Tag Archives: Startup

Bad Blood: Secrets and Lies in a Silicon Valley Startup by John Carreyrou

Summary

  1. The story and scandal of Theranos, the once multi-billion dollar startup which promised to revolutionize the medical industry by making blood tests quick, affordable, and available everywhere. Holmes promised the world but is now in the midst of lawsuits claiming fraud and deceit 

Key Takeaways

  1. Holmes was evangelical in her mission to revolutionize blood testing but her knowledge about science and medicine was weak. She was able to convince investors, employees, customers, and partners that Theranos would eventually have the capabilities needed to revolutionize the blood testing industry do so but her ambition got the better of her. She ended up having to lie and deceive everyone involved to keep the company going. Elizabeth was wildly ambitious since she was a child and idolized Steve Jobs and his impact on the world. 
  2. People are more lemming-like than they would like to admit. Dozens of very intelligent people were mesmerized by Holmes’ charisma, ambition to change the world, and intellect. They wanted her to succeed so badly and help the world (and get rich too) that they ignored blatant signs and warnings that things were off. Be careful of what your biases are and what you are too emotionally attached to. They can blind you and make you irrational if they’re not kept in check 
  3. Few people truly do the difficult work necessary to understand things. In this case, people saw Theranos’ Board of Directors such as General Mattis, Henry Kissinger, famous lawyer David Boies, George Schultz, and others and assumed that their involvement was a stamp of legitimacy. At its height, Theranos reached a valuation of over $9 billion which made Holmes’ stake worth nearly $5 billion
  4. Amazing to see how outright lies, deceptive marketing, and hiding of information still didn’t keep people from investing and going all in on Theranos. It was clear to many both inside and outside the company that their claims and projections were wildly overblown but when greed, envy, FOMO, and a desire to change the world overlap, you get extreme behavior (lollapalooza effects)
  5. Tyler Schultz, grandson of Board Member George Schultz, started at Theranos full time after graduating from Stanford. Not long after starting, he realized that not all was right. He asked questions and wanted to quit but his grandfather urged him to stay a little longer. He did eventually quit and was a key resource in exposing the details. His family spent over $400k just in legal fees but his courage allowed for the word to spread and potentially saved many lives since Theranos was in the process of rolling out their mini-labs to partners such as Walgreens and Safe Way.
  6. She may not have set out to defraud investors or injure patients, but her blind desire to be the next Steve Jobs and to revolutionize the world made her susceptible to cut corners, lie, manipulate others, and do whatever it took to try to make Theranos successful. 

What I got out of it

  1. Extremes in outcome, good or bad, often instruct best (Munger). This is definitely the case here. Holmes and Sunny Balwani ran an oppressive, secretive, bullying, fear-based, and dictatorial company which fired or marginalized anyone who wasn’t blindly committed. They promised the world but ended with lawsuits Beware of what your biases are and what you are very emotionally attached to. They lead to blindspots which can cause mistakes 

Founders at Work: Stories of Startups’ Early Days by Jessica Livingston

Summary

  1. Jessica Livingston interviews some of the biggest technology entrepreneurs about their experience in the early days of their companies. You’ll get firsthand knowledge about the whole process and be able to pick up patterns across time (it’s always more work than you think it’ll be, almost none of these entrepreneurs foresaw how big their companies would eventually become). “Why the disconnect [between startups trying to seem like formal companies but actually operating far faster, often better]? I think there’s a general principle at work here: the less energy people expend on performance, the more they expend on appearances to compensate. More often than not the energy they expend on seeming impressive makes their actual performance worse. A few years ago I read an article in which a car magazine modified the “sports” model of some production car to get the fastest possible standing quarter mile. You know how they did it? They cut off all the crap the manufacturer had bolted onto the car to make it look fast. Business is broken the same way that car was. The effort that goes into looking productive is not merely wasted, but actually makes organizations less productive. Suits, for example. Suits do not help people to think better. I bet most executives at big companies do their best thinking when they wake up on Sunday morning and go downstairs in their bathrobe to make a cup of coffee. That’s when you have ideas. Just imagine what a company would be like if people could think that well at work. People do in startups, at least some of the time. (Half the time you’re in a panic because your servers are on fire, but the other half you’re thinking as deeply as most people only get to sitting alone on a Sunday morning.) This book can help fix that problem, by showing everyone what, till now, only a handful people got to see: what happens in the first year of a startup. This is what real productivity looks like. This is the Formula 1 racecar. It looks weird, but it goes fast.”

