tag:blog.chrisbarber.co,2013:/posts Chris Barber 2016-11-08T08:19:41Z Chris Barber tag:blog.chrisbarber.co,2013:Post/755934 2014-10-16T00:19:26Z 2016-11-08T08:19:41Z Breakout companies

Sam Altman and Dustin Moskovitz's startup class lecture #1 inspired me to do this.

http://www.breakoutlist.com/

A list of breakout companies, and a little bit of information about working there.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/750409 2014-10-03T07:56:00Z 2014-10-07T17:14:51Z Transcript: Creative mornings with Ben Chestnut

This is a transcribed video for CS183B, the YC startup class at Stanford.

This is a reading for Kevin Hale's talk. Kevin is a founder of Wufoo and a partner at Y Combinator. 

The transcript hasn't been cleaned up.

Ben: Georgia Tech rejected me. I was like, "Screw you, guys. I'm just going to go to UGA." I always sound like A-hole when I say this but if you're working for me, you're a creative person, it's not my job to make you happy. If you search for the word boredom in our app, the whole screen turns into an asteroids game.

This money is like a pain in the ass to count. Are you guys having problem?

Speaker 2: Today, we have Ben Chestnut and he is the co-founder of MailChimp, a little company here in Atlanta and I'm going to read his bio real quick. He started college as a Physics major at UGA. He discovered Industrial Design. Then, he transferred to Georgia Tech and he got a degree in Industrial Design. He started technical Rocket Science Group, a web development agency in 2001. MailChimp was a side project of the Rocket Science Group to help their client send email. It eventually became their sole focus and now, they have 1.2 million users worldwide.

Without further advocacy, let's give it up to Ben Chestnut.

Ben: This is exciting for me because for the last 10 years of my life, pretty much I only got invited to speak about email marketing so finally, I get to talk about something else. I love email but I have nothing more to say about email. It's like I've been talking about this like if you have something interesting to say, send an email. Otherwise, don’t send anything. It's really that simple.

I actually tell employees spread rumors in the industry that I'm a germaphobe and I won't travel and that way, people would stop asking me to talk about email marketing. Ten years, I've had all this thoughts and they've been stuck up here because no one has asked me to talk about them. Then Tina invited me. She's, "You can talk about anything you want." This is like just to warn you. This is 10 years of stuff that have been tormenting me. I hope I can do this here.

What I want to talk about is controlled chaos and the maximization of the entropic states as applied to steam engines and creative environments. An insanely laborious title and probably the most uncreative title ever for Creative Mornings but running a creative environment and a creative office is really hard work. It's unbelievable hard work and that's kind of what I want to convey in this. This is going to be really chaotic lecture by the way just to set your expectation.

As we got closer to you today, I sent an email to Tina kind of like this and she said, "You know, don’t worry about it. Tell people your story. Tell them how you got here." Point A to point B, how did I get to MailChimp. I'll give you a little background. I grew up in a creative household. My brother was a painter and also a musician. He played the guitar and he fiddled with electronics and my sisters were into graphic arts.

They were always making collages and stuff. My mother was an aspiring chef. My father was an aspiring writer but also a computer programmer. We were just always making stuff at home and I was into cartooning. I thought I wanted to be a cartoonist when I grew up. I would take … I would steal

post-it notes from my sisters and my brother and make little cartoons and I'll take them to school and show them off, flip them on the bus and the kids would gather around like, "Oh that so cool."

Then I started to sell them. I turned it into a business. I would stay up late at night and I should have been doing my math homework but I would make this cartoons and sell them for 50 cents which is so stupid I … all night and I … 50 cents. Really bad at math.

I would take this to school and they love them. They're like little stick figures that run across the screen, bouncing balls and people loved it and they wanted more so I would make a car come in and run over the people. They're like, "Man, that's awesome. Do more, more, more." I had to make jets come in and drop bombs on the cars and the cars would explode and little tires would bounce around on the screen and they wanted more, more.

I found myself I was 10 or something and I was already dealing with A-hole clients, really demanding. I was just 10 and I couldn’t wake up in the morning. I didn’t want to get on the bus anymore. I got out of it. I just totally got out of the business. My dad, he bought us an AMStrad PC and I guess he wanted me to be a computer programmer. He said, "You know, want to learn this stuff?" I was like, "No. No. Numbers, no. No. No."

He didn’t push me. He said, "That's fine." I didn’t touch it for a while and went to RadioShack 1 day and he takes this box off the shelf. He's like, "What do you think, huh? Huh?" I think it was called Paint Deluxe Pro. I tried to go back and find this. It looks like one of the first programs from Electronic Arts which is like a gaming company now but it's Paint Deluxe but all I remember is on the cover was this giant tiger. It was a huge tiger face and I was like, "Tiger." I was like, "I want to learn that."

He bought it. It was hundreds of dollars and he never spent that much money. He's just, "Let's get it." It was 5 floppy disks, you had to load this like the 5 inch kind like and there was no hard drive. It's in the RAM. You have to load this in order to start the program. I totally fell in love with this. I was drawing on the computer all the time and I knew that's what I wanted to do with the rest of my life, just draw things on computers.

There was no name for this profession. It was new. There were no [inaudible 00:06:22] commercials like computer graphics or anything. I had no idea so I just figured that I had to be an engineer like engineers got to play with computers and draw stuff. I went all through high school taking drafting classes just thinking, "I got to be an engineer so I'll take drafting." Then, it was time to apply to college and Georgia Tech rejected me.

The School of Mechanical Engineering was like, "No. Your Math is really bad." I was like, "Screw you, guys. I'm just going to UGA and I'm going to study Physics." Two years, I studied Physics and it was really ... I looked like him. I was very depressed. It was like, "All right. I know how the world works now. What I'm going to do with that?" My sister, she was working in a creative company. She was at Hallmark actually designing cards. Her friends heard about me and sent me a care package in the mai

l and I remember getting this. It was a college catalogue for art center in Pasadena. You guys know about this school out there?

I got in and I was like, "Wow!" I learned about this profession of Industrial Design. I was like, "Man, this is awesome." The suits and … He [inaudible 00:07:45] he's always got like a cigarette with his pictures. These guys get to play with computers. They draw stuff and there's no math. Not that much so I was like, "I want to do that now." Pasadena is extremely expensive that school so my dad was like, "No. No. No. No."

It turns out, yeah, Georgia Tech has a school of Industrial Design and I remember driving from Athens to Atlanta to talk to the director. It was Bill Bullock at the time. I don’t know if anybody knows him but he looked at my portfolio. I drew 2 pictures and he said, "You know, you've got potential. It's obvious you haven’t been doing this so if you were to apply today, we would say no but if you apply to the Georgia Tech School of Physics …" like nobody wants to learn Physics, "Go to Physics, they'll let you in and then you just transfer." He's like, "If you transfer, no one looks at your portfolio. You can just get in, you know."

I was like, "Really?" These designers, they're really sneaky people. I applied and they actually let me in. I was like, "Suckers." I got in and I was really, really in the product design. I love product design. I would probably be designing cars today but I suck with X-ACTO knives. These are the tool of the devil. They're cylindrical. You guys use these things? They spin in your hand. They're not right. I said, "Screw this. I'm going to get into Web Design." It's like … and … With Web Design it's like clean, you don’t have to sand anything or cut anything. It's just like pixels. It's nice clean computers.

Then so it's like 1 thing led to another and I ended up at MailChimp. Yeah. Now, I'm like the CEO of a software company and like that's … I'm the happiest I've ever been. It's the most challenging and stressful I've ever been but I'm the happiest and I didn’t start off looking to be the CEO of a company. I wanted to be a cartoonist and I think that's my first lesson is you always hear people say, "Do what you love. Do what you love." It's partly true but if it's business, if you start a business doing what you love, it will kill you. It will kill your passion.

If you like to bake and you start a bakery, you will have baking very soon. I love what you do better because it's wherever you're at just be good at it, embrace it, love it, and eventually success will find you. I actually believe that but you don’t forget your passion. You never forget it. After all these years, we actually made a coloring book. We're a software company and we made this coloring book and it's called love what you do and it's all about our little mascot, Freddie, doing little things in life but really loving it just finding joy.

I just love this message and we printed out thousands of these things and we just send them out to customers randomly and they send back pictures of their kids coloring at the laundry mat and they're all bored and it's just … very touching for me. This is what I also want to do anyway, mission

accomplished.

It got featured on this blog called Swiss Miss, some little design thing and it … I don’t know, Tina, if you notice but the editor of [inaudible 00:11:17] Company apparently loves Swiss Miss and she made a writer contact me and do a story on us. That was neat. It was all about creative cultures and how we give you permission to be creative in the company and they talked about the whacky things that go on in the company and I'm like I don’t know if you guys use MailChimp or but we had this mascot Freddie which just does random things while you're building your newsletter like, "Why I'm I smiling. I'm not wearing any pants?"

People love it and he says lots of other random stuff that our customers have sent us and we started to get some designers saying, "You know, I love this but my clients, you know, he's got a stick up his butt. Can you turn this off in any way? Is there a button?" We made a button. Let's see. Yeah. It's called "Party Pooper Mode." You just activate that and the monkey goes away. They love it and they snap tweak picks of it. It's like a secret with us in the designers.

There are all kinds of little touches in the app like when you hit the send button, just underneath it, we say this is your moment of glory. That's really … I can't take credit for any of this stuff. All I can say is I tried to make an environment where people on the team can just play around this. I discovered this stuff along with our customers. I will send emails like, "Who did this? This is cool." You'll see people tweet all about this. They just love these tiny touches.

If you search … I hope you can see this. If you search for the word boredom in our app, the whole screen turns into an asteroids game. It's this crazy like Easter eggs in the app and we don’t say like I don’t say, "Go do an Easter egg." I think I ask the guys like the CSS is way too bloated. It's 500 K. Knock it down. The guy started researching efficient coding methods and stuff and somewhere in the process, they found this game maybe as an exercise in efficient coding or something like that so they shaved down hundreds and hundreds of K and then they added this game back in because they had room. Snuck it back in.

That's where creativity comes from. We used to spend a lot of money on Google Ad words and we still do in case Google is watching. We still spend money but we launched a premium program a little while ago and that's … It really, really ramped up our user base and we could save a lot money from Google and we looked at the money that we were spending over there. We said, "You know, we could pocket it or let's maybe invest in our customers."

We started making these T-shirts and we'll ship them all over the world and it's like a nice surprise when customers like graduate from free to paid. You win a T-shirt and we'll ship it to you and we're getting photos back from all over like this fancy places that I hope to be able to travel to one day. We're starting to get sightings like, "Hey, I saw you on TV." We'll get stuff like

this. This is some guy on Hawaiian TV, I think.

This is neat. Then like this is a print ad for some gym apparently and like that guy is wearing a Freddie T-shirt. It's kind of cool and that's MC Hammer. He's not wearing the shirt but like over there, that guy is. Close enough. I love that. We make these knitted hats and we just shipped this out randomly as well and our customers post pictures of this. They love this stuff and naturally, they started putting them on dogs and we would retweet this and then, of course, the cat people wanted something so we had to start making cat hats.

It's actually like a friend of a friend of a family member in Thailand that knits this like on one of the street markets and that was like … I think she's probably super rich out there because we buy thousands of these things every month and like … I remember writing the email like people were demanding cat hats so … It's like, "This is going to sound weird but can you make this for cats?" They wrote back like in 5 minutes like, "Yes. Send us the measurements for an American cat." They're not obese.

We made a bunch of this and we sent them out and we get … Cats don’t like hats. That's one freaking out. That gave us an idea like all of this like randomness, it starts giving us idea is we made an iPhone app called "Pyow!" Yes, actually, thank you. We're into cats for a little while and we're like, "Hey, let's make Pyow and we'll make like laser shoot out of his eyes because this is like a red laser app, it scans QR codes for our customers who wanted like send coupons and stuff.

Of course, this was like, "Wow! That's kind of neat." We need to make like cat shaped hats as well. In our office, I love like if you say, "Can you hand me a cat hat?" "Which one like the monkey shaped ones for cats or the cat shaped ones for dogs and humans?" You have to be specific when you say cat hats at MailChimp.

