.), Twilio became a dominant company in their market.”* > > —Saar Gur, GP at CRV For [Square](https://square.com/), it was small independent offline retailers: > *“Square used an initial wedge to capture their early customers. Thanks to the iPhone, it was a very cheap mobile credit card processor that had a ton of demand from food trucks, massage therapists, etc. They had tens of thousands of small businesses on the waitlist before they ever launched (if I recall correctly).* > > *They also were one of the first POS systems to use an iPad, and many restaurants and stores thought the iPad was more ‘on-brand’ and cool than the old Micros/Aloha POS systems.* > > *This gave them the wedge to move upstream over time into larger retail deployments.”* > > —Saar Gur, GP at CRV For [Outschool](https://outschool.com/), it was homeschoolers: > *“One way to find a wedge is to start with a small market that’s underserved. Outschool started with homeschoolers, as a wedge into the broader K-12 education market. It assumed that all schoolers would adopt the same behaviors over time, and it allowed them to build a supply of teachers (which can serve homeschoolers and regular schoolers).”* > > —Alex Taussig, Partner at Lightspeed For [Uber](https://uber.com/), it was a specific type of rider in SF: > *“The wedge was black cars for price-insensitive riders in San Francisco. The compounding network of riders and drivers came by launching new geographies, going downmarket via UberX and Uber Pool, and adding other modes of transportation (bikes, scooters, etc.) to dominate the transportation market.”* > > —Naomi Ionita, Partner at Menlo Ventures ## What then With a wedge in hand (knowing the very specific problem and the very specific segment you’re going after), the next step is to strike—to build it and get it in front of users. This topic is a post in itself, but here’s a bit of guidance: If you’re building a B2B product: If you’re building a consumer product, here’s some advice on how to [build](https://www.lennysnewsletter.com/p/prioritizing), [grow](https://www.lennysnewsletter.com/p/how-the-biggest-consumer-apps-got), and [find PMF](https://www.lennysnewsletter.com/p/how-to-know-if-youve-got-productmarket) for your product. Now, get out there and find that 🎯  ### 📚 Further study 1. [The sharp startup: When PayPal found product-market fit](https://medium.com/craft-ventures/the-sharp-startup-when-paypal-found-product-market-fit-5ba47ad35d0b) by David Sacks 2. [The product wedge: How to scope your initial product](https://every.to/divinations/product-wedges-a-complete-guide) by Nathan Baschez and Austin Langlinais 3. [The market wedge: How to pick your initial market](https://every.to/divinations/the-market-wedge-how-to-pick-your-initial-market) by Nathan Baschez and Eric Thompson 4. [The “thin edge of the wedge” strategy](https://cdixon.org/2010/12/26/the-thin-edge-of-the-wedge-strategy) by Chris Dixon 5. [All wedges are not created equal](https://nbt.substack.com/p/all-wedges-are-not-created-equal) by Nikhil Basu Trivedi *A big thank-you to [Alex Taussig](https://lsvp.com/team/alex-taussig/), [Ajay Agarwal](https://www.baincapitalventures.com/team/ajay/), [Ann Miura-Ko](https://www.linkedin.com/in/amiura), [Bryan Offutt](https://www.linkedin.com/in/bryanoffutt), [Leo Polovets](https://twitter.com/lpolovets)*, *[Mike Duboe](https://twitter.com/mduboe), [Naomi