Tag Archives: Venture Capital

That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea by Marc Randolph

Summary

  1. Marc describes the formation and foundation of Netflix, his role, and the evolution of Netflix from DVD store/rental to dominant international media company. “Goal is to puncture myths but also reveal what they did and why it worked, turning Netflix from an unlikely idea into the media behemoth it is today – not let’s or principles but hard won truths (like distrust epiphanies)”

Key Takeaways

  1. The daily car rides with Reed and Marc seem enviable – what an amazing gift to be able to share ideas and have them destroyed without it impacting the relationship 
  2. From the beginning, Reed was intent on focusing on a business with recurring revenues that scaled massively 
  3. In one of the brainstorms with Reid, Marc brought up a VHS delivery service. After doing research it became clear that the tapes and shipping was too expensive, but once DVD’s came out, the whole equation changed and the business model now seemed viable 
  4. One of Marc’s guiding philosophies is to have his team loosely coupled but highly aligned – show the team where you want to go but not how to get there. Treat people like adults, trust them, give them a vision to go all in on
  5. It was expensive to acquire all the dvds at the beginning, trying to claim they have every dvd ever made, but they reframed it so that this expense was really cheap advertising. A dvd costs $20 but the reputation for having every dvd is priceless 
  6. Instituted a Tuesday date night with his wife where he would leave work at 5pm no matter what to spend time with her and no kids 
  7. Learned many of his leadership lessons from his time outdoors and exploring nature 
  8. Focus and doing your core competency extremely well is a matter of life and death for a startup 
  9. Environment of freedom and responsibility coupled with radical honesty is the foundation of Netflix’s culture
  10. They were struggling getting people to rent DVDs although being at success selling online. Eventually they tested out the idea of a subscription service with no late fees and an automatic sending of the next DVD in your queue when you return the old one. Mark would never have thought this was the path Netflix would have taken but it was immediately successful, so they ran with it 
  11. Nobody knows anything. This isn’t an indictment, ira a reminder. If this is true, you have to trust yourself, try things, and be ok with failing
  12. Randolph’s rules for success 
    1. Do at least 10% more than you’re asked to
    2. Never state as fact something which you don’t know 
    3. Be curteous always, up and down 
    4. Never complain 
    5. Don’t be afraid to make decisions when you have the facts 
    6. Be open minded but skeptical 
    7. Quantify whenever possible 
    8. Be prompt 
  13. You have to love the problem rather than the solution. This will keep you engaged and motivated even in difficult times 

What I got out of it

  1. Nobody knows anything so you won’t know whether an idea is good or bad until you try it. Marc’s enthusiasm is palpable even through the pages and the car ride him and Reed shared for years where they discussed and batted down ideas with radical honesty seems like an incredible gift

The Four Steps to the Epiphany: Successful Strategies for Products that Win by Steven Blank

Summary

  1. No longer personally involved, I became a dispassionate observer. From this new vantage point I began to detect something deeper than I had seen before: there seemed to be a pattern in the midst of the chaos. Arguments I had heard at my own startups seem to be repeated at others. The same issues arose time and again: big company managers versus entrepreneurs, founders versus professional managers, engineering versus marketing, marketing versus sales, missed schedule issues, sales missing the plan, running out of money, raising new money…Wasn’t it possible the problems in every startup were somehow self-inflicted and could be ameliorated with a different structure? Yet when I talked to my VC friends, they said, “Well, that’s just how startups work. We’ve managed startups like this forever; there’s no other way to manage them… So what is it that makes some startups successful and leaves others selling off their furniture? Simply this: startups that survive the first few tough years do not follow the traditional product-centric launch model espoused by product managers or the venture capital community. Through trial and error, hiring and firing, successful startups all invent a parallel process to Product Development. In particular, the winners invent and live by a process of customer learning and discovery. I call this process “Customer Development,” a sibling to Product Development, and each and every startup that succeeds recapitulates it, knowingly or not. This book describes CD model in detail. The model is a paradox because it is followed by successful startups, yet articulated by no one. Its basic propositions are the antithesis of common wisdom yet they are followed by those who succeed. It is the path that is hidden in plain sight.

