Axeome | 003 | Reverse Engineering a Business From a Value Proposition

Michael and Eric from Axeo discuss a different angle of approach to buildling a startup. Instead of creating a product and then trying to market it, what if you started out from a value proposition your market can't help but fall in love with, and then reverse engineered the steps to make it happen?

TRANSCRIPT

Michael-Anthony Clement

Hey guys. Mike here with another episode of Axeome, which is the podcast for our new startup accelerator-incubator, Axeo. I'm here with Eric. Welcome, Eric.

Eric Chocron

Welcome, Mike. Welcome, everybody.

Michael

Yeah. We're going to talk about some really practical go-to-market stuff today. And, what's awesome is we're going to speak to this from experience. You know, an experience that I've had, you know, more recently. I'm going to share that with the audience. And, we're going to go into some examples. What we're talking about today, Eric, is how do you reverse engineer a business from a value proposition?

And maybe I can preface it by saying: why would we want to do that in the first place? Problem: many startup founders start a startup in exactly the wrong way, the opposite way that it should. They start with an idea of the world that they have, where they want to build a product, and usually they jump right into building a product, and then their plan is after building it all out, then they go to market and then they figure things out, like how to market it, how to sell it, etc.

And you and I both know, from having seen-- worked with a lot of startups over the years, this is a very unsuccessful approach most of the time. Because by the time you're finished building the product, you've probably spend $100,000 in development, and then you go to the market, you find that you're-- no one really cares about your product because you're not solving a problem that anyone cares about.

Eric

Correct. Yeah.

Michael

How do we prevent that? My argument is do the exact opposite, and it's all about kind of going to where there's already demand that you can quantify. This could be in the form of Google search volume on a keyword. Right? Validated demand like keyword has 10,000 searches a month. And then if you can, you know, if you're smart, you can say, “Well, that's a decent amount of search volume.

But guess what? There are no solutions to that problem yet. I've searched the web. I looked for a solution to that problem and it doesn't exist.” I'm building a startup right now in the United States. I'm going to keep it in stealth mode, so I'm not going to speak of it directly, but more of like the broad experience.

This is kind of how we started. Search demand for a specific term was relatively high compared to what was offered out there. And so we positioned ourselves into that demand, that search intent. And really quickly, we were able to develop a simple business model around connecting two kinds of market participants. Right? One market participant needed a service provider, and the other one was looking for customers.

We made the introductions and we made like $1,000, $500 on an intro, depending. And what's interesting about that is: what did it cost us to build the product? Almost nothing. We built a website. We did some SEO, but like not 100K, not 1K, probably $100 right? In hosting and maybe a domain name. I just built something for one one-hundreth-- one one-thousandth the cost of starting the other way around. And we already get revenue from day one.

Eric

I think-- And what you're explaining, I just want to understand also and explain that it starts with a problem you've uncovered first before you reverse engineer something. It seems like in your case, and in most cases, like a lot of cases and you've heard that before, the best entrepreneurs are people that solve the problem for themselves first, and then they figure out it's not just for themselves.

Like there's a lot of people that are, you know, in this, same boat. In that industry that you're keeping stealth on, on your end, like it was something you've uncovered yourself as a person active in that industry, and then you started looking at Google Trends. You're not going to go from nothing to Google Trends as a way of-- right?

Michael

You could. But you bring up a good point. And this is another point. I'm going to actually get to this a little bit later, but like really quickly, are you even the right person to solve that problem? There's a question.

Eric

That's another question.

Michael

I'm going to get to that. Where are we going with this? You know, the focus of this episode is reverse engineering a business from a value proposition. So here's what I propose founders should be doing, is let's say you do find a market that you want to solve a problem for. And you think there's a lot of value.

Here's what you do. Think up, use your creativity to think up a value proposition that is over and above what's currently offered in the market by a factor of ten, right? If the market is doing things a certain way in their day-to-day and it's a one, think of something so pie in the sky, it almost seems unbelievable and pitch it to that market.

Now if you do this right, inevitably-- and you save them ten times more time, ten times more money, or you help them make ten times more money, or you reduce complexity by 10x, whatever it is. Or maybe it's an intersection of two times two times two and you get to eight, right? Inevitably they'll say, wow, that's incredible.

Okay, that's a good sign. That means that if you can deliver on that, they will probably switch to your solution no matter what they're doing right now, right? It'll account for switching costs. It'll account for probably, you know, you can charge them more so you can pay yourself. So that's step one is like come up with a 10x better value proposition.

But how do you go from there to actually backing into a business? So here's what I propose you really have to work on: is it feasible to pull off? You've come up with this crazy pie in the sky solution. But then the question is, coming back to your point: are you the right person to solve this problem?