People see stuff like this in our company and they see articles and stuff and the ask me like, "What's the formula? What's the formula for running a creative company?" I was like, "Is it that simple?" I never know the answer. It's such a weird question. You're like, "How do you have a creative company," because I think companies are legal entities. They're not creative. They're just pieces of paper. It's these people. You're totally missing then point. People want to be creative.

I wanted to share what I learned about humans. This is while I was designing refrigerators in Iowa. While I was a Industrial Design student, I actually interned, I think it was '96 like wherever … When the Olympics were in Atlanta, I was in Iowa, like I'm never where the action is. I was out in the cornfields designing refrigerators in this in-house design studio and the designers were awesome people and the product managers that they were work with were awesome people. I learned a lot about business and managing business and focus groups and all that stuff.

When the 2 groups had to get together, it was pure hell. It was … The passive-aggressive tension in the room was just crazy and I was just like

a stupid intern but even I could tell, "Man, these guys hate each other." I never knew why but years later, I'm piecing things together and I understand now. They would secretly buy these Japanese and Korean refrigerators and ship them in and dissect them and look at them and they'd say, "Ooh, ahh. Look, it's got these floral prints on them. they've got curves …" and this is '96 so like curves were new.

They're like, "Wow, curves." They didn’t beep. They sang like the birds would chirp and they would sing music and we're like, "Man, we want to do that." The whole company was tooled. The factories were tool to make white sheet metal boxes. You could white, glossy white, off-white, textured white, or cream. That's all we could do. It was incredibly frustrating to get to the point where they could do something beautiful. They're doing beautiful stuff now but it would be like 3 or 4 years. The designers and the managers, they all hated each other because they just couldn’t get anything creative done. Really, really frustrating.

My takeaway was humans really want to create lots of cool stuff and they want to see other people using cool stuff. That's all they want in life. If you can create a business that takes advantage of this, you might have a creative company so to speak. The thing is you have to set up a business to take advantage of this and most businesses they're set up in a weird way. They make a fundamental mistake somewhere along the way. I thought I'd explain it.

This is part of the 10 years of pent-up frustration about business. Here's an example. An entrepreneur has an idea usually. He wants to start a company. A business is like the steam machine like you don’t know how this works. You start up a business. You're like, "Oh, if I tweak this knob, I think money comes out."

If I adjust the screw or like maybe make the pulley or something tighter like more money will come out. That's the first couple of years and then after a little while, you're like, "Wait a minute. Wait a minute. Wait a minute." Two knobs. What happens then like, "Holy shit. Wow. ..." Then, you're like, "Wow, man. I kind of get this stuff. This is kind of cool." Now, I'm going to start thinking big like Richard Branson big. You start learning about key performance indicators like my KPIs are all like knobs. I'm like him but knobs on top of knobs and I've got knobs down here and then like bam.

That's usually what happens and this is where things begin to shake with the company like, "All right. This money is like a pain in the ass to count." Do you guys have that problem like it's ... Pain in the ass, right? It's like everywhere. You need a manager to help you organize and stack this stuff because that's what managers do. They organize and they create order. Managers are good. I'm a manager. You need managers. They create order. You need that. The thing is ... This is not where things go wrong. Things go wrong when that original entrepreneur, the creative guy, says,

"You know what? I deserve a break. I'm going to delegate now. The business is running itself. I can sort of like step back a little bit. Hands off."

That's where things go wrong. They're like, "I'm going to take up like extreme sex surfing or something, you know." I don’t know. I don’t know what that is but I want to do that. He's out there like living it up. That's what business people do. You're like, "You deserve a break. You've been working for 10 years trying to make that stupid money machine print something and you deserve a break, right, so you're going to be hands off. You're going to delegate." I hate that word delegation. I think it's BS but you're out there.

The thing is, your managers back at the office like, "What do I do with this thing?" He didn’t leave a manual. I don’t operate this stuff. I just protect so I'm going to hire robots and they're going to guard it. That's what I do. I protect and defend business and they're going to need guns and dirt bikes and if you have guns and dirt bikes, you need lawyers and lawyers, they need copy machines and shedders and everybody needs to sit down and we need label printers because people take you chairs and they mix them all up. You need cameras to watch all those bastards because they will steal your stuff. You end up with way to much law and order.

That's what ... Managers do that. It's a good thing. You need this but when it gets too much, it can get really, really, really dangerous for your business. I just learned key note like transitions and effects. It's like ... I apologize but I'm going to do this. Before you know it, your whole company is thinking like managers. You're not all managers but you're thinking like managers. You're defending the money machine that you made 10 years ago. No one's making new machines. No one's looking to improve it. You're just defending, defending against competition, whatever. You're just in defense mode and even worse, the creative people at the bottom, they're like, "Wow! The only way to move up in this company is to become a manager or think like a manager."

That's where things really start to end. Too much order is really horrible, really horrible. You got to balance it out with disorder and chaos. Before you get into chaos, this is what I remember from physics at UGA, entropy is the study of waste and disorder. It was discovered by I think a French scientist. Are there any like Physics majors in here? Anybody that actually knows this because ... All right. Good, so I can make shit up.

It was a French scientist who came up with this. He was looking at steam engines and saying, "Wow, man." That's my French accent. "You put potential energy like fuel into this machine and kinetic energy comes out the other side like useful work but somewhere in the middle, there's all these waste, the smoke. It just ... Where does it come from? It's like nature so weird like I'm going to call it entropy. No matter what in nature, you're going to get

entropy, this chaos, this disorder. I'm going to label it with like S because E would be too obvious so I'm going to use S." S stands for entropy. Q is heat. T is temperature or ... I went to UGA so get off my back.

Nature, what I got out of this nature, nature loves chaos. Nature needs chaos. You can have something really nice in order. This is really my takeaway from entropy is you can have a nice orderly studio like studio [inaudible 00:25:37] like nice and clean and white with little red accents but if you want work to get done, you're going to have to let humans in and humans like human nature, they're going to turn it into a pigsty. It is inevitable and that's just nature and I believe that is the very essence of the second law of thermodynamics.

Nature, it's just a part of nature, chaos. You need to get used to it but the thing is managers hate disorder. They don’t like this entropy stuff. It's inefficient. It ruins their sorting. If they had their way, S, entropy would be 0 and I believe the way that the equations work out is without S, you don’t get Q and Q is part of the equation for work and ... Basically, no chaos, no work, not output. They have their way. There'll be no pigsties which means no pigs. No pigs, no bacon. No bacon, no Baco Bits. We need chaos.

Chaos is good. You have to embrace chaos. I think my job as a manager of a creative kind of company and creative people is to find ways to create chaos. Little controlled chaos, not like, I don’t slam employees with chairs. Nothing like, "Ooh yeah." Nothing like that.

I want to talk about the little ways that I try to create chaos in the company. This is a really big idea and I didn’t have time to put text on this slide. It's ironic. This is like I think innovation and creativity comes from just assembling pieces from other stuff in weird ways. You're like ... I try to tell people, "Don’t worry about big ideas. Just keep making the stuff." Build little things. Build prototypes. Sketch this. You want to learn a new programming language, go ahead but don’t take a 2-year course. Just learn a little bit and make something. You got 2 weeks to do it. Two weeks is the ideal timeline at least for me.

After 2 weeks, I don’t want to hear you talking about it anymore. You keep it fast-paced and you're just making junk. It feels like just parts and that's what I tell people all the time like put it in the parts bin. You might launch it. It might have nothing to do with email marketing, nothing to do with MailChimp. Doesn’t help us one bit with the business but just save it because we will use it one day.

Then, you want to avoid meetings. You want to let people stay and work on their stuff and you need meetings every once in a while but you keep it to a minimum so people can work on stuff but then, I always call myself like a

little bumblebee like I buzz around from desk to desk and I ask people like, "What are you working on? What are you working on? What are you working on?"

I never praise people like, "Oh, that's cool," or anything. I just say, "What are you working on? Okay. What are you working on?" I just remember it because I think my job is to go around and say, "Oh, you're working on this but you need a logo like, oh, like Erin over there designed a logo and he doesn't have an app to give it to so like you guys should connect." This is hard work. I could just say, "You know, delegate. You guys go have a meeting and like focus on 2 projects." This is much more hard work but you just have to deal with it. You don’t delegate the creativity away. You deal with it. It is difficult, time consuming.

I don’t feel like I'm doing my job if I'm not buzzing around like a bumblebee. If you're lucky, you can put together these pieces in unique ways. You guys have probably seen this poster. You find creative ways of assembling these pieces and like if you have good managers, they'll take it from this level to something that you can sell. We have a guy in our company called Neo. He just loves it when it's time ... when the creatives like put together their stuff, he comes in and he's like, "All right. Are you ready to make money out of this stuff?" He'll turn into something like this.

One of the reasons I was so stressed is I wasted a month. I didn’t want to come up here and describe myself as a bumblebee. It felt unmanly like flowers. I spent a month ordering guerilla warfare books and art of war and I was like, "Try to learn about this tactics," like I thought that wouldn’t be the topic or the theme. It didn’t work. It was ... I think the FBI is just watching me now because I bought all these books. I just went back to bumblebees and for a minute, I was like maybe like the Transformer Bumblebee. He's awesome but I give up. I'm just not ... That's me. That's me.

I'm a bumblebee. I'm going around. I'm connecting these random chaotic ideasm right, and you're just keeping it fast-paced, make people keep making things. I wanted to show you how this happens at our company. This is ... He's a programmer, Jessie. He doesn’t shave. He lets his hair grow until he's done with the project and then he shaves so we know when he's working on something and when he's done with something. He grows and then, he was ready to shave and our video guy, Josh, he's like, "Can we film you like when you shave?" He's like, "Whatever." It's kind of random silly stuff and so he films it and they thread it backwards. Nothing. No rocket science there but whatever. We post it at the [inaudible 00:31:11] or something and customers got a chuckle and no big deal.

People think this is like creative culture. No. That's not ... That's a piece. This is like a part here. This is work because later on, our creative director starts thinking like, "Whoa. You know, he kind of looks like this Viking terminator

like robot thing, right?" He starts like getting into Vikings all of a sudden. Ron was talking about Vikings and I was like, "Shut up about Vikings." He was like, "We got to make like an app called Enforcerator, but it's … Dude it says, Enfroceator. He spelled it right. Eventually, he got it right. He's sketching Vikings. He's just obsessed with Vikings for a while.

It really goes nowhere but he's sketching swords and skulls and stuff and it turns out Chad, our lead engineer upstairs, is working on something called alter ego and it's a 2-factor security app. He doesn’t have a logo. He's like, "Maybe the design geniuses can come up with something," and he's like, "Hey, we have a sword." We got this done. The whole project was done in about 2 weeks. We launched this thing and what's really beautiful, the whole human thing. You want to build something cool and you want to see other people use it. We built this in 2 weeks and made it free for our 1.2 million users. We get to see it in action.

Version 1 that we knocked out in 2 weeks, it didn’t ... It was a mobile web app, not a native iPhone or Android app. You have to log in to your browser on your phone. It was okay. We just want to get it live though. It turns out we have ... We have a mobile lab 2 doors down from Chad and I told him about this. I don’t say, "Hey, we're working on something. Can you help?" I'd like to say, "We just launched something. Can you help?" I think that's important. We just launched something now. Can you go back and help us build a native app and they were actually wanting to tinker with Android apps. They were into iPhone but they wanted to ...

This was such a simple little app so we actually built an ... I got Josh to film this thing in action. We got to play with the sword more. That's all it does. It's so simple but it was so easy ...

Speaker 3: Flawless kill.

Ben: it's like that Lightsaber game where when you swing this thing around, it sounds like sword fighting. We're hoping that someday, somebody plays with this thing and moves it and I'm like, "Whoa. Wait a minute. You know, Lightsaber." Be in their office swinging the thing around. We were done in 2 weeks and so you have time to work in Easter eggs like that like bring some creative fun stuff into the app.

It's almost like you go back to that money machine in business and the average guy would say, "I want a creative company. I get what I want. You creative people, start being creative. Give me more useful output and stop it with that smoke stuff. It's annoying." In our company, we say, "Whoa, look at that smoke. Whoa! Can you make a shape or something with that? Oh my God. Look at that awesome smoke, guys. Can you do something like ... Whoa! Shh ... Give me more."