Key Takeaways

  1. Product Development
    1. The different between winners and losers is simple. Products developed with senior management out in front of customers early and often – win. Products handed off to a sales and marketing organization that has only been tangentially involved in the new Product Development process lose. It’s that simple
    2. The lesson is clear: by listening to potential future customers’, by going out into the field and investigating potential customers needs and market before being inexorably committed to a specific path and precise product specs – the difference between the winners and losers – and that’s the Customer Development Process described in this book 
    3. 10 major flaws of the PD model for startups
      1. Biggest risk is not in the development of the new product but in the development of customers and markets. Startups don’t fail because they lack a product; they fail because they lack customers and a proven financial model. This alone should be a pretty good clue about what’s wrong with using the PD diagram as the sole guide to what a startup needs to be doing. Look at the PD model and ask “where are the customers?” (PD model – concept/seed, PD, alpha/beta test, launch/1st ship)
      2. Focus on first customer ship date – does not mean you understand your customers or how to market or sell to them! Have to first understand who you are selling your product to and why they will buy it
      3. Emphasis on execution instead of learning and discovery – ask questions and learn before you try to sell your product – what are the problems our products solve? how big is the problem? is it a must have?…
      4. Lack of meaningful sales, marketing and BD milestones  – first must focus on reaching a deep understanding of customers and their problems, discovering a repeatable road map of how they buy, and building a financial model that results in profitability. How well do we understand what problems customers have? how much will they pay to solve those problems? do our product features solve those problems? 
      5. The use of a PD methodology to measure sales
      6. The use of a PD methodology to measure marketing
      7. Premature scaling
      8. Death Spiral: the cost of getting product launch wrong
      9. Not all startups are alike. A fundamental truth about startups completely ignored in the PD model is they are not all alike. One of the radical insights guiding this book is that startups fall into one of 4 basic categories:
        1. Bringing a new product into an existing market
        2. Bringing a new product into a new market
          1. Is there a large customer base who couldn’t do “this” before, whether these customers can be convinced they want or need your new product, and whether customer adoption occurs in your lifetime. It also requires rather sophisticated thinking about financing – how you manage the cash burn rate during the adoption phase, and how you manage and find investors who are patient and have deep pockets
        3. Bringing a new product into an existing market and trying to resegment that market as a low-cost entrant
        4. Bringing a new product into an existing market and trying to resegment that market as a niche entrant
          1. Existing market and asks would some part of this market buy a new product designed to address their specific needs? Even if it cost more? or worse perfomance in one particular aspect? Niche goes after the core of an existing market’s profitable business by trying to attempt customers some characteristic of the new product is radical enough to change the rules and shape of an existing market
      10. Unrealistic expectations
  2. Customer Development
    1. Start with what customers want and will pay for. Learning and discovery, from starting the company to scaling the business. 
    2. The CD model starts with a simple premise: learning and discovery who a company’s initial customers will be, and what markets they are in, requires a separate and distinct process from the PD…However, early on, we are neither selling or marketing. Before any of the traditional functions of selling and marketing can happen, the company has to prove a market could exist, verify someone would pay real dollars for the solutions the company envisions, and then go out and create the market. These testing, learning, and discovery activities are at the heart of what makes a startup unique, and they are what make CD so different from the PD process
    3. Winners understand why customers buy. Losers never do
    4. Should get a modicum of grumbling on prices – or else may be too low
    5. What pain does this alleviate? What value does it deliver? Why should I care?
    6. There are 4 parts to the CD Cycle:
      1. Customer Discovery – focuses on understanding customer problems and needs
        1. Founders and PD define the first product and the job of the CD team is to see whether there are customers and a market for that vision
        2. Have we identified a problem customers want solved? does our product solve these customer needs? if so, do we have a viable and profitable business model? have we learned enough to go out and sell?
        3. Meeting customers is not to gather feature requests so you can change the product. Instead, your purpose in talking to customers is to find customers for the product you are already building.
        4. 4 steps – state hypotheses, test problem hypotheses, test product concept, verify
        5. Winners understand why customers buy.
        6. Start by making a lift of 50 potential customers you can test your ideas on. Always ask “who’s the smartest person you know?” 
        7. 3 column table – list of problems, today’s solution, your company’s solution
        8. The “IPO questions” – what is the biggest pain in your work? If you could wave a magic wand and change anything in what you do, what would it be
        9. Always have your list of 3 things you need to learn before you leave. Overtime, these questions will likely change 
        10. Goal is to have a single paragraph feature list that can sell to thousands of customers
        11. Be sure to get to the “who has the money” question 
      2. Customer Validation – developing a sales model that can be replicated
        1. Develop the playbook of the proven and repeatable sales process that has been field-tested by successfully selling the product to early customers. These first two steps corroborate your business model, verifies your market, locates your customers, tests the perceived value of your product, identifies the economic buyer, establishes your pricing and channel strategy, and checks out your sales cycle and process. If, and only if, you find a group of repeatable customers with a repeatable sales process, and then find those customers yield a profitable business model, do you move to the next step (scaling up and crossing the Chasm
        2. These questions must be answered long before the sales organization begins to grow in size 
        3. Existing market – compare product to yoru competitors and describe how some feature or attribute is better or faster – an incremental improvement