Key Takeaways

  1. Apparently sprinters reach their highest speed right out of the blocks, and spend the rest of the race slowing down. The winners slow down the least. It’s that way with most startups too. The earliest phase is usually the most productive. That’s when they have the really big ideas. Imagine what Apple was like when 100% of its employees were either Steve Jobs or Steve Wozniak.
  2. In this book, you’ll hear the founders’ stories in their own words. Here, I want to share some of the patterns I noticed. When you’re interviewing a series of famous startup founders, you can’t help trying to see if there is some special quality they all have in common that made them succeed. What surprised me most was how unsure the founders seemed to be that they were actually onto something big. Some of these companies got started almost by accident. The world thinks of startup founders as having some kind of superhuman confidence, but a lot of them were uncertain at first about starting a company. What they weren’t uncertain about was making something good—or trying to fix something broken. They all were determined to build things that worked. In fact, I’d say determination is the single most important quality in a startup founder. If the founders I spoke with were superhuman in any way, it was in their perseverance. That came up over and over in the interviews. Perseverance is important because, in a startup, nothing goes according to plan. Founders live day to day with a sense of uncertainty, isolation, and sometimes lack of progress. Plus, startups, by their nature, are doing new things—and when you do new things, people often reject you. That was the second most surprising thing I learned from these interviews: how often the founders were rejected early on. By investors, journalists, established companies—they got the Heisman from everyone. People like the idea of innovation in the abstract, but when you present them with any specific innovation, they tend to reject it because it doesn’t fit with what they already know. Innovations seem inevitable in retrospect, but at the time it’s an uphill battle. It’s curious to think that the technology we take for granted now, like web-based email, was once dismissed as unpromising. As Howard Aiken said, “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.” In addition to perseverance, founders need to be adaptable. Not only because it takes a certain level of mental flexibility to understand what users want, but because the plan will probably change. People think startups grow out of some brilliant initial idea like a plant from a seed. But almost all the founders I interviewed changed their ideas as they developed them. PayPal started out writing encryption software, Excite started as a database search company, and Flickr grew out of an online game. Starting a startup is a process of trial and error. What guided the founders through this process was their empathy for the users. They never lost sight of making things that people would want.

Summary

  1. Very rich read which provides great insights into how these entrepreneurs think, how they reacted and adapted to situations, and how persistent and creative you have to be to survive. Highly recommend for anyone thinking of starting their own business or in the midst of it now. Many parallels and patterns to learn from

Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman, Chris Yeh

Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman, Chris Yeh

Summary

  1. Blitzscaling is when you put speed over efficiency, even in the face of uncertainty. This constant and fast feedback will help you adopt, evolve, and move forward faster than your competitors. Getting this feedback early and moving quickly on it is the name of the game – especially if you are a platform and have a two sided model. Blitzscaling is a risky decision but, if your competitor has taken this path, it is less risky than doing nothing. This book will walk you through how to do it, when to do it, why to do it, and what it looks like. The cost and inefficiencies are worth it because the downside of not doing it when new technology enables is far greater – irrelevance.

