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Books, Business, Technology

The Hard Thing About Hard Things

February 7, 2023 tremendousblog 7 Comments

“As a start-up CEO I slept like a baby. I woke up every 2 hours and cried.”
Ben Horowitz

Today, Ben Horowitz is the billionaire co-founder of a16z and one of the most important people in tech. But 20 years ago, he was the CEO of a penny stock startup called Opsware.

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By persevering through layoffs and withering criticism, Horowitz built his company into a colossus. In 2007, Opsware sold to HP for a cool $1.65 billion in cash.

Horowitz’s most important lesson: no matter what happens, don’t give up!

“Whenever I meet a successful CEO, I ask them how they did it. Mediocre CEOs point to their brilliant strategic moves or their intuitive business sense or a variety of other self-congratulatory explanations. The great CEOs tend to be remarkably consistent in their answers. They all say, “I didn’t quit.'”

How to Lead

Horowitz often had to bet the company’s future on a decision made with limited information. As a founder, that’s all you’re ever going to get.

He also didn’t shy away from getting involved in details. Companies tend to stand still unless someone forces them to move.

“…when you are a startup executive, nothing happens unless you make it happen.”

Above all, a leader has to put the company and his people first. If you take care of your customers and employees, success will follow.

Finding the Right People

Horowitz dedicates much of the book to how to find and train the right people.

Horowitz favors team-oriented hires. He looks for people who rarely say “I” or “me,” even when discussing their own accomplishments.

Once you have those great employees, Horowitz urges you to invest in them:

“Training is, quite simply, one of the highest-leverage activities a manager can perform.”

In fact, no one at Opsware could even start looking for an employee until they had a training plan ready for that person.

Layoffs

Many startups are facing layoffs today, as Opsware did.

Horowitz advises CEOs to first speak to the entire company, making clear that the company has failed. Then, managers must lay off their own people.

Be sure to treat the departing staff well: the rest of your employees will be watching closely.

Lessons for Investors

When he started a16z, Horowitz wanted to change one icky thing about venture capital: forcing founders to wait forever in the lobby.

Horowitz made a simple rule.

Anyone late to a meeting with a founder would be fined $10. A minute.

“We wanted the firm to respect the fact that in the bacon-and-egg breakfast of a startup, we were the chicken and the entrepreneur was the pig: We were involved, but she was committed.”

I’m instituting this rule in my own meetings with startups, with the fines going to charity.

Horowitz also provides some great guidance on finding promising founders.

He notes that successful CEO’s he’s met all have different styles. There’s no one type to look for.

But one thing all great leaders share is a desire to improve. So I’ll be asking “How could you improve as CEO?” a lot more frequently.

Horowitz’s memoir is a window into what life as an entrepreneur is really like — at turns, nerve-wracking and exhilarating. It makes great reading for founders and investors.

What do you think of Horowitz’s advice? Leave a comment and let me know!

More on tech:

Zero to One

Amp It Up

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Books, Business, Technology

My 2022 Reading List

December 27, 2022 tremendousblog 1 Comment

Whenever I walk into the library, I think “How can I ever read all these books?”

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For me, finding the right books is hard. And something tells me you might be struggling too!

So here’s a quick review of everything I read this year! If something piques your interest, pick up a copy!

Top Pick: Nonfiction

The Power Law by Sebastian Mallaby. This is on every VC’s list this year for a reason.

Mallaby does an amazing job recounting key moments in the history of venture capital. I found the story about Accel staking out Facebook headquarters to win its Series A fascinating.

If you’re in the technology industry, this is a must read! I wrote a series of posts about it here:

THE POWER LAW (PART ONE)
THE POWER LAW (PART TWO)
THE POWER LAW (PART THREE): ANGELS AND VC’S
THE POWER LAW (PART FOUR): THE FIRST VENTURE DEAL

Top Pick: Fiction

Howl and Other Poems by Allen Ginsberg. Ginsberg is my favorite poet, so a friend gave me this slim volume as a very thoughtful gift!

I find the Sunflower Sutra particularly beautiful. Ginsberg tells us “we’re all beautiful golden sunflowers inside.” This reminds us to value ourselves and not get too caught up in the day to day!