The creative people are looking at you like, "He's really into unicorns." They're like making unicorns for you like this guy is a weirdo but mean time, a byproduct is

innovation and money. You just flip the equation around. Instead of focusing on the work, you focus on the entropy or the chaos and you get a byproduct. Hope that makes some kind of sense.

Speaker2: That was awesome. Thank you. [crosstalk 00:35:19] We're going to do a real quick Q&A. We're a little over so maybe like 3 or 4 questions.

Ben: Yeah. I'm pretty smart. I took 10 years to figure this up. The question was, "Did I figure this out right away?" Yeah. No. Ten years, hard work, pure agony. Hence the picture I think at the beginning. If you look at that, that was ... That scared me. Yeah. It's like grueling.

Yeah, like the spark, like the light bulb moment. There wasn't. It was like we were busy doing client work and it was just like hassle and clients needed something. Honestly like when we were working at Cox Interactive newspaper company, we saw a news article that Blue Mountain like an e-greetings site from ages ago, they were bought for 600 million and my friend and I, we were like, "Dude, let's do that." We made an e-greeting site and I drew the cards and he programmed the delivery engine. It went nowhere like friends and family like, "You guys are idiots." Then, we just sat there like parts sittings in the parts bin. We knew we'd use it 1 day. We kept it alive and a client many years later said, "You know, can you do this email marketing for us, these newsletters?"

We started doing it for them. It was all manual and they kept asking for it. We built it into a web app and said, "Leave us alone. Just go log in and do it yourself." We left it. They kept annoying us with the invoices like $200." [inaudible 00:37:01] "Come on." We gave our credit card system so they could just pay their and we left it alone for 5 years and we went back and we're like, "Jesus. It's making more money than us." There was no leap or anything. It's like while you're in there doing your work hustling, that pops up.

Yeah. It's an excellent question. It's like ... If I can repeat it, it's, "How do you get back to the numbers when you're working on happiness all the time? Can you really turn that into money?" The part about that's hard for me to convey, I tried it and I took out the slides. It's, "I don’t care about your happiness." A lot of people worry about that like they think that I'm here doing this fun stuff for happiness and I always sound like an A-hole when I say this. If you're working for me, you're creative person, it's not my job to make you happy. We have a business. It's hard work. We're making money but I'm going to give you opportunities to be creative by keeping it fast-paced and making you do random stuff. You're going to be creative and if you're a creative person, then you'll be happy indirectly.

I'm not ever focused on happiness. I don’t ... You are a robot. I plug you in and you make me money. No. That's ... Tiger to chimp. That's a good question. I don’t have any idea. I know we got chimp from ... We had to pull an all-nighter and it was during the Super Bowl and like we really resented that working for a

client and there was no YouTube like people were posting to some advertising site all the commercials. We would work and then pull up the site and watch Super Bowl commercials and they were all chimps. We were like, "People like chimps."

Speaker 4: Earlier, you were talking about love what you do versus doing what you love. [Inaudible 00:38:58] and maybe your last answer about not caring my happiness [inaudible 00:39:01] but is it your contention that for a lot of creatives, you do start a business based on something that they love that they should go out and find something to do that would not necessarily be what they love but is able to finance what it is that they love. Does that make sense?

Ben: Yeah.

Speaker 4: For instance, if you start a business as a bakery and you end up hating baking. Now, you're like, "Okay. I hate baking." This is something that my wife is doing [inaudible 00:39:31] photographer. It's like all the pains of [inaudible 00:39:33] a photography business is making her hate photography. I'm like, "Sweetheart, you know, you should just go back to you doing what you love." What's your take on that, Ben? Is it better to then in the real world find something that can finance what you love whether or not it's a business that you love doing and then spend your free time doing what you love? Does that make sense?

Ben: Yeah, it does. It's hard to answer. One thing you can just get a manager and to help with a lot of that stuff that you hate so much, managers are really good for that kind of stuff and they love that actually. They're doing what they love. Yeah. It's a really hard one to answer. I feel like I never got to do exactly what I love but I still try to be really good and I ended up loving whatever ... wherever … I had a stint as a banner ad designer for 2 years. I loved it. I was pretty good at it. Eventually, all of these things add up to some kind of knowledge where in the end, you will be able to go back and do your passion but while you're working on business, business really isn't about that passion.

There's a book that like weird businesses sales e-book but it's called the e-myth. I don’t know if anybody's read this but it talks a lot about this sort of thing where, it's your passion, you start a business and it becomes a chore and you hate it. They're ways around it. I'd say just be prepared to lose the passion for a few years but keep it. It will come back later. You might end up with a business that does email and not cartoony but you still get your passion done.

Would I have done MailChimp sooner? Yeah. I sometimes think about that but the way that the economy work out when we started it, it was right after 9/11

and there was ... like a real estate fallout before that and right before that was like the dot com bust and we call ourselves cockroaches like no matter what happens, we can survive. That kind of pain really helped us get stronger. I don’t know if I would go back and change that. I see lot people now like, "Man, they start up in good times and like their business jus ramps up," and when you see them in hard times, it's really, really rough for them. We're like, "Pssh. That's every day." Cockroaches. Thank you, all.

Speaker 2: Thanks.

]]>
Chris Barber
tag:blog.chrisbarber.co,2013:Post/750408 2014-10-03T07:54:12Z 2015-07-22T14:25:13Z Transcript: How we put Facebook on the path to 1 billion users

This is a transcribed video for CS183B, the YC startup class at Stanford.

This is a reading for Alex Schultz's talk. Alex is the VP of Growth at Facebook. Facebook is hiring! https://www.facebook.com/careers 

The transcript hasn't been cleaned up.

Chamath: I want some intro music from Ignacio. Where is Ignacio? First of all I was playing poker until really late last night so I’m a little rough around the edges. I got my slides to you at midnight. I was at the table doing the slides. I’ll just start with a little bit about myself. I’m actually going to give you a somewhat cynical view of this entire space of what it means to be a growth hacker. So don't be offended.

A little bit about me. I think Aaron just touched upon this. Actually, I graduated from EE and in the midst of trying to find my way I ended up working at an investment bank for a year trading derivatives. It was probably the most insipid idiotic use of my time. The biggest thing that I realized was that bankers are smart enough to be greedy but not smart enough to be useful.

So I quit and I applied to all these jobs online and I got one at Winamp accidentally. We actually build something really cool. But the thing that I learned at Winamp, and all of this ties together so I apologize the rambling, but we actually had one of the most important and early consumer platforms available, which was this set of abstractions that we had build to allow people to customize our product. You build skins, you build plugins, and what it actually did was start to refine my understanding of how when you develop things that appeal to specific sets of consumers you start to get this operational leverage in your product.

We were seven people. The things that we did as a seven-person group were pretty impressive back in the day. 100 million users is not as impressive as it is today as it was back then when the internet was a lot smaller but it was still quite an interesting product and really defined a lot of the characteristics of how I actually approached things when I was at Facebook. Winamp was acquired by AOL. At AOL I bumbled along into a bunch of different jobs and ultimately was able to a run AIM and ICQ which was the instant messaging product.

The takeaway from that were two things. One, and I'll get to this a little bit later, most people at most companies are really shit. That was manifested in large degree at AOL. I learned all the things not to do, one, and that was probably 90 percent of my learnings to be quite honest with you. Then 10 percent was reinforcing some things that I learned at Winamp which is really about core product value. What it means is create a real connection with someone. I think now we all euphemistically call it the “Aha” moment with the consumer. But also the power of how these communication networks when they develop create real entrenched usage and scale, and how these things can just dramatically accelerate adoption and engagement.

Then lastly I spent a bunch of time at Facebook. The Facebook story is actually really interesting and I'll tell it sort of interleave it as I go through the rest of slides. I spend most of my time investing and playing poker to be quite honest with you. Some of the big ones that I was fairly large stakeholder in Playdom, Yammmer which we sold for about two billion dollars in combined value. I’m a fairly large investor in Box, Palantir, and a bunch of very small companies now, some of which where I act as a cofounder, some of which I don’t.


A lot of people like to tell every return that they have on their blog. I don't blog or use the Twitter, but the track record here is pretty good. I'm a dad, I have two kids, another one on the way in January. I play a lot of poker and I own the Warriors. That’s what I mean, baller for all of you. For all you people don't use your open dictionary, just use this one, okay?

All right, so let’s talk about growth. Everyone asks me because this is like the topic du jour, it's what everyone wants to know, it’s like what was the secret, it's almost as if we’re the NSA and we've developed something and nobody knows, or some secret backroom negotiations between us and government. It's none of that shit. We did three really obvious brain dead things and the reality was we lacked enough self-awareness and ego to frankly just continue to do these very simple things over and over and over again, repetitively, monotonously to a point where every time we used to see things move in one direction or another we would either keep doing them or stop doing them and not second guess ourselves.

I tell people, “You know, look, we actually just looked at a lot of data, we measured a lot of stuff, we tested a lot of stuff, and we tried a lot of stuff.” Now that masks over a lot of more nuanced understanding but at an extremely high level that's really what we did. What's shocking to me is when I see a lot of products out there it’s unbelievable to me that people are trying to shroud products in this veneer of complexity that makes themselves seem like so good and so smart and, “I’m this fucking hipster,” and, “I’m riding the Muni in San Francisco,” and, “Look at my Oolong green tea that I bought organically,” and, “Look at these rip tight skinny jeans that I bought.”

It’s like you’ve got to get over yourself. Measure some shit. Try some shit. Test some more shit. Throw the stuff that doesn't work. It's not that complicated. I see app after app after app and I get inundated. When I download and I try them I’m like, “Did you even spend eight seconds using your own product?” It’s unbelievable the lack of dogfooding that happens.

So most people when they think about growth they think it’s this convoluted thing where you're trying to generate these extra normal behaviors in people. That's not what it's about. What it's about is a very simple elegant understanding of product value and consumer behavior. When you shroud yourself and all the bullshit veneer, and this is the single biggest problem in the valley today, you will miss the mark.

The problem is we're in this massive long tail where you've had these seminal huge successes occur and now you have all these people who have two choices and they’re extremely difficult choices. Choice number one is you do what you think is right, independent of what the external feedback tells you. Choice number two is you do what you read about, and what you get credit for, and what people tell you is interesting. That second-class of things destroys products and it destroys people's ability to build something interesting.

I

t doesn't matter how good you are at your job if that specific set of values isn’t imbued in what you're building. You will fail and it doesn't matter. Right now that is the one most important thing that if you’re going to leave away with this is just don't believe the hype and the bullshit that we're in right now.

How do we do this? We didn’t even come up with this framework. A guy worked for me. I’m not going to say who it is because I was literally like nine times I was going to fire this numb skull. Once he came to me and said, “Chamath at eBay we had this framework.” EBay, this is 2000. I’m like, “EBay, eBay sucks. What can I learn from eBay?” He said, “Well, we had this framework we used at eBay.” We tweaked it a little bit and what I realized was, “Oh my gosh, you know, there's this massive amount of complexity when expressed in simplicity can be extremely useful.”

The tweaks that we made, eBay is a different product and eBay now is a wonderful company doing really, really well. What? Come on, it’s doing really well. Was we created a framework in which we applied those three very simple principles of measuring, testing, and trying things. We said, “Okay, the biggest risk that we had is we’d alienate the people that trust us today and use the product.” When you alienate someone what happens is it's actually not palatable generally in top level metrics but there's just this extremely long tail.

Anecdotally you can look at companies, and not to pick on HP as an example, but you look at HP. You’re signaling me? 10 minutes? I have 10 minutes left? Jesus Christ, okay. You ask yourself. I know Meg Whitman. She's actually a really great CEO. So what happened? Well, there's no product innovation right now and we have to figure out where their growth comes from. When you trace that thing back it's a decision that was made maybe five or six years ago when it was all about cutting costs and optimizing for structure revenue. So you realize, “Okay, well that's the long tail. That's how long it takes these things to manifest.”

Similarly my biggest fear was we spam our users and we trick them and it will alienate these people. You won't see it today but you'll see in three years from now or four years from now, and it accelerates when you compound that with a competitor who actually builds a better product that doesn't alienate people. The most important thing that we did against our framework was I teased out virality and said you cannot do it. Don't talk about it. Don't touch it. I don't want you to give me any product plans that revolve around this idea of virality. I don’t want to hear it.