        4. New market – too early for customers to understand. Instead, describe the problem your product will solve and the benefits that the customers will get from solving it – a transformation improvement
        5. Resegmented – compare product to your competitors
      3. Customer Creation – creating and driving end user demand
        1. Only turn on heavy marketing spend after the point where a startup acquires its first customers, thus allowing the company to control its cash burn rate and protect its most precious asset
        2. What type of startup are you? What are your positioning messages (based on your deep understanding of who the customers are and what they want?
        3. New Lanchester Strategy
          1. If a single company has 74% of the market, it is an effective monopoly. That’s an unassailable position for a head on assault (think MSFT)
          2. Combined market share for leader and second ranking company is greater than 74% and the first company is within 1.7 times the share of the second, it means the market is held by a duopoly. Unassailable for the startup to attack
          3. Company has 41% market share and at least 1.7 times the market share of the next largest, it is the market leader. Very difficult for startup to enter
          4. Biggest player in a market has at least 26% share, market is unstable with a strong possibility of abrupt shifts. May be some startup opportunities
          5. Biggest player has less than 26% market share, it has no real impact in influencing the market. Startups who want to enter an existing market find these the easiest to penetrate
          6. Your goal is to become number one in something important to your customer. It could be product attribute, territory, distribution chain/retailer, or customer base. Keep segmenting by market (age, income, region,e tc.) and focusing on the competitors’ weak points until you have a battle you can win. You know your segmentation is correct when you have created a niche where you can be number one. Remember, any company can take customers away from any other company – if it can define the battle
        4. 4 building blocks of customer creation
          1. Year one objectives
          2. Positioning: both company and product – answers “what does your company do for me?” 
            1. Must be different and credible if an existing market
            2. Communicating a vision and passion of what could be if a new market
          3. Launch: both company and product
          4. Demand creation (advertising, public relations, trade shows, etc.)
      4. Company Building – transitioning the organization from one designed for learning and discovery to a well-oiled machine engineered for execution
        1. Formal departments with VPs of Sales, Marketing, and BD. These executives now focus on building mission-oriented departments exploiting the company’s early market success
        2. Moving from Customer Development (Development Team-Centric), to Company Building (mission-centric), to Large company (process-centric)
        3. In a new market, the goal in this stage is about husbanding resources and passionately evangelizing and growing the market until the market grows large enough for sales revenue to appear. Your experience of selling to earlyvangelists during customer validation will help you answer how many of these types of early customers can yoru company really find in the first few years. This helps inform a realistic sales strategy
  3. Other
    1. Blank had some amazing mentors throughout his 25 year career
    2. Joseph Campbell popularized the notion of an archetypal journey that recurs in the mythologies and religions of cultures around the world. From Moses and the burning bush to Luke Skywalker meeting Obi wan Kenobi, the journey always begins with a hero who hears a calling to a quest. At the outset of the voyage, the path is unclear, and the end is not in sight. Each hero meets a unique set of obstacles, yet Campbell’s keen insight was that the outline of these stories was always the same. There were not a thousand different heroes, but one hero with a thousand faces.
    3. Marketing’s mission
      1. Generate end user demand
      2. Drive that demand into our sales channel
      3. Educate our sales channels
      4. Help engineering understand customer needs
    4. The appendices alone are worth the price of the book 
    5. Early mission statement – tells employees why they come to work, what they need to do, and how they will know when they have. Should also mention revenue and profit. An example of a clearly written mission statement is the one “lived” at CafePress.
      1. At CafePress, our mission is to allow customers to set up stores to sell a wide-range of custom products. (Our goal is to make sure they say we are the best place to go on the web to make and sell CD’s, books, and promotional items). Here’s how we are going to do that:
      2. We are going to give them a variety of high-quality products and good service in an easy-to-use web site (we will know we succeed if an average store sells $45 per month). At the same time, we will help these customers sell by giving them marketing tools to reach their customers
      3. We are going to do it for what they would consider a fair price (yet maintain 40% margins). Next year our plan is to grow to $30m in revenue and be profitable (therefore need 25,000 new customers a month)
      4. We are going to try to be a good citizen of our community (we are going to print on recyclable materials, use environmentally friendly packaging, and use non-toxic inks wherever practical)
      5. We are going to take good care of our employees (full medical, and dental) because the longer they stick around, the better our restaurant will become
      6. We are also going to offer stock options to all employees, because if they’re interested in our profits and long-term success, we’ll all make money
        1. If you read this mission statement sentence by sentence, it tells the employees why they come to work, what they need to do, and how they will know when they’re successful
        2. The litmus test is: can a new employee read the corporate mission statement and understand the company, their job, and what they need to do to succeed?
        3. Mission-centric companies are much better able to deal with two fundamental problems that a startup continually faces: uncertainty and time. Startups index on speed and agility, allowing individual executives to act with initiative and boldness
        4. Mission-centric management has 5 unique parts
          1. mission intention
          2. employee initiative
          3. mutual trust and communication
          4. “good enough” decision making
          5. mission synchronization
    6. One way to nurture maturity is to shift superstars into coaches and role models. This keeps superstars motivated and from leaving your company. However, your company has to protect the mavericks. The long-term tenure, motivation, and contribution of iconoclastic superstars and founders is the ultimate test of a leadership culture