The Rest of the List

Playing for Keeps by David Halberstam. An excellent account of how Michael Jordan came to dominate the NBA.

Jordan was intensely competitive and hard working. But he was also unusually coachable.

I’m never going to rival Jordan on the court, but his example is instructive in any field.

The Lean Startup by Eric Ries. The classic text on launching an MVP and iterating your way to success.

Little did I know that later in the year, Eric and I would wind up co-investors in the same startup!

More on The Lean Startup in this post.

Amp it Up by Frank Slootman. The Snowflake CEO provides great insights on leadership in this engaging and brief volume.

He includes tricks for increasing intensity like asking why a task can’t be completed tomorrow instead of next week. More in this post.

The Founders by Jimmy Soni. A deep dive into the founding of PayPal, one of the most iconic tech companies of our time.

Soni includes fascinating tidbits like how PayPal was originally designed to beam money between Palm Pilots. More in this post.

Hunting the Unabomber by Lis Wiehl. Ted Kaczynski is the mirror image of many of the successful founders profiled on this list.

Like many of them, he was precocious and Harvard educated. But he despised technology and its effects on society.

He also showed early signs of being disturbed, laughing as he tried to scald his mother with spaghetti sauce as a child. Perhaps some people are just born with problems.

Into the MIrror by Norman Mailer and Lawrence Schiller. Robert Hanssen was the highest ranking US official ever to become a spy for the Soviet Union.

This is the fascinating story on how he went wrong, and how the government caught him.

Founder by Amos Elon.

Mayer Amschel Rothschild founded the Rothschild banking dynasty. It became one of the most powerful families in Europe.

But the first Rothschild was born in a dank Jewish ghetto. He was orphaned at 13 and faced extreme discrimination throughout his life.

Rothschild grew his business by going out and finding customers, unlike most bankers. Once he had them, he was a loyal partner, always putting their needs first.

I’ve read this book four times now — it never gets old!

Revolutions: A Very Short Introduction by Jack Goldstone. This book covers revolutions from the ancient world to today, digging deep into their causes.

One surprising insight was that poverty alone doesn’t produce revolutions. A destitute populace is no match for a government’s armaments.

Elites also need to withdraw their support from the regime.

Zero to One by Peter Thiel. In contrast to The Lean Startup, Thiel advises founders to create a highly differentiated product 10x better than alternatives rather than a barebones MVP.

I’m not sure who I agree with. But Thiel’s book is a must for any entrepreneur or investor.

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Photo: Author Sebastian Mallaby

Books, Business, Technology

Zero to One

December 19, 2022 tremendousblog 5 Comments

Founders should launch an MVP as soon as possible and iterate their way to success…right? Wrong, according to billionaire Peter Thiel.

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The controversial venture capitalist and co-founder of PayPal lays out a very different view in his book Zero to One. As I headed off on vacation last week, I dug into this classic.

Thiel is fundamentally opposed to the Lean Startup framework. Iterating on a minimum viable product (MVP) would never have produced the iPhone, Thiel notes.

Instead, we should create a fundamental innovation. Our new product should be 10x better than alternatives.

And forget about big markets. Thiel’s approach is to completely dominate a small market, then branch out.

“No sector will ever be so important that merely participating in it will be enough to build a great company.”
Peter Thiel

I find Thiel’s approach compelling. Total domination of a small market is a stronger indicator of product-market fit than a tiny slice of a big one.

A monopoly, even in a small area, means you have pricing power. This avoids a race to the bottom with margins headed to zero.

From that strong position, we can branch out to adjacent markets. For example, PayPal was able to move from enabling eBay payments for top sellers to sending money for any reason.

Thiel also includes a great trick for investors: ask founders what they pay themselves.

A reasonable salary of no more than $150,000 ($194,000 in current dollars) strongly correlates with success. This is one of the clearest patterns Thiel has observed from investing in hundreds of startups including Facebook.

I’m going to steal this one! It may lead to some awkward silences on Zoom, but ya gotta break some eggs to make an omelette.

I found Thiel’s take on entrepreneurship refreshing. Zero to One turns the standard startup playbook on its head, and it makes a lot of sense!

