Friday, October 04, 2013

"Are the conversations after a meeting a lot more honest than the ones in a meeting?"

Eric Barker advises asking the titular question as a way of assessing whether or not a company is in a state of denial:

Yet denial isn't the only reason I can think of for why post-meeting conversations might be more honest than the ones in the meeting.  Here are a few other reasons I can think of off the top of my head, and what you should do about them if they apply to your startup:

1) Team members don't feel like they are allowed to speak up during meetings.
This usually happens when a founder or executive assumes a dictatorial role, rather than seeking out input.  If you can eliminate the dictator, do so. If *you* are the dictator, it's going to take a lot of work to change this culture; you'll have to change your behavior and consistently seek the input of others in a very public way.

2) Team members feel like if they speak up during meetings, their input will be ignored.
Even the startup doesn't have an abusive dictator, employees whose input is ignored will eventually stop bothering to speak up.  Why bother to exert yourself, if it never has any impact?  If you're the leader, find ways to clearly, explicitly, and publicly incorporate feedback from contributors.  If you don't think you can do this without compromising the company's chance of success, either you're deluding yourself, of you've done a terrible job of hiring.  Either way, you need to make a chance.

3) Discussions are holy wars rather than open inquiry.
In Silicon Valley, we aren't very fond of tyrants.  But it's also an issue if every member of the team argues for their opinion, rather than being open to others' ideas.  Instead of having one monstrous tyrant, you have an army of petty tyrants.  Either way, it discourages real dialogue.

4) You don't leave enough meeting time for a complete discussion.
It's tempting to view extended debate as a waste of time.  After all, there's always more to do, and the best time for any action is generally "yesterday."  But the only thing worse than filling your schedule with meetings is filling your schedule with rushed meetings that don't reach a satisfactory conclusion.  When you run out of time, the temptation is to kick the can down the road to a subsequent meeting (wasteful) or make a fiat decision just to have made a decision (disheartening).  Usually, it's better to make the decision, but it's even better to make sure you leave enough time to reach a decision.

In most of these cases, the people involved have good intentions, even the tyrants.  But good intentions don't necessarily result in good meetings.  If you're frustrated with your meetings, take the time to diagnose and treat the problem.

"They Need To Like You": Friendship & Raising a Series A

The great Eric Barker notes that the #1 negotiation principle that HBS teaches its MBA students is being likeable:

"Here’s the equation for getting what you want. Cutting to the chase: You want to get more. You want more money, a better offer, a better deal; here are the components of what you need to do. First, they need to like you. That’s the first component. The things you do that make them like you less make it less likely that you are going to get what you want…"
I love the juxtaposition of Gordon Gekko-esque greed ("Cutting to the chase: You want to get more.") with the simple statement of likeability ("They need to like you.").

Yet this advice definitely falls into the category of "easier said than done."  My best advice on how to accomplish this is to develop relationships before you need them.  Harvey Mackay calls this, "Dig a well before you're thirsty."

In each of the four companies where I've been involved as a founder or de facto member of the founding team, we raised money based on personal relationships.

At TargetFirst, both our first angel (the great Hon Wong) and our lead VC were old friends of Jim Fitzsimmons, the experienced manager I brought in as CEO when I went back to HBS.

At Symphoniq, Greylock got involved after my old friend and classmate Michele Law asked if we were raising money.

At Ustream, I was the first angel, but our lead VC (DCM) came in via our CTO, Tim Villanueva, who was old friends with a partner at the firm.

At PBworks, my old friend Dave Feinleib at MDV actually informed me that the company was raising money, and asked me for the intro that turned into the Series A.

In all four cases, the relationships that led to the Series A had been around for years before they turned into an investment.  We didn't have to work hard on likeability because we were already friends.

Why I Don't Worry About Wantrepreneurs

There's a lot of agita around the supposed plague of wantrepreneurs--posers who are into being entrepreneurs because it's trendy, rather than because they want to build real businesses.  This Fortune piece is a good representative of the genre:
"Wannabe entrepreneurs with laptops hog up the physical and digital bandwidth of the Valley right now," griped one entrepreneur, whose company was acquired by Google (GOOG) for millions. "It's almost an excuse to be lazy and put yourself in charge of something," agrees another co-founder."
But in reality, wantrepreneurship isn't a real problem.  Like the similar plague of stories about the hyper-sexualization of college (despite a general decline of sex on campus), wantrepreneur coverage represents the media trolling the rest of us.