Do you have the technical skills? Do you have the industry knowledge on top of that, can you bring together a team to overcome whatever shortcomings you might have? So if you do have a weakness, then bringing in an expert, do you have the ability to do that? And what about any kind of other constraints to maybe pulling off the 10x? Maybe there are regulatory constraints that are going to stand in your way.

There's other things like that. So I'm going to pause there. Do you have anything to add?

Eric

Well, it reminds me of a podcast I heard a few years back about Airbnb. A lot of things that you said remind me of that and a lot of things we mentioned. But you position it as value prop and it's very similar. But they talked about customer experience and they said, you know, how can we 10x or 2x what's currently offered on the market.

And then they talk about experiences. They talk about what would be a twenty on ten or a ten on five star experience based on what already exists. So like, overdeliver on. And then so, they started defining that and you know, they start like describing-- say, okay for the hospitality industry right? You have hotels that are five stars. Okay.

So then, how do we top that? And so they started talking about like, things around that. And I'll give you a concrete example. So they were mentioning how-- And the founders were, you know, the ones mentioning that tactic, but they were saying how-- Okay, so you know, we know what a five out of five star experience is, but a ten out of five would be: how about including transportation, including full care about the individual from the moment they book?

And that means like, okay, you know, someone comes at your door, picks you up, brings you to the plane. The plane brings you, you know, to another place, you know, and they transport you back to the location you booked.

Michael

Make like the billionaire experience.

Eric

The billionaire experience. But that's the twenty out of ten. And then they were saying how you reverse engineer from that experience to what you can actually deliver that is still better than the five star experience, or it has still a different direction than what's being offered in the hotel industry. And that's how you come up with Airbnb customer experience.

To me, that's what we got to package and it's so aligned with what you're saying. If you're a startup, what hasn't been done and what can be full on the 10x or 5x experience on what is existing for that, you know, visionary piece of the pie that you want to put out in the world right now that you can push on.

Michael

I love it because it forces us to use our creativity to not-- and to get away from marginalism [sic]. This idea of marginal improvement. And if you are starting a startup, one of the biggest mistakes is you try to build something that's just a marginal improvement over the existing. And definitely what most people don't understand is if something is 20% better, it won't be compelling enough for getting customers to switch from their existing solution.

It won’t be enough, even with your team it won’t be enough to acquire the customer. You have to leave enough room in the value creation to pay yourself, to acquire the customer, just to pay for switching costs too. So many things that we forget. So with that being said, I'm going to proceed to the third step in the process. Remember, the first one is: come up with a 10x value proposition and pitch it, validate.

Is it that good? And the answer is yes. The second one is more about feasibility. Can I pull it off? Or in that exercise, what version of the 10x can I pull off, to your point. Maybe I can't do a 10x, but maybe I can do a 4x to start and we can work our way to 10x as we build

a team, get capitalized, build-- you know, get the technology. The third one is super important. It's viability. Okay, so we can sell it. We can pull it off. But like, are the margins good enough for it to be a sustainable business over the long term. And I underline “long term” because it's like, do the unit economics even make sense on one sale?

Okay, they make sense on one sale. Do they make sense on a million sales? Because there's different-- different products scale differently. If you’ve got hardware products, it's really hard to get going. And maybe they only work, for example, after a thousand units, ten thousand units. Software products are obviously a lot easier because of marginal cost of production of replicating each one.

But then the question is can you defend it? So, say you make this thing. You make it, you have the capacity to make it, you sell it, it's going well. But guess what? It's super easy to copy. Let's just say it's super easy to copy. Well, you won't be able to defend it for long, especially if you're not in an industry that has like, you know-- if it's not-- if it's an industry without network effect or scale economies. If someone can come in and eat your lunch tomorrow, then that's also a bad reason to pursue that business, because it just means that your profits will be squeezed away by competition.

Eric

Right. It makes me think of an industry I'm very fond of, like it's very close to my heart. The cell phone and mobility industry. And I told you that about-- many, many times. And you're talking about what's the next iteration you can come up to. I'm looking at folding phones and I'm looking at regular phones, right?

As an innovation. And I'm looking at stagnation and the 20% increments, like we talk about Apple often. It's not a startup, but it's just something to understand what's incremental improvement versus what's innovation. And Apple, every year they come in with incremental.

Michael

But the first iPhone was a revolutionary--

Eric

Exactly. But they made their money back on that first iPhone then those years of R&D. And that's something that I want startups to understand is that, you know, the product lifecycle and all that stuff is still relevant. Software, you know, software, hardware. But if you stop innovating and start just incrementally upgrading your software, then someone's going to come and disrupt you.