I’m going to look more closely at companies dominating an initial small market. And if I ask you your salary, blame Peter.

What do you think of Zero to One? Leave a comment at the bottom and let me know!

Glad to be back!

More on tech:

Seedscout: Where Underestimated Founders Win

Why I Just Invested in Rilla, the Killer App for Outside Sales

Seeing Through SBF: How One VC Found the Truth

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Books, Business, Technology

The Power Law (Part Four): The First Venture Deal

June 29, 2022 tremendousblog 2 Comments

They were the best and brightest young engineers American could produce. But they had one problem: their boss was a tyrant.

Shockley Semiconductor Laboratory founder William Shockley shouted at his talented engineers, recorded all phone calls, and even demanded they take lie detector tests. All refused.

Instead, they did something few engineers in the 1950’s had ever done: struck out on their own. But how could these men of modest means start a semiconductor company?

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Enter Arthur Rock, perhaps the first venture capitalist. Rock invested and also brought in entrepreneur Sherman Fairchild, who put in a cool $1.5 million.

The “traitorous eight” engineers were off to the races. The company called itself Fairchild Semiconductor.

This was the first modern-style venture capital deal. This fascinating history is recounted in Sebastian Mallaby’s new book, The Power Law: Venture Capital and the Making of the New Future.

Like today, the Fairchild deal involved equity investment. What’s more, the founders and employees continued to own much of the company.

That employee ownership was a critical advantage.

Its engineers interviewed customers about what they needed before building anything. This made sure the new company’s products were useful.

The engineers had a strong incentive to make sure they built products that sold well. Big sales meant their stock went up!

Fairchild prospered, making huge advances in semiconductors and racking up millions in sales. Rock’s investment proved to be a home run.

His first fund went from $3.4 million to $77 million in just 7 years. This 23-fold return would be absolutely off the charts, even today.

What’s striking about the story of Fairchild is how unlikely it was.

The culture of the 1950’s was all about big institutions, from major corporations to the army. Finance was highly conservative, more concerned with avoiding loss than reaching for enormous gains.

Without this new form of investing, the Fairchild engineers would’ve kept laboring miserably for Shockley. Or perhaps they’d have moved to some lumbering bureaucracy with little interest in their ideas.

Either way, they probably wouldn’t have been able to make the huge technical advances they did at Fairchild.

The impact of what some call “liberation capital” has only grown with time.

Just a fraction of 1% of US firms raise venture capital. But that tiny group of companies accounts for 76% of the market value of IPO’s and 89% of R&D spending in America.

The most valuable assets are increasingly intangible. They are not smoke belching factories but lines of code.

This is why the venture industry will only become more important with time. It’s the only one that’s good at financing these intangible assets.

Most other investors are conservative and want collateral young firms don’t have.

When I meet with an ambitious founder today, I sometimes wonder where they’d be without venture capital. Perhaps they’d be toiling away miserably in some large bureaucracy indifferent to their talents.

And I want to free them.

More on tech:

The Power Law (Part Three): Angels and VC’s

The Power Law (Part Two)

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Photo: The “traitorous eight” at the Fairchild Semiconductor offices

Books, Business, Technology

The Power Law (Part Three): Angels and VC’s

June 28, 2022 tremendousblog 2 Comments

In the world of venture capital, there are two species: great white shark VC’s and goldfish angel investors. They dwarf us in size and power as we wiggle about looking for an insect to eat.

So I was surprised to learn that in some of the hottest deals, angel investors actually have the advantage.

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In his superb new book The Power Law: Venture Capital and the Making of the New Future, Sebastian Mallaby recounts how the greatest tech companies found their first supporters. Time and again, the hottest companies rejected entreaties to meet from the top venture firms.

Instead, they went to angel investors to raise money quickly and easily with a minimum of oversight.

Mark Zuckerberg refused to meet with Accel early on. He even showed up at the offices of heavyweight Sequoia Capital in his pajamas!

Sequoia founder Don Valentine recognized the stunt for what it was: a provocation. Zuckerberg wanted the princes of Sand Hill Road to know he didn’t need them.