What I want to hear about is the three most difficult and hard problems that any consumer product has to deal with. How to get people on the front door? How to get them to an “Aha” moment as quickly as possible? And then how do you deliver core product value as often as possible? After all of that is said and done only then can you propose to me how you are going to get people to get more people. That single decision about not even allowing the conversation to revolve around this last thing in my opinion was the most important thing that we did.


When I look again in the landscape, things that scale understand that principle, whether it's explicitly or intuitively, and things that don't and also things that have this amazingly steep rise and then fall off a cliff and there are really visible examples of that today also ignore that principle. It’s the discipline to not optimize for the thing that gives you the shortest and most immediate ROI because that is never the sustainable thing that allows you to build something useful.

So when you boil that all up the most important two high-level takeaways that we had and after all of this stuff was we got to eliminate ego. Ego manifests itself every day. I talked about it earlier. It's the ego of basically living a lifestyle and a vision and like a Twitter stream than it is actually like living the life of an entrepreneur building good product and trying to deliver core product value. That takes ego, meaning you have to be comfortable not being rewarded in the short term.

Then the second is to invalidate all the lore. In any given product there's always people who strut around the office like, “You know, I have this gut feeling. It's all about gut feeling.” Most people with gut feeling are fucking morons. They don't know what they're talking about. They just don't. If we lived on gut feeling you can look at what happens when you live on gut feeling. Look at the financial markets, look at how government works, look at how all of these industries that are completely broken. Gut feel is not useful because most people can't predict correctly. We know this.

One of the most important things that we did was just invalidate all of the lore. As much as we didn't do stuff all we did was disprove all of the random anecdotal nonsense that filtered around the company. “Well I think it's this, and people are using it because of that, and I want do this.” It's like, “Where did you pull that out of?” You know where they pulled it out of. Again, you want to do it, to go back and reinforce a sense of ego.

A lot of people don't have a culture within a company that allows these two things to happen. If you can't be extremely clinical and extremely unemotionally detached from the thing that you're building you will make these massive mistakes and things won't grow because you don't understand what's happened.

It takes a really special type of person to not believe the bullshit, and an even more special person to not conflate luck and skill. You have to be, if you're in this type of job in my opinion, relatively cynical. You can be confident. Fuck, you can be arrogant, it doesn’t really matter. But you can't believe your own BS, because when you do you start to compound these massively structural mistakes that again don't expose core product value and then don't allow real engagement and real product value to emerge. You don't listen to consumers because you think it's all about your gut. You don't bother doing any of the traditional straightforward obvious things that would allow you to answer very straightforward obvious questions, and you lose yourself.

Most people unfortunately just don't know what they're talking about. I hate this letter. This letter is the dumbest letter in the alphabet. Y

ou people are doing more when you focus on this to ruin the internet for the entire human race. Don't talk about this anymore. Just stop. Talk about being in the weeds and not understanding what you're doing. There's no context when you talk about this. None whatsoever. You are spammers, and spamming is pathetic, and it ruins the experience. Don't do it.

We never talked about this once. It never came up once. I didn’t have some little guy tickling the ivories on his little Excel spreadsheet, telling me what k values were. Tell me how I’m acquiring people, tell me how we're doing getting them into their “Aha” moment, and tell me core engagement.

Don't give me these low-level abstractions that allow you to validate, get short term results in ROI that don't mean anything. Don't focus on things that destroy long term value. Don't give me stuff that allows you to trick yourself into thinking you know what you're talking about. I'd rather you say you don’t know and I'd rather us to figure stuff out together.

What I don't want to have happen is a culture where you take these short term things, you start working on it in the absence of context, and you have these meteoric rises and what you have is massive turn fall off and everyone's looking around with their hands in the pockets thinking, “Well, what just happened. I thought I was doing a really great job.” You're not doing a really great job. You optimized a variable. Now there maybe somebody on your team that should be doing that, but they should be doing that in the context of something much more important. So you destroy a lot of value when you abstract away that high-level goal to something so ridiculously stupid.

I’m raining on everybody's parade today. Core product value is really allusive and most products don’t have any. I actually fundamentally believe that. But I also believe that most products can have some value. So when you put those two things together, again you go back to the discipline of do you really know what your building and why? Do you really understand how to marry things that maybe non intuitive for people, but really are the important things that people need?

I remember when we were launching in Asia. We created a team. The history of Facebook just very quickly. I started Facebook. My team launched Facebook platform, huge success. Then we do this big deal with Microsoft, we raise a huge round. At the tail end of that around it’s like, “Oh, we're going to launch a bunch of ad products to validate this valuation, and we're going to do all this stuff.” My team goes out and we built three products.

Again, talk about conflating luck and skill. I had all these people, all of our best guys working on this product with me which we called Socialize and [Beak 17:15]. Then we had another thing doing sponsored stories, and then we had another team focused on an online self-service ad product. Most of the resources in mindshare, none of the resources in mindshare. Eight people our best engineers, product managers two people.


Fast-forward to today, all of the revenue, billions of dollars, scaling inordinately, lawsuits. FTC suing us. People telling me on the New York Times I lied about how cross-site scripting worked. I’m not going to lie about cross-site scripting to the New York Times. New York Times, okay, guy, I mean really? That’s I’m going to lie to you guys about? So stupid. It just goes to show you at that point we were seeing this what looked like monotonically negative growth and we're like, “Oh my god, what's happening?” That’s like 25, 30 million people. We came up with this idea, “Okay, we're going to focus on growth.” We went created a team.

As part of that we said, “We're going to internationalize, we're going to launch, and we're just going to go everywhere all over the world.” Again, we dogfooded our own product and we used Facebook platform to create this crowdsourcing translation which was really successful. But long story short we get to Japan, Korea, and it's a constant refrain. I go around the valley. I talk to some folks who have done this before, the guys at Yahoo, the guys at Google, the guys at eBay, just to get a sense of how did you think about it. All these people had the same answer. “Well, we take these MBA's who really want to live on an expat package and we send them out there.” You're just like, “Okay, well that’s not the right answer.”

First thing we did was we hired only native people in those native markets. I had these guys trying to be, “I have an MBA from Harvard. You know, I really want to spend time.” I’m like, “Get the fuck out of my office. Go to ba.com buy a ticket, get out of my face. You're not going to travel on the company dime.”

But you hire all these people natively. We had this amazing guy that we hired in Japan. [Inaudible 19:11] said, “You know, it's really important to actually have specific elements of the profile be different because in Japan the culture dynamic is different.” We said, “Well, what does that mean to you?” He said, “Well maybe it means you know, putting your blood type on the profile.” You're like, “That makes no sense.”

But it makes no sense to us. But it makes sense to him. So we developed this flexibility where were like, “Okay, well, maybe the connections we’re trying to make in that market are a little too allusive.” This product that worked here just didn't have any context here. You would say, “Well, Facebook has clear product value,” but in Japan at the time it didn’t.

So having the courage to reset and redefine what it means in any given market again takes a lot of courage. We did it, and now it's massively scaling. Then all of the sudden the light bulb goes off and you’re like, “Oh my gosh, it's like we don't know what we don't know.” In every single market people react differently, they behave differently, they speak different languages. Guess what, Spanish is not Spanish. Maybe they know that. Five minutes. I got it. I’m on it.

The point is even when you think something works it probably doesn't work for everyone, and finding a framework that allows you to actually restructure and reorganize the

things that you're doing to expose value in different ways to different people in different situations is an extremely important thing. Again, it goes back to how do you live in a world where you’re willing to redefine and reset the things that are independent of what the short term feedback loop is telling you. It’s a very difficult proposition.

We knew we were going to beat MySpace when we had 45 million users. They had 115 million. We just knew. We used to just like, “That was not what we celebrated.” We celebrated at 45 million. It was like a high five. We’re like, “All right, let's get back to work.” The reason was because we had started to do enough things right where we could just see now we understood what we're doing. After all the testing, all the iterating, all of this stuff, you know what the single biggest thing we realized? Get any individual to seven friends in 10 days. That was it. You want a keystone? That was our keystone. There's not much more complexity than that.

There’s an entire team now, hundreds of people that have helped ramp this product to a billion users based on that one simple rule. So if you were looking for a lot of complexity I couldn’t give it to you. But we were able to reframe the entire experience around that one simple premise, a very simple elegant statement of what it was to both capture core product value, to define what it meant to be able to onboard into a product that allowed you to communicate, to get into a network, to find density, and then to basically iterate around that.

Then what we did at that company was we talked about nothing else. Every Q&A, every all hands nothing was spoken about other than this. Monetization didn't really come up. Platform came up but again in a secondary or tertiary context. But it was the single sole focus. But because we had defined it in this very elegant way that expressed it as a function of product value it was something that everyone could intrinsically wrap their arms around.

Again another reason why focusing on abstracting growth down to these low-level things is not right. The person that runs growth on any team has to be strategic and capable enough to engage on the core strategy of the product. Because then you allow yourself to up level the conversation and have it become the most important framework in which you organized an entire company, how equity is given, how expenses are generated, how things are focused on, who gets hired, who gets fired.

But when you understand core product value and then you could basically pivot around it and create these loops that expose that over and over and over again this becomes the most important and obvious thing to do. In the few companies that I help now with this context, when they do that and when it's the CEO or when it’s the cofounder who are living in that world and living in this context they've consistently systematically every single one has been successful, every single one of them.

I've also meet a lot of people who ask all these questions. They’re like, “Hey, I’d love to really …” I meet them and they’re kind of d-bags. They're like way too quantish and way too passive aggressive and

a little agro. It reminds me of something that's actually again a lot more important than the short term ability for people to focus on short term results, which is in this battle between culture and capability culture wins every time. What you value is really what you achieve. So when you see these companies again today that had these massive apexes like rocket ship growth and now some are public and now are going through just unbelievable wrenching, gut-wrenching change, negative spiraling turn downwards, what you realize is that's not a growth problem, although it seems numerically a growth problem. What that is is a product value and culture problem.

When you're focused on again K K K K K K K. Well, not KKK but you get the point. Another reason why K sucks, right? I mean use it three times you're racist, like Jesus. But the point is that's the type of stop that always comes back and it gets you. To short term optimization it never works. You have to work backwards from what is the thing that people are here to do, what is the “Aha” moment that they want? Why cannot they give that to them as fast as possible? Measuring that in days is unrealistic. Measuring it in hours is unrealistic. Measuring it in minutes is necessary but not sufficient. But like, “How do you get that to seconds? How do you get that to hundreds of milliseconds?” That's how you win.

If you even can’t understand what the thing does optimizing all of this stuff over time I think it just creates these really bad crappy companies that all they do is just spam and destroy the internet for everybody else.

To this end this is really what I want to leave you with, which is you probably expected a bunch of formulas and stuff. You have to really understand this. Go back to that first slide, detached, egoless, focused on what's important, not living the hype, not trying to follow some lifestyle, but doing what you think is important, focusing on core value, ruthlessly prioritizing, and getting people who believe in these things. These are the values that we originally wrote in terms of how we recruit.

Again, it may seem like a crazy thing but for all the CEOs here all of you people should be writing this down. This is how you should recruit. It worked for us. I give this to every single company I invest in. It works for most of them. These are things that in my mind are so obvious, blindingly glaringly obvious. People make mistakes around these things all the time.

A very high IQ, self-explanatory, a strong sense of purpose are people that will not buckle under short term pressure, a relentless focus on success just so competitive that you will do whatever it takes to win, aggressive and competitive people who always respect the person but constantly challenge the idea, a high quality bar that borders on perfectionism, just nothing is ever good, you win, something improves by 10 basis points, now it needs to improve by 20 basis points, now it needs to improve by a percent. That living in that world is just a really great dynamic. People who are comfortable taking something that works and saying it doesn't work here unless just reset start again. It just takes a lot of courage.


When that guy came to me Japan and said, “Hey, I think we need to introduce a blood type,” or our team in Korea came with a bunch of different ideas, or our team in India came up with this really clever way of engaging with Facebook over a phone, you have to be willing to take yourself out of your own biases and find people who are willing to come up with things that again are unconventional, another reason why you can't live in the bubble that is the valley.

There are too many problems and too many products that are focused on solving the needs of the one percent of the one percent that live here. The reality is there are seven billion people in the world. Most have never even used the PC. Most are coming straight into a world of phones. They’re living in entirely different context, they have completely different socio-economic paradigms, and you have to be able to be sensitive enough to empathize with where they're coming from.

