Here’s what’s covered on this week’s episode:

  • Startup Tip of the Week: Building a Killer MVP (Minimum Viable Product).
  • An update on the situation with First Republic Bank.
  • A brainstorm on how to stop bank runs.


Transcript (this is an automated transcript):

MPD: Welcome everybody. I'm Mark Peter Davis, managing partner of Interplay. I'm on a mission to help entrepreneurs advance society, and this podcast is part of that effort. Today we've got a normal partner meeting. Fong does a deep dive into the concept of minimum viable product. Whether you're a first time entrepreneur or a serial entrepreneur, I think it's worth a good revisit.

This is one of the best ways to save your time. And not waste a lot of effort on a bad idea. And Chris and I do a policy debate around bank runs and get an update on what's going on in the market With that. And before we dive in, just wanna give you a quick heads up on this Wednesday, May 3rd, we are hosting.

Is this a thing? That's a activity we do at Interplay, where entrepreneurs with really early stage ideas, concepts come on, they share them with a group of VCs that's interplay partnership. And the hope is to like really spitball early on and save people time. If the idea is not really legit. Poke holes, find opportunities for more research or validate.

If it's the right idea, start a real conversation. So if you're into that, check it out at this a thing? And without any further ado, let's dive in.

Hello Fong. What do you got for us this week? 

Phuong Ireland: This week I have a really exciting topic. So last week we talked about how to validate your business idea before you sync a bunch of resources into building a product. Today I wanted to talk about the next part of that process. So after you validate your idea, how do you go about planning your mvp?

Or minimum viable product. So I'm sure everyone knows this, but as a reminder, your M V P is the version of your product that has just enough features to validate your business idea. So then again, you're not investing a lot of time, money, and resources upfront, building out a bunch of unnecessary features for an unproven concept.

So the first thing to keep in mind is that you should launch your MVP quickly. Don't spend too much time over researching, over-planning, making it too perfect. The best way to learn more is to put something, anything in front of potential customers and have them give you feedback on it. So at this point, figure out what the very core features are.

Condense it down to the very simple set of things that solve the user's most critical problems. I'm sure there are a lot of other problems that you could solve, but now is not the time to do it. Just roadmap it and build it. Later on, you'll see that you'll probably maybe never even build it because the valuable learning you get from the earliest M V P will give you insight that you don't have now.

So really think of the M V MVP as a very simple base from which you test and iterate into your final product. So then how do you determine what these core set of features are? Start by defining the user journey. So what's the process your customer will go through to get the desired outcome from your product?

What are the pain points they'll encounter during this journey? So using this information, make a list of features that will make this journey possible. And then Mark, don't get too excited because I know how much you nerd out on these. Make a Gantt chart. So happy. I know. Love a good day chart.

Agan chart basically plots the importance of each feature against the effort needed to build it. So then you prioritize the features that are important to, that are important and easy to build. And then conversely, deprioritize features that are not important and hard to build. Then go and build quickly.

And then once you have your MV v p, you test it. And how do you do that? First, set the objective objectives for your test. What are you looking for? How do you measure success? Some metrics to consider are user engagement, how long a user is spending on the product, the frequency of usage conversion rate.

So this can be conversion on any number of actions, such as signing up, making a purchase, or completing a task. Retention rate customer satisfaction. So this is gonna be super important. You can gauge this with surveys am my speaking to customers. It'll really allow you to understand how satisfied customers are and where you need to improve.

And then after you set your goals, go and test your M V P, gather feedback and analyze the results. Now try to understand whether your product is actually solving the customer pain point you set out to solve. So the important thing here, if it turns out that it's not solving the original problem, iterate on and improve the product to solve the original problem.

I think a lot of founders fall in love with their product, and then when it turns out it doesn't solve the problem, they tend to change the problem to match the product. And now you're moving away from that problem that you already identified was a critical pain point. That was a really big opportunity to another problem that hasn't been validated.

So remember, Iterate on your product to make it better, solve your customer problem, then test it again, gather feedback and iterate, and then do it again and again until you have a product that you feel confident about. And then you launch that to a wider audience. And that's generally the process that we use.

This is 

MPD: so much easier said than done. This is one of the hardest things in starting a company, yeah. Hey make a smaller product. That sounds so easy. I do less work. Great. The reality is people fall in love with the solution they're building and the idea of gutting the product is what it feels like of doing less, doing the bare bones, the absolute minimum to solve the problem and really confirm customer demand Bill's counterintuitive, and I think a lot of the reason it's hard is founders will say, Hey I don't want to take out this feature set because some people won't use the product and the headline is, that's okay.