Instead, he turned to Peter Thiel and other angels for his first funding. Unlike the slow moving investment committees of venture firms, they could write a check on the spot.

But Zuckerberg was not the first great entrepreneur to shun VC’s. Google founders Larry Page and Sergey Brin had every firm in the Valley breathing down their necks.

Instead, they met angel Andy Bechtolsheim on their front porch.

After a brief pitch, Betcholsheim raced back to his Porsche and returned with a checkbook. He invested $100,000 when the company wasn’t even incorporated.

Along with angels, lesser known venture firms also back many of the greatest companies. As Mallaby notes:

“…the idea that venture capitalists get into deals on the strength of their brands can be exaggerated. A deal seen by a partner at Sequoia will also be seen by rivals at other firms: in a fragmented cottage industry, there is no lack of competition. Often, winning the deal depends on skill as much as brand: it’s about understanding the business model well enough to impress entrepreneurs; it’s about judging what valuation might be reasonable. One careful tally concluded that new or emerging venture partnerships capture around half the gains in the top deals, and there are myriad examples of famous VC’s having a chance to invest and then flubbing it.”

I was very surprised to learn that being at a top firm isn’t the advantage it may seem. No wonder Sequoia still cold messages founders!

In this competitive environment, I look for ways for us to cooperate.

VC’s can benefit if angels bring them great early stage deals. Angels benefit by being able to help their portfolio companies.

In the end, if we can work together to build the greatest companies of the future, everybody wins!

What are your experiences raising from angels and VC’s? Leave a comment at the bottom and let me know!

More on tech:

The Power Law (Part Two)

Managing a Crisis the Sequoia Way

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Photo: Google founders Larry Page and Sergey Brin. “File:Google page brin.jpg” by Ehud Kenan is licensed under CC BY 2.0.

Books, Business, Technology

The Power Law (Part Two)

June 27, 2022 tremendousblog 4 Comments

“When in doubt, take the shot.”
Doug Leone, Managing Partner, Sequoia Capital

The partners from prestigious venture firm Accel stood outside an office in Palo Alto, waiting to take theirs.

These were the offices of a young startup called thefacebook.

Most startups would’ve killed to meet them. But thefacebook’s young founder gave the Accel partners the cold shoulder.

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This didn’t stop them. They lurked outside and buttonholed any thefacebook employee they could find.

Eventually, they got the meeting with founder Mark Zuckerberg. And they won the deal, a $10 million check into the company’s Series A round.

To this day, it remains one of the greatest investments in the history of venture capital.

As an angel investor, I always assumed that the prestigious firms like Accel or Sequoia had it easy. The best founders must be falling all over themselves to meet them!

Nothing could be further from the truth. As Sebastian Mallaby chronicles in his superb new book The Power Law: Venture Capital and the Making of the New Future, the greatest firms are also the scrappiest.

Sequoia Capital, perhaps the greatest VC firm in history, wrote their own code to find the most downloaded new iOS apps. One day, it flagged a small program called WhatsApp.

Sequoia partner Jim Goetz sent e-mail after e-mail to WhatsApp’s founder. For months, he never heard a word.

Finally, Goetz was able to get a meeting with WhatsApp’s founder, Jan Koum. In time, Sequoia won the deal.

The investment made Sequoia $3 billion, and WhatsApp is now ubiquitous throughout the world.

So what does this mean for small fries like me?

Even the greatest have to vigorously pursue deals and handle rejection, so don’t give up on an awesome company! If Sequoia isn’t too cool to cold-message a founder on LinkedIn (psst: they’re not), neither am I!

And when I find that rare, incredible startup, I’ll be repeating Leone’s words to myself: “take the shot.”

More on tech:

Managing a Crisis the Sequoia Way

Talking Startups and Today’s Fundraising Pullback

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Photo: Doug Leone, Managing Partner, Sequoia Capital. “_SJP1148” by TechCrunch is licensed under CC BY 2.0.

Books, Business, Technology

The Power Law (Part One)

June 23, 2022 tremendousblog 10 Comments

“Reasonable people…routinely fail in life’s important missions by not even attempting them.”
The Power Law

Every day for the last 15 months, I’ve sat down in front of my computer and tried to find the next great tech company. Being immersed in the daily details of e-mails and deal memos made me wonder about the history of this most unusual of industries, venture capital.