High integrity I think speaks for itself. It's really easy to focus on short term results. I just don't think there's enough of the long term thinking, being able to take some arrows along the way in the short term because you're trying to build something for the long term, and having a culture and set of values where that’s rewarded.

A perfect example of this is LinkedIn. Reid Hoffman is an extremely good friend of mine. That is an unbelievable company, built over 10 years 11 years of just working, working, working. Friendster comes out of nowhere. We didn't panic. MySpace comes out of nowhere. We didn't panic. Facebook came out of nowhere. We didn’t panic. Just built a great product, we just kept working and working, did not take the short easy way out. You have to respect that because when those guys win they win and they win in scale and they win for a long time.

Surround yourself with good people seems obvious but I see a lot of people who are just not comfortable recruiting people that are better than them. The best thing that I did was recruit four people to my team. My original growth team was James Wang, who was the engineering lead on Facebook platform, Naomi Gleit who was the most tenured employee at Facebook and one of our best product managers, Alex Schultz who is this unbelievable crazy growth guy, and Javier Olivan who ran International for me, and Blake Ross who’s the product manager and also founded FireFox. All of these guys were dramatically better than I was. All I did was enable a framework and create discipline, and they all thrived. The great thing when I left was didn’t miss a beat. That’s really, really a good sign.

Then the last thing is cares about building real value over perception. I like Oolong green tea as much as the next guy. It doesn't make anything happen. I like skinny jeans too, more on girls than guys but whatever. It doesn’t mean anything. Right now we're living in a world where you can get distracted by things that don't matter and the superficiality of how you think things should be done versus the things that need to get done. That takes a lot of courage.

I think my time is up. Thank you. I’m happy to take questions.

Speaker 2: We have a few minutes for questions. We're trying our new approach here of Tweeting questions. One of the first ones we have is what was it about Instagram that made it worth one billion dollars to Facebook?

Chamath: I'll give you my opinion. Again, as a person that's not involved but was there. Again, when you talk about core product value at Facebook one of the key things that it got right or it understood was the connectivity around, you being able to associate your friends in social situations. The simplest manifestation of that was in photos. When we launched our photo feature it literally was just explosive growth. Here it is where in many ways it is the atomic unit of how Facebook gets organized. As much as people are in atomic units it's almost even more important in the sense that it’s even more element ...

All that is great. Facebook is generating billions and billions of photos a day. All of a sudden along comes this company who does the equivalent thing in a slightly different paradigm, a looser privacy model, but all on mobile, and in a context where people enjoy consuming the content as much as they enjoy consuming the photos on Facebook.

From my perspective is both defensive and offensive. From the defensive perspective it locks in that core tenant of behavior and product value that it’s essential and the element of building blocks on which everything else on Facebook is built on top of. Offensively it gets you into a place where now you have this flanker strategy where you have your main product getting more and more usage and getting more and more entrenched and creating this fertile ground all over the world on phones, and you have this unbelievable product specific application that does the same thing. Now you both can go and thrive.

But it was a combination in my opinion of the offensive capability of what it gave Facebook as a tool in its arsenal and defensively protecting its core element that if all of the sudden that behavior seeded someplace else and photo activities started to be generated and stayed in another environment I think it's very problematic for Facebook. Or would’ve been, but I don't think is it.

Speaker 2: All right, actually anyone else with a new tweet question? Everyone's busy quoting you Chamath so lots of good quotes today.

Chamath: I don’t use the Twitter but I'll make sure …

Speaker 2: We have time for one more if someone wants to … We’re waiting for an update here.

Audience: [Inaudible 33:14]

Chamath: Well it actually … No, that that's exactly right. So it started with invalidating lore. We had all of these anecdotes about how people thought the side worked, and part of me, it’s just the cynical part of me which is like I just like proving people wrong, especially when I know they don’t know what they're talking about. For the first six months it was like we were just going to instrument something and just prove people wrong because the best thing is what they do is a shut up. Then actually the next time they speak they try to know what they're talking about, which generally culturally is just a very good thing.


In that process we’re like, “Oh my gosh, there's these weird things that are happening.” You rinse and repeat through all these cohorts and you're like, “Why did these people get into a certain space and are now fully engaged and ramped-up and have these vibrant networks, and these people didn’t?” We just tried enough things where we were able to back into that axiom being the definitive thing that defined how things work for us. But for you it's going to be different. But it started.

I mean if I have to give you a framework it would probably be you’ve got to start with a broad cross-section of engaged users and when you work backwards from each of those and you are smart enough and clever enough to really figure out the different pathways in which they got to that place you can probably tease out what those simple things are, and then hopefully, I think most products are structured this way, you can then path people, more and more of those people into those same clip flows that allow them to get to that state.

But again it starts with looking at an engaged user, not just thinking about how many emails can I send and how do I trick everyone to click on a select dollar and not unselected the selected dollar. No offence, we did that too, but I mean we did that after we figured that shit out.

Speaker 2: Okay we’ll take one last question.

Audience: [Inaudible 35:14]

Chamath: Look, the best thing that happened is I'm not American, I'm Canadian. But even I’m not even really Canadian. Well, I am Canadian but I was born in Sri Lanka. I like, I love America and everything that is given to me, but I'm pretty cynical about the imperialistic nonsense of a lot of Americans and how Americans treat their place in the world to be quite honest with you.

My mental worldview I think was one where that combined with the feedback that I got from all these big companies like, “Well, you know, I have this really great, you know, MBA, JD guy that, you know,” and it's just like, he was like, “Well, how is this whitey going to fucking figure out Korea?” No offense but Korea is going to figure out Korea before. You know what I'm saying? This guy is, “Hey, guys, we’re coming here to take over.” It’s like, “Really? That's crazy. That’s just absolutely crazy.” I was just like, “Let’s just hire some really smart awesome young Korean lady,” and she's kicking ass. Then it’s like, “Let’s do the same thing in Japan, let’s do the same thing in Brazil, let’s do the same thing …” It's not complicated. That’s not so hard, and then just listen to them and let them try.

We had culture fortunately of experimenting and trying at ton of stuff and we celebrated failure more than we really celebrated success. We would celebrate these massive landmark milestones, 100 million, 250 million, 500 million, and even one billion, but one billion was like how do I call [inaudible 36:44].

The growth team had a dinner here at Madera. We all got together, the original team and had a quiet celebration. We are more interested in just trying stuff and learning. Then it was just a matter of having

different people willing to try different stuff in their own markets and then us being able to give them a framework where we said, “Look, 99 percent of things can’t change but you have this one percent flexibility and if you need more justify it.” That was a good interplay. But it's was just part of my worldview. America's great but there's a lot of great people and a lot of great countries too.

Audience: [Inaudible 37:22]

Chamath: I think those frameworks, the great thing is we had to build all of our stuff ourselves. You don’t have to do that anymore. For you guys like even something as simple as like … Our ability to AB test was just a convoluted mess. For you it’s like [inaudible 37:48]. You can’t even you do it yourself just go use optimizing. Or now there's like 19,000 gazillion Hadoop companies and Hive companies out there. There was none when we were doing this stuff. We were rolling our own stuff constantly. We just had a lot of delays that you don’t have to suffer from.

That abstraction allows you to free up resources that you can allocate in different places. But again, it comes back to the discipline of like is the senior manager of the company fixated on a goal and then giving flexibility to someone who has the political capital and the patience and the resolve to get there, and then the ability to question and understand really what's happening in their product?

The other thing is a lot of this credit goes to Zuck because he managed the board and all of the people around so that it's like we're doing this. Do you know what I’m saying? Sometimes it's like … We had a very functional useful board. A lot of times boards can maybe distract CEOs as well. “Well focus on this and focus on that.” Then they come down they shout for the mountain tops, “Hey, we’re going to do this.” Then when it gets filtered down to an individual person what they hear is, “KKK KKK.” I think that's where you lose your stride.

Speaker 2: All right, thank you guys. Thank you Chamath. Thank you. A round of applause.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/683768 2014-07-30T01:00:34Z 2014-10-03T07:50:40Z Dustin Moskovitz's Book Recommendations (Co-Founder of Asana and Facebook)
Dustin Moskovitz is a cofounder of Asana, and was a co-founder of Facebook. Here are some of his favorite books.

On Consciousness

Douglas R. Hofstadter

Godel, Escher, Bach: An Eternal Golden Braid

I often name this as my favorite book, but I’ve never actually finished it! An exploration of consciousness, told in a very engaging way. However, it’s 1000 pages and there is also a lot of math, growing progressively more advanced, which combined to prevent me from being able to find the back cover.

I am a Strange Loop

A much easier read on the same topic, but also much less rewarding/enjoyable along the way. Notably, this is written 20 years after GEB, so has more current information about the field.

Other Authors

On Intelligence (Jeff Hawkins)

A great introduction to modern AI from the founder of Redwood Neuroscience Institute and inventor of the Palm Pilot.

On Being Human

Beyond Religion: Ethics for a Whole World (Dalai Lama)

Wonderful introduction to secular ethics and to the Dalai Lama, who spends a great deal of his time studying all western fields of knowledge (esp. neuroscience recently) and reconciling them with his own beliefs.

The Wise Heart: A Guide to the Universal Teachings of Buddhist Psychology (Jack Kornfield)

Jack Kornfield is one of the preeminent Western Buddhist teachers. If you’ve not already been exposed to Buddhist philosophy, he is particularly approachable.

A New Earth (Eckhart Tolle)

Exploration of the ego and how to lead an awakened life. Oprah and I share this one. I highly recommend the audio version, but please do not listen to it while operating a motor vehicle.

Siddartha (Hermann Hesse)

A fictional story of enlightenment in the age of Gautama Buddha.

Zen and the Art of Motorcycle Maintenance (Robert Persig)

I read this in high school and was enthralled. I read it again more recently and with a lot more of a background in standard philosophy and still found it quite compelling. Answers the question “What is Quality?”

Stumbling on Happiness (Daniel Gilbert)

What really matters for living a fulfilling life, as proven by science!

Thinking Fast and Slow (Daniel Kahneman)

A fascinating exploration of statistics and biases from an expert. It has become effectively required reading for Asana PMs. As an aside, the List of cognitive biases on Wikipedia is probably my favorite article.

On Startups, Communication, Management, and Leadership

Getting Things Done (David Allen)

The essential manual on productivity and one of the inspirations for Asana. We sometimes refer to our product as “GTD for Groups”.

The Tao of Leadership (John Heider)

The Tao Te Ching applied to leadership. There is much wisdom here.

Nonviolent Communication (Marshall B. Rosenberg)

We keep copies of this on the Asana bookshelf and recommend it to all new hires. Rosenberg details a very effective communication style and points out some of the common traps that lead most people to impasses and defensiveness in disagreements.

The Humane Interface (Jef Raskin)

This is about interface design, by the creator of the Macintosh.

On Poverty and Philanthropy

Poor Economics (Abhijit Banerjee, Esther Duflo)

Great resource on global development and the psychology of poor people.

The Foundation: A Great American Secret (Joel L. Fleishman)

A history of major foundations in the 20th century.

Beyond the Beautiful Forevers: Life, death, and hope in a Mumbai undercity (Katherine Boo)

Narrative nonfiction about life in the slums of Mumbai.

Science Fiction

Not everything here is brilliant prose, but they will all expand the way you think about our potential reality.

Vernor Vinge

The Peace War

[No description]

Marooned in Realtime

Sequel to The Peace War

A Fire Upon the Deep

[No description]

A Deepness in the Sky

Prequel to A Fire Upon the Deep, written afterwards. My favorite Sci-fi book, bar none.

Neal Stephenson

Snow Crash

One of the most well-known and well-read classics, for good reason.

Cryptonomicon

You’ll like this one especially if you are into cryptography or WWII.

The Diamond Age

I come back to the concepts introduced in this novel on a weekly basis.

Other Authors

Axiomatic (Greg Egan)

A collection of short stories, each of which will probably blow your mind.

The Culture Series (Ian Banks)

I’ve only read the first one so far, but it was good and the whole series comes highly recommended.

I, Robot (Isaac Asimov)

A classic. It blows my mind that Will Smith is on the cover, since this collection of short stories that take place over centuries bears no relation whatsoever to the Hollywood movie.