Key Takeaways

  • Blitzscaling Overview
    • Blitzscaling will help you make better decisions where speed is the ultimate super power
    • Blitzscaling works as both offense and defense – you can catch people off guard and as if you don’t, you might not survive. You can leverage your initial competitive advantage into a long-term one before the market and competitors can respond. You can get easier access to capital as investors prefer to back market leaders allowing you to further your advantage of competitors. Blitzscaling allows you to set the playing field to your advantage
  1. McKinsey found the companies that had 60% growth when they reached $100 million in revenues are 8x more likely to reach $1 billion then those who are growing at 20% of the similar size. They have first scaler advantage. At this point, the ecosystem around this massive company recognize them as the market leader and shift their behavior to better suit them which leads to positive feedback loops
  2. Startups, just like certain materials and chemicals, go through phase changes. A dominant global leader is not simply a startup times of thousand it is a fundamentally different machine. Just as ice skates are useless on water, the same tactics used in the startup may be useless once you have achieved product market fit.
  3. The five phases of Blitzscaling: Family, tribe, village, city, nation
  4. The first step is creating a business model that can grow. This sounds elementary but it’s amazing how many startup founders miss this simple piece. You must have a business model that can scale or else it’ll break before you can reach dominance. Business model innovation is more important than most people think as technology today is not the differentiator it used to be. Most great startups are like Tesla which combine existing technologies in a unique and special way rather than like Space-X where they had to invent their own technologies 
  5. Blitzscaling is a strategic innovation and hurls much common wisdom out the window. Founders should only blitzscale when they determine that the most important factor in their company’s survival is speed into the market. It is a big bet but can pay off handsomely.
  6. The revenue model don’t have to be perfect when you do it. Your only goal is scale into a market that is winner take all or winner take most. However, not every company should blitzscale if product-market fit isn’t there or if the business model isn’t there
  7. You should blitzscale when there’s a big new opportunity, when the size of the market and gross margins overlap to create potential huge value. You should also blitzscale when there is no dominant market leader or oligopoly that controls the market 
  8. Another way to think about blitzscaling is by climbing learning curves faster than others
  9. Blitzscaling is not meant to go on forever. You should stop when growth slows, when average revenue per employee slows, when gross margins begin to climb, and other similar leading indicator show that your growth is slowing. You should also slow when you are reaching the upper bounds of a market
  10. In blitzscaling mode, raise more cash (much more cash) than you think you’ll need. Typically you should try to raise enough money for 18 to 24 months of survival. When trying to raise money nothing is more powerful than not needing it. Only spend money on things which are life or death if not solved
  11. As startups blitzscale, they have to balance responsibility with their power
  12. Try to partner with currently blitzscaling companies or companies which have blitzscaled in the past
  13. Managing Growth
    1. The role and skills needed by the CEO and top management are different for every level and size of the startup. It is never static and is always changing
    2. Business model growth factors
      1. Market size – paying customers, great distribution, fixed and expanding margins
      2. Distribution – leveraging existing networks, virality
      3. High gross margins – more revenues lead to more cash on hand which can be put to use, more attractive to investors
      4. Network effects – direct, indirect, two sided, local, compatibility and standards
    3. There are two growth limiters: product market fit and operational scalability
    4. 8 key transitions 
      1. From small teams to large teams. This can be a tough psychological change for founders and early employees as it is now impossible to be part of every decision and have clarity into every department 
      2. From generalists to specialists 
      3. From managers to executives. Executives organize and lead managers and managers execute day to day operations. Hire people who are known to at least one current team member, start them small and let them prove their value and gain other’s trust, then think about promoting them
      4. From dialogue to broadcasting. Establishing formal and consistent communication is extremely important as you grow. Chesky sends out a weekly email on Sunday nights which highlight growth metrics but also give the team updates and clarity on how the company is doing and other important topics so that everyone continues to feel involved and informed
      5. From improvisation and inspiration to data. At the beginning you have no customers to listen to but over time you have to track team metrics and analyze the data so that you can improve and adapt. Track the number of user’s raw engagement and churn to begin with and then customize and go deeper as is necessary for your product or service. No company should have more than 3 to 5 metrics as more tends to lead to confusion. It doesn’t necessarily matter what data you collect but what data gets presented to decision-makers. 
      6. From single threading to multithreading. The author doesn’t know of one start up that didn’t start out as singularly focused. They can branch out from there but it is important to have a deep focus when you’re first getting started
      7. From pirate to navy. From continuous offense to a blend of offense and defense. You must strike a balance between the power of being small and nimble and the benefits of being large and having scale. Much like JBS Haldane stipulates, you are fundamentally different when you scale. You can’t run a city the same way you run a tribe and you can’t run a nation the same way you run a city
      8. From founder to leader. Your role as the founder will change as the company scales and grows and you must adapt to it or you won’t be serving the company as it needs you to. You have to keep your personal learning curve ahead of the businesses’ growth curve. There are three ways to scale yourself: delegation, amplification, and simply getting better.
    5. Doing things which don’t scale when you’re growing quickly. It might be best to find a hack that you’ll have to throw away later than taking your time and running an elegant piece of software
    6. Ignore your customers at least at this stage in your growth. You have to provide whatever customer service you can that doesn’t slow you down – most likely this will be no customer service. However, you cannot ignore culture a strong culture is really important and is defined by consistent values and actions across the company. The executive in charge of the functional area which drives the culture of the company tends to be the natural successor to the CEO
  14. Awesome analysis on Zara the clothing retailer who uses split scaling techniques. Although it is a retailer, they use speed to their advantage and focus less on efficiency
  15. Incumbents have some natural advantages such as scale, the power and resources to continuously innovate, longevity, and mergers and acquisitions but the disadvantages include poorly aligned incentives, managerial overhang, lack of risk appetite, public pressure since they’re publicly traded, etc.
  16. A good way to gauge risk is by thinking through the knowns and the unknowns and systemic risk and non-systemic risk. Therefore, you must act immediately if there’s some big systemic risk, do something short term to solve your problem, note the problem now so that you can solve it later and let it burn (if unknown and non-systemic)
  17. Instability and change are the new norm and the only way to thrive is to know that you have to adapt faster than the change around you.  Be an infinite learner, be a first responder who is willing and able to act, veer towards industries, people, and companies that are biased towards blitzscaling as this is where the fastest and biggest growth lies
  18. Other
    1. Real value is created when innovative technologies allow for innovative products / services, with an innovative business, model to emerge
    2. It’s important to differentiate between first mover advantage and first scaler advantage. First movers often die but successful first scalers tend to achieve a very powerful position
    3. Do everything by hand until it’s too painful. Then automate it
    4. Common patterns of dominant businesses:
      1. Bits versus atoms (software/digital rather than physical)
      2. Platforms
      3. Free or freemium
      4. Marketplaces
      5. Subscriptions
      6. Digital goods
      7. Newsfeeds which drive user engagement and retention
    5. You must focus on adaptation rather than optimization
    6. You should always have a plan a Plan B and plan Z that you can fall back on in case your first option doesn’t work out and then your option in case worst case scenarios come up
    7. In the early days prioritize hiring those who can add value immediately and not the absolute perfect candidate
    8. Tolerate bad management. At the beginning it is more important to move quickly than to have perfect organization and processes in place
    9. Launch a product that embarrasses you. You don’t want to wait so long until it’s perfect want to get out and see what the market thinks of it
    10. You have to listen to your customers. Not only what they say, but you also have to know when to ignore them – must learn to blend data/intuition
    11. You have to know which fires to fight which ones to say no to and which ones you actually have some control over. Only then can you know which problems to tackle and in which order. Distribution, product, customer service, operations are some of the most important