The way to think about it from my perspective is there's like this demand curve out there of customers that will use your product. That opens up as you add features, right? Which you wanna do is just crack open the tip of the iceberg of customers with the core feature, the first feature set, if they use it and they're psyched about it.

Of course, when you add more features, more people will adopt. That's a given. You don't need to appeal to every customer on day one. You appeal to a niche of a niche. So this is the big thing. It's very hard. I work with incredibly experienced veterans, super smart people, and everyone has trouble reducing the product to be the bare bones.

I think it was Mark Twain who said, if I had more time, this would be shorter. I get in reference to a letter. It's a challenging thing to be brief and summarize and to sacrifice concepts. This is a little bit painful and brutal, and you have to go at this with real intention and effort if you're really gonna cut this down to a bare minimum, this doesn't happen by accident.

Phuong Ireland: Yeah. This is one of the things as we're working through our MVPs with our incubator companies, I always have to keep myself honest, right? Cuz it's really hard to say, yeah, and then add this and add this. And if we don't have this critical, massive features and we get bad feedback or then, and it's not gonna be indi indicative of the end product.

But I think to your point, You're just, you're gonna make it better. It's not the end product. Now you have to test and iterate your way into this end product. And then that's gonna really solve you a lot of headaches in the long term. 

MPD: If 1% of the customers will use your M V P and the other 99 will, if you add more features, just test on those 1%.

Thank you, Fong. 

Phuong Ireland: Thank you 

MPD: Chris. Good to see you buddy. You almost died doing indoor skydiving. 

Chris Zhang: A contrary to what Mar has said, I think I did pretty well. Thank you. Thank you for you 

MPD: were complimented by the instructor for having perfect form on your first go. 

Chris Zhang: Only when I'm stable. Yes. When I start to turn, that's when things go a little silent.

It's what, it's, you gotta start somewhere. That 

MPD: was Chris, one of Chris's birthday present for getting older. We went indoor skydiving. I was trying to get rid of him, seeing if he would fly up into the blender of a fan, but it didn't it didn't work out that way. It turns out the safety procedures are real.

Chris Zhang: So that will be one hell of a way to go. I think you'll even feel it. It would just be so insane. It would be so 

MPD: quick. That fan is no joke. Yep. All right. That's a creepy conversation. Let's let's jump in. What do you have for us on 

Chris Zhang: global macro? Yeah. Macro is a lot less creepy this week. Actually hold that thought.

That's not true. As we talk, as we're talking there's a story developing as we as as we're recording on frb, it looks like at this juncture, it's, it might just be another bank to fail. It's looking increasing likely that it will be an F D I C receivership. Today or over the weekend and or as early as next Bond day shares is now trading at I think $3.

Last time I checked and it's down 50% on the day. Clearly not good. People are, were fearful after the recent AK release. Last sort of last quarter's earnings where FRB basically indicated they lost over 72 billion deposits. And more. So it's it's not looking great.

So the banking crisis is not over yet as we discussed that this is gonna take more of a medium term to get sorted out. And, just another set I saw this week indicated as sa that remember the sort of the F D I C revolving credit facility that was set up in the aftermath of S V B?

Yeah. The borrowing is still increasing. By mostly regional banks. So they increased by 11.3 billion this past week to a total of 155. So it's certainly being digested. So 

MPD: can we find any solace in the fact that, there seemed like there are three or four failures in rapid sequence over the course of a week.

Yeah. And this is at least a month or so later. Is that signal that maybe this is. Working its way through the system. Yeah. But the shock event has already happened or is this going to catalyze another shock? Does this create another earthquake? 

Chris Zhang: So I think the way you just phrased it was pretty, pretty accurate.

It's way, it is working its way through the system. It's not going, in my opinion, is not going create a massive shock just because the big banks, the boat brackets are doing incredibly well. They received billions of deposits. Their balance sheet is strong. Earnings came out great. This is not 2008, but regional banks a different story.

It is definitely working through regional banks because everyone has to ask themselves, why am I leaving my money in a bank that doesn't have nearly a strong balance sheet? And I didn't think about that risk before. Now I have to think about it. So everyone's still moving. It seems like people are still moving money.

