This post originally appeared on Entrepreneur.com - #StartingABusiness
After selling his groundbreaking streaming platform to Amazon, Kan applied his experience to a new and distinct venture.
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When we think about some of the most successful founders, a commonality between them is often their dedication to one space or another over long stretches of time. For instance, Eric Yuan worked on WebEx for almost 11 years, taking the company from $0 to more than $700 million in revenue, before starting Zoom, which he’s now operated for nearly a decade.
What we’ve seen empirically is that building companies is hard, but what’s even harder is doing well in various verticals. Whether we’re thinking more generally in terms of B2B vs. B2C, or more specifically by comparing video-conferencing technologies to marketplace software, almost every market has quite a bit of complexity, which makes switching between them one of the hardest things for entrepreneurs to do.
Despite that difficulty, Justin Kan, who founded Twitch and sold it for nearly $1 billion to Amazon, shows that doing so is indeed possible. Today, he has moved away from consumer tech; instead he’s focusing on his new company, Atrium, which couples elements of automation with the expertise of a traditional law firm to provide transparency in legal costs for startup founders. As of today, Kan has raised in excess of $75 million in venture funding from investors including Andreesen Horowitz and Kleiner Perkins.
Recently, Kan and I had a chance to chat about the three most important lessons he learned from starting and growing Twitch (and even before that), what he did after selling (including investing in startups at Y Combinator) and how he’s applying what he’s learned to Atrium, where he hopes to solve a problem that he’s encountered for years.
1. Differentiate between market risk and execution risk.
When Kan graduated from Yale, he and his friends had some software development experience, but they couldn’t come close to seasoned engineers at major tech companies. Not to mention, they had no experience growing a company, managing a team or any other practical skills required to build a successful company.
That’s why he believes that differentiating between market risk and execution risk is important. But how are they defined? In general terms, execution risk encapsulates the idea that a market need is already proven and the success of a business depends on how well a team can execute on solving a problem. In Kan’s view, building companies that involve execution risk are better-suited for experienced founders, which he and his friends weren’t at the time.
On the other hand, market risk involves solving a problem that a market doesn’t yet believe it needs or building a company that is taking a path that many would find debatable. As Kan told me: “When you’re young and you’re starting a company, you have nothing but your willingness to experiment and your work ethic, but you don’t really have any skills, connections or whatever. And so you want to start companies where there’s a lot of like market risk, right? You’re buying a lottery ticket at whether this will be a market or not.”
And that’s exactly what he did at JustinTV, the precursor to Twitch. Kan and his team began with the idea of live-streaming Kan’s day, but eventually found that others wanted to stream too. That’s what gave rise to Twitch. But in 2006, live-streaming certainly wasn’t popular — after all, nobody thought it would work. And that’s the nature of market risk. If your idea works, you could have a significant first-mover advantage. But if you’re wrong about market adoption, nobody will use what you’ve built and you’ll fail. Either way, you can avoid competition for a while.
By the time Kan sold Twitch to Amazon in 2014, he had accumulated experience as a founder. At this point, he told me, he’d have “little to no advantage” competing against his new-grad self in an area with market risk. That’s one reason he picked the legal field. The market for legal services has existed for a long time, and Kan himself has had to hire lawyers frequently over the years. Knowing what he liked and disliked about legal services from a founder’s perspective, Kan would need to build something far better than a traditional firm for founders to switch over to Atrium. Or, as he put it in our discussion, “10 times better.”
2. Have customer empathy.
Product-market fit is one of the most-discussed milestones of every company’s journey, but I have a hunch that’s the case because some founders think about what they’re building before they think about how they can help their customers in a meaningful way.
For example, at Twitch, the pivot from JustinTV to Twitch was born out of the observation that users wanted to set up their own streams. Had Kan stuck with live-streaming his whole life, he may have never been able to make that billion-dollar exit to Amazon.
Seeing the difference that consumer empathy can play in the success of a startup, he instead decided to start a company, Atrium, that solved one of his own struggles. As he relayed in our interveiw, “For me, as a founder, legal was always a big black box. I didn’t get it.”
Not to mention, legal services made up a large portion of his expenses at previous startups, and contracts came with highly variable costs. That’s why at Atrium, he wanted to be able to quote clients up front so they could anticipate their legal costs. At the same time, seeing the repetitive nature in paperwork made him realize that there was a natural need for automation with software.
By empathizing with founders and their mounting legal costs, Atrium has been able to accumulate a suite of fast-growing startup clients, including TripleByte, Bird and more.
3. It’s not just about shipping faster.
Though founders are often encouraged to get to market quickly, receive customer feedback and iterate, Kan doesn’t believe that it’s all about shipping faster. Instead, being able to work together cohesively as a team can help to both build effective company culture and allow everyone to think more critically about how to truly solve consumer woes.
When Kan and his friends started JustinTV (and even Twitch in the earliest days), a lot of their success came from being scrappy and shipping quickly. And that, to an extent, is certainly necessary at all stages of a startup. But when a team grows to hundreds of people, that scrappy mentality can eventually cause tensions, resulting in a dysfunctional organizational culture.
In Justin’s view, “The key is to build a culture where people are communicating and working together from a place of empathy.” Particularly when teams are tackling cross-functional challenges (e.g. when employees from legal, tech and sales backgrounds need to work together), optimizing only around shipping times can make some members of your team feel left out.
That’s why Kan believes that consciously creating an environment where people can communicate freely about any worries or problems they are encountering is the way to go. Including cultural elements of your business can even residually help you optimize shipping times without making teamwork-related compromises.
Today, at the helm of a company with just over 200 employees, Kan understands the value of building teams (and not just building products or services). That mentality has helped his team deliver their best to clients, while making work enjoyable too.