What I got out of it

  1. Running the customer development process in parallel to product development is a must. When framed in the way Blank does – that you have to first deeply understand your customers, what problem you’re solving, how well you’re solving it, and having a repeatable sales roadmap – it seems obvious that this is the way to approach it. Why pour precious dollars on sales and marketing on something you’re not sure will even sell and, if it does sell, how to sell it. 

eBoys: The True Story of the Six Tall Men Who Backed eBay, Webvan, and Other Billion Dollar Start-ups by Randall Stross

Summary

  1. A behind the curtain look at the early days of Benchmark, one of the premier venture capital firms 

Key Takeaways

  1. Benchmark / VC
    1. It is a wee bit eerie to see, in hindsight, how the Benchmark boys’ original notion of a partnership of equals turned out to have been echoed in impersonal performance statistics. Even the partners themselves would never have guessed in advance that four and a half years after Benchmark’s founding, of the five investments that were the firm’s all-time biggest hits to date, no two had been discovered and directed by the same partner: five hits, five partners.
    2. A group of three young venture capitalists in Menlo Park—Bruce Dunlevie, Bob Kagle, and Andy Rachleff—decided to step free of their old firms, and with software entrepreneur Kevin Harvey they set up Benchmark Capital.
    3. Entrepreneurs who sought venture funding usually did not need to invest any more personal money into the venture than they had already spent to bring it to life. But some venture capitalists did demand more. Arthur Rock, the senior dean of American venture capitalists and an early investor in Intel, always insisted whenever his venture firm put money into a start-up that the entrepreneur co-invest one third of his total net worth, whether it be large or small. If the entrepreneur was extremely wealthy, the venture firm had higher expectations about his co-investing. The venture guys didn’t want the high-net-worth entrepreneur to regard the start-up as a hobby. To prove commitment, he was asked to have skin in the game, and that was what Beirne asked of Borders,
    4. On the golf course the other day, he said, a friend had floated a theory that leaders, in business or anything else, are driven by demons. The best guys have them—implacable, subterranean demons that are the source of greatness.
    5. Daniel Webster: “There is always room at the top.”
    6. No company looks better than the one that professes it does not need your money.
    7. Kagle gently cautioned Beirne: “We all have our blind spots, right? Our greatest strength is our greatest weakness. And I think in this case, Dave, we’re all conscious of the fact that there’s a lot of marquee players around this thing. You’re all about marquee players. So we need to make sure that you’re not getting too colored by that relative to all the other stuff.” “Salesmen are more likely to be sold,” Rachleff added.
    8. What the partners were looking for were categories that were ripe for “disintermediation”—removing a middle layer in the distribution chain. In this case, that layer was the twelve thousand or so art galleries in the country
    9. “There sure are a lot of signs,” Rachleff repeated. He wasn’t concerned about Benchmark’s overall reputation being badly damaged. “The amazing thing about our business is, everyone forgets the losers—they remember the winners.”
    10. Rachleff pointed out that in a portfolio, the emotions that Beirne would experience would always be biased toward the end of the spectrum representing pain. “The amazing thing is it hurts more on the downside than the good feelings on the upside.”
    11. “That’s my experience—three orders of magnitude,” Dunlevie quickly agreed. “Yeah,” Rachleff said, and then redid the ratio of intensity of pleasure versus pain. “One-X versus fifty-X.”
    12. Bob Kagle could not take much pleasure in the event either, imagining, as he did, whispers that the eBay success was a fluke, akin to picking up a winning lottery ticket. He found himself working all the harder after eBay, to silence criticism that he had not actually heard but that he could imagine, beyond his hearing. One monkey don’t make no show, he’d say.
    13. When the Benchmark partners got together, most days, most of the time, their conversations were interrupted by jokes, laughter, word play, self-confessed foibles, and still more laughter. They positively reveled in one another’s company.
  2. Gurley
    1. The cultural fit had to be just right, too. It was this issue that the partners would spend the most time agonizing over. The five Benchmark partners felt keenly the closeness of a basketball team; in moments of private vanity they liked to think of themselves as the Chicago Bulls in the early nineties, but it wasn’t apt—this was a team that was knocking down wins but without a single dominating presence like Michael Jordan. So maintaining the chemistry that permitted all to feel that the others brought out their individual best was regarded as paramount, even if it meant Benchmark could not expand.
    2. Beirne added his own high praise, which was that the attention Gurley received as a sought-after speaker at industry gatherings had secured for Gurley “a lot of mindshare.”
    3. You think he’d be a good investor?” asked Bruce Dunlevie. “I do, but the reason I do is because he’s a rare combination of highly intellectually curious and humble. I think he really is open to questioning his own thought process and what’s really working, what’s not working.”
    4. Benchmark’s self-proclaimed “fundamentally better architecture” was based on a bedrock tenet: equal partners, without hierarchical separation, with equal votes and equal compensation. They had used it brilliantly from the beginning to differentiate themselves from the rest of the firms on Sand Hill Road.
    5. Bill doesn’t know what hiring people is all about. He wants to learn it all. He’s a total learn-it-all guy. He was asking me questions: ‘How do you spend your time? How do you recruit? What do you look for? What do you ask people? What do you do?’ ” “He’s pretty humble,” said Rachleff. Beirne agreed, and added, “He does a very good job at the shows. He doesn’t just stand in the back and not talk to anybody—he’s out talking to everybody.” “How old is he?” asked Kagle. “He’s thirty-two.” “He’s a mature thirty-two, too.”
    6. Harvey had also been impressed by his willingness to chase a wild boar down a steep cliff. “He is kind of an animal,” Harvey said with manifest respect. “I love that,” said Kagle.
    7. Kagle said to Harvey, “Okay, make him the offer.” Harvey turned to Gurley. “First, I want to know if you’ll take it.” This was the way Harvey preferred to seal a deal with an entrepreneur: to secure the agreement before bringing out the term sheet with all of the details. Here Harvey feared that if he brought out the terms of the partnership offer, Gurley’s analytical bent would lead him to say, “Okay, I’ll take this home and think about it.” Harvey wanted him to show trust that the partners had put together a generous package that accorded him fully equal status from day one. Gurley came through and, without asking to see the terms, accepted on the spot.
    8. Gurley cast cold water on the proposal to go public, however, by asking, “Is it built to win?” He explained, “GM is built to last, but it’s got so much bureaucracy, it’s not going anywhere.” Maybe “built to last” was not the right criterion to optimize on.
  3. eBay
    1. When eBay, a small Internet auction company based in San Jose, California, sought venture capital, it had to pass an informal test administered by the venture guys before they would consider making an investment: Was there a reasonably good likelihood that the investors could make ten times their money within three years? 
    2. It was late 1996, and eBay’s online auction business had been solidly profitable since it was launched; the company did not need a cent. But Pierre Omidyar, twenty-nine, the original founder, and his new partner, Jeff Skoll, thirty-one, were the rare entrepreneurs who knew they needed to hire a CEO and other seasoned executives with skills they lacked. It appeared to them that the only way they would be able to attract people with deeper management experience than they had was by obtaining the imprimatur of a well-regarded venture capital firm. Selling a minority share of their equity to venture capitalists was the intermediate step they had to take to get the good people they sought.
