When your customers all tell you not to do something, the question is what do you do?
Why conviction and being willing to be misunderstood is so critical in early stage startups and what Jen-Hsun Huang of Nvidia has to teach us about that conviction.
Introduction
As we stand at the precipice of a seismic shift in the market, triggered by the rise of Generative AI, it's tempting to clutch onto familiar mantras like, "this time it's different." But what if it isn't? What if we could draw on the lessons of history to navigate these uncharted waters and sidestep potential pitfalls?
This thought process was sparked by a riveting talk by Huang, the visionary co-founder and CEO of Nvidia, delivered at the esteemed Stanford Graduate School in 2011.
While the entire talk is an enlightening experience, there's a specific segment that not only grabbed my attention but also inspired the title of this blog post: 'When your customers all tell you not to do something, the question is what do you do?’
Why Nvidia? Why Jen-Hsun?
Nvidia, under the stewardship of Jen-Hsun Huang, has not only survived but thrived in the fiercely competitive tech world, creating a near-monopoly in the graphics processing industry. Nvidia GPUs are the gold standard in the realm of video games and are critical in AI.
Under Huang's leadership, Nvidia has thus positioned itself as an indispensable player in the burgeoning AI industry, making it not only a graphics powerhouse but also a key driver of the AI revolution. Through continuous innovation and strategic positioning, Nvidia and Huang have carved out a unique niche in the tech world.
Nvidia, being a multi-generational tech company, makes for great inspiration in the wave of AI companies because fundamentally, the problem is the same. Companies need to know what makes their business special in order to thrive and compete and this is all the more important in the beginning of new markets.
Let’s talk about why that is the case.
Perspective (or conviction) Matters
What is your deeply held belief? What is something that you’re willing to be misunderstood about for a long time? What makes you, you?
These are critical question for a company and for founders (and anyone, really) to understand and Jen-Hsun provides a master class on “perspective”.
I’ve watched this video several times over the past couple of years and wanted to write about a particular segment that has stuck with me. Here’s the full transcript of the notable segment (I typed this up personally to get it right and truly seek to understand what he’s referring to).
The Background
Huang is talking about the founding of Nvidia in 1993. In 1993, 3D graphics was really starting to pick up and within several years, there were nearly 70 startups pursuing the same idea. Over the lifetime of Nvidia, Huang mentions that they competed with 200 or 300 companies.
Side note: Sound familiar, Generative AI companies?
If they’re all doing approximately the same thing, have great people, competition is fierce, then what is going to differentiate them? Huang attributes that to perspective. Let’s take a look at his words.
Huang’s Story about the Early Years of Nvidia
I always believed that you need to understand why your business works. What is the essence of your business? What makes it work?
Now, the foundation of my business, at its core is semi-conductor technology… Moore’s law gives you 2x the performance every year or two. [We Understood] that the fundamental component of the business improves by a factor of two and reduces in cost by a factor of two every year.
The question is what makes a survivable business?
Our[Nvidia’s] first perspective was that 3D graphics was insatiable. It was insatiable. That if we made something twice as good every year, even if the customer never asked for it, even if the customer told us it was too expensive, even if the customer when you went to float that product specification to them told you that they’re not interested.
And in fact that was the case.
I took the product spec to Dell, IBM, Gateway and they all told it me it was too much money, you’re well outside the boundaries of what they were willing to pay for it.
“When your customers all tell you not to do something, the question is what do you do?”
In our case, because we had this unique perspective - that 3D graphics was insatiable and Moore’s law was our friend, therefore, we should make our graphics processors twice as good every year. And so for the first 5 years of our company we just turned on our blinders and and said we’re going to ignore customers.
I love this story and it gets to the real convictions of the entrepreneur and runs counter to so much of modern day start up ethos like the Lean Startup.1
As Huang continues…
So which one of you all are going to go through your marketing courses and the lesson that it teaches you is that you should ignore your customers? Well sometimes you have to ignore your customers.
The reason for that is that they don’t know the nature of your business and while the industry is being created, before there is common sense about the rules of that business, there is no way that they can possibly know.
So I took the last few million dollars of the company’s money and built a chip that was way, way, way too big. Our customers told us that we were way out of bounds on cost and they weren’t going to buy any until the day we showed up with the processor we were in allocation throughout the entire life of that project until our next generation product which was twice its price cannibalized the previous one.
Conclusion
There are a couple of choice quotes & ideas from the paragraphs above.
The first conclusion, is that you should watch the video.
Some conclusions I’ve had …
You’ve got to understand the nature or your business. What is the exact value that you provide and what flywheel drives that value. For Nvidia, that was performance, insatiable performance.
You’ve got to make bets on what you believe and know. Taking the last dollars of your startup and “betting the farm” on it. This is the entrepreneur’s challenge because you’re going to have to make a bet before you get results. Charting this path is something you’ve got to do.
“Perspective about one thing, doesn’t mean that you have perspective about everything.” While this isn’t a quote from the above, Jen-Hsun mentions this just before recounting the story above. Sequoia Capital called him up to ask him about early stage yahoo. Huang said it would never work and they’d never make money. You can be visionary in one area, but it doesn’t make you omnipotent.
There’s a huge gap between conviction on a problem or about a possibility or future and what you should do about that. Action must follow from that conviction. That perspective is critical to founders and product folks alike. Huang betting the last dollars of the company on their conviction, in the face of customer ‘rejection’ is quite a testament to the power of perspective.
The limits of this thinking
The title of the post is a bit facetious but it also gets at the limits of the thinking. There are times and places where Huang’s thinking will apply and times and places where it won’t.
Personally, I think that this doesn’t apply to all businesses - bootstrapped startups and that sort of thing likely fall out of the scope of this, same with smaller companies.
If your goal is customer intimacy (e.g., knowing your customer better and providing services to help them) or operational excellence (delivering lower prices and convenience) and those are your company’s north star, then this doesn’t apply (at least, as easily). This really stands out for companies that have innovation at their core.
Lessons for generative AI companies
We’re in the midst of a technological revolution and there’s massive opportunity in the marketplace, but with that opportunity comes competition. It’s important to think about what fundamentally makes your company or product different - what’s your perspective that you hold so dear that you’ll do it against customer requests?
Contrast with lean startup’s methodology. The Lean Startup methodology is an approach to building businesses and products centered on validated learning, iterative product releases, and customer feedback. Steve Blank’s Lean Startup advocates for "Build-Measure-Learn" cycles, where minimal viable products (MVPs) are quickly launched, data is collected to gauge their success, and learnings are used to refine or pivot the business strategy.
Note, this doesn’t make it right or wrong necessarily, but it does show that there are alternate approaches and paths.