How we are building an iconic company

Peter Thiel used to ask the well-known question: “What important truth do very few people agree with you on?” Our answer is simple:

The Lean Startup mantra is wrong. To build a great, defensible platform business requires a lot of time early on spent building great infrastructure.

And that’s exactly what we did at Sherpo. If you’re raising your eyebrows, stick around for a bit. Let us explain.

When we uncovered a “secret sauce” for reaping higher profits than competitors through vastly lower costs (we estimate way more than 10x!), we knew we could enter the market with a strong chance to win profitably. We also knew that a well-built infrastructure, contrary to popular belief, can be a source of sustainable competitive advantage. That’s simply because it’s too hard to change a plane engine while it’s flying. And obviously, crafting a well-functioning plane takes time. Yet, ever since the Lean Startup methodology took over, entrepreneurs have adopted some misguided lessons, convinced that it’s best to just take off and experiment mid-flight—often resulting in a dramatic crash.

Of course, we understand that our Strategy can only work because we are in a market that has already proven the need we address exists. It makes sense to test hypotheses quickly in consumer products, new and unproven markets, or in general when testing features.

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A step back in history

Business history teaches us that many great companies have entered well-known markets, at times even later than some of their peers, and won by substitution. Indeed, substitution is ultimately what kills incumbents. Generally, what often enables a challenger to unseat the incumbent is a steep change in technology or consumer preferences. Vertical integration is frequently part of this playbook. Examples range from the lesser-known Swift’s vertical integration in meat-packing to the better-known cases of Netflix vs. Blockbuster, Amazon vs. Barnes & Noble, AWS vs. IBM, Tesla vs. ICE automakers, and many more.

But having a competitive advantage against incumbents is not enough. The moat must defend against other challengers too! Yet, other upstarts often can’t copy the eventual winner. We believe the reason is that they made the wrong infrastructure decisions early on, even though at the time, it may have seemed or been the right choice. The Lean Startup methodology is often exactly the main culprit behind these decisions.

In short: path dependence, which leads to the conditions to create an advantage that Hamilton Helmer dubbed Counter-Positioning.

We think this last specific dynamic helps explain creative destroyers in software, like Salesforce, Atlassian, Cloudflare, Shopify, ServiceNow, Stripe, Datadog, CrowdStrike, Monday.com, Figma, and many others. Some of these weren’t apparent to many VCs early on, as they weren’t to public market participants (just pull up their charts!), suggesting that maybe this mental model/recurring pattern isn’t yet widespread. It can overlap with Christensen’s well-known Disruption Theory, but it’s superior as it also helps explain how those who started upmarket still beat their entrenched rivals.

Why is that so? Naturally, there's a mix of great decision-making and a healthy dose of luck. For sure, uncertainty shrouded these situations. And their team's execution has been nothing short of phenomenal. Still, a strategist should try to isolate the main factor explaining most of the outcome. Our hypothesis? These companies did not just attack the incumbent's market with a superior business model which paralyzed them—they also helped create new markets. The chief enabler? The founders’ relentless belief that market size is endogenous, that the right product can grow the market itself. But obviously, operational excellence is still needed. You can build the greatest and fastest plane ever, but if you can't steer it, it will still crash—or never take off.

In short, we sum up our equation for increased venture success as: better business model × inflection point × moat × operational excellence. Each is necessary, but none is sufficient alone.

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Investment Thesis

Our investment thesis is simple: an all-in-one platform business leads to a superior product and value proposition, while vertical integration allows us to dramatically lower costs by not relying on third parties to serve videos. Add to that a few behind-the-hood inventions we’ve developed, and you get the conditions for a superior business model (augmented by higher lifetime values from being multi-product from inception). This, in turn, lets us share these benefits with customers—enabling them to start for free, solving the inflection point (market size ↑), and opening the market to millions more creators.

Our deep stack control is also what enables unmatched AI features, riding the current platform shift while operating at a structural cost advantage (which, let me remind you again, we will share with customers to drive adoption). We deem this advantage inimitable by competitors due to their path dependence, incentives, and potential collateral damage. That’s our competitive moat, and what allows us to thrive and generate not only a margin but real, economic profits we can reinvest to build an even better product and business.

Profitability may not be fashionable now, but in the long run, it always matters.

And that’s not all. Our infrastructure, though more complex to build, also lowers development costs for marginal features, leading to a better product and contributing to operational excellence. Of course, we will also need excellence in product development, marketing, sales, hiring, and beyond.

We believe these factors combined can make Sherpo a powerhouse and increase our odds of success.

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Sherpo's "Master Plan"

Starting from the low end of the market is not just easier, but also long-term strategic—if churn among small creators is high, we can constantly replenish new ones by being the downmarket leader. The added benefit is that some of them will grow into larger creators, resulting in outsized LTV:CAC ratios.

But we aren’t stopping with small creators. Our vision is to be the OS of any video academy and digital goods store. So, borrowing from the well-known Tesla’s “Secret” Master Plan, here’s our version:

1. Build a vertically integrated all-in-one platform with a focus on low-end creators
2. Invest the proceeds to develop further products to serve adjacent needs, leveraging our infrastructure, increasing net dollar retention and LTVs
3. Continuously improve the product and platform to also serve new jobs-to-be-done for different customers (e.g., enterprise video academies)
4. Repeat—never forgetting step 1.

Want to join us in this endeavor? Write to us at investors@sherpo.io.