Friday, August 19, 2011

Nothing happens unless you do it.


Nothing happens unless you do it.

It's a simple truth, but hard for first-time entrepreneurs to grasp, largely because much of the world works hard to conceal it.

To be a successful entrepreneur, you need to unlearn the lessons of childhood, school, and working for big organizations.

In each of those situations, a lot of stuff just happens magically.

As a child, meals and presents magically appear, while messes mysteriously disappear.

In school, you're given homework and told what to do, and provided you don't bring weapons to school, you probably move on to the next grade at the end of the year.

At a big company, you might not even see your customers for years on end, yet money magically shows up in your back account every two weeks.

When you're an entrepreneur, none of that is true. Nothing happens unless you do it, which means time is your enemy, not your friend.

Yet while this realization is bad for peace of mind, it's also empowering.

If nothing happens unless you do it, it also means that everything happens because you do it.

Thursday, August 18, 2011

How To Fix The Inbox

I'm notorious for the amount of email I receive and the difficulties I have keeping up with it. My best estimate is that I receive about 200-300 emails each day.

On those few blessed occasions when I do get my inbox into single or double digits, I feel both enormously productive and focused. (Alas, the feeling doesn't last long)

The problem is that the inbox is most people's default choice for managing their work. It's a matter of convenience. Because email is the medium through which most requests and work assignments arrive, we seldom take the time to transcribe that work into any other medium.

Unfortunately, email is pretty much the worst system you could design for task management. There's no concept of priority--by default, whatever is most recent is granted visual priority. As a result, people who manage their workflow via email tend to focus on what Steven Covey calls Quadrant 1 and 4 activities: urgent and important, urgent and unimportant. This leaves Quadrant 2 activities (important but not urgent) to languish while we spend our time on trivialities.

But for all its flaws, email is here to stay. The floor of the Valley is littered with the bones of would-be "email killers." To have a shot at success, any solution has to work with, rather than try to replace email.

Here's one possible solution, which I offer up to the entrepreneurs of the world, free of charge.

1) When I read an email, give me a single button that lets me mark it as a to-do.

2) When I view my inbox, all to-do emails are displayed at the top of the inbox. Only after all the to-dos are shown do new emails appear.

3) If a to-do isn't urgent, give me one button to bury it--keep it in the inbox, but show it after the other to-dos and unmarked emails.

If you implement this, let me know, so I can become your first user!

Wednesday, August 17, 2011

Insiders, Outsiders, and Fans


One of the dynamics that interests me most is the relationship between insiders, outsiders, and fans. Many of my favorite publications are aimed at insiders. SLAM serves hardcore basketball fans who care about the latest sneakers. The Atlantic Monthly appeals to upscale professionals who want to maintain an intellectual life. Harvard Business Review has an audience of business people, primarily MBAs.

What all three have in common is that they are written for their audiences. If you don't know their world, the writing can seem alien, whether the topic is the Rim Reaper (Los Angeles Clippers forward Blake Griffin), the Man Booker Prize (the UK's leading literary award), or covenant-lite loans (loans with fewer restrictions on key financial ratios).

While this assumption of expertise may alienate a general audience, it clearly divides the world into insiders (who get it) and outsiders (who don't). The enthusiasts who self-select into the insider category represent a valuable and loyal audience. Excluding outsiders is actually a smart strategy for cementing insider loyalty.

The art lies in being able to convert fans into insiders. Fandom is the gateway drug; a certain proportion of basketball fans who subscribe to Sports Illustrated will eventually crave the harder stuff and gravitate to SLAM or the much-missed FreeDarko.

At the same time, while you want to appeal to casual fans, you must maintain the insider/outsider dynamic or you'll lose the hardcore audience you've fought so hard to build.

Podcasting is a great example of an insider medium. As a new podcaster, you can't produce middle of the road content with broad appeal and expect to get any audience. What you can do is produce content that appeals to insiders, who have the enthusiasm and persistence to seek you out. But what you can do once you have an audience is to tap the fan dynamic to expand that audience. Guest appearances on other podcasts can allow you to convert some number of fans into insiders. Adam Carolla's Ace Broadcasting Network relies on the popularity of its titular star to bring in fans who are then exposed to more insider offerings like This Week In Larry Miller.

If you keep the insider/outsider/fan dynamic in mind, you'll have a better shot at building and retaining a valuable audience.

Tuesday, August 16, 2011

Talk With Everyone


Reading Mark Suster's excellent post, "Why You Need To Take 50 Coffee Meetings" brought to mind one of my personal corollaries: Talk with everyone.

I'm a relatively small-time investor. It's a documented fact, and I don't try to hide it. But that means that I need to deliver value beyond money if I'm going to convince entrepreneurs to accept my money.