Wantrepreneurship is largely a self-correcting problem.  Let's walk down the tree of possibilities:

1) Wantrepreneurs who don't raise money are just Coupa Cafe posers; if anything, they boost the economy by spending their parents' money on overpriced lattes.

2) Wantrepreneurs who manage to raise a seed round are a self-correcting problem.  $250K doesn't take you very far, especially if you have no idea how to run a business.  While a few reckless angels might lost their money on these deals, they can afford the loss, and they pretty much deserve the outcome for investing in the wrong people.

3) Venture capitalists will rarely fund a wantrepreneur.  They may fund bad entrepreneurs because they've build a hot app or service, but the very fact that they've built something that the market likes takes them out of the wantrepreneur category.  I challenge you to find one instance of a first-time entrepreneur who managed to raise a Series A without building something of value first.

Wantrepreneurs are simply an infuriating trope that's too bad to be true--think of hipsters who use food stamps to buy lobsters, or teen girls holding "rainbow" parties.  What they truly reflect are our own anxieties--we fear that we're missing out on a boom, or we think that we could raise money for our own startups if only we wore the right clothes and went to the right parties.

Any time you spend worrying about wantrepreneurs is 100% wasted.  If you are a hard-working entrepreneur, let the press hype what it will--focus on building a real business instead.

Thursday, October 03, 2013

Why The Fall of Silk Road and Bitcoin Is Inevitable

As the saga of Silk Road plays out, a lot of attention has been focused on the mistakes that Dread Pirate Roberts made that helped the Feds catch up with him.  The Verge has a good longform piece on this topic:

It appears that the current Dread Pirate Roberts (for we all know that the original Dread Pirate Roberts is retired and living like a king in Patagonia) made a number of fatal mistakes, including posting a question about Tor on StackOverflow under his own name (!).

Yet to focus on either hacker mistakes or lawman cunning misses the point.  The fall of Silk Road (and by extension Bitcoin) was truly inevitable.

There are three monopolies that sovereign nations reserve to themselves:
1) The power to mint currency
2) The power to tax
3) The use of violence

These are the fundamental powers of government, and no government can afford to tolerate rebellion in any of those areas.  Printing money, running protection rackets, and fielding private armies are a very good way to get the Treasury, FBI, and ATF on your tail, if not the military itself.

Bitcoin can't become a viable global currency because the nations of the world won't let it.  If the US, EU, and China think Bitcoin is a threat to their currencies, they'll simply outlaw it (using their monopoly on violence to enforce their monopoly on currency).  The possible outcomes are either failure or criminalization--there is no success case.

Silk Road was even worse, because it leveraged Bitcoin's rebellion in the area of currency to rebel in both tax (Dread Pirate Roberts made his money by taxing Silk Road transactions) and violence (by selling arms and flouting drug laws).

I freely admit that it's scary to let governments control currency, taxation, and violence.  But the alternative is worse. 

The IRS may be a protection racket, but at least it's a protection racket that's partially answerable to us citizens as voters, and it jealously guards its monopoly, preventing random people (Donald Trump perhaps?) from levying random taxes on us.

A world of unstable and fragmented currencies, split into feudal fiefdoms, with disputes settled by armed bands, is a terrible place to live.  Just ask the residents of Europe, prior to the advent of the nation-state.

Finance Should Be a First-Class Discipline for Startups

Tim O'Reilly, the founder of the O'Reilly media empire, published a great longform essay recently titled, "How I Failed".

It's a phenomenal read which covers a wide variety of topics, including how O'Reilly sold GNN to AOL for $15 million in stock, sold that stock as soon as the lockup expired for $30 million, and could have netted *$1 billion* had they held on to that stock until the peak.

But the part of the essay I want to focus on today is something that a lot of young entrepreneurs tend to ignore.
"Treat your financial team as co-founders.
They aren’t just bean counters. They can make the difference between success and failure. Don’t just look for rockstar developers or designers, look for a rockstar CFO.  Even if you’re a good entrepreneur with a nose for where money intersects your vision, a first-class financial team focused on building effective controls, managing expenses, and optimizing the system will be well worth it.

Hold teams accountable for their numbers.