Childhood’s End (Arthur C. Clarke)

The story of a benevolent alien invasion.

Miscellaneous

Healing Back Pain: The Mindbody Connection (John E. Sarno)

I have struggled a lot with lower back pain. After reading this book, I struggled less. His theories are far reaching and quite-possibly quackery, but I found them compelling on many fronts. Aaron Iba also endorses him in detail here.

Omnivore’s Delimma (Michael Pollen)

This could have been titled “How Money Corrupts Food.” If you don’t know about the industrial food system and you’re not a vegan, you are probably living inconsistently with your own values. Though still a meat eater, I dramatically changed my eating habits after reading this and Asana only sources from farms that have humane practices, like Marin Sun Farms.

Republic, Lost: How Money Corrupts Congress--and a Plan to Stop It (Lawrence Lessig)

This is a good, non-partisan explanation of campaign finance and the issues related to the Citizens United ruling (though notably Lessig believes the problems were fatal well before that happened).


P.S. Asana is hiring!
]]>
Chris Barber
tag:blog.chrisbarber.co,2013:Post/710809 2014-07-05T02:31:32Z 2014-07-07T11:29:45Z BWF Groups #0,1,2,3,6,7,9: End of Week Four Checkin

Please comment:

What went well, what didn't, what will you do to improve next week, and which group # are you in.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/708471 2014-06-28T04:45:52Z 2014-06-29T01:08:48Z BWF Groups #0,1,2,3,6,7,9: End of Week Three Checkin

Please comment:

What went well, what didn't, what will you do to improve next week, and which group # are you in.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/705848 2014-06-20T15:23:20Z 2014-06-25T17:29:27Z BWF Groups #0,1,2,3,6,7,9: End of Week Two Checkin

Posting them all in the same thread to keep it concentrated and easier to find. Group #6 moved from daily to weekly so is fine to include here too :)


Please comment:

What went well, what didn't, what will you do to improve next week, and which group # are you in.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/703686 2014-06-14T18:43:26Z 2014-06-16T08:30:36Z BWF Group #9: End of Week One Checkin

Contents:

What went well, what didn't, what will you do differently next time

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/703685 2014-06-14T18:39:25Z 2014-06-16T20:20:05Z BWF Group #7: End of Week One Checkin

.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/703684 2014-06-14T18:35:02Z 2014-06-17T02:41:01Z BWF Group #6: Thursday, Friday, Saturday Checkins

Moving to weekly now, due to upkeep.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/703683 2014-06-14T18:31:58Z 2014-06-20T15:23:17Z BWF Groups #0,1,2,3: End of One Two Checkin

Please comment:

What went well, what didn't, what will you do to improve next week, and which group # are you in.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/702860 2014-06-12T02:33:01Z 2014-06-13T09:06:00Z BWF Group #6: Wednesday June 11 Checkin

.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/702452 2014-06-11T00:15:24Z 2014-06-11T03:28:33Z BWF Group #6: Tuesday June 10 Checkin

.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/702108 2014-06-10T02:49:06Z 2014-06-13T19:18:19Z Bodyweight Fitness Group #9: Intro Post

Welcome!

This is the intro post for group #9.

Details:

Platform: Comments on “checkin” blog posts

Your group size: 15 people.

You will have to post an update: Weekly (Fridays)


Please comment your form responses if you are a member of group 9!

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/702107 2014-06-10T02:46:25Z 2014-06-10T08:25:37Z BWF Group #6: Monday June 9 Checkin

.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/701303 2014-06-07T04:15:06Z 2014-06-11T12:38:42Z Bodyweight Fitness Group #8: Intro Post

Welcome!

This is the intro post for group #8.

Details:

Platform: Comments on “checkin” blog posts

Your group size: 20 people.

You will have to post an update: Once! (After 30 days)


Please comment your form responses if you are a member of group 8!

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/701298 2014-06-07T04:02:14Z 2014-06-12T20:42:17Z Bodyweight Fitness Group #7: Intro Post

Welcome!

This is the intro post for group #7.

Details:

Platform: Comments on “checkin” blog posts

Your group size: 30 people.

You will have to post an update: Weekly


Please comment your form responses if you are a member of group 7!

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/701294 2014-06-07T03:29:54Z 2014-06-09T21:04:29Z Bodyweight Fitness Group #6: Intro Post

Welcome!

This is the intro post for group #6.

Details:

Platform: Comments on “checkin” blog posts

Your group size: 20 people.

You will have to post an update: Every (exercise) day, so likely 3 times a week.


Please comment your form responses if you are a member of group 6!

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/700981 2014-06-06T11:21:50Z 2014-06-08T02:37:09Z Bodyweight Fitness Group #3: Intro Post

Welcome! This is the post that I will edit as you submit your Google Forms.

This way you can learn a little about the other people in your group.


Group #3:

Platform: Blog comments

Group size: 5

Update cadence: Weekly

Codename (ha!): Diamondback

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/700975 2014-06-06T10:57:28Z 2014-06-06T23:07:11Z Bodyweight Fitness Group #2: Intro Post

Welcome! This is the post that I will edit as you submit your Google Forms.

This way you can learn a little about the other people in your group.


Group #2:

Platform: Blog comments

Group size: 5

Update cadence: Weekly

Codename (ha!): Cheetah


Waiting on:

http://www.reddit.com/user/HorseCockTony

http://www.reddit.com/user/jeq1

http://www.reddit.com/user/4friedchickens1coke

http://www.reddit.com/user/Intronerded


Members:

Hendrik

Amsterdam, The Netherlands, 28, Male

Athletic Background?

Gymnastics age 5 - 10

Tennis 6 - 22

Athletics 10 - 18

Futsal (that's indoor football) 14 - now

Kickboxing 25 - now

MMA 26 - 28

Starting Weight: 73kg

Height: 182cm

Initial Motivation: 4 (out of 5)

How many times before have you attempted to start a fitness regime and not succeeded? 0

Why did you want to be a part of this group? Cause of my job, I don't exercise as much as I'd like to. Often, after a long day at work (which is pretty physical) I'm just to tired to go to the gym. So I'm glad I found this sub a week or so before you posted your glorious idea. This routine has the best of both worlds: home based exercise WITH peer pressure. 

What are your biggest concerns about this group? Time constraints. 

How much of a priority is this? 0 - 10: 7. it's not the end of the world if I can't finish, but I definitely want to stick with the group. 

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/700972 2014-06-06T10:50:40Z 2014-06-06T23:03:17Z Bodyweight Fitness Group #1: Intro Post

Welcome! This is the post that I will edit as you submit your Google Forms.

This way you can learn a little about the other people in your group.


Group #1:

Platform: Blog comments

Group size: 5

Update cadence: Weekly

Codename (ha!): Bobcat


Saulace

Reddit: Saulace

Texas, 29, Male

Athletic Background: I've done 5x5 and running in the past.

Routine: Beginner body weight routine from the subreddit. 

Status: Just starting.

Days: M-F, 6pm.

Starting weight: 160 lbs

Initial motivation: 3

How many previous attempts? Like.. 10

Why did you want to be a part of this group? I've tried everything else to stick to a routine. Might as well try something new.

What are your biggest concerns about this group? I have no idea what's going on and I hate being on a team called the Bobcats.


Still waiting on:

http://www.reddit.com/user/fusedfetus

http://www.reddit.com/user/fprintf

http://www.reddit.com/user/splatterbrain

http://www.reddit.com/user/rsd212

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/700968 2014-06-06T10:25:24Z 2014-10-03T07:51:26Z Bodyweight Fitness Group #0: Intro Post

Welcome! This is the post that I will edit as you submit your Google Forms.

This way you can learn a little about the other people in your group.


Group #0:

Platform: Blog comments

Group size: 5

Update cadence: Weekly

Codename (ha!): Alpaca

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/699863 2014-06-04T03:09:39Z 2014-06-05T03:03:50Z Docpad Contact Form: docpad-plugin-formmail, docpad-plugin-contactform

Don't use the listed plugins.

Save yourself the time - I'm writing this post after spending almost 2 hours trying to finagle either of the plugins into working as I want it.

I'd suggest a backend-less form such as: https://formend.com/

(Edit: Removed Brace from the recommendations - their service wasn't working for me at all unfortunately. Will update if that situation changes - http://forms.brace.io/. For now, I'd suggest Formend, which is working perfectly.)

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/695794 2014-05-24T21:47:42Z 2014-05-24T21:50:23Z Docpad Heroku Deployment Errors (postinstall)

24000 info install twitter-bootstrap.docpad@0.9.0

24001 info postinstall twitter-bootstrap.docpad@0.9.0

24002 verbose unsafe-perm in lifecycle true

24003 info twitter-bootstrap.docpad@0.9.0 Failed to exec postinstall script

24004 error twitter-bootstrap.docpad@0.9.0 postinstall: `node node_modules/bower/bin/bower install`

24004 error Exit status 8

24005 error Failed at the twitter-bootstrap.docpad@0.9.0 postinstall script.

24005 error This is most likely a problem with the twitter-bootstrap.docpad package,

24005 error not with npm itself.

24005 error Tell the author that this fails on your system:

24005 error     node node_modules/bower/bin/bower install

24005 error You can get their info via:

24005 error     npm owner ls twitter-bootstrap.docpad

24005 error There is likely additional logging output above.

24006 error System Linux 3.8.11-ec2

24007 error command "/tmp/build_7e3a8d28-b8ef-4409-b27b-00489d37d659/vendor/node/bin/node" "/tmp/build_7e3a8d28-b8ef-4409-b27b-00489d37d659/vendor/node/bin/npm" "install" "--userconfig" "/tmp/build_7e3a8d28-b8ef-4409-b27b-00489d37d659/.npmrc" "--production"

24008 error cwd /tmp/build_7e3a8d28-b8ef-4409-b27b-00489d37d659

24009 error node -v v0.10.28

24010 error npm -v 1.4.9

24011 error code ELIFECYCLE

24012 verbose exit [ 1, true ]

Docpad 6.65.0 using twitter-bootstrap-jade skeleton.

Fix:

in package.json, add:

   "bower": "~1"

to dependencies.

It will already be present in devDependencies, however is missing from dependencies.

Pull request created.
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Chris Barber
tag:blog.chrisbarber.co,2013:Post/695060 2014-05-22T21:22:23Z 2014-05-23T21:54:12Z Marc Andreessen on Venture Capital and the Digital Future

I recently posted "Feature Request: Transcripts or Summaries of Tech Founder or Investor Interviews". I decided to pay for a transcription service to transcribe a few startup videos/podcasts that I've been meaning to watch - and why not share them! 

Please excuse the typos - I pay for these transcriptions and haven't combed through the errors on this one.

Marc Andreessen on Venture Capital and the Digital Future (EconTalk)

Russ R: Welcome to Econtalk, a library of economics and liberty. I'm your host Russ Roberts of Stanford University's Hoover Institution. Our website is econtalk.org where you can subscribe, comment on this podcast and find links and other information related to today's conversation. you'll also find our archives where you can listen to every episode we've ever done going back to 2006. Our email address is mail@econtalk.org. We'd love to hear from you.

Today is May 1st, 2014 and my guest is Marc Andreessen, legendary entrepreneur and venture capitalist. He's the company-creative of Mosaic, the co-founder of Netscape, and more recently, the co-founder of the venture capital firm, Andreessen Horowitz. Marc, welcome to Econtalk.

Marc A: Russ it's great to be here, thank you.

Russ R: I want to start with your career. You were at the heart of the first browser war between Netscape and internet Explorer. That seems like hundreds of years ago. It's a little more recently than that but give us a quick thumbnail of what happened to Netscape and then how you escaped from that war.

Marc A: So, Netscape was founded actually 20 years ago this month. It's sort of a special time for me. Netscape is a company that grew incredibly quickly. We grew from zero 3500 employees in three years. [inaudible 00:01:25] Netscape was always thought of as this small little browser company and people used to come visit us on the campus and they would be completely flabbergasted at all the buildings and all the people. The reason we had all those people was because in addition to browsers, we built a very broad range of internet software and internet services at that time. We were one of the first companies that did internet ecommerce systems. We were one of the first companies that did internet publishing systems and software for a long time, powered actually a lot of the newspapers [inaudible 00:01:53] the Wall Street Journal.