One of the ways I do this is by being more accessible than richer, more glamorous investors. A friend asks that I speak with someone? I always say yes. Someone writes me a clever cold email? I take a meeting.

When you're in my position, the Mark Zuckerbergs of the world don't seek you out...unless you meet them before they become "Mark Zuckerberg."

Every mogul or rockstar entrepreneur started off as an uncool kid who was stuck on the outside looking in. I'm not smart enough to figure out just based on an email who's going to be important in the future. So I meet everyone, and treat everyone with respect.

To cap my downside, I try to push all my introductory calls to my commute along 101. This means that I'm not taking time away from real work, and that even the worst call is bounded by the length of my drive.

I talk with hundreds of entrepreneurs per year. The vast majority of the time, I'll probably never work with them. But at least I've given myself that many more chances to discover the next great company.

Related Posts:

"The Rules"

"Lyn St James, who drove in the Indy 500, once told me that if you want to win in sports, it's very much like life. First you have to learn the rules, then you have to play by the rules. Then you have to win by their rules, and only then can you change the rules. The people who don't make it, it's because they get that order mixed up."
-- Jeanette "The Black Widow" Lee

3 Theories of College (That Explain Why It's Broken)

The New Yorker published an essay from Professor Louis Menand of Harvard, where he outlined the three implicit (and conflicting) theories of college in America.

Theory 1, which Menand labels "meritocratic," believes that college is means of testing intelligence:
College is, essentially, a four-year intelligence test. Students have to demonstrate intellectual ability over time and across a range of subjects. If they’re sloppy or inflexible or obnoxious—no matter how smart they might be in the I.Q. sense—those negatives will get picked up in their grades. As an added service, college also sorts people according to aptitude. It separates the math types from the poetry types. At the end of the process, graduates get a score, the G.P.A., that professional schools and employers can trust as a measure of intellectual capacity and productive potential. It’s important, therefore, that everyone is taking more or less the same test.
Theory 2 ("democratic") defines college as a means of cultural and intellectual literacy, which should be provided to all:
College exposes future citizens to material that enlightens and empowers them, whatever careers they end up choosing. In performing this function, college also socializes. It takes people with disparate backgrounds and beliefs and brings them into line with mainstream norms of reason and taste. Independence of mind is tolerated in college, and even honored, but students have to master the accepted ways of doing things before they are permitted to deviate. Ideally, we want everyone to go to college, because college gets everyone on the same page. It’s a way of producing a society of like-minded grownups.
Theory 3 ("vocational") sees college as a vocational credential, much like an MBA seems to be a necessary credential for management consultants:
Neither Theory 1 nor Theory 2 really explains how the educational system works for these non-liberal-arts students. For them, college is basically a supplier of vocational preparation and a credentialling service. The theory that fits their situation—Theory 3—is that advanced economies demand specialized knowledge and skills, and, since high school is aimed at the general learner, college is where people can be taught what they need in order to enter a vocation. A college degree in a non-liberal field signifies competence in a specific line of work.
Theory 4: Toga!

The problem with modern college education is that the three different theories conflict with each other. Theory 1 seeks to rank students by ability and achievement; selectivity and rigor critical. In contrast, Theory 2 would prefer that all Americans attend and complete college, and Theory 3 practitioners may actively suppress differentiation (when I was at HBS, I signed an agreement stating I would *not* reveal my grades to potential employers, the theory being that simply earning a Harvard MBA ought to be enough for them).

Theory 2 views college as an enriching experience; classes should focus on liberal arts content regardless of analytical rigor (Theory 1) or practical application (Theory 3).

Meanwhile, Theory 3's narrow focus (e.g. a Masters in Web Design) fails to provide either a broad test of intelligence (Theory 1) or enrichment (Theory 2).

Because these theories are incompatible, it is difficult for a single education to serve the needs of all three. Just think of Caltech, Sarah Lawrence, and ITT Technical Institute. All three are leaders in their field, and all three are barely recognizable as members of the same species!

Even where a single institution has the breadth to serve all three, like my alma mater, Stanford University, it's difficult for a single student to squeeze them all in.

Take my own example. In many ways, I covered all three Theories in my education. I studied engineering (Theory 1/3) and creative writing (Theory 2) at Stanford, then earned my MBA from Harvard Business School (Theory 3). But such examples are rare (And expensive. And not for the faint of heart).

In some ways, single-purpose institutions make things easier. It's clear why a student would attend Caltech, Sarah Lawrence, or ITT. The wide variety of choices that a Stanford provides is both a blessing and a curse. I can tell you, for example, that achieving a 3.9 GPA is much harder in Stanford's Engineering department than in the Psychology department (I got an A+ on every psychology class I took!). This means more work for potential employers who need to be well-versed in the quirks and characteristics of many different departments at many different schools.

