Thursday, April 03, 2014

Politics vs. Civil Rights (Why Brendan Eich Needed To Go)

One of the biggest Silicon Valley controversies in recent memory is the short, turbulent tenure as Mozilla CEO of co-founder and JavaScript inventor Brendan Eich.

The quick summary, for anyone who hasn't followed the story, is that Eich donated $1,000 to support California's Proposition 8 in 2008.  Prop 8 has a single meaningful clause:

"Only marriage between a man and a woman is valid or recognized in California."

In other words, it was a ballot measure with a single purpose: To block gay people from getting married in the state of California.

While the news of Eich's donation had become public in 2012, his appointment as CEO of both the Mozilla Corporation and Foundation (the Foundation is a non-profit that owns the for-profit Corporation) brought the controversy to the fore.

Eich argued that personal beliefs didn't impact his ability to lead the Mozilla Foundation, which explicitly supports "equality for all."  But he steadfastly refused to apologize for his actions or beliefs.

While the blog post that announced Eich's resignation said that Eich wasn't forced out and made his own decision, it's clear that the outrage of the community played a key role.

The broader question is what the controversy means.

One storyline is that Eich's ouster reflects the continuing and rapid change in attitudes towards LGBT individuals; remember, Prop 8 *passed* in 2008, and none other than future president Barack Obama declined to endorse marriage equality when asked about the topic.  Today, a majority of Americans, including President Obama, support marriage equality, and full marriage equality in the United States is only a matter of time.

The opposing storyline is that Eich's ouster reflects political correctness run amok, and that forcing the co-founder of a company to resign because of his personal beliefs, rather than illegal action or malfeasance, sets a chilling precedent that few would want to see extended.

Whether you buy into the "political correctness" storyline depends on whether you consider Eich's support for Prop 8 a matter of politics or civil rights.

Most of us rightly feel uneasy about seeing anyone lose their job because of their politics.  We believe in freedom of speech, and firing someone for their political beliefs seems morally wrong.  I certainly wouldn't want someone firing me over my political beliefs (no matter how well I manage to cloak them in my public utterances!).

But Eich's continued opposition to marriage equality isn't a matter of politics; it's a matter of civil rights.

Prop 8 was designed to deny civil rights to a specific group of people.  And not just any civil right, but the right to marry whom we choose, which has to be one of the most fundamental and personal of rights.

Until 1967, interracial marriage was illegal in the American South, as far North as West Virginia, and as far West as Texas.  That means that less than 50 years ago, my wife and I would not have been permitted to marry in roughly 1/3 of our country.  As recently as 1958, a Gallup poll found that 96% of white Americans disapproved of interracial marriage.  I've mentioned these facts to my kids, who find them, frankly, unbelievable (a fact that I'm quite happy about).

Imagine if Eich had donated to a group that was dedicated to banning interracial marriage, or to bringing back segregated schools?  Would there be any controversy over his resignation?  Would anyone argue that calling for the ouster of a segregationist would be "political correctness run amok?"

Marriage equality is a matter of civil rights, and impacts all of us.  Marriage is a fundamental human right, and should not be denied to any couple, regardless of their parentage, wealth, or sexual orientation.

Brendan Eich was given the opportunity to apologize for his actions, but refused to do so.  I respect his decision to stay true to his beliefs, even when it would be convenient to lie.  But his beliefs are fundamentally wrong, and his resignation was the right outcome for Mozilla.  A company that espouses equality for all cannot be led by a man who continues to believe the opposite.

Tuesday, March 25, 2014

The Power of Knowing Where To Start

Each night, I wash the dishes for my family.

Some nights, the sink is fairly empty, and it's easy.

Other times, the sink is overflowing with dirty dishes, and it's tough to work up the motivation to get started.

But what allows me to get the job done every night is that I know where to start.

No matter how full the sink, I always start by washing the kid's mugs.

There's no magic to that order; it happens to work with how I stack the dishes, but I could do it differently.

But knowing where to start eliminates one the main barriers to getting started.  And once I'm started, it's far easier to keep going.