We actually are the company that built photography into the web. The way that people do encryption now was us. We created core technology like JavaScript. For a couple years we were the largest internet advertising business in the world with a Netscape website and Netscape portal. That [inaudible 00:02:14] grew to about 600 million dollars a year in revenue, which in four years from start. Ultimately what happened was, we sold the company to America online in 1998. The entire thing was start to finish in four years. Felt like an eternity at the time, but in retrospect was the blink of an eye.

Russ R: What happened to Marc Andreessen at the time of that sale. Did you go with that sale or did you leave?

Marc A: I actually became the Chief Technology Officer of America Online. AOL at the time was the most valuable internet company. AOL within a year after our sale, was a company that was worth 170 billion dollars on the stock market. That was a company that was in a dialup ISP business, if you recall that, at 25 million dial up ISPs. That was right before they went over the broadband, which completely destroyed the dialup ISP business. For those who believe in the efficient market hypotheses, one of the [inaudible 00:03:18] examples would be a dialup ISP worth 170 billion dollars went straight into broadband; which made no sense at all.

Russ R: It didn't last that long.

Marc A: It did not last that long. In fact, what had happened was, the management team at AOL actually figured that out. They realized it. What happened was, they traded their equity which they knew was going to collapse in value. They traded it for Time Warner equity and they bought Time Warner. That led to the famous AOL/Time Warner merger which is one of the great catastrophes in business history. I stayed for about a year. We have a tradition in the tech industry where when your company gets bought, you have a period of indentured servitude where you stay for at least a while to help make sure the integration happens. So I stayed for a year and then went off and started my second company.

Russ R: Which was?

Marc A: Which was actually the first cloud computing company. this now big trend of cloud computing was something we helped kick off in 1999. That was a company called Loud Cloud. That was the first company doing it, but today it's done with things like Amazon Web services. That company actually grew very fast. We grew from a standing start to quite a large business in the course of a year. Then we hit the dot com collapse, like running into a buzz saw. Half of our customers were dot coms; which all went bankrupt. Then the other half were big companies who were in a panic because they felt they had to compete with the dot coms by launching all kinds of new internet efforts. When the dot coms went bankrupt, most of those big companies said, I guess this internet thing isn't serious and it's going to go away; they shut down most of those efforts.

We almost lost that company. My partner, Ben Horowitz, recently written a book which is now a bestseller called, The Hard Thing About Hard Things. It's a business book and it tells the whole story of Loud Cloud where he was my business partner and he was the CEO. It's a dramatic story because we almost lost the company. We almost went bankrupt. Then through a series of miracles, we were able to do what's called a restart. We basically completely restarted the company as a public company into a completely different business. Ultimately grew it to be a successful company. Hewlett Packard bought that company in 2007 for about 1.6 billion dollars.

Russ R: Was that your main use of time in that 99 to 2000 to 2007 period?

Marc A: Yeah, I started those companies basically back to back. Netscape was basically a company in the middle of a boom, 1994 to 98 and sort of rode the upper momentum of the 90s tech boom. Loud cloud was started at the very end of the boom. We started September of '99. We had about six good months before everything caved in. Most of loud cloud which became opsware, most of that company was through the bust. We just kept all the way through the clash and kept slugging away through 2002 to 2004 when things got really miserable in the tech industry. We sold the company right as the industry was coming out the other end in 2007, heading straight into the credit crisis. In retrospect, that was probably good timing to sell that company as well.

Russ R: At that point, when did you start Andreessen-Horowitz, the venture capital firm?

Marc A: We started the planning for the firm a year and a half planning it through. We started that process in 2007. My partner Ben and I sort of spent nights and weekends writing the business plan and thinking through all the strategic things that we had to work out. Then we kicked off the fund-raising process in March of 2009. I remember that very distinctly because March of 2009 was the low of the stock market after the credit crisis. Nobody was raising an venture capital funds in the spring of 2009. It was not a time when investors wanted to hear about any venture capital fund. In fact, many of the large investors in venture capital and private equity were in a liquidity crisis and [inaudible 00:07:28]; including the big [inaudible 00:07:31] of dominance where they were having a real trouble meeting their commitments back to their sponsored organizations.

people have told us it was the most hostile time to raise any venture capital fund in 40 years. Of course, contrary or perverse, depending on how you look at it; we said, that's probably not going to be a very good time to raise venture capital because ...

Russ R: ... You'll be alone.

Marc A: Exactly, we were. There were only two venture capital funds that got raised in 2009 in the entire year. One was ours and the other was [inaudible 00:08:03] where I [inaudible 00:08:06]. He's one of the top venture capitalist in history of all time.

Russ R: Who is that again?

Marc A: It's a gentleman named Vinod Cosla. He runs his own firm called Cosla Ventures. He previously was partner at [inaudible 00:08:18]. He was one of the partner at Kline-Perkins who made them so successful in the 90s. Before that he was company-founder of a company called Sun Microsystems.

Russ R: I've heard of them.

Marc A: Which was a big successful technology company. He's one of the legendary tech entrepreneurs and investors of all time. I think it was straight forward for him to raise the fund. It was a bit harder for us but we were able to raise it. In fact, that turned out to be a very good time to raise a fund because it put us in the position to invest when a lot of other people had stopped investing.

Russ R: you've been around now. the firm's been around for five years. It's been five of the least pleasant years in the American economy that weren't called a recession. Officially the recession ended in 2009 but it's been a pretty mediocre run for the us economy since then, but the technology world has been okay. You've invested, according to the internet at least, of course the internet never lies. You've invested in Facebook, Twitter, LinkedIn, Foursquare, and so on; which are pretty successful companies. My question is, does that make you feel smart or is investing still a very humiliating and uncertain process?

Marc A: Well, venture capital is kind of guaranteed to be humiliating because the most successful venture capitalists of all time typically tank about half their investments. By which I mean, if you taken any of the top performing venture capital firms over the last 40 or 50 years, if you get inside their portfolios and look at their portfolios. These are the top firms, the ones that return amazing returns over long periods of time. Typically they lose half their companies. In other words, half their companies go under and they either return nothing for the original investment or they return a fraction of the original investment. 

It's a feast or famine business. In the same portfolio, you'll have both feast and famine. You'll have a company that gives you a 10 x , take AOL, a 100 x return and you'll have six other companies that are failing. The twist to how you spend your time is you spend most of your time actually dealing with your companies that are struggling and trying to help them. It's the companies that are struggling or failing that actually need the most help. The companies that are succeeding are generally doing just fine without you. The companies that are failing are the ones who really need help and support. A lot of what you end up doing on the job is supporting struggling entrepreneurs. It's kind of continuous [inaudible 00:10:44]. you're a troubleshooter. There's always something going wrong. We talk about this with partners, you have to be psychologically prepared for the opposite. It seems like it would be a life of glamour and excitement. It's more of a life of struggle and misery. 

If you're okay with that, because it's part of the package, then the overall deal is pretty good. 

Russ R: I still call it nice work if you can get ... 

Marc A: ... it is. It beats all the jobs I had when I was a teenager. 

Russ R: Exactly. What's interesting to me as an outsider, you learn things as you go forward. You still fail at least half the time. It's not like, well those five of the 10 were the losers; next time I'll miss those or won't invest in those. You still have to fail five out of 10. You don't know which five are going to be. 

Marc A: The reason for that is we think you can draw a two by two matrix for venture capital. This is probably true for all investing but it's certainly true for venture capital. You can basically draw a two by two. On one axis you could say, consensus versus non-consensus. On the other axis, you can say successful or failure. Of course, you make all your money on successful and non-consensus. Definitionally the reason is because it's very hard to make money on successful and consensus because if something is already consensus, then money will have already flooded in and the profit opportunity is gone. 

By definition in venture capital, if you're doing it right, you're continuously investing in things that are non-consensus at the time of investment. When we translate non-consensus to [inaudible 00:12:19] terms, it translates to crazy. You're investing in things that look like they're just nuts. Who would believe this PC thing would work at the time? When the VC's were investing in PC companies, the whole thing was considered to be a joke. When I started with internet startups, the one thing everybody knew for sure was that nobody would make any money with the internet. There would never be a business. 

Russ R: Right, it's just a toy for communicating a little bit and interacting but there's no revenue stream that's going to come from it. 

Marc A: Certainly not, obviously the one thing you know for sure is certainly nobody's going to buy anything from over the internet. That would be crazy because hackers might steal. You go on and on. EBay looked non-consensus right at the time venture capital firm called [inaudible 00:13:08] made EBay investment. A lot of people at eBay was like, that's crazy. Who is going to buy something from a seller somewhere around the world who they never met before? Like, that's just nuts. 

Russ R: And it's used. It's not even a new thing. It's often a piece of ... it's garage sale material. 

Marc A: Yea, exactly. That's exactly right. That continues through [inaudible 00:13:28]. More recently you have these things, AirBnB we're very involved in. AirBnB is this idea that you're going to rent out the back room in your house and a random stranger is going to show up and stay in the room. That's crazy. You would never do that. You would never rent out the room. Of course, you would never stay in a stranger's house. It turns out at AirBnB that people love this. It's growing like crazy. The revenue's exploding. The corollary to this is that crazy does not mean correct. 

Russ R: That was my next thought. 

Marc A: Crazy often just means crazy. 

Russ R: Darn. 

Marc A: Yea, exactly. 

Russ R: I used to teach a business plan class in a business school. One of my students submitted a business plan that in the financials over the life of company made no for the money for the foreseeable future. I said, that's a bit discouraging to a potential investor. The student said, all the best companies don't make any money, so that's a plus not a minus. That's the challenge. Every crazy idea is not successful. It's a reverse causation confusion there. Despite all that, you've made some very successful bets presumably on non-consensus companies that at the time 140 characters as communication seems like a ridiculous idea. Are there some you missed that you regret that you want to talk about? Are there some lessons you learned that now you can't believe those were the mistakes you made back then?

Marc A: Sure, the corollary of this is the mistakes that we make in a field like venture capital; the mistakes generally aren't investing in something turns out doesn't work. This is something [inaudible 00:15:20] struggles to figure out. You put all this money in something and it failed [inaudible 00:15:23]. That's generally not the problem. The problem is what you decide. It's the big hits that you missed. Every venture capitalist that had opportunity to invest in Google and didn't just seems like an idiot. Every venture capitalist that had the opportunity to invest in Facebook and didn't feels like an idiot. The challenge in the field is all of the great VC's over the last 50 years. The thing that they have in common is they all failed to invest in most of the big winners. 

This again is part of the humility to the profession. You literally, as an investor in any of these things, even if you've invested in some of the hits, you've made a long list of the hits you missed. Those are the ones that drive you crazy. I was not a professional investor prior to five years ago. We'll see in the fullness of time which ones I missed in this period. One of the things we do a lot is we try to back test our theories against history. We sit around all day long and talk about what are we looking for and how do we know if [inaudible 00:16:22]. We sort of [inaudible 00:16:26] criteria for investment all day long. One of the questions I always ask and I'm not sure of the answer is, would we have investing Google when they were raising venture capital? 

I actually wonder if that's the case. the reason is, a good friend of mine was at another venture firm that passed on Google when they had the chance to invest in it. I said, why'd you pass on Google? This was back right around the same time that it happened so I know it's kind of accurate as opposed to just [inaudible 00:16:51] history. We passed on Google for three reasons. There are three reasons, number one, absolutely no business model. They had absolutely no idea how they were going to make money. Number two, the two most arrogant founders we'd ever met in our lives. Number three, very high premium valuation. Had there been only any two of those three problems, they would've still invested but all three problems together prevented them from doing it. 

In venture capital, that's a 20 billion dollar mistake. 

Russ R: But, if those are your three rules, you might save enough money on the other 30 billion that you might've thrown away. Well, 30 billion's hard to throw away. That's not a good answer maybe. I don't know. You see my point though. 

Marc A: You identify the exact problem and then the problem with the problem; which is, the key characteristic of a venture capitalist is the returns are on a power [inaudible 00:17:54] distribution. Here's the way I think about in the math. There's about 4,000 startups a year that want to raise venture capital. Of those, maybe 400 will get funded by top venture capital firms. Of those, about 15 will be responsible for about 90% of profits for that entire year of companies. 

Russ R: That says it all. 

