The Only Thing that Matters

Thoughts on Product/Market Fit & Armada

Fifteen years ago, venture capitalist Marc Andreessen called product/market fit the only thing that matters for startups. He didn't say that it was the most important thing, he said it was the only thing. He wrote it up in a now legendary post that you can read here.

“Product/market fit means being in a good market with a product that can satisfy that market.

You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it’s happening. The customers are buying the product just as fast as you can make it—or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck’s.”

You can feel when it's happening and you can feel when it isn't. That is so true.

We tell stories in the asset management industry. We tell stories, and then we back them up with data. We start with stories because when we start with data, it just doesn’t connect.

So we tell stories, we explain our thesis, we go through the mechanics, and then we point to the data. But the whole process is irrelevant. After we tell the story we can either see a glint in the client's eye or we can’t. Everything after that is just checking boxes or a client nodding politely while thinking about something else.

That glint in the client’s eye, that is the most precise measure of whether you have product/market fit.

Conventional wisdom might say that asset management distribution has been commoditized, but that’s not what I see from investors. I see investors hoping for that glint in their eye, looking for stories and products that will resonate, and the fund industry failing to deliver.

I first wrote about Armada a year and a half ago, and in that time we too have failed to deliver. It hurts me to say it, but we have to be honest with ourselves. Product/market Fit has mostly proved elusive.

A few months ago I de-prioritized sales at Armada. For an early stage startup that might seem insane, in these early days there is nothing that our firm level investors need to see more than a growth trajectory. But like I said, we have to be honest with ourselves. We either have the goods or we don’t. I sat in client meetings, I got in front of the media, I told our story. And the glint in the client’s eye, that product/market fit, it just wasn’t there.

So we de-prioritized sales, against all conventional wisdom and against the advice of some of the smartest people I know. We chose to get back to tinkering with product, to developing AI models, to gathering more and more differentiated real estate data sets, to test more strategies, to refine our stories. It was difficult work.

Difficult work, of course, is where the magic is. As filmmaker James Cameron said on David Senra’s podcast:

“Run towards difficult— there’s less competition. I like difficult. I’m attracted by difficult. Difficult is a fucking magnet for me. I go straight to difficult… that gives me a tactical edge to do something nobody else has ever seen, because the really gifted people don’t fucking want to do it.”

We aren’t curing cancer here, we aren’t saving the world. We are exploiting inefficiencies in how REITs trade in the public markets. I don’t want to pretend we are doing more than that, not to you and not to myself. But within that mandate, we had to do better.

We had to find a way to bring the glint to our client’s eyes. We had to do something so good that we would attract our True Fans.

“That is my distribution strategy. To be better. To create value. And if I can become someone’s favorite fund, I can become a thousand people’s favorite fund."

After six months of heads-down product tinkering, here are some of the changes and launches we are ready to announce:

• There are Private REITs that carry substantially more forward-looking risks than backwards-looking data have indicated. We have studied the issues and I’d put our research on the topic up against anyone’s. So we spent much of 2023 warning investors.

  We were the Paul Revere of REITs, riding through town on a high horse shouting warnings to investors.

  Investors didn’t want to hear it. This was not the way to product/market fit. And while I still feel a moral obligation to share our research and help those investors willing to revisit their priors, as a business we were making enemies without being rewarded by the market for our efforts. So we are moving on.

  The Private Real Estate Strategy has been renamed and rebranded. Due to wacky and outdated compliance rules I can't mention our funds by name here, but I can link to a regulatory filing for those interested.

• We will soon be launching a tool to manage REIT portfolios for Ultra High Net Worth (min $20m REIT portfolio size) that customizes REIT exposure to hedge or target geographies, customized to their specific personal private real estate holdings. This tool will give our financial advisor clients a significant edge to help them attract the most sophisticated and successful clients.

• We’ve continued to refine our proprietary AI/ML models, the efficacy of which continues to be substantiated. We’ve expanded our AI-trained REIT data set and will be bringing our hedge fund onto our US-based Advisor.

And there are even more projects nearing completion. There is a potential collaboration with the asset management firm that I respect and admire more than any other. A firm whose people and products set the standard for what we can do as an independent alternative asset management company.

There is research we’ll be putting out about factor frameworks and how real estate does and does not fit with traditional equity and fixed income factors.

There is a sorely needed website relaunch, branding, and everything that comes along with that.

But mostly, there is and will always be a continuous, ongoing effort to optimize and innovate our products, our technology, and our funds so that we remain on the forefront of innovation and on the path to product/market fit.

We have a plan to scale our business. We have plans to effectively distribute. But before we can implement those plans we must have a product that we know is scalable. We must have a product that our clients fall in love with.

Something happened last week that makes me think we might be getting close. One of the most innovative and forward thinking insurance companies in the world had been doing due diligence on us. They were less concerned with trivialities (derp derp what are your assets) than they were about real due diligence, deep due diligence. They truly dove in and got to work understanding our models, our technology, and our signals.

Last week they chose to trust us with a $135m mandate. And when they did, they did not do so reluctantly. They did not do it because of a pushy sales campaign. They did it because of our AI models. They did it because of our product. They did it with a glint in their eye.

So maybe, just maybe, we might be getting past the only thing that matters, product/market fit

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