Into big banks. It doesn't apply to every single regional bank. There are some banks that came out with interest very good earnings, in fact, that their deposit base decreased, of course, in the aftermath of FC svb, but has since re recovered. So it, this is to me, it will take a few more months and there could be other banks that fail in the process.

But a should not create any more of a contagent contagion than it already is. 

MPD: Is there any reasonable policy that could put an end to bank runs? And I'm not talking about protecting equity holders in the banks Yeah. To make bad decisions, deposits I'm talking about really protecting deposits. Yeah.

You've got this plan now where F D I C covers 250 K in a bank account. And everyone's basically gaming it, right? There's these sweep accounts where I think the latest is you can put up to 200 million in and it spreads it across a whole bunch of accounts. But if you don't do that you lose your money on a technicality.

Yep. And there's not a lot of reason to stay with any one vendor over another. Yep. It's a commodity. Yep. Is there a policy here that the government could do? So we could have a stable banking system that doesn't create some sort of perverse incentives. 

Chris Zhang: That is the biggest question to ask. I think after all this, look, you, I, first of all, let's just make this super clear, right?

We're not talking, like you said, we're not talking about equity holders here. Equity holders take their own risk, right? They, their investment go to zero. So be it. We're talking about just depositors who are in these banks, not to take any risk whatsoever. How to protect them? I personally think the government, the regulators, the Federal Reserve, F D I C, actually fail, failed their jobs leading up to S P b.

I think they could do a much better job going forward if they learn from their mistakes and as opposed to, using these sort of, pre predefined ratios to judge liquidity profile and. Deposit strength and liability versus assets. They need to actually go deeper and just have a more common sense check on the mark to market value of the asset side of these banks, right?

They need to actually go into the mb, the mortgage back securities the treasuries that are now being marked to market. And think that, hey, if anything were to happen, let's say at 20% some sensitivity analysis, right? 20, 30% with straw in the deposit base overnight. Can the bank actually, without help from the F D I C, federal Reserve and other banks or consortium and private equity, can the bank buy itself survive the bankrupt?

I think that wasn't done in a proper way because alar, most, mostly due to the fact that these sort of, these security, they're supposed to be market to market. Were not treated as market to market securities. So there's definitely more the regulars can do to put us simply to protect depositors.

And what's the argument? There's only, 

MPD: yeah. What's the argument against? Having F D I C ensure all deposits. You don't have to do a sweep account or technicality. No, I'm asking the question, not the equity holders. Yeah. But if you knew as a depositor that hey, the bank could be mismanaged and my deposit's not going away.

Yeah, it does remove the bank run. You don't, when you get some email from somebody that, Hey, the bank's in trouble. You don't move your deposits, which creates this psychological concept that's self-fulfilling. That kills the bank. Yeah. So it would at least create deposit stability. 

Chris Zhang: Now you will for sure.

That's the cleanest 

MPD: way. Yeah. Yeah. Let me put one thought on it and it's one of those things where I'm sure there's reasons why it doesn't work or it creates some problems, but the actual need for F D I C to ensure deposits, If the banks are regulated well, in addition to that, you would assume it would be pretty low because the runs are C are caused by people being afraid.

Their deposits are at risk if their deposits are never at risk. Runs don't happen. The only real question is the balance sheet being managed properly, and that seems easier to govern even though there's questions about it than trying to control a herd of customers who are. Acting on emotions and perceptions.

Chris Zhang: So what you just said makes sense from the protecting depositor's angle For sure. I agree. That's the clean it solve most. The problem with what you just suggested, and I'm sure the regulars have considered this before. Yeah. Number one is a balance sheet problem. That's a lot of money, but of course you can argue that's, no, you're not gonna have a systematic bank run that's in, in place, that policy in place in the first place.

So you'll never need to tap that balance sheet. The biggest argument I have against what you suggested is that it encourages risky behaviors from the banks. The government, effectively you're giving the all banks in, in the us not just the big banks, but the less regulated regional banks. A blank check saying, whatever you do, we're gonna guarantee your deposit base if 

MPD: go bankrupt.

If they make risky investments, don't they still lose all their equity. It be less the owners and management of the companies, all the people who are shareholders. I'm not proposing protecting that. That's capitalism. You can lose your money. That's the game. 

Chris Zhang: They won't, though. They won't.

Why? Because none of the banks have failed along the way. Were insolvent. Let's make that clear. Their assets were greater than liabilities at all times. That never the insolvency never was an issue. The issue was liquidity. So by having F D I C coming in and ging off the deposit, you're basically telling them, going forward, none of the banks will ever have a liquidity problem.