Maybe you have dishes that you have to wash in your life, or at your startup.  Figure out where to start and stick to it, and you'll spend a lot less time working up motivation, and a lot more getting things done.

Tuesday, March 18, 2014

The Value Of Being Able To Take Risks

One of the advantages of money that people fail to appreciate is the value of being able to take risks.  Because risk and reward are typically intertwined, the rich do get richer.

This year's March Madness tournament provides a particularly striking example.  Quicken Loans and Yahoo Sports are running a "billion dollar bracket": Pick the correct winner of every single NCAA Division 1 Men's Basketball tournament game, and win $1,000,000,000.00.

Now the odds of anyone winning are extremely remote, but it's still hard for either Quicken Loans or Yahoo to stomach handing over $1 billion to a lucky winner.  That's why they found someone to insure the prize: Warren Buffett.

Buffett's company, Berkshire Hathaway has a market capitalization of $300 billion.  It has nearly $50 billion in cash.  To Buffett, paying out a $1 billion prize is the equivalent of a person with $10,000 in the bank having to cough up $500.

Brad Null of has calculated the odds that someone out of the 15 million people expected to enter the contest actually picks a perfect bracket:

"Let’s assume at this point that 15 million people do enter. Leveraging the historical analysis that we have done on bracket picking behavior in the past, we estimate that the average bracket picked for such a contest would be about 20x less likely than the “all-favorites bracket” described above. And while there will be some duplicate entries, our analysis indicates that this would eliminate less than 10% of all brackets. Thus, there would be at least 13.5 million unique brackets among this set. Put that all together and you get about a 1 in 500,000 chance that Warren Buffett has to shell out that billion dollars. So the EV on that insurance policy he wrote is about $2000."

While we don't know how much Berkshire Hathaway got paid to write this policy, you can bet it was a pretty penny.  Let's imagine that Berkshire Hathaway charged $1 million for a policy that has an expected value payout of $2,000.  Not bad.  But only someone with that financial strength could A) afford to take on the risk, and B) be a credible counterparty.

Monday, March 17, 2014

The $2,000 Customer Service Call

This morning, I had the misfortune of having my car's transmission conk out while I was on the freeway.  Fortunately, I was able to exit the freeway and park on the street, where I could safely call GEICO for roadside assistance.

But this post isn't about the $2,000+ I'm going to have to spend on a new transmission.  Rather, it's about how GEICO turned a pure cost center--providing roadside assistance to its customers--into $2,000 in revenue.

After providing GEICO with my location and arranging to wait for the tow truck, the GEICO dispatcher told me, "From looking at your account, it looks like you're now eligible for a big discount on our comprehensive coverage.  Since you're going to be waiting for the tow truck anyways, would you like to hear more?"

15 minutes later, I had agreed to add $1 million in additional coverage for my car and home, at a cost of right around $100 per year.

I've been a GEICO customer for 16 years already, so it's not much of a stretch to speculate that I might be a customer for another 20 years.  That means that GEICO turned a costly customer service call into an incremental $2,000 in lifetime revenue.  That's something that any company learn from, especially startups which tend to view customer service as a necessary evil.  Here's how GEICO did it:

1. Timing.
The cross-sell came at the very end of the call.  GEICO had already taken care of me ("the tow truck is on its way") and knew that a) I was feeling relieved and b) I had some time on my hands.  And what better time to sell insurance than after that insurance has just proven to be valuable?

2. Personalization.
This wasn't one of your generic credit card company pitches ("Would you be interested in hearing about our balance transfers?").  Instead, it seemed like a personalized pitch.  The salesperson I was transferred to paid off that impression by explaining the nature of the insurance and how it would interact with my home insurance policy, even though I buy that policy from another provider.  She also pointed out that I could double the amount of coverage I had on our cars for just $0.40 more per year--a bargain that reinforced her helpfulness and GEICO's overall value.

3. Seamlessness.
Once I agreed to the additional coverage, the GEICO rep didn't ask me for a credit card or turn me over to another department to complete the sale.  She simply said, "Would you like me to just bill this additional coverage to the bank account you currently use to autopay your car insurance?"  All I had to do was say yes.  That's the position in which you always want your customers to be.