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So I grabbed a copy of Sebastian Mallaby’s excellent new book The Power Law: Venture Capital and the Making of the New Future. Mallaby traces the history of venture capital from its first deal to today, and explores the principles that drive its success.

The fundamental principle of venture capital is the power law — a small percentage of winners generate almost all the returns:

“Anytime you have outliers whose success multiplies success, you leave the domain of the normal distribution for the land ruled by the power law — from a world in which things vary slightly to one of extreme contrasts. And once you cross that perilous frontier, you better begin to think differently.”

Since just a few companies drive most of the returns, the entire business becomes about finding and investing in those very few companies:

“…each year brings a handful of outliers that hit the proverbial grand slam, and the only thing that matters in venture is to own a piece of them.”

So how should investors identify those rare businesses? Arthur Rock, who was arguably the first venture capitalist, liked to ask open-ended questions like “Who do you admire?” or “What mistakes have you learned from?”

Rock looked for founders who were realistic and determined. He avoided those who were prone to wishful thinking or who tried to please instead of being honest.

Rock’s inquisitive style led him to back Fairchild Semiconductor in the 1950’s in what was the first modern-style venture capital deal.

Founder traits are important, but hard numbers also matter. Google, eBay, Facebook and YouTube all had staggering growth figures early on.

Andy Rachleff, Benchmark partner and early investor in eBay, looks at an even more sophisticated growth metric:

“‘When companies grow exponentially, they don’t suddenly stop,’ Andy Rachleff observed later, adding that it is the ‘second derivative —the changes in the rate of growth of a company’s sales — that really tell a venture investor whether to back it.’”

Once an investor finds that diamond in the rough, he needs to own a piece, even if the price is high. Mallaby notes that Google’s seed round valuation was around $10M, high for its time.

Prone as I am to analysis, I often undervalued actually meeting investors and founders. This book taught me a lot about the importance of networking to the venture industry.

Don Valentine, founder of Sequoia, went to a Silicon Valley bar every Wednesday and Friday to chat with engineers about the next big thing. In the world of startups, investors are the specialists in connecting people with each other.

The more interesting people we meet, the better we’ll be at our job!

Mallaby provides so much great information that I’ll save the rest of the book for another post soon. In the mean time, if you’re interested in startups and venture capital, I urge you to grab yourself a copy!

More on tech:

What I Learned From an Investor Who Turned $100,000 into $100,000,000

Amp It Up

Managing a Crisis the Sequoia Way

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Photo: “Don Valentine, Sequoia Capital” by jdlasica is licensed under CC BY 2.0.

Books, Business, Technology

Amp It Up

May 5, 2022 tremendousblog 8 Comments

“Only the government can print money; the rest of us have to take it from somebody else.”
Frank Slootman

Frank Slootman has been the CEO of three companies: Data Domain, acquired for $2.4 billion, ServiceNow, market cap $94 billion, and now Snowflake, market cap $52 billion. His track record has few parallels.

But Slootman wasn’t always a big success. As a teenager in the Netherlands, he cleaned toilets for a living. When he moved to the United States, he had his heart set on joining IBM.

They rejected him. 12 times.

So how did Slootman go from obscure Dutchman to one of the biggest names in tech? By bringing a warrior’s mentality to business.

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Slootman focuses like a laser on destroying the competition, on breaking their will to fight. And the most powerful weapon in his arsenal is growth.

When you grow much faster than your competitors, it demoralizes them. And as you become the winner, you can begin poaching their best people, causing the rest to lose all confidence.

The importance of growth to Slootman’s approach is impossible to overstate. It’s also born out by data:

“‘Grow Fast or Die Slow’ is the title of a 2014 McKinsey & Co study that examined thousands of software and services companies between 1980 and 2012. It concluded that growth trumps everything else as a driver and predictor of long-term success. ‘Super grower’ companies, which McKinsey defined as 60% or more annual growth, had five times higher returns than medium growth companies (which had less than 20% annual growth). Super growers also had an eight times greater likelihood of reaching $1 billion in annual revenue. “

So how do you grow fast? Slootman recommends focusing on one key thing.