    3. Over the next two weeks, he met with Omidyar outside of Benchmark’s office and discovered that he was an anomalous kind of engineer, one who was consumed by the idea of community—every other sentence, he spoke about the eBay community, building the community, learning from the community, protecting the community. It was a passion similar to what, in Bob-speak, Kagle had for deals that brought out the humanity; that’s what Kagle liked most of all, the humanity. The more Omidyar talked about his community vision, the more Kagle, as he put it, was “lovin’ him—this guy is good people.” And Omidyar felt the same way about Kagle.
    4. EBay was an anomaly: a profitable company that was able to self-fund its growth and that turned to venture capital solely for contacts and counsel. No larger lesson can be drawn. When Benchmark wired the first millions to eBay’s bank account, the figurative check was tossed into the vault—and there it would sit, unneeded and undisturbed.
    5. By temperament, Skoll could not help but pour himself into the work in a scarily total fashion—once he started at eBay, he worked hundred-hour weeks for the next two and a half years. But he wasn’t driven by materialist hungers, and he thought of himself not as a businessperson but as a writer.
    6. EBay had an enormous advantage over the competition that it only then, under challenge, was coming to appreciate: a nicely balanced critical mass of sellers and buyers in each of hundreds of categories. This delicate balance had been achieved through the natural evolution of the eBay ecosystem, without the intervention of any guiding hand. If in any given category there were too many sellers compared with buyers, the sellers would have been discouraged and quick to jump to eBay’s rivals to try their luck there. If there were too many buyers, and in order to win an auction one had to offer up a ludicrously high price, this too would have led to mass defections. Fortunately for eBay, the number of sellers and buyers, while growing exponentially, had remained well apportioned. EBay’s users remained loyal for another reason: feedback ratings. Buyers, after a transaction, could send in a report about their experience with the seller, which future prospective buyers could consult; sellers had an identical opportunity to evaluate their experience with the buyer. Over time, both sellers and buyers accumulated a number of positive-feedback ratings at eBay, a neatly quantifiable reputation, that they were loath to abandon. The eBay “community” stayed put.
    7. “That’s the biggest risk in the whole thing,” Kagle said. “In fact I can argue with you guys very persuasively that keeping this low profile we’ve had in the company has been absolutely the healthiest thing to do. Absolutely the healthiest thing to do. We’ve already broken the systems a couple times, in spite of that. So we’ve been barely able to manage the traffic operationally so far.” Kagle said there had been a second benefit. “This organic growth has led to this very nice set of community values; people are honest, people treat each other fairly, there’s not a lot of scamming going on in it. And if you turn up the volume way high, the woodwork gets filled with a lot of weird guys, and the whole tone of the thing could change. So that’s a risk.”
    8. On the day after eBay’s IPO, when Pierre Omidyar, just back from New York, stood on Benchmark’s terrace, he observed that the world had imputed strategic savvy to the company that it did not really have. “Our system didn’t scale,” he said, “so we didn’t grow big enough to attract competition. Everybody thought we were flying below the radar screen on purpose.” He gave a little laugh.
    9. Up until early summer 1998, eBay’s primary competition was Jerry Kaplan’s Onsale Exchange, which had launched in October 1997 and had failed to attract a critical mass. When Bob Kagle introduced eBay to Benchmark’s limited partners at the annual meeting in early June, eBay had an 89 percent market share. Kagle said that the company anticipated major entrants, but “we think they don’t get it. We think they don’t understand all the stuff about the community and what’s really special and unique about this.” He also noted that in addition to first-mover advantage, economies of scale, and definitive selection in the various categories, eBay also enjoyed another advantage: Users faced high switching costs. “After you get this reputation built up online,” Kagle explained, “you’ve got all these people who have dealt with you, you’ve got seventy-five people who’ve said good things about you. That’s a pretty fundamental thing.”
    10. A good business will attract good competitors. This eBay’s executives knew in the abstract, but like the abstract concept of war, the theory necessarily bore a limited relationship to the thing itself.
    11. But knowing that the CEO was personally fielding calls from angry customers when they could not find someone to speak with in his department would provide all the incentive he needed, and she knew it.
  4. Priceline
    1. Our biggest competition, Walker explained, was cars and couches; Priceline’s system “collected demand” from people who would not otherwise be flying. And by promising to get back with an answer within one hour—why one hour? Glasses in an hour, photos in an hour; consumers already understand the unit—Walker was deliberately creating in the consumers’ mind the idea that Priceline was a virtual gladiator fighting on their behalf: “It’s going to take us an hour to knock on everybody’s door, punch him in the jaw, give him your offer, and get back to you with an answer, but be assured we’re out there working for you!” 
    2. Since we’re not actively shopping for capital, Walker summed up, this isn’t about the money per se. It’s really about two teams—your team, our team. We’ve got a multibillion-dollar asset here if played right. We’re not greedy; we’re not pigs. We’re players. Game theorists that we are, we understand the game trade. And we’re not afraid to make a trade for the right set of circumstances.
  5. Other
    1. The very reason that start-ups had an advantage over these incumbents—speed in execution—was the same reason that the old companies acted so slowly, even when the task was to organize a new entity that would be free to compete without organizational drag. “So they know they’re in a tough spot.” Still, the inertial drag in a big company was the most powerful factor in the equation.
    2. Edward Chancellor’s history of financial manias, Devil Take the Hindmost, urging them to read it. Chancellor’s account of England’s railway mania of 1845 had made an especially deep impression on Kagle, who saw all of the similarities between the railroad, then hailed as a revolutionary advance without historical parallel, and the Internet. In both cases the technological change was as fundamental as its champions claimed, but investors’ enthusiasm about imminent opportunities to reap fortunes moved beyond the reasonable. All businesses must earn a profit in order to be viable; Kagle refused to relinquish this simple truth.
    3. Kevin Harvey took the view that Red Hat could avoid a frontal challenge to Microsoft’s business model; he worked to reposition the company away from the business of selling packaged software in boxes (Harvey’s old business) and move it toward providing support services and a central website for the Linux community. The only way Microsoft could compete with Red Hat, he would say gleefully, “is by abandoning five billion dollars of annual revenue, which they can’t!”
    4. His firm, TVI, had funded Microsoft, Compaq, and other notable technology companies, but it was not these that McMurtry wished to talk about. Rather, he wanted to talk about the companies that did not succeed. He recalled that in the mid-1970s, having been in the business a number of years, he had become depressed because “out of ten start-ups, we would lose three or four—lose all our money. Maybe just get our money back in two deals. Then you’ve got two or three where you get one to five times your money. That leaves just one or two deals [out of ten] where you make more than five times your money.” The high payoffs for one or two never erased the pain of those that did not survive: “You feel so responsible for the disasters.”
    5. The claim was empty bluster, however. Mike Moritz, of Sequoia Capital, peeled back the truth with mordant detachment: “One of the dirty little secrets of the Valley is that all the jobs-creation we like to talk about is probably less than the Big Three automakers have laid off in the last decade. One of the best ways to have a nice Silicon Valley company is to keep your head count as low as possible for as long as possible.”