Do all GEICO roadside assistance calls end with making a sale?  Probably not.  But if you have a chance to turn a simple service call into $2,000 in additional revenue, don't you have to try?

Thursday, March 13, 2014

You Don't Have To Choose Between Meaning And Happiness

My good friend and fellow writer Ben Casnocha asked the question recently, "Do You Want a Happy Career or a Meaningful One?"

To Ben, there is a fundamental conflict between the two:

"The things that make you happy (low stress, good health, sex) are not the same things that make your life seem meaningful (sacrifice, service, goals). Compare the effect that staying at a luxury hotel has on you (happy!) versus the feeling of training really hard for a marathon and completing it (satisfying and meaningful!).

If you had to pick whether to prioritize happiness or meaning, my advice would be: choose a career that’s meaningful, but weave in happiness habits as much as possible. By "happiness habits" I mean the small tactical things -- like keeping a gratitude journal -- that's proven to lift your mood day-to-day."

I'd argue that this choice is far too black and white.  Ben draws a distinction between things that bring pleasure in the moment with things that generate longer-term meaning.  It's certainly true that some things (staying at a luxury hotel) bring pleasure without meaning, and that other things (completing a marathon) are painful but meaningful.  Yet even these examples aren't so clear cut.

Staying a luxury hotel with your spouse, or with a group of friends, can be an integral part of a truly meaningful experience that generates a lifetime of fond memories.  And running a marathon brings the pleasure of a runner's high, along with the pain of sore muscles and joints.

For me, many of the things in my life supply both happiness and meaning.  These might include writing an essay, mentoring an entrepreneur, or taking a road trip with my family.

It is true that certain high-meaning achievements such as starting a new world religion, curing a dreadful disease, or becoming President of the United States might require a great deal of unpleasantness, but that's a problem for the ambitious (like Ben).

An unambitious fellow like me simply thinks, "Eh, I wasn't going to be doing those things anyways," and focuses instead on the things that bring me both meaning and happiness.

Life as a Startup Barber

One of the popular expressions used by investors is "How much hair is on the deal?"

A hairy deal includes messy complications, like a product that hasn't yet found a market, or inexperienced founders.

Some investors shy away from hairy deals.

I, on the other hand, have decided to ply my trade as a startup barber.

When I work with startups and entrepreneurs, my role is to help them figure out how to shave the hair off their deal.

Shaving the hair off a deal isn't always fun.  In fact, it's usually hard unpleasant work, like reading legal documents and negotiating settlements.

Again, that's a good thing for me, because that means there aren't that many people who are willing to do it.

The people who walk through my door don't have Mitt Romney hair.  It's more likely that they have 80s-hair-metal hair.  It may seem like an impossible task to tame those unruly locks.  But the way you shave the hair is the same as anything else--start as soon as you can, and keep going until you're done.

Rock on.

Wednesday, March 05, 2014

More Lessons from WhatsApp

Forbes has been doing a great job of covering the story behind WhatsApp.  If you're too lazy to read their entire stories, here are a few more lessons that I took away from the saga:

1. Do something that people easily understand.
WhatsApp had a simple vision: SMS, but free.  Hard to argue with that!

2. Do something hard.
The WhatsApp founders were hardcore technical, and built WhatsApp on their own servers running things like Erlang, so they could provide better reliability and performance.

3. Companies are bought, not sold.
Mark Zuckerberg reached out to WhatsApp founder Jan Koum unsolicited, and pursued the company with great persistence.  Facebook accelerated the acquisition when they found out that Google was sniffing around as well.

4. Leaders, not lawyers and bankers, do deals.
Koum and Zuckerberg hammered out their deal 1:1, at Zuck's house, on Valentine's Day.  Only after they had reached agreement did they call in the deal people to paper things up.

I love well-reported detail:

"Koum walked out of the room and found Zuckerberg. “I just talked to Brian,” Koum said. “He thinks we should work together and that you’re a good guy and we should do it.”

