Give me the highlights

• Information is physical: Information isn’t just what you know, it’s encoded into your business, and takes time to accumulate
• Information flows: Information flows from the market, to the market and internally - the capacity of information to flow and accumulate are key enablers of strategy
• Information emerges from disorder: Information emerges at the edge of chaos, making disorder an important feature for adaptation and growth, not an error to be removed
• Information creates order: Information creates order and order is needed to grow - judging when to dial disorder up or down is a key role for founders and CEOs
• Information accumulates before revenue: A startup’s search for greater fit between its product, sales motions and the market, and the accumulation of information are two sides of the same coin - they happen before growth ignites

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Information is physical

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If you’ve visited the beautiful city of Prague, home to Notion Capital portfolio company Mews, you may have seen the base of the statue of St John Nepomuk depicting a knight petting his dog. Information is encoded in the scene. There is the story of the knight and his dog, and then there is the story of how passers by have interacted with the statue. Over many years of petting the knight’s loyal friend he shines brightly compared to the rest of the bronze scene. That is information. The physical objects we create, each with a history of interactions, not just what we know.

Only finite information can be stored in you and your colleagues' heads. For information to grow, which is what you need to happen if you want revenue to grow, it has to be stored physically somewhere in the business. Your product encodes information gleaned from your customers, and your sales processes and enablement material encodes what you’ve learned about how to acquire your ideal customers. The greater the depth of information a business is able to accumulate, the better placed it is to adapt and thrive.

Information evolves from simple to complex, it doesn’t jump from zero to one. It took 4.5 billion years for humans to evolve into what we are today. We didn't just spontaneously appear. The same goes for encoding what the business learns physically. Processes start simple, and evolve gradually over time based on feedback loops. Sophisticated products and processes aren’t just rich in information, they are deep in time. Knowing the next step of evolution from someone that has been there and done it is helpful. On the other hand, trying to replicate mature structures in a young business is a recipe for disaster. Respect the process, there are no shortcuts. Evolution may be slow, but it's relentless.

“Physical order, or information, is what is embodied in a product.” - Cesar Hidalgo

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Information flows

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Information flows from the market into your business (environmental), from your business into the environment (corporate), and internally (operational). As we’ve seen above, information has to be saved somewhere to accumulate. The capacity to bring the right information into the business is a valuable asset, and the choices over which flows to build are strategic.

In the start and build phases of growth, focus should be much more on accumulating information than growing revenue or efficiency. Prioritising ‘efficiency’ over information flows can be really damaging to medium and long-term growth prospects. Primarily because being ‘efficient’ is often a local not global optimum - a topic for another day. Two concrete examples I want to highlight, demonstrating the need to think bigger than short term efficiency: i) outsourcing the BD function and; ii) product-led growth.

Outsourcing an BD function might sound like a great idea from an efficiency perspective. It can be spun up quickly, it's flexible, and you don’t have to go through the pain of hiring. But is an outsourced BD function a high capacity flow of information from the market into the business? No! The ability to accumulate information (remember information is physical) is going to be diminished.

With respect to PLG, it’s all the rage. Sorry to rain on the parade, but is a self-serve motion where you never talk to your customers a high capacity information flow? No. I’m not saying PLG doesn’t make sense, but it has a cost. At the very least, if a new business is operating a PLG motion, it should be reaching out to every early customer to learn more. Something Aikido, a software security platform has embraced to maximise learning whilst operating a PLG motion.

“Capacity to bring information into the firm, handling the flow of information generally is an important invisible asset.” - Hiroyuki Itami

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Information emerges from disorder

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I come from an ordered world. A strategy consultancy, German no less, full of two-by-two frameworks and neat models. It’s Notion Capital that has exposed me to the value of disorder - a useful feature of a startup not a fault. The disorder I am referring to is not random. It’s chaotic but there is a logic to it. Logic that becomes increasingly ordered as information slowly accumulates and strategy is refined.

Think about your search for product-market fit. You want to find the customers that your product resonates with now, but also the next segment to target. So you initially try to sell to a broad range of potential customers to learn. You soon find that the customers your proposition resonates with differ from your initial hypothesis. This is often the case. You simply know less about the market than you think you know. Your disordered exploration of customer types is what provides the insight you need. Insight that would have alluded you with an overly ordered approach.

In Andy Grove’s ‘Only the Paranoid Survive’ he talks about the dangers of experienced operators implementing the same strategic and tactical moves that worked historically for them. They are unwilling to stray from their well travelled paths. There is no disorder in their approach. They fail to appreciate that this time, things might be different. His advice is to loosen control, to let ‘chaos reign’, especially as a business tries to navigate an inflection point. But this culture of experimentation needs to be an existing feature of the business which can be dialed up or down. It’s not something that can be kicked off from a standing start.

“Information is hidden on the other side of chaos” - Ilya Prigogine

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Information creates order

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As information accumulates bottom-up, founders need to start dialing back disorder and drive greater focus and control top-down. Strategy isn’t top-down or bottom-up, it’s both. A balance that needs to be dynamically adjusted through time. Responsibility for getting this balance right sits squarely with the CEO/founder.

We have a saying at Notion Capital “get comfortable with being uncomfortably narrow”. We have a healthy respect for the disordered nature of startups, but there comes a time when you need to focus and place your bets. That’s the only way you can generate leverage from the limited resources you have. Efficiency becomes increasingly important over time, and that means less exploration and more exploitation of the invisible assets you’ve accumulated. It’s at this point where it makes sense to start deploying capital more aggressively and go for growth.

“We grow in direct proportion to the amount of chaos we can sustain and dissipate” - Ilya Prigogine

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Information accumulates before revenue

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Every set of circumstances is unique. Founding teams vary in their depth of information of the market they wish to serve. Some come equipped with detailed maps, others with a vision and general sense of direction. Regardless of the starting point, information accumulates before revenue.

Information and fit are equivalent concepts, and both are relative to the environment. Solutions that are deep in information are a better fit for their target problem. It’s the movement towards fit in multiple domains that drives growth over the medium term. And it's these periods of low fit when information accumulates the quickest. The more complex the market, the more information in absolute terms needed to achieve fit.

Because information is relative and context dependent, it can be destroyed when the environment changes. Imagine an up-to-date map of your local area. It’s informationally rich. However, that same map in fifty years is likely to be much less useful. As the external environment changes, parts of the map become irrelevant, it’s as if some information encoded in the map has been destroyed. The gap between potential information (a perfect representation of the territory) and actual information (the map) increased. Or said another way, fit declined.

Consider entry into a new market. You may think that your proposition suits a new geography but find that fit is much worse than initially assumed. Growth eludes you. But if you have the right flows set up, and can accumulate and encode information from the market into your proposition, you will improve fit and eventually ignite growth. It’s interesting to reflect on the success of US market entry when a founder moves to the US vs. hiring a local sales leader. Anecdotally the former is much more successful than the latter. One reason for this could be that a sales leader is there to sell, whereas a founder is much better positioned to drive information into the business and improve fit.

Growth isn’t linear. It zigzags precisely because a business thrusts itself into states of low fit. The lack of fit combined with the right flows causes information to accumulate. This takes time. But once a critical threshold in information/fit is reached, growth ignites.

“It is the accumulation of information and of our ability to process information that defines the arrow of growth” - Cesar Hidalgo

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