What I got out of it

  1. Really fun book that gives an inside look at VC investing – power law returns and their importance really stuck out to me, as did the culture at Benchmark and how they thought about their investments 

Marc Andreessen’s Blog Archives

Summary

  1. A compilation of Marc Andreesen’s blog posts – touching on everything from startups to productivity (PDF can be found here)

Key Takeaways

  1. Favorite articles – Why not to do a startup, guide to personal productivity, The Psychology of Entrepreneurial Misjudgment, Age and the Entrepreneur, Luck and the Entrepreneur
  2. When the VC’s say “no”
    1. Third, retool your plan. This is the hard part—changing the facts of your plan and what you are trying to do, to make your company more fundable. To describe the dimensions that you should consider as you contemplate retooling your plan, let me introduce the onion theory of risk. If you’re an investor, you look at the risk around an investment as if it’s an onion. Just like you peel an onion and remove each layer in turn, risk in a startup investment comes in layers that get peeled away — reduced — one by one. Your challenge as an entrepreneur trying to raise venture capital is to keep peeling layers of risk off of your particular onion until the VCs say “yes” — until the risk in your startup is reduced to the point where investing in your startup doesn’t look terrifying and merely looks risky.
  3. But I Don’t Know Any VCs
    1. VCs work mostly through referrals And of course it’s even better if you walk in with existing “traction” of some form — customers, beta customers, some evidence of adoption by Internet users, whatever is appropriate for your particular startup. With a working product that could be the foundation of a fundable startup, you have a much better chance of getting funded once you do get in the door. Back to my rule of thumb from the last post: when in doubt, work on the product. Failing a working product and ideally customers or users, be sure to have as fIeshed out a presentation as you possibly can— including mockups, screenshots, market analyses, customer research such as interviews with real prospects, and the like. 
    1. Don’t bother with a long detailed written business plan. Most VCs will either fund a startup based on a fleshed out Powerpoint presentation of about 20 slides, or they won’t fund it at all. Corollary: any VC who requires a long detailed written business plan is probably not the right VC to be working with.
    2. Alternately, jump all over Y Combinator. This program, created by entrepreneur Paul Graham and his partners, funds early-stage startups in an organized program in Silicon Valley and Boston and then makes sure the good ones get in front of venture capitalists for follow-on funding. It’s a great idea and a huge opportunity for the people who participate in it.
    3. Read VC blogs — read them all, and read them very very carefully. VCs who blog are doing entrepreneurs a huge service both in conveying highly useful information as well as frequently putting themselves out there to be contacted by entrepreneurs in various ways including email, comments, and even uploaded podcasts. Each VC is different in terms of how she wants to engage with people online, but by all means read as many VC blogs as you can and interact with as many of them as you can in appropriate ways.
    4. So, when such a new thing comes out—like, hint hint, Facebook or Twitter— jump all over it, see which VCs are using it, and interact with them that way — sensibly, of course. More generally, it’s a good idea for entrepreneurs who are looking for funding to blog — about their startup, about interesting things going on, about their point of view.
  4. The Only Thing That Matters
    1. Personally, I’ll take the third position — I’ll assert that market is the most important factor in a startup’s success or failure. Why? In a great market — a market with lots of real potential customers — the market pulls product out of the startup. The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along. The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.
    2. In honor of Andy Rachleff, formerly of Benchmark Capital, who crystallized this formulation for me, let me present Rachleff’s Law of Startup Success: The #1 company-killer is lack of market. Andy puts it this way:
      1. When a great team meets a lousy market, market wins.
      2. When a lousy team meets a great market, market wins.
      3. When a great team meets a great market, something special happens.
    3. Let’s introduce Rachleff’s Corollary of Startup Success: The only thing that matters is getting to product/market fit. Product/market fit means being in a good market with a product that can satisfy that market. You can always feel when product/market fit isn’t happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close. And you can always feel product/market Ft when it’s happening
    4. Carried a step further, I believe that the life of any startup can be divided into two parts: before product/market fit (call this “BPMF”) and after product/market fit (“APMF”). When you are BPMF, focus obsessively on getting to product/market fit. Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to, raising that fourth round of highly dilutive venture capital — whatever is required.
  5. The Moby Dick Theory of Big Companies
    1. First, don’t do startups that require deals with big companies to make them successful.
    2. Second, never assume that a deal with a big company is closed
    3. Third, be extremely patient
    4. Fourth, beware bad deals
    5. Fifth, never, ever assume a big company will do the obvious thing.
    6. Sixth, be aware that big companies care a lot more about what other big companies are doing than what any startup is doing.
    7. Seventh, if doing deals with big companies is going to be a key part of your strategy, be sure to hire a real pro who has done it before.
    8. Eighth, don’t get obsessed.
  6. How much funding is too little? too much?
    1. The answer to that question, in my view, is based on my theory that a startup’s life can be divided into two parts — Before Product/ Market Fit, and After Product/Market Fit. Before Product/Market Fit, a startup should ideally raise at least enough money to get to Product/Market Fit. After Product/Market Fit, a startup should ideally raise at least enough money to fully exploit the opportunity in front of it, and then to get to profitability while still fully exploiting that opportunity. I will further argue that the definition of “at least enough money” in each case should include a substantial amount of extra money beyond your default plan, so that you can withstand bad surprises. In other words, insurance. This is particularly true for startups that have not yet achieved Product/ Market Fit, since you have no real idea how long that will take. Raising money is never an accomplishment in and of itself — it just raises the stakes for all the hard work you would have had to do anyway: actually building your business.
    2. Some signs of cultural corrosion caused by raising too much money:
      1. Hiring too many people — slows everything down and makes it much harder for you to react and change. You are almost certainly setting yourself up for layoffs in the future, even if you are successful, because you probably won’t accurately allocate the hiring among functions for what you will really need as your business grows.
      2. Lazy management culture — it is easy for a management culture to get set where the manager’s job is simply to hire people, and then every other aspect of management suffers, with potentially disastrous long-term consequences to morale and effectiveness.
      3. Engineering team bloat — another side effect of hiring too many people; it’s very easy for engineering teams to get too large, and it happens very fast. And then the “Mythical Man Month” effect kicks in and everything slows to a crawl, your best people get frustrated and quit, and you’re in huge trouble.
      4. Lack of focus on product and customers — it’s a lot easier to not be completely obsessed with your product and your customers when you have a lot of money in the bank and don’t have to worry about your doors closing imminently.
      5. Too many salespeople too soon — are out selling a product that isn’t quite ready yet, hasn’t yet achieved Product/Market Fit — alienating early adopters and making it much harder to go back when the product does get right.