The two of them shook hands and then hugged. Zuckerberg remarked it was “f–king exciting,” and whipped out a bottle of Johnnie Walker Blue Label, which he knew was Koum’s favorite Scotch. They each called their business-development directors to come over and finalize the process. About an hour later Koum drove home in his Porsche and went to bed."

Thursday, February 27, 2014

Humor and Gender

A recent Atlantic piece on humor and psychology, which focused on the "dark psychology" of comedians, seems to me to have buried the lead:

What's really interesting to me are the relationships between humor, intelligence, and gender.

1. Humor is correlated with intelligence:

"For a 2011 study published in the journal Intelligence, Greengross gave 400 undergrads a series of verbal and abstract-reasoning intelligence tests, and then measured them against history’s greatest yardstick of hilarity: writing captions for New Yorker cartoons.

The captions were then rated by the judges, who were blind to any of the participants’ identifiable information.

As he expected, the students who scored higher on the intelligence measures also created the funniest captions. This makes sense. According to all of the theories of humor, wit involves putting discordant ideas together quickly, all while being perceptive enough to offend your audience a little, but not too much."

2. Male students wrote funnier captions than female students:

"Greengross found that the male students wrote more and funnier captions than the female students did, even though the men had only slightly larger vocabularies on average.

Of course, it could be that writing New Yorker captions isn’t how women best express humor. Or it could be that women don’t feel as comfortable spouting a bunch of violations, however benign, in a clinical setting.

The evolutionary explanation, though, is that women use humor as a proxy to select the cleverest mates from a crowd. It’s apparently how we determine mental fitness without forcing men to tattoo their SAT scores on their foreheads.

One key part of the experiment, though, was that the men were actually attempting more jokes. They wrote more captions overall, so they had more total successes.

“Men are trying harder than women to make others laugh. They tend to produce or try to produce more humor in the presence of women,” Greengross said. “On the other hand, women tend to laugh more than men in general, and especially when men are present.”

The interesting thing is that males aren't "funnier" than females; rather, they are more aggressively transgressional and try harder to make jokes because being funny plays a major role in mate selection.

3. More sexual women are funnier.

"But humor can function as a mate-luring strategy for women, too: The authors found that the female participants who had started having sex earlier or had a greater number of sexual partners were also the ones who produced the funnier captions."

Kathy Griffin jokes aside, it seems like being an aggressive, energetic woman helps in luring mates.  Of course, it may simply be that funny women are more like to want to have sex with men; as one study famously showed, 70% of college men readily agreed to have sex with a complete stranger they just met, as long as she was hot.

Friday, February 21, 2014

What Entrepreneurs Should Learn From WhatsApp

Facebook's acquisition of WhatsApp for $19 billion has dominated all news in Silicon Valley for the past 48 hours.  Yesterday, I was at a urinal, and a group of people asked me what I thought.  Most of the discussion seems to be around whether Mark Zuckerberg was crazy to pay so much for a relatively simple messaging app.

To save time, here's my take on the WhatsApp acquisition, and perhaps more important, what entrepreneurs can learn from it.

1. Is Mark Zuckerberg crazy to pay $19 billion for WhatsApp?

I'm not sure.  $19 billion is a lot of money for a simple messaging app, even if it has 450 million active users.  According to what I've read, WhatsApp had revenues of $20 million in 2013.  That means Facebook paid 950 times trailing revenues for WhatsApp.  In case you're wondering, Facebook trades at 22 times revenues.  It will take a lot for WhatsApp to justify that acquisition price.

2. Why did Zuckerberg pay so much for WhatsApp?

Here I'm on firmer ground.  I understand both why Zuckerberg was willing to pay, and why he was willing to pay so much.

Zuckerberg was willing to pay for WhatsApp because he couldn't afford to let Google acquire WhatsApp.  Google's social initiatives are dead in the water, and aside from Android, so are its mobile initiatives.  Acquiring WhatsApp would instantly have placed Google in a powerful position in social, mobile, and photos.  Zuck wasn't afraid of WhatsApp as an independent company, he was afraid of WhatsApp as a part of Google.