Michael

And Apple in particular, is leaving themself open for some disrupter who's going to take a 10x bet. Who knows what it's going to be.

Eric

They're doing it, by the way. You're not following that industry closely. But there is a Chinese company called Nothing. It's called-- yeah, it's called Nothing. And it started from the old folks at OnePlus, which was another Chinese company which is still alive, but under a different direction [sic]. And Nothing has now officially, as of 2025, taken 0.1% of the market. And most of these are from Apple.

Michael

What's innovative about what they're doing?

Eric

Oh, they’re just-- they're called a flagship killer, which is a term in the industry, it’s basically they're doing everything better for a lower price. So they're like basically, you know, reducing. They're coming out with newer, fresher designs. They're coming out with mid-range phones. When I say mid-range, they're not like flagship phones, but they are flagship killers that have like functionality and stuff for like 299 US, which is like a third of what Apple's charging or a third of what Samsung is charging in the Android world nowadays.

It's something I follow very closely, but the reason I was mentioning folding phones, which seems to be the next innovation, or any kind of like expanding device in the hardware market for mobility, is that, Samsung has been a leading entity in that world, but it's being disrupted by Chinese companies nowadays. And what you were mentioning is that even if you do innovate at some point, say so five years ago, if Samsung innovated in the flagship folding phones, Chinese phones are actually disrupting it because they have more connections and more, you know-- like stronger, cheaper way to produce.

And they're also pushing the boundaries in some ways. On the software side, funny enough, Chinese video game developers are killing it also, by the way. Small teams with AI are producing like A, top tier, Ubisoft level-- and I say Ubisoft because they're a Montreal based, Quebec based, you know, video game developer.

But Chinese companies with like a portion of what they have in terms of staffing are producing better games, they are selling billions of dollars, billions, not millions. It's a different market now. Epic Games, Tencent, all these guys like, you know are like [rocket propulsion noise]. Chinese developers.

Michael

In business, you really can't rest on your laurels, especially in tech because it's just brutally... you know, the pace of innovation is brutal. And if you just rest for one moment, you will get absolutely demolished. And I think this approach of reverse engineering the value proposition also speaks to that, because if you go out with a product that's 10x... I mean, look at Apple.

Even though they're slowing down now in their pace of innovation, they had such a lead from that 10x innovation in 2007, which is almost 20 years ago, that it's lasted-- their dominance is lasting until this day. Not that it's gonna last forever. So I say to founders, that's why you have to aim for 10x because it accounts for profitability, desirability, defense ability.

And if you can capture a market really quickly, you can get some brand lock-in, you can get network effects, you can get scale economies. Then it makes it a lot harder for other competitors to come in with their marginally better products. I think Airbnb is a good example that you bring up, because they were the first to imagine that experience and because they captured the market first... Who's the number two in that market in short term rentals? VRBO?

Eric

Yeah, VRBO, but yeah.

Michael

But they're like one tenth, maybe less, right, than Airbnb. And that's because Airbnb has the advantage of having network effect locked in and a brand that when you think of like-- when I think of staying in a country, in another country, I don't think hotel, I think Airbnb.

Eric

Well said. It doesn't mean that someone is not going to come-- What you're saying, though, is along the lines of if you're a startup and you're coming in and you're reverse engineering a value prop, my take on it is that you should constantly do this exercise of your value prop evolving and reverse engineering on what's happening for other value props so that you capture-- or you know, you're not aiming to be 10x, but you're always never behind.

And I think to be honest, that would make it that we're not running on mediocrity. You know, mediocre innovation. We're running-- Or static innovation. We're running on disruptive innovation. Whereas companies are always topping themselves, they're never waiting for someone else to kind of come in and kill them.

Michael

Yeah. But that's tough because if you're familiar with the term “the innovator's dilemma,” it's that problem. It's that when you’re in a leading position like Apple, they have two decisions to make. They have a choice to make. Do we milk our profits on something we own that we can probably own for the next five years, but we expect to be disrupted?

Or do we cut ourselves at the knees and disrupt ourselves and get it? There, I guarantee you, the senior executive team and the board are thinking about this daily. Because it's like, if you milk it, that's X number of billions of dollars to shareholders. That's what they try to optimize for. And there will be a point, Eric, I guarantee you, where they will have to destroy their own business because the trade-off-- the milking won't make sense anymore.

It's like, what they can squeeze versus a new competitor coming in and eating their lunch won't make sense. So they'll have to get ahead of it.

Eric

So take that and then apply it to a startup. Because now we're talking about, you know, a trillion-dollar company. And that's okay. That's an exercise-- I always put myself like, you know, look at what leaders have done or are currently doing at that level. But let's go back and let's look at the startups.