Many priorities means no priority.

You should also push everyone to move faster at all times:

“Leaders set the pace. People sometimes ask to get back to me in a week, and I ask, why not tomorrow or the next day? Start compressing cycle times.”
Frank Slootman

But not just any team can achieve this. Finding the very best talent will make or break your business:

“Hire more for aptitude than experience and give people the career opportunity of a lifetime.”
Frank Slootman

This talented group of people also must be motivated by an important mission. Snowflake is making data queries 10-100x faster, leading to a total revolution in how humans use data to make decisions.

That’s the kind of mission that will put pep in your step!

Slootman also has some interesting info for investors in startups, such as myself. The way he spotted “super grower” companies to take the helm of was by looking for a fast growth track record, a huge market, and extremely happy early customers.

We can use the same criteria to find great investments.

Slootman’s book is energizing, exciting, and a true page turner. That’s rare in the world of business books.

I strongly recommend getting this slim volume for yourself! After reading Slootman’s words, I felt ready to run through a wall.

You will too!

Let’s close with a great quote from Frank:

“Only in hindsight will you truly realize what your experiences have meant. That is why it’s okay to embrace your inevitable challenges and setbacks as part of your journey. They are there for a reason.”
Frank Slootman

What do you think Slootman got right, and did he leave out?

Leave a comment at the bottom and let me know what you think.

Have a great day everyone!

More on tech:

Hedge Fund Giant Tiger Global Losing $28 Million an Hour

The Startup Pitch Checklist

The Lean Startup

Photo: “Frank Slootman” by Thomas Hawk is marked with CC BY-NC 2.0.

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Books, Business, Technology

The Lean Startup

March 30, 2022 tremendousblog 11 Comments

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“There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”
Peter Drucker

You’ve written a 92 page business plan. For three years, you hunched over your laptop coding, sustained by Red Bull and Cheetos

At last, launch day is here! You press the button and…

Nothing happens.

You keep refreshing the page, but no one is signing up. You try one marketing channel after another, convinced that massive growth is right around the corner.

But the hard truth is, no one wants what you’ve built.

That is a hard moment for anyone. And it’s why Eric Ries wrote the seminal book The Lean Startup, which I just finished this morning.

The Lean Startup framework involves creating a Minimum Viable Product (MVP) and getting it to customers ASAP. Then, by seeing how customers use it, you make changes to the product (“iterate”) to see if you can serve customers better.

Build-Measure-Learn is the loop you want to go through as frequently as you can. Build something you think customers need, measure how it does with customers, and learn how to do a better job meeting those needs in your next version.

“The question is not ‘Can this product be built?’ In the modern economy, almost any product that can be imagined can be built. The more pertinent questions are ‘Should this product be built?’ and ‘Can we build a sustainable business around this set of products and services?’”
Eric Ries

Ries gives some incredible examples of just how minimal that MVP can be.

Nick Swinmurn started Zappos by taking pictures of shoes in nearby stores. He put those pictures on his website and if anyone ordered a pair, he went to the store, bought and shipped them.

“But that doesn’t scale!”

Sure it doesn’t! But in 1999 when Swinmurn founded the company, no one knew if people would buy shoes on the internet.

Starting with a mostly manual process was a lot better than Swinmurn spending months if not years and untold sums building infrastructure to accomplish what no one wanted in the first place.

Early stage startups have limited capital and only so much time to prove their business can work. By getting through as many cycles of Build-Measure-Learn as possible, founders give themselves the best chance at finding a viable business before the clock runs out.

In just 11 years, Ries’ ideas have gone from unusual to being the accepted way to run a startup. His book, while at times a slog, is essential reading for both founders and investors.

I’ll leave you with the quote that struck me most. It’s one I aim to live by:

““…if you cannot fail, you cannot learn.”
Eric Ries

More on tech:

The High Growth Handbook: Scaling Startups from 10 to 10,000 People

How Startups Can Dominate the Elevator Pitch

What I Look For in Startups

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Photo: “Eric Ries – The Lean Startup, London Edition” by betsyweber is marked with CC BY 2.0.

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