Don't forget, Google was criticized for paying $1.6 billion for YouTube.  But doing so kept any of its rivals from owning online video, and if Google were to spin out YouTube today, it would probably sell for well North of $19 billion.

Zuckerberg was willing to pay so much for WhatsApp because WhatsApp held the advantageous ground in the negotiation.  WhatsApp's revenues were $20 million in 2013, and were going to skyrocket in 2014 (more on that later).  It also had tens of millions of Sequoia's cash still in the bank.  It didn't need to sell.  That meant that if you wanted to buy WhatsApp, you needed to make an offer they couldn't refuse, and preferably an offer that would preempt a bidding war.

Google had already offered $10 billion for WhatsApp; $19 billion represented a "Godfather" offer that WhatsApp would take without shopping around.

3. What lessons should entrepreneurs learn from WhatsApp?

A. Traction is everything.

WhatsApp, as many developers had repeated to me in a dazed voice in the past few days, is a simple messaging app.  Its technology is nothing special.  It's valuable because it has 450 million active users and a monetization strategy that seems to be working.

B. Don't raise money until you have to.

While WhatsApp raised a healthy $58.3 million from Sequoia, the bulk of that came last year, after the company had already demonstrated traction.  WhatsApp raised $250K as a seed round, then $8 million in a Series A 18 months later.

As a result, the founders Jan Koum ($6.8 billion) and Brian Acton ($3.2 billion) owned over half the company at the time of the sale.  A more typical stake after raising multiple rounds might be 10-20% for all the founders.  That would still leave the founders as billionaires, but it's way less than what they earned thanks to their careful capital efficiency.

C. Stay lean.

WhatsApp had 55 employees.  Why would they need to bloat themselves with more?  And staying lean allowed them to conserve capital and show the path to profitability that forced Facebook to overpay.

4. WhatsApp's $19 billion business model

The thing that impresses me the most about WhatsApp isn't the acquisition price, but the fact that they may have pioneered a new business model.

WhatsApp is free for the first year, and $1/year thereafter.  That means that with 450 million active users, they were going to see their revenues skyrocket from $20 million into the hundreds of millions in 2014.

This is a brilliant new business model for mass consumer apps--it's effectively free, because no one cares about paying $1 a year from now, but it also provides a great deal of revenue certainty.

$1 is small enough that no active user will hesitate to pay, but large enough (given the adoption) to build a massively profitable business.

It wouldn't surprise me to see this business model get adopted by a lot of future consumer apps!

Tuesday, February 18, 2014

What Entrepreneurs Can Learn From Marriage Counseling

One of the things that I occasionally have to deal with in the startups I work with is conflict, either between founders, or between employees.  The most famous (infamous?) example was one founder to got mad at his co-founder because he claimed that the co-founder had rolled his eyes when the founder was talking.

As tempting as it might be to simply say, "Grow up, for goodness sake!" I find that it's better to offer more detailed and constructive feedback.  To learn new techniques, I pillage the work of all kinds of conflict resolution specialists, including negotiators and yes, even marriage counselors.

(I feel compelled at this point to note that I've never been to a marriage counselor, nor has the need ever arisen.  I just like to read widely.)

One of the key techniques of marriage counseling that you can steal for your startup is the use of XYZ statements:

"X represents a behavior; Y represents your feelings about it; Z represents a different behavior you would like to see. If, for example, you're angry about your husband not doing the dishes, an XYZ statement would look like this: "When you don't help me with the dishes (x), I feel disrespected and uncared for (y), and I would like for us to do the dishes together instead (z)"

The key to the XYZ statement is that it focuses on the specific and provides both an explanation and a suggestion for remedying the situation.  It prevents things like catastrophizing, where leaving dirty socks in the bathroom becomes, "You're a dirty slob!"  I've noticed that catastrophizing affects startups nearly as much as married couples.

When conflicts arise at your startup, try to have the combatants use XYZ statements.  If they can't calm down enough to do so, paraphrase for them (something I end up having to do surprisingly frequently).