Every manager — in fact, every employee — needs to understand the financial side of the business. One of my big mistakes was to let people build products, or do marketing, without forcing them to understand the financial impact of their decisions. This is flying blind — like turning them loose in an automobile without a speedometer or a fuel gauge. Anyone running a group with major financial impact should have their P&L tattooed on their brain, able to answer questions on demand, or within a few moments. It isn’t someone else’s job to pay attention."
I met with one of my investments recently, and the thing I was most thrilled about was hearing one of the founders describes a number of steps they had taken that allowed them to be more efficient about spending and reduce the burn rate by about $5,000 per month.  And this is a company that just finished closing its seed round, and has plenty in the tank.

Far too many entrepreneurs see millions in their company's bank account, and can't imagine how it's possible to spend it all.  Believe me, it goes faster than you think.

Money matters.  And while it may seem easy to come by, that can change in an instant.  One of the core values I love to see on a founding team is a focus on frugality.  Even better if the company builds a lasting culture of fiscal responsibility.

Tuesday, October 01, 2013

Escaping the Scarcity Trap

Sendhil Mullainathan and Eldar Shafir recently published their book, "Scarcity: Why Having Too Little Means So Much."  I even wrote about them when I pointed out that busy professionals, like the working poor, face a scarcity--but of time, rather than money.

I wish I could say that I've already read their book, but alas, I face my own time shortage!

I did find the time to read a Washington Post interview with Mullainathan:

In this article, he says something very insightful about escaping the scarcity trap:
"People think they're in the scarcity trap because they have too little money, or too little time. That's sort of true, but it’s not exactly true. It’s not exactly true because you're always accomplishing the same work. You're just accomplishing it later. If you could just somehow get one step ahead, that's it. It's not that you have too little time. You have the same amount of time; you're just one step behind."
I love this insight, because it is both true and profound.  In my own life, I've referred to it as "getting ahead of the curve."  Once you fall behind, it's almost impossible to catch up, but once you get ahead, it's easy to stay ahead.

Startups face the same challenge--money is always short, but expenses are largely the same (you pay your people the same every month).  Too many startups focus on short term firefighting rather than getting ahead of the curve.

If you find yourself thinking, "If only I had more time/money/whatever," challenge yourself to take radical action to get ahead of the curve.  This may mean focusing on one thing to the exclusion of others; it may mean working harder for a sustained sprint.  But regardless, the difference between being ahead of rather than behind the curve makes almost any sacrifice worthwhile.

Monday, September 30, 2013

Leadership is Emotional, Not Rational

The great Eric Barker does a fantastic job of illuminating the difference between management and leadership in his post, "Qualities Of A Leader":

Eric quotes theorist John Kotter on the fundamental distinction:
"Management controls people by pushing them in the right direction; leadership motivates them by satisfying basic human needs."
For entrepreneurs, the implications aren't always comfortable.

Us Silicon Valley types don't like to talk about emotions in the workplace.  Technical founders especially prefer to focus on the rational and tangible--company strategy, product decisions, A/B testing.  The only way most founders refer to the softer side of leadership is in the de rigeur focus on building a great culture.

Yet the nature of leadership is such that it is an emotional job, not a rational one.  I liken it to serving as an emotional powerplant; the founder needs to provide the emotional electricity to light up the company.

For some founders, this doesn't come naturally.  Maybe they're introverted.  Maybe they don't express a lot of emotions.  Tough.

If we're willing to tell non-technical founders to spend the effort to learn how software engineering works, it's not asking too much to have technical founders make the effort to connect with their team on an emotional level.

The Power of Assertive Inquiry

The startup world is full of people with strong opinions.  We value people who can articulate a clear point of view.  Yet the constant focus on advocacy can lead us down argumentative ratholes, and cause us to miss the contributions of the less assertive.

Rather than focusing on simply arguing for our own point of view, P&G CEO A. G. Lafley and author Roger Martin point out the importance of what they call assertive inquiry:
"I have a view worth hearing, but I may be missing something.” It sounds simple, but this stance has a dramatic effect on group behavior if everyone in the room holds it. Individuals try to explain their own thinking—because they do have a view worth hearing. But because they remain open to the possibility that they may be missing something, two very important things happen. One, they advocate their view as a possibility, not as the single right answer. Two, they listen carefully and ask questions about alternative views. Why? Because, if they might be missing something, the best way to explore that possibility is to understand not what others see, but what they do not.