What I got out of it

  • Blitzscaling is the pursuit of growth and speed, even in the face of uncertainty. It is a big gamble but is necessary sometimes if coming to market first, fastest, and biggest gives you a shot at owning a big market. A great playbook for anybody thinking about pursuing this strategy

Behind the Cloud: The Untold Story of How Salesforce.com Went from Idea to Billion-Dollar Company-and Revolutionized an Industry by Marc Benioff

Summary

  1. Marc Benioff recalls what spurred him to build Salesforce.com and outlines 111 plays which helped him do it 

Key Takeaways

  1. Don’t keep your ideas so well guarded. Share them with friends and serendipity may just help you out 
  2. Be willing to take a risk – no hedging
  3. Always go after the Goliath or market leader. If there is none, go after the status quo 
  4. Whether you use a PR firm or not, make sure you know what your message is 
  5. Companies must embrace marketing from the beginning of their lives in order to break through the noise
  6. Brand (essentially keeping promises you make to employees and customers) is your more most important asset. Make sure everybody in the company is on the same page as to what the company does. Make everyone part of the marketing team and make the message concise and consistent. It must capture why you exist
  7. Build a trusting relationships with influential journalists. Meet with them often and give them direct contact to you.
  8. Unbiased advice from experts is the most powerful form of marketing. Word-of-mouth and references are so powerful
  9. Create your own analogies and metaphors upfront and test them out. This take some work but it’s so worth it as it helps people understand clearly, quickly, and concisely what you’re all about
  10. The event is your message. Make sure that the venue and everything else aligns with who you are – if you’re a sustainable company, have fair trade coffee, etc.
  11. Turn adoption into addiction through fast feedback loops. Keep in constant touch with your customers, track their requests, ask them what you could do better, act on it quickly, ask them how they are using your product. Rinse and repeat
  12. Make your website your best salesman by keeping it fresh and up-to-date. It is more effective than any direct marketing campaign
  13. Don’t undervalue your product at the beginning and don’t give discounts. Keep it simple with one price or a low number of prices across the board. This incentivizes the sales team to close deals immediately rather than waiting until end of quarter and offering customers discounts
  14. You can’t win an entire company at once. Start in a division, prove your value, and grow from there
  15. V2MOM – Benioff’s playbook for making decisions and tracking progress
    1. Vision
    2. Values
    3. Methods 
    4. Obstacles 
    5. Measures
  16. Hiring is one of the most important things you can do. Create a recruiting machine and always be on the lookout for top talent. Have people visit the new employee, make sure they have lunch plans, give them a crash course on product and culture 
  17. Set aggressive but attainable goals. If it’s too hard and only 10% make it, their morale is sky high but everyone else’s is low. This also helps with camaraderie and consistent morale 
  18. Hire A players, demote B players, fire C players. Hire slow and fire fast
  19. Solicit and act upon customer feedback.
  20. Strive for this checklist to be checked off for employees:
    1. I am doing the best work of my professional career
    2. I have the opportunity every day to do what I do best at work
    3. In the past six months I have talked to someone about my progress
    4. There is someone who cares about my development
    5. I have opportunities to learn and grow at work
    6. My opinions are sought after and acted upon
    7. My supervisor or someone cares about me as a person
    8. I have a support network at work
    9. My colleagues care about and do quality work
    10. I am recognized and rewarded for my contributions
  21. Eskimo proverb: “The time to fish is during the storm.” The time for real progress and differentiation is when others are retreating, not when everything is perfect.

What I got out of it

  1. Some great advice for anyone starting or leading a company. A playbook for various stages and common issues that everyone would face in this type of pursuit 

On How to Start a Startup

I spent some time carefully listening to and digesting Y-Combinator’s videos on starting a startup and have attempted to make a distilled “teacher’s reference guide” which (hopefully) offers an actionable and informative introduction to their powerful ideas for success and pitfalls to avoid.

*This is Y-Combinator’s content and not my own words. I’ve simply distilled, compiled, and added a few notes.