I'm not sure what the best solution might be. Perhaps there are more efficient ways to deliver on Theories 1, 2, and 3, such that a person who pursues one course could supplement their education with healthy doses of the other two. I can imagine advanced aptitude testing, like a bar exam for other professions to serve the needs of Theory 1, broad cultural literacy programs at the community college or adult education level to serve the needs of Theory 2, and self-contained coursework for specific credentials to serve the needs of Theory 3.

Indeed, the University of Phoenix has already built a multi-billion-dollar empire on meeting the underserved needs of Theory 3. Perhaps there are similarly sized opportunities available to those who develop the Marketing Aptitude Test or the U of P equivalent to the liberal arts!

And were such institutions to spring up, they would free up traditional colleges to focus more fully on either Theory 1 and Theory 2, resulting in better education for all.

Monday, August 15, 2011

Is The Age Of Men Over?


The Cato Institute recently published a fascinating essay by Kay Hymowitz, "What's Happening to Men?" In it, Kay reviews recent research to try to find an explanation for the decline of the American male.

The grim facts are these:
  • Women now earn 57% of college degrees, 60% of masters degrees, and over half of Ph.D.s
  • Childless 20something men earn 8% less than their female counterparts
  • 40% of American children are born to single mothers; this rises to 72% of black children
  • For every 100 college-educated 23-year-old males, there are 164 college-educated 23-year-old women (!)
On the one hand, this is wonderful news. The male dominance that persisted throughout most of human history has been reversed. It is truly a major victory for equal rights and feminism.

On the other hand, this has had a major impact on the well-being of men, with black men acting as leading indicators.

Hymowitz suggests that structural changes in the nature of work and society (the decline of blue collar manufacturing jobs, the rise of the knowledge economy) and their results (the declining dependence of women on their husbands) have removed the motivation for male achievement:
The economic independence of women and the collapse of marriage norms have deprived men of the primary social role that incentivized their achievement. Adult manhood has almost universally been equated with marriage and fatherhood. Boys grew up knowing that they had inescapable future demands on them. There were exceptions, of course. In polygamous societies, low status men often had neither wives nor children; in others some males became priests and some, warriors and soldiers. But in most human societies, men knew that they were expected to become providers. Why have men agreed to do all of those dangerous, boring, dirty, exhausting jobs? Because people were depending on them.
Indeed, Hymowitz cites studies that show that, "married men work longer hours, earn more, and get more promotions than single men, including those who are fathers; indeed, their earnings rise after they marry." This suggests that the traditional role as husband and provider has a significant impact on men's lives.

My own analysis is similar. For most of history, the male attributes of physical strength, abstract thought, and aggression gave men a significant advantage over women. In a feudal world, it was the ability to fight and toil in the fields. In the industrial age, it was the ability to work physically demanding skilled labor jobs. And of course, there was always the male-dominated field of warfare.

Today, however, very few fields still reward the classic male strengths. Perhaps the only ones that remain are the military, professional sports, finance, and high-tech (the first two reward physical strength; the last two reward abstract thought; all four reward aggression). And many of these are in danger--when wars are fought by unmanned aerial vehicles (UAVs), physical strength becomes less important.

These fields, while important and rewarding, can only accommodate a small fraction of the total male population.

If anything, I believe that the impact of these structural changes has been underestimated and underhyped. I suspect that decades from now, we'll mark the turn of the 21st century as the official end of the Age of Men. Until the point at which our masculine strengths are once again needed (alien invasion?), the expendable gender will also have to settle for being the inferior one.

I for one welcome our shapely new female overlords!

Permanent Portfolio Investing

I learned about Harry Browne's "permanent portfolio" from Josh "Personal MBA" Kaufman's blog. If Harry's name sounds familiar, you might remember him as the Libertarian Party's presidential candidate in 1996 and 2000.

Browne wrote extensively about investment topics, starting with his first book, 1970's "How You Can Profit From The Coming Devaluation". In his 2001 book, "Fail-Safe Investing", Browne proposed his concept of a "permanent portfolio" for the money you can't afford to lose (as opposed to a "variable portfolio" for the money you can afford to lose). Browne's permanent portfolio splits its assets among four radically different and uncorrelated asset classes:

  • 25% Stocks
  • 25% Long-term Bonds
  • 25% Cash
  • 25% Gold

The goal is to produce capital appreciation with less market volatility, even during turbulent markets.

The permanent portfolio has gotten a lot more attention in recent years, thanks to the 2008 economic crisis and stock market crash. The portfolio's historical performance is strong; the CAGR from 1972 (when Bretton Woods ended and the US went off the gold standard) to 2008 was 9.7% (during that same period, the return on the S&P 500 was 9.3%). During the 2008 crisis, when the S&P 500 was down 37%, the permanent portfolio eked out a 2% positive return.