This approach includes three key tools: (1) advocating your own position and then inviting responses (e.g., “This is how I see the situation, and why; to what extent do you see it differently?”); (2) paraphrasing what you believe to be the other person’s view and inquiring as to the validity of your understanding (e.g., “It sounds to me like your argument is this; to what extent does that capture your argument accurately?”); and (3) explaining a gap in your understanding of the other person’s views, and asking for more information (e.g., “It sounds like you think this acquisition is a bad idea. I’m not sure I understand how you got there. Could you tell me more?”)."
Assertive inquiry is far more persuasive than simple advocacy, as anyone who's sat through product arguments at a startup can attest.  Once you go from trying to prove that you're right, to trying to figure out the right answer regardless of the source, you can accomplish far more, and with far less conflict.

The problem with having money

One of the reasons that VCs and angel investors often get swelled heads is the fact that people kiss our asses all day.  It feels good to have smart, talented people speak glowingly of your wisdom and plead for your help.

But the dark side of having money is the doubt it creates.  If entrepreneurs want me to invest in their company, they have every incentive to flatter me, deserved or not.

Having money definitely gives you influence over others, but it also prevents you from knowing if you'd have any influence on your own merits.

Certainly, there are plenty of investors who lack the self-awareness to recognize this; they blithely barrel through the world, convinced of their own genius.  Yet I suspect that even many of these people feel doubt gnawing at the edges of their unconsciousness.

Harry Potter author JK Rowling recently made news because it was revealed that she had written her latest novel under a pseudonym, Robert Galbraith.  After being "outed," Rowling admitted that she had published under a pen name so that her work could be judged on its own merit, rather than as "A new novel from the creator of Harry Potter."

Rowling's gambit worked; her novel, "The Cuckoo's Calling," won extremely positive reviews...and sold a miniscule number of copies.

Sadly for the successful of Silicon Valley, it's much harder to start a company or make an investment under a pen name...but the idea might be tempting to some.

Change is Hard: Women at HBS

I'm always proud of my two alma maters, but I'm especially proud when they lead the way toward change in the world.

For example, Stanford recently became the first college with an African-American Athletic Director, head football coach, and head men's basketball coach...a fact which is even more powerful because nobody at Stanford bothered to note the historical milestone.

Harvard Business School has also been leading change, with a major initiative to improve the lot of women faculty and students.  Dean Nitin Nohria and Professor Frances Frei led a comprehensive effort to reform the school and eradicate gender bias, including numerous courses and talks, as well as structural changes in the classroom:

The results were impressive, including all time highs in terms of percentage of female students, and percentage of female Baker Scholars (awarded to the top 5% of the class).  Yet the effort also sparked resentment from many male students:
“I’d like to be candid, but I paid half a million dollars to come here,” another man said in an interview, counting his lost wages. “I could blow up my network with one wrong comment.” The men were not insensitive, they said; they just considered the discussion a poor investment of their carefully hoarded social capital. Mr. Erker used the same words as many other students had to describe the mandatory meetings: “forced” and “patronizing.”
I'm always amazed by how aggrieved the privileged feel when their privilege is challenged.  Yet I probably shouldn't be surprised--humans focus on relative as opposed to absolute status; losing any freedom or privilege is viewed as a serious loss, even if that loss still leaves you in the top 1%.  The message these men were sending with their comments was simple: "I'm paying for this experience, and you shouldn't be degrading my experience simply to improve someone else's"  They wouldn't want to admit it, but that's the unvarnished essence of their words.

Fortunately, the team at HBS persisted through the predictable squawking of the male students.  By persisting, they can take advantage of another fundamental principle of human psychology--hedonic adaptation.  By the time the next few classes roll around, the male students will be looking at the world from a new, fairer baseline of behavior.

Wealth, Class, and the Startup World

The myth of Silicon Valley is that it is a perfect meritocracy where things like wealth and class are irrelevant.  The truth is that while Silicon Valley and the startup world are better than most other institutions, wealth and class still play a role.

The vast majority of entrepreneurs are young, well-educated, well-off men, who have both been encouraged in their ambitions, and have the financial cushion to take risks.