So as opposed to, lending out 80% of the deposit base. Banks are now effectively have a free bla blank check and they can just go out and lend out 99% of the deposit base and have much higher earning. I'm sure you can put some, 

MPD: some risk. Is there a hybrid policy? I'm just asking the question like is there a policy, it seems like part of the solution on the outside is some sort of insurance around deposits because it changes this whole bank run this bank run is a, is an anomaly in business.

In many ways. Yeah. This whole concept, it's unique to this industry. It would it's possible, but it's the akin to no one going to target on the same day ever shopping like DA Tomorrow, no one ever walks into Target again. That's what's happening. Yeah. They still stop buying revenue goes to zero.

That's not a normal paradigm. Yeah. So the question is there some sort of supplemental legislation or regulation that would enable a policy like that to not be crazy? I believe so. Be productive. 

Chris Zhang: I don't know. It will be a very complicated, it would be complicated, which it'll be complicated. It'll be filibustered.

It'll be, it'll take years for it to be implemented and improperly without triggering any sort of let's just say wrong incentives. It can be done. Will it be done is a different question. I personally believe this will be too difficult politically to implement. But yes, in an ideal world I see, yeah, definitely see your point, and I think it, it can be done.

Okay, so that's frb. And that's just one's another a rabbit hole. Few things have, it's a rabbit hole, and it is important. People should pay attention to it. Let's see. I'm hoping that some rescue package can come in and because FRB is frankly they didn't do nearly as much wrong as the rest of the bank, actually, SVB included and the fact that they're failing is, 

MPD: They're just collateral damage, right?

They're just getting shell-shocked because they're associated with the ones that Correct. Stepped down landmines. Got 

Chris Zhang: it. Yeah. Personally I will more than I'll be very happy to see a rescue package coming in. So beyond that, the rest I'm just gonna, quickly go through, it's been a very busy week on the macro level for macroeconomics level for us.

We have bank earnings, or we have tech earnings that came in stronger than expected. The theme there is that pretty much everything was rosy. But different pockets are doing d differently. So for instance, generally, ads is going strong, international business is going strong, but cloud seems like it's slowing down a little bit for some of these tech top tech companies.

But overall, top line, bottom line are very strong for tech industry. So you're seeing an outperformance in that sector as we talked about over a month ago. 

MPD: We have call this to be fair. Yes. You did call this. 

Chris Zhang: Yes, I did. I even name a few names Microsoft included and, look what's happening there.

But although the story there more cratic so we do have FMC next week. So just make sure everyone's aware of that. Fmc, where the Fed is gonna decide on what to do with interest rate markets. It is hundred percent priced in at this point that there's gonna be another 25 basis on hike, bringing us to five to 5.25% range in overnight rates.

This is on the back of, the PCE inflation data, which is again, feds preferred, most preferred gauge of inflation that came in at around 4.6%, 0.3% a month on month, which is still ahead of or higher than the 2% target that, that the Fed is waiting for. We are inflation coming down. We're at about one third of the peak, but is not near 2%.

So I think the Fed is going to stay on course. I'm hoping they will slow down. Even more so going into the next f c meeting. Not this coming up one next week, but there's chance that they can hike another 25. This is what bring us to basically 5.5 the highest we've seen since the 2008 crisis. So I think that's probably gonna be what's moving markets going into next week.

And mostly attention will be on that. Overall economy is doing okay. GDP came in also this week is weaker than q4. But a lot of that, you have to really dig in. Consumers are really strong and people are still spending money. It's most of it is basically businesses pulling back on spending.

Which, which is very reasonable after a very busy q4 recovery from Covid. So yeah, that's where we are. That's where we are. The country's going strong and tech is leading the sort of the pack here. Thank you, Chris. Thank you, mark. Talk to you next week and a reminder for 

MPD: everybody, Chris, as an s e c registered, r a a.

So nothing he said should be misconstrued as investment advice

lots discussed today. There's always ongoings with market dynamics and policy. If anything sticks to the bones, I hope it's the minimum viable product discussion. That is just one of those things that is so core to being a time efficient entrepreneur. And then at the end of the day, even though it might not always feel like it, the number one resource constraint in your life is time.

Quick heads up. Next week we're gonna do a deep dive on some new learnings about China. My partner Chris was born and raised in China, came over at 17 and just went back to visit family after having been gone for four years. He came back with his eyes popping a lot has changed, and he's gonna take us through that.