Ionita](https://twitter.com/npilosof?lang=en), [Saar Gur](https://www.linkedin.com/in/saargur/), and [Sarah Tavel](https://twitter.com/sarahtavel) for contributing to this post 🙏* *Have a fulfilling and productive week ✨* ## **🔥 Featured job openings** 1. **Hyphen:** [Senior Software Engineer](https://pallet.xyz/list/lennys-jobs/jobs/409ba7dc-d175-45cf-a3e8-5b50d020c874) (LA, SF, San Jose, Atlanta, Remote-US) 2. **Rapchat:** [Data Analyst](https://pallet.xyz/list/lennys-jobs/jobs/e32872cf-766d-47f1-b367-6e9b0d437294) (Remote-US/EU) 3. **The Parent Company:** [Product Manager - Consumer Growth](https://pallet.xyz/list/lennys-jobs/jobs/31f0e76e-aace-4a3c-a1bd-370dab92eda2) (Remote-US) 4. **Spokn:** [Head of Product Design](https://pallet.xyz/list/lennys-jobs/jobs/4ae774dd-1c74-4709-897e-dd4413a2aa5c) (Remote-US) 5. **Custom Ink:** [Senior UX Architect](https://pallet.xyz/list/lennys-jobs/jobs/6cf2edfe-0149-4cf8-99f4-7bf23a949975) (Fairfax VA, Remote-US) 6. **PadSplit:** [Senior Product Manager](https://pallet.xyz/list/lennys-jobs/jobs/a4a610e5-a0dc-4c28-9c19-9905c60917ad) (Remote-US) 7. **Matter:** [Design Lead](https://pallet.xyz/list/lennys-jobs/jobs/d08a9ae6-80b3-414f-8e36-daa2b8ea6768) (Remote-US) 8. **Papaya:** [Director, Product Management](https://pallet.xyz/list/lennys-jobs/jobs/4d7cac8e-4fc5-4df3-9dff-185749963030) (Remote-US) 9. **Airtable:** [Engineering Manager, Monetization](https://pallet.xyz/list/lennys-jobs/jobs/6806a6f6-bb9d-4a9c-b4a6-d48d36951670) (SF) 10. **Catalog:** [Design Director](https://pallet.xyz/list/lennys-jobs/jobs/9ffd590f-5cda-4bbd-b1bf-687a7f89eb48) (Remote-Global) 11. **TrueAccord:** [Senior Product Manager, Core Product](https://pallet.xyz/list/lennys-jobs/jobs/ddcb06db-119d-47d0-83f4-ddd1ff755f88) (Remote-US) 12. **Brace:** [Senior Product Manager](https://pallet.xyz/list/lennys-jobs/jobs/f04ce367-5a1f-462e-a79d-725870b8eded) (NYC) *Browse more open roles, or add your own, at [Lenny’s Job Board](https://lennysnewsletter.com/jobs).* ## **🧠 Inspiration for the week ahead** 1. **Read:** [Warren Buffett: “Really Successful People Say No to Almost Everything”](https://medium.com/accelerated-intelligence/warren-buffett-really-successful-people-say-no-to-almost-everything-ab78832ffebc) 2. **Measure:** [The SaaS Metrics That Matter](https://sacks.substack.com/p/the-saas-metrics-that-matter?token=eyJ1c2VyX2lkIjoxODQ5Nzc0LCJwb3N0X2lkIjo0MjczMDE0MSwiXyI6IktOdlVVIiwiaWF0IjoxNjM0NjE2NTE2LCJleHAiOjE2MzQ2MjAxMTYsImlzcyI6InB1Yi05MTI4OSIsInN1YiI6InBvc3QtcmVhY3Rpb24ifQ.Sjwt-Tpu-oUzL4ABNOuLwVyCboE94jtuyEs_t-0kxEI) by David Sacks and Ethan Ruby 3. **Watch:** [I Am A Product Manager](https://productcollective.com/i-am-a-product-manager/?mc_cid=8fcaf6fdb0&mc_eid=UNIQID) by Chris Webb [Watch on YouTube](https://www.youtube.com/watch?v=_OHqHqrClPI) #### **How would you rate this week's newsletter? 🤔** [Legend](https://a.sprig.com/672d7967625042535f477e7369643a3434363132?r=5) • [Great](https://a.sprig.com/672d7967625042535f477e7369643a3434363132?r=4) • [Good](https://a.sprig.com/672d7967625042535f477e7369643a3434363132?r=3) • [OK](https://a.sprig.com/672d7967625042535f477e7369643a3434363132?r=2) • [Meh](https://a.sprig.com/672d7967625042535f477e7369643a3434363132?r=1) **If you’re finding this newsletter valuable, consider sharing it with friends, or subscribing if you haven’t already.** Sincerely, Lenny 👋