      6. Product schedule slippage — what’s the urgency? We have all this cash! Creating a golden opportunity for a smaller, scrappier startup to come along and kick your rear. So what should you do if you do raise a lot of money? As my old boss Jim Barksdale used to say, the main thing is to keep the main thing the main thing —be just as focused on product and customers when you raise a lot of money as you would be if you hadn’t raised a lot of money.
      7. Easy to say, hard to do, but worth it.
    3. Continue to run as lean as you can, bank as much of the money as possible, and save it for a rainy day — or a nuclear winter. Tell everyone inside the company, over and over and over, until they can’t stand it anymore, and then tell them some more, that raising money does not count as an accomplishment and that you haven’t actually done anything yet other than raise the stakes and increase the pressure.
    4. Illustrate that point by staying as scrappy as possible on material items — office space, furniture, etc. The two areas to splurge, in my opinion, are big-screen monitors and ergonomic office chairs. Other than that, it should be Ikea all the way.
  7. Why a startup’s initial business plan doesn’t matter that much
    1. A startup’s initial business plan doesn’t matter that much, because it is very hard to determine up front exactly what combination of product and market will result in success. By definition you will be doing something new, in a world that is a very uncertain place. You are simply probably not going to know whether your initial idea will work as a product and a business, or not. And you will probably have to rapidly evolve your plan — possibly every aspect of it — as you go. (The military has a saying that expresses the same concept — “No battle plan ever survives contact with the enemy.” In this case, your enemy is the world at large.) It is therefore much more important for a startup to aggressively seek out a big market, and product/market Ft within that market, once the startup is up and running, than it is to try to plan out what you are going to do in great detail ahead of time. The history of successful startups is quite clear on this topic.
  8. Hiring, managing, promoting, and firing executives
    1. Hire an executive only when it’s clear that you need one: when an organization needs to get built; when hiring needs to accelerate; when you need more processes and structure and rigor to how you do things.
    2. Second, hire the best person for the next nine months, not the next three years. 
    3. Third, whenever possible, promote from within.
  9. Retaining great people
    1. Companies that are winning — even really big, old ones — never have a retention problem. Everyone wants to stay, and when someone does leave, it’s really easy to get someone great to take her place. Companies that have a retention problem usually have a winning problem. Or rather, a “not winning” problem. 
    2. And here’s a neat trick that actually works. Go out and re-recruit the best people who already left. Some of them have since discovered that the grass isn’t actually greener at whatever mediocre startup they joined or whatever other big company they jumped to. Give them fat packages against the new mission and get them back.
  10. Where to go and why
    1. When picking an industry to enter, my favorite rule of thumb is this:
      1. Pick an industry where the founders of the industry — the founders of the important companies in the industry — are still alive and actively involved. This is easy to figure out — just look at the CEO, chairman or chairwoman, and board of directors for the major companies in the industry. If the founders of the companies are currently serving as CEO, chairman or chairwoman, or board member of their companies, it’s a good industry to enter. It is probably still young and vital, and there are probably still opportunities to exploit all over the place, either at those companies or at new companies in that industry. Once you have picked an industry, get right to the center of it as fast as you possibly can. Your target is the core of change and opportunity — figure out where the action is and head there, and do not delay your progress for extraneous opportunities, no matter how lucrative they might be. Never worry about being a small fish in a big pond. Being a big fish in a small pond sucks—you will hit the ceiling on what you can achieve quickly, and nobody will care. Optimize at all times for being in the most dynamic and exciting pond you can find. That is where the great opportunities can be found. Apply this rule when selecting which company to start
      2. In a rapidly changing Held like technology, the best place to get experience when you’re starting out is in younger, highgrowth companies.
  11. The Pmcarca guide to personal productivity
    1. Don’t keep a schedule!
      1. By not keeping a schedule, I mean: refuse to commit to meetings, appointments, or activities at any set time in any future day. As a result, you can always work on whatever is most important or most interesting, at any time.
      2. When someone emails or calls to say, “Let’s meet on Tuesday at 3″, the appropriate response is: “I’m not keeping a schedule for 2007, so I can’t commit to that, but give me a call on Tuesday at 2:45 and if I’m available, I’ll meet with you.” Or, if it’s important, say, “You know what, let’s meet right now.” Clearly this only works if you can get away with it. If you have a structured job, a structured job environment, or you’re a CEO, it will be hard to pull off. 
      3. If you have at any point in your life lived a relatively structured existence—probably due to some kind of job with regular office hours, meetings, and the like—you will know that there is nothing more liberating than looking at your calendar and seeing nothing but free time for weeks ahead to work on the most important things in whatever order you want. This also gives you the best odds of maximizing Yow, which is a whole other topic but highly related.
    2. Keep 3 and only 3 lists: a Todo List, a Watch List, and a Later List
      1. The more into lists you are, the more important this is. Into the Todo List goes all the stuff you “must” do — commitments, obligations, things that have to be done. A single list, possibly subcategorized by timeframe (today, this week, next week, next month).
      2. Into the Watch List goes all the stuff going on in your life that you have to follow up on, wait for someone else to get back to you on, remind yourself of in the future, or otherwise remember. Into the Later List goes everything else—everything you might want to do or will do when you have time or wish you could do. If it doesn’t go on one of those three lists, it goes away.
    3. 3×5 Index Cards
      1. Each night before you go to bed, prepare a 3×5 index card with a short list of 3 to 5 things that you will do the next day Use the back of the 3×5 card as your anti-todo list. Each time you do something, you get to write it down and you get that little rush of endorphins that the mouse gets every time
      2. he presses the button in his cage and gets a food pellet. Then tear it up and throw it away
    4. Structured procrastination
      1. The gist of Structured Procrastination is that you should never fight the tendency to procrastinate — instead, you should use it to your advantage in order to get other things done.
      2. As John says, “The list of tasks one has in mind will be ordered by importance. Tasks that seem most urgent and important are on top. But there are also worthwhile tasks to perform lower down on the list. Doing these tasks becomes a way of not doing the things higher up on the list. With this sort of appropriate task structure, the procrastinator becomes a useful citizen. Indeed, the procrastinator can even acquire, as I have, a reputation for getting a lot done.”
    5. Strategic incompetence
      1. Enough said
    6. Do email exactly twice a day
    7. When you do process email, do it like this
      1. First, always finish each of your two daily email sessions with a completely empty inbox.
      2. Second, when doing email, either answer or file every single message until you get to that empty inbox state of grace.
      3. Third, emails relating to topics that are current working projects or pressing issues go into temporary subfolders of a folder called Action.
      4. Fourth, aside from those temporary Action subfolders, only keep three standing email folders: Pending, Review, and Vault