Even the startups that are successful nowadays. What is your recommendation then? You know, following those three steps that you mentioned, following the Apple trillion-dollar bet that, you know, they'll need to disrupt themselves as a part of the innovator dilemma direction. What is it that we're teaching our startups, like right now? Do we double down on what works and continue making till we reach a 10 million or 100 million on all our products or software?

Michael

Well look, Eric, I think you and I both agree that just pulling off the three steps that I said is easier said than done.

Eric

Yeah, correct. It’s super hard, yeah.

Michael

I would say one: build a 10x company by reverse engineering a value proposition that's compelling to a market that you validated. Once you've done that, now you're in a position where you actually-- the next phase is to dominate said market. So before you even think about whether you have to out-innovate yourself or not, it's like, dominate the market and then you have a good 10, 15 years of work to do. Because like, Uber, Airbnb, they’re not done, like they're still growing their market, right?

And then I would say after 15, 20 years, now you're in a position where, you know-- I'll argue against myself. Maybe it's a market where there's a lot of innovation and you actually do have to disrupt yourself on shorter product cycles. Maybe. If that's the case, then I would say--

Eric

Uber, by the way, Uber's a perfect example. And Tesla goes along with that, like the self-driving. Right? Because Uber, their industry is transportation and transit driven by somebody else. But what's happening in that industry, in automotive, is self-driving or AI driving, you know, like cars driving themselves from-- self-driving. That's the term. But so, that means disrupting your own business model of hiring drivers to drive somebody else. And that means, like, you'll need to kill your own business line, close enough or soon enough.

Michael

Or do a partnership with Tesla. Apparently, Uber approached Tesla and they were turned down because Tesla doesn't really need Uber at that point. They have all the ability-- they have the ability to make an app or--

Eric

To do the same thing. They have a network, they have everything, right? But that, that's the thing, it’s that AI will disrupt even startups that we have incubated ourselves, like, now.

Michael

All of them. In my opinion. You know, everything at some point just becomes an information processing problem. And AI gives us tremendous abilities to process information.

Eric

There's one axis, though, that I will-- Yesterday, I had someone in my home, doing some manual work, to help us, part of the renovation of our home. Just giving you perspective [sic] here. There's one thing, we were talking about AI and I said customer service and that whole reality. He said he doesn't believe-- that person did not believe that it would get disrupted by AI. He said it can-- he said, I don't disagree and I don't agree, but I do agree that, a human being will always have the upper hand. Unless the AI becomes the human being.

Michael

Oh, boy. I just so totally disagree with that, I mean--

Eric

Okay, okay, look, let's look at another example. Amazon, billion-dollar also approaching the trillion-dollar company. What's their customer service AI response to what's happening? So you have a problem with an Amazon product. I'll just give you my perspective. Like as a shopper on Amazon. You complain about it.

The AI says, okay, what do you want? You want a reimbursement? Here's fu-- Sorry. Here's a reimbursement of your product, of your purchase and no questions asked. And so, the customer is satisfied because now they paid nothing for a product that they were complaining about. Is that solving the human approach?

Michael

I think it is, man. I mean, at the end of the day, they probably decided through a lot of data that that is the thing that shuts people up and keeps them coming back to Amazon. And it's as simple as that.

Eric

Interesting.

Michael

Or is it someone that’s like, oh, I'm so sorry, sir. I'm going to take care of you, duh-duh-duh... It's like, how about a refund? It's like, thank you, you just made my day.

Eric

Yeah, yeah.

Michael

But anyways, we digress a little bit. I'm going to do a recap and then we're going to close off the episode. The big brain concept here is don't start building a product with an idea that you're going to, you know-- for a market. Actually start with proven demand in that market. Ideally get quantitative validation from like Google that people are searching for this, for example. Then talk to a bunch of people in that market who are making those searches. And then proposing something that's very far from existing at the moment.

It's ten times better. If you get really good validation on that, think about how to deliver that value first at a small scale, and you know, in a simple way that you can manage. And then at a large scale. And if that makes sense, perfect. Next, is it viable? Can you make money with this? Can you acquire customers profitably?

Can you serve customers profitably? Does it scale profitably? And do you think there's a path to defending that business for a very long time? And if you can do this-- I believe, this is my my take, I think you can build a startup for one one-hundredth the cost in ten, probably ten times less time, right? Making a lot of mistakes and learning along the way. And ultimately solving problems that are demonstrably important to solve.

That's my reverse engineering value proposition.

Eric

Super well said. And beautiful end to this episode, Mike. I appreciate the conversation, as always. See you next week, everybody.

Michael

Yes sir. I appreciated it too. Thanks, everybody. Bye bye.