The permanent portfolio is not without controversy; there is an extremely lively discussion of the permanent portfolio over on the Bogleheads forums (Bogleheads are devotees of Jack Bogle, the founder of Vanguard, who evangelized low-cost investing). Bogleheads are extremely quantitatively-inclined, and their commentary is both well-researched and erudite; I strongly recommend perusing the forum for a wide range of views.

The main criticism of the permanent portfolio stems from its position in gold, which is a shiny metal that produces no dividends, and has minimal intrinsic value. "Gold bugs" tend to have a bad reputation in the financial services industry; the stereotypical gold bug is suspicious of the Federal government and also owns a mountain cabin that is plentifully stocked with firearms. It's also the case that the portfolio's returns have been helped by the meteoritic rise in gold prices over the past few years.

What is true is this: Since 1972, in a wide variety of markets including the gut-wrenching 70s recession, the early 80s and 90s malaise, as well as the dot com bust and the credit crunch, the permanent portfolio has only registered one annual loss--3.9% in 1981.

Josh Kaufman offers his suggestions for building a permanent portfolio using low-cost ETFs:

  • 25% Total Stock Market Index – via the Vanguard Total Stock Market ETF (Ticker: VTI)
  • 25% Long-Term Government Bonds – via the iShares Barclays 20+ Year US Treasury Bond ETF (Ticker: TLT)
  • 25% Gold – via Central Gold-Trust, which holds gold bullion (Ticker: GTU)
  • 25% Cash – via the iShares Lehman 1-3 Year US Treasury Bond ETF (Ticker: SHY)

You can also invest in the Permanent Portfolio Fund (PRPFX), a mutual fund that Harry Browne advised prior to his death. Its composition is different, but focuses on achieving the same goals. Here's a quick comparison of portfolio versus fund performance.

















































Year
PP
PRPFX
2000
3.2%
5.8%
2001
0.9%
3.8%
2002
7.0%
14.3%
2003
14.0%
20.4%
2004
6.6%
12.0%
2005
8.1%
7.6%
2006
11.0%
13.8%
2007 12.9% 12.4%
2008 1.9% -8.4%
2009 7.8% 19.1%
2010 14.5% 19.3%

Over the 11 year period, the fund outperformed 8 times, the portfolio 3 times.

Color me intrigued. This definitely bears further investigation.

Appreciating The Internet

When I was a basketball-loving kid, I'd eagerly await the arrival of the Los Angeles Times each morning so I could check the box scores and find out what happened in the NBA the night before.

If I wanted to watch slam dunks, I'd need to dig out a worn-out VHS tape of Michael Jordan's "Come Fly With Me".

Today, Google Reader brings me stories from a host of basketball-devoted blogs whenever I want. And when I see a poll asking, "Who's the best dunker in the NBA right now?" (Blake Griffin, of course) I can instantly pull up a video of his Top 10 dunks from the previous season, in HD, no less.

As I say early and often, "Thank goodness for the Internet." Kids today have no idea how much better their lives are.

Sunday, August 14, 2011

The Lesson of Dropbox: Usage = Value

Word on the street is that Dropbox is about to raise a major round of financing at a $5 billion+ valuation. While some will cry "Bubble!", I think there's a different lesson we can learn: Usage = Value.

Let's face it--Dropbox isn't the most complicated business or technology. It's a relatively simple storage app that keeps your files in the cloud and synchronizes them across your various devices. It still uses Amazon S3 for storage, for goodness sake! If it were just being valued on the product, Dropbox would be hard-pressed to raise a Series A, let alone a $5 billion+ expansion/liquidity round.

But Dropbox isn't being valued on the product, it's being valued on the massive levels of usage. Dropbox reported in April that it has a stunning 25 million users--not bad for a company that's a nifty front end to Amazon S3, and was started in 2007.

Dropbox is being valued more on usage than on revenues; even prominent booster Marc Benioff only estimated revenues of $100 million for 2011. In contrast, take a look at two enterprise storage companies that were recently acquired. 3PAR had revenues of over $200 million in 2010, and was acquired by HP for $2.35 billion (a price many analysts thought was exorbitant at 10X revenues). Rival Compellent had revenues of $125 million in 2009, and was acquired by Dell for $960 million, or about 8X revenues.

Dropbox's reported round checks in at nearly 60X revenues, and that doesn't even account for the fact that A) it is an estimate from an investor, and B) that represents forward revenues, not trailing revenues.

Again, not bad for a simple "backup" company.

In a world in which Apple is the most valuable corporation, and companies like Dropbox earn super-premium multiples, my conclusion is that the most powerful way to build economic value is by developing products that a) deliver an outstanding user experience, b) convince people to pay a premium, and c) generate massive usage.

Hmmm, when I put it that way, maybe Dropbox's value isn't so surprising!