        1. Emails that you know you’re going to have to deal with again — such as emails in which someone is committing something to you and you want to be reminded to follow up on it if the person doesn’t deliver — go in Pending.
        2. Emails with things you want to read in depth when you have more time, go into Review.
        3. Everything else goes into Vault.
    8. Don’t answer the phone
      1. Let it go to voicemail and do them in batches
    9. Hide in an iPod
      1. People are less likely to bother you even if you’re not listening to anything
    10. Sleeping and eating
      1. start the day with a real, sit-down breakfast. This fuels you up and gives you a chance to calmly, peacefully collect your thoughts and prepare mentally and emotionally for the day ahead
    11. Only agree to new commitments when both your head and your heart say yes
    12. Do something you love
  12. The Psychology of Entrepreneurial Misjudgment
    1. The design of tactical incentives — e.g. bonuses — is a whole topic in and of itself, and is critically important as your company grows. The most significant thing to keep in mind is that how the goals are designed really matters — as Mr. Munger says, people tend to game any system you put in place, and then they tend to rationalize that gaming until they believe they really are doing the right thing. I think it was Andy Grove who said that for every goal you put in front of someone, you should also put in place a counter-goal to restrict gaming of the first goal. 
    2. My favorite way around this problem is the one identified by Clayton Christensen in The Innovator’s Dilemma: don’t go after existing customers in a category and try to get them to buy something new; instead, go find the new customers who weren’t able to afford or adopt the incarnation of the status quo.
  13. Age and the Entrepreneur
    1. Just do yourself a favor and read the whole thing. The article he references can be found here
  14. Luck and the entrepreneur
    1. Chance… something fortuitous that happens unpredictably without discernable human intention. 
    2. OK, so what are they?
      1. In Chance I, the good luck that occurs is completely accidental. It is pure blind luck that comes with no effort on our part. 
      2. In Chance II, something else has been added — motion. Unluck runs out if you keep stirring up things so that random elements can combine, by virtue of you and their inherent affinities.
      3. Now, as we move on to Chance III, we see blind luck, but it tiptoes in softly, dressed in camouflage. Chance presents only a faint clue, the potential opportunity exists, but it will be overlooked except by that one person uniquely equipped to observe it, visualize it conceptually, and fully grasp its significance. Chance III involves a special receptivity, discernment, and intuitive grasp of significance unique to one particular recipient. Louis Pasteur characterized it for all time when he said, “Chance favors the prepared mind.”
      4. [Chance IV] favors the individualized action. This is the fourth element in good luck — an active, but unintentional, subtle individualized prompting of it. Please explain! Chance IV is the kind of luck that develops during a probing action which has a distinctive personal flavor. The English Prime Minister, Benjamin Disraeli, summed up the principle underlying Chance IV when he noted: “We make our fortunes and we call them fate.” Chance IV comes to you, unsought, because of who you are and how you behave. Chance IV is so personal, it is not easily understood by someone else the first time around… here we probe into the subterranean recesses of personal hobbies and behavioral quirks that autobiographers know about, biographers rarely. [In neurological terms], Chance III [is] concerned with personal sensory receptivity; its counterpart, Chance IV, [is] involved with personal motor behavior.
      1. [You] have to look carefully to find Chance IV for three reasons.
        1. The first is that when it operates directly, it unfolds in an elliptical, unorthodox manner.
        2. The second is that it often works indirectly.
        3. The third is that some problems it may help solve are uncommonly difficult to understand because they have gone through a process of selection. We must bear in mind that, by the time Chance IV finally occurs, the easy, more accessible problems will already have been solved earlier by conventional actions, conventional logic, or by the operations of the other forms of chance. What remains late in the game, then, is a tough core of complex, resistant problems. Such problems yield to none but an unusual approach…[Chance IV involves] a kind of discrete behavioral performance focused in a highly specific manner.
      2. Here’s the money quote:
        1. Whereas the lucky connections in Chance II might come to anyone with disposable energy as the happy by-product of any aimless, circular stirring of the pot, the links of Chance IV can be drawn together and fused only by one quixotic rider cantering in on his own homemade hobby horse to intercept the problem at an odd angle.
    3. A recap?
      1. Chance I is completely impersonal; you can’t influence it.
      2. Chance II favors those who have a persistent curiosity about many things coupled with an energetic willingness to experiment and explore.
    1. Chance III favors those who have a sufficient background of sound knowledge plus special abilities in observing, remembering, recalling, and quickly forming significant new associations.
    2. Chance IV favors those with distinctive, if not eccentric hobbies, personal lifestyles, and motor behaviors. This of course leads to a number of challenges for how we live our lives as entrepreneurs and creators in any field:  How energetic are we? How inclined towards motion are we? 
    3. Those of you who read my first page and the entrepreneur post will recognize that this is a variation on the “optimize for the maximum number of swings of the bat” principle. In a highly uncertain world, a bias to action is key to catalyzing success, and luck, and is often to be preferred to thinking things through more thoroughly.
      1. How curious are we? How determined are we to learn about our chosen field, other fields, and the world around us? In my post on hiring great people, I talked about the value I place on curiosity — and specifically, curiosity over intelligence. This is why. Curious people are more likely to already have in their heads the building blocks for creating a solution for any particular problem they come across, versus the more quote-unquote intelligent, but less curious, person who is trying to get by on logic and pure intellectual effort.
      2. How fIexible and aggressive are we at synthesizing– at linking together multiple, disparate, apparently unrelated experiences on the fly? I think this is a hard skill to consciously improve, but I think it is good to start most creative exercises with the idea that the solution may come from any of our past experiences or knowledge, as opposed to out of a textbook or the mouth of an expert. (And, if you are a manager and you have someone who is particularly good at synthesis, promote her as fast as you possibly can.)
      3. How uniquely are we developing a personal point of view — a personal approach– a personal set of “eccentric hobbies, personal lifestyles, and motor behaviors” that will uniquely prepare us to create? This, in a nutshell, is why I believe that most creative people are better off with more life experience and journeys into seemingly unrelated areas, as opposed to more formal domain-specific education — at least if they want to create. In short, I think there is a roadmap to getting luck on our side, and I think this is it.

What I got out of it

  1. Some awesome insights. I changed how I batch mail, learned how to see luck from 4 different perspectives, and thought Simonton’s age and outstanding achievement was incredible 

On Bill Gurley’s Above the Crowd

I spent this past month reading Bill Gurley’s fantastic posts on Above the Crowd.

Bill has been blogging since 1996 and it was fascinating to look back through time and see his thinking and thought process over these past 25 years, specifically as it applies to technology and consumer internet companies. The link at the bottom of the page is a compilation of all his posts and my favorite were: The Most Powerful Internet Metric of All, The Smartest Price War Ever, All Revenue is Not Created Equal, and The Thing I Love Most About Uber.