I know, because I've benefited from these dynamics.  My parents paid for my extremely expensive Stanford/Harvard Business School education, which allowed me to be debt-free.  That lack of debt allowed me to go without a salary each time I started a company; having helped entrepreneurs who didn't have this luxury, I can tell you that it helps a lot.

Wealth and class are problematic subjects, even for those on the more desirable half of the divide.  When I was at Harvard Business School, my friend Bull Gurfein, our class president, created a special "Leaders of the New Millenium" shirt for the entire class--it was free, thanks to sponsorship dollars from Goldman, McKinsey, et al.  Yet despite our collective (delusional?) sense of our own worth, wealth and class played a role in school, where the bankers and consultants had the funds to party, and the ex-military and non-profit students did not.  A recent set of articles focused on the class divide at HBS, including a secretive, possibly apocryphal "Section X" of wealthy international students throwing expensive parties at destinations around the world:

Meanwhile, New York residents can make $700,000 per year, and still feel poor, because there's always someone richer down the road.  By any reasonable standard, I live an incredibly fortunate life, but I sometimes feel guilty about my family's somewhat run-down digs when I compare them to the trophy homes of other folks I know.  And even the people who live in those (well-deserved) trophy homes can't help but feel a little jealous when Marissa Mayer moves in down the street, buys two adjoining homes, then tears them down and builds a posh family compound, complete with a miniature version of the Peninsula Creamery, her favorite restaurant.

The irony in all this is that many of the people who have been financially successful are down-to-earth folks who are themselves terrified of seeming like the snobbish wealthy; Silicon Valley millionaires go out of their way to conceal their wealth or apologize for it, as if it were something of which to be ashamed.

My strategy for dealing with these issues is to realize the unimportance of wealth and class.  While having a big bank account helps give you credibility, the most important sources of credibility are your ideas and achievements.  Similarly, spending time with my kids makes me realize how little they care about whether our hardwood floors are worn or sparkling new.  Treat everyone, rich or poor, with respect, and don't let wealth and class affect how you interact with people.  If you do this, you'll make everyone feel comfortable and want to work with you.

Do you think less is more, or less is less?

One of the things I do to maintain some semblance of familiarity with modern technology is to read articles on Hacker News.  This recent piece about the programming language Go is a good example:

I will almost certainly never find myself programming in Go.  Heck, the last time I took a CS class, I was learning Pascal, so that gives you some sense of how far I sit from actually coding.  But the principles behind Go do have something to teach me.  Here's what Go's creator has to say about his language:

"What you're given is a set of powerful but easy to understand, easy to use building blocks from which you can assemble—compose—a solution to your problem. It might not end up quite as fast or as sophisticated or as ideologically motivated as the solution you'd write in some of those other languages, but it'll almost certainly be easier to write, easier to read, easier to understand, easier to maintain, and maybe safer."
This is wisdom that applies far beyond programming.  In a world in which change is constant, the ability to do things quickly, explain them to others, and keep them updated as circumstances change is far more "powerful" than having a lot of specific functions that require an expert to apply them and keep them up to date.

Less is more because less improves adaptability.  More is more in stable environments where fine-tuning performance is critical--think of the mainframes that still power the financial services industry.  But in the startup world, less is almost always more.

Entrepreneurs Need To Take The Initiative In The Investor Relationship

I enjoyed Bilal Zuberi's post on avoiding a lazy VC/CEO relationship":

Bilal's point is that entrepreneurs are just as much to blame for the fact that many VCs don't add that much value to their investments.

I think it's useful to introduce an analogy that might resonate with young entrepreneurs, so that they can have an intuitive understanding of the need to be proactive with VCs.

Investors are like college professors--the value you get out depends on the effort you put in.

When you were a college student, you could simply show up to class, take notes, and turn in your papers and exams, or you could make the effort to really engage your professor.

It is possible to garner straight As without ever showing up to office hours, but developing a real relationship can pay off in ways that go far beyond a simple grade.

A typical investor has more than 10 active investments at a time (some may have orders of magnitude more).  Do you think that investor is going to carefully take the time to allocate equal attention to every startup?  Heck no.  Investors help the entrepreneurs who engage with them, just like professors help the students who engage with them.

Board meetings are like midterms--they are required, but you shouldn't rely on them to develop your relationship.  If you go above and beyond (without making yourself a pest), your investors will go above and beyond for you.