Marc A: It's a feast or famine business. If you do invest in Google and you invest in a hundred losers you're a spectacular success. If you don't invest in Google and you invest in a hundred losers, you're a horrible failure. It turned out the only decision that mattered was did you invest in Google or not. Of course, the corollary to it is you never know when Google's going to show up. one of the weird things about Google was they showed up 1999. A couple things about google that would've made it hard at the time ... If you believe there was a bubble in 1999, which a lot of people think that they believe, at least in retrospect. That would've been the last time that you would invest in a money losing company run by arrogant founders at a premium valuation. Yet, that was the one to do. The second thing is, google was like the 36th search engine. 

There was this whole thing about first to market and the innovator, the whole thing. There had been six years of search engines before google. Many of whom, at that point, were large public companies and were considered very successful companies; yahoo, Lycos, a whole bunch. Google was late to the game. Turns out they were late to the game with a fundamentally better product. My friend, peter keel, likes to say; he says, it's not first to market that matters. It's last to market. You want to be the last company because you want to be the company that basically [inaudible 00:19:28] all following competition. 

Russ R: Yeah, if you can do that. 

Marc A: Exactly, but what he says is, that's the key to getting all the investment returns. You want to be the one that basically is so good that it foreclosing all future competition. That often is not the first company. If you think bout the decision path, a lot of people think that if they saw google in 1999 [inaudible 00:19:50] they would've been smart enough to make the investment. The actual decision path that you've have to follow in your head to get all the way to investing in these guys with no business model at that time, in a field that had all types of competition was a good idea, that was a leap. It's no coincidence, by the way, that that investment was made by two of the smartest VC's of all time; John Door and Mike Morris. 

That was a leap. That required real foresight, deep thought process, and a risk tolerance that most people simply don't have. So, on our best days, that's what we aspire to be like. We aspire to take the bets that other people won't make. We aspire to go way out on the edge of risk. Another friend of mine, said you'll never been able to work in any other area of financial services investing because every other area of investing is all about reducing risk whereas in venture capital, it's all about increasing risk. The big danger is you're not far enough out of the risk group. 

Russ R: How much did Door and Morris put into Google at that point? Do you know?

Marc A: They put about 25 million dollars between the two of them. They bought, I believe 25 million bought somewhere between 15 and 20% of the company. That would have gotten diluted down over time. That would've translated to 10 to 12% of the company today. Google today is worth 340 billion dollars. 

Russ R: It's a good deal. 

Marc A: 25 million turned into ... if they held stock, which some of them didn't. If they held the stock all the way through, 15 years later, 25 million turns into somewhere between 25 and 50 billion. 

Russ R: That'll pay for a lot of mistakes. you're suggesting that what made google better than ... I'm old enough, as many of our listeners are. That's what's great about the internet. I'm not talking about the Korean War now. I'm talking about the 1990's. I remember Lycos and Yahoo as search engines. People still use Yahoo sometimes as a search engine but you're suggesting that Google dominated that market because they had a quote; better product. What was better about it?

Marc A: My friend, Bill [inaudible 00:21:59] says, the key difference is that it had the it works feature. It had the feature where it worked. If you remember doing searches on [inaudible 00:22:11] back in those days on most [inaudible 00:22:12]. You would do the search and you would very often get back useless results. The programmers of those companies worked really hard to get you back quick results but a lot of the times you got back [inaudible 00:22:25]. What had actually happened was users had gotten trained to not expect much from their search engine. They had gotten trained that the results weren't going to be very good. Users didn't do that many searches and when they did, they would spend a lot of time going through it trying to find a lot of the results. [inaudible 00:22:44] or something like that. 

The people who really understood this stuff; number one, you could use google early on if you had access to it. You could compare the results and could see that they were better. It was very visible and very visceral. Of course not only better results, it means people are going to be using it a lot more than they would use the other ones. If you were a computer scientist and you had access to these guys and you could talk to them; what you would find out was they had a completely different kind of approach than the previous search engines. They had this innovation that became famous called page rank where they basically had a computer science breakthrough; an actual technological breakthrough in how to do the scoring to get to the best search results. 

It turns out those things are discoverable. This is one of the things we find. You had to be very close to the company to realize this. This was very hard to call from the outside. A lot of people who passed on Google, passed on Google without even getting to the point where they learn these details. It turned out the details really mattered because they really made a big difference. 

Russ R: Right, the elevator pitch I have a better search engine is not that compelling. The question would be how much better and who cares? Then what? They answered all those questions. Like you say, from the outside that was probably very hard to discern. Especially the, and then what, because the ability to monetize that product was not obvious at all. Even if you [inaudible 00:24:11] the guts of the algorithm. 

Marc A: Yeah, and then by the way even then, you would have to invest not knowing how they were going to make money. They didn't have that second part. They [inaudible 00:24:18] that second part out. One of the things I like to say is, we live in one of many parallel universes and we know how this one played out but there [inaudible 00:24:28] universes where [inaudible 00:24:29] played out. There are many other universes in which Google never figured out how to make money. If it crashed and burned, it'd be a cautionary tale today. There are just flips of faith that happened along the way where they were able to figure out this AdWords algorithm to be able to make money. 

Had they not figured that out, and a lot of people didn't think they'd be able to figure that out, we would be having a very different conversation today. So, it's one of those things that goes back to what's humbling about what we do. It's limits of knowledge. There are real limits to what you can know. Which, by the way, means that if you're going to operate in this field and if your requirement in investing with something, backing something, or going to work for something is you're going to know for sure [inaudible 00:25:10] succeed; you're never going to do anything. There is no return without the risk. 

Russ R: One of my favorite stories is how Fred Smith, supposedly ... It may not be true. After he got turned down for the last time by Chicago banks borrow money to keep FedEx afloat was in the Chicago airport, ready to return to Memphis to tell his employees that it was over; instead took a plane to Reno and put all of his money which included, I think, his sister's trust fund money on red or black or whatever and made enough money to cover his payroll that week. They made it. I always think what would've happened if he hadn't looked up at the board of departures and noticed a flight going to Reno. 

If Door and Morris hadn't made that investment, would Larry Page and Sergey [inaudible 00:26:00] being doing something different right now or would they have eventually gotten to where they are? I don't know. 

Marc A: The other thing was, nobody will admit today; but that company was very acquirable in the beginning before they had a business model. There were any number of other big technology companies that could have bought Google for small amounts of money. Larry [inaudible 00:26:20] could have gone on to be mid-level engineers at Yahoo. It's a twist of fate [inaudible 00:26:27]. 

Russ R: A fate worse than death. 

Marc A: That's what some people would say. 

Russ R: [inaudible 00:26:30] mid-level engineer at Yahoo but compared to what they became, that's all. 

Marc A: That's exactly right. Again, that comes back to [inaudible 00:26:41]. How many great entrepreneurs are there who just haven't realized that they had a path that didn't involve [inaudible 00:26:46] company. How many of the business failures that we can all name were one step away from success and they just didn't figure out that one step? Those are the questions we'll never know the answer to. [inaudible 00:27:00]. They cause us to be ... We have this theory at our firm, it's a software term called [inaudible 00:27:06]. We [inaudible 00:27:09] buying decisions; which is to say basically, delay making decisions until as late as possible. 

Russ R: Sure. 

Marc A: Because you really never know. There's a very high risk that your early decisions are going to be incorrect and you really want to delay making a decision until you get every piece of data you possibly can because the future's so hard to tell. 

Russ R: In 2011, you wrote a piece for the Wall Street Journal called Why Software is Eating the World. Explain your argument  and why the evidence continues to accumulate that you were right. 

Marc A: Yea, the argument has to do with the evolution of the computer industry. The computer industry is one of the industries where it's trickled [inaudible 00:27:46] for a long time. Computers, historically, would get built for the biggest customers which were big companies and big government agencies. They would cost tons of money. Then 10 years, 20 years later, someone would package them up and do a cheaper form factor and make them available to smaller companies. Then 40 years into the computer industry, the PC came along which was the first thing that individuals could buy. 20 years after the PC, the smartphone came along. The smartphone is the big breakthrough because the smartphone is the first computer that is packaged and delivered in a form that everybody on the planet can have one. 

The way I think about it is the two giant twin dominant stories of our era are; number one, the enormous rise of the developing world and the introduction of billions of people into what we would consider to be the modern economy. Then in parallel, intertwined with that, is the smartphone revolution which is everybody on the planet getting what is the equivalent of a super computer, from 20 years ago, in the form of a smartphone in their pocket. 

Russ R: That they have with them all the time. Everybody has it and has it all the time. 

Marc A: Have them all the time and they're all on the network. They're all connected. They're all on the internet. We've gone from a world where most people didn't have computers. The PC only ever got to about a billion people out of seven billion people. The smartphone is going to get [inaudible 00:29:12] billion. Two big things happening right now in real time, one is that in both India and Pakistan, the price of smartphones now has plummeted to $35. All of a sudden, it's a $35 consumer purchase which is within reach to a large number of people. Second is, even in the poorest parts of the world, [inaudible 00:29:32] considerable preferences. Even the poorest people in the world will choose smartphone and internet access; even over indoor plumbing and electricity given the choice. 

You hear about people working in the field in the most poverty stricken parts of the world who would not [inaudible 00:29:49]. You really do have this universal computer for the first time. Everybody's going to have one. These things are shipping in the billions now. By the end of the decade, everybody on the planet's going to have one of these things. Everybody's going to have a computer. Everybody's going to be on the internet. That's a new world. That's a world that we never lived in before. We have no idea what that world is like. It's brand new. 

One of the thing that you know is that, all of a sudden, [inaudible 00:30:15] conceivable way to take a product or a service. If you could take a conceivable way to deliver it through software, you can actually do that. I'll give you an example. Let's just talk about banking as one example. Which is, historically the idea of having an online only bank that was only delivered through software would have been considered lunacy because most people don't have computers so you need branches. You need tellers. You need ATM machines. You need this big physical footprint to build a bank. Today you can just make the simplifying assumption. You could say I'm only going to make the bank available online. It's only going to be available for people through their smartphones. It's just going to be software. There won't be anything else to it other than software. 

All of a sudden, you could have a bank with an [inaudible 00:30:55] of seven billion customers entirely in software without any of the physical overhead of how today's existing banks operate. This is the software eating the world piece. We now, for the first time can basically go field by field, category by category, industry by industry, product by product; and we can say what would they be like if they were all software? Then, entrepreneurs in virtually every field we're talking about are attempting to do that. There are entrepreneurs attempting to do software only financial services, software only education, software healthcare, obviously then the media industry is being transformed with software, e-commerce. Retail is being transformed with software. 

This is sort of where I disagree so much with people who are worried about sort of innovation slowing down. I think the opposite is happening. I think innovation is accelerating because the minute you can take something that was not software and make it software, you can change it much faster into the future. It's much easier to change software than it is to change something with the big, physical real world footprint. 

Russ R: If only we could stay in digital hotels, because the biggest cost of hotels is they got to replace the furniture every once in a while. For so many other things, the furniture's digital so it's a piece of cake. 

Marc A: Exactly, what's happened is all of a sudden, software professionals, not just in the US; all over the world, software professionals, software entrepreneurs are looking at industries that have not been tech driven, industries that have not been in that space. They're looking at those industries and they're saying, now is the time to build this software bank. Now is the time to build this software school. There are entrepreneurs all over the plant that have figured this out. They're going straight for it. Of course, our job as venture capitalists is to fund them. What are the consequences of this? Many things; number one, consumer welfare is on the rise way more than I see people are willing to give it credit for. I think that the universe of opportunity that opens up to you once you have a smartphone in terms of your ability to get to all these services, get information, get access to global markets, get access to education. From a consumer welfare standpoint, this is nirvana. 

This is like, everybody has the magic box to which they could get access to all this software. That's amazing relative to all the physical limitations the way things used to work. Consumer welfare is on the rise very fast and on a much broader footing than people believe. Even in the poorest, rural villagers now have access to resources that the national security agency didn't have access to 10 years ago. That's an enormous consumer welfare change. Rate of evolution increases in a lot of industries because software can mutate much faster. Prices can come down very fast in a lot of industries. One of the things that I think is very interesting economically. I think price deflation across the economy is a much bigger factor than people think. you take a product that use to hardware and you make it software or it used to be a retail store and you take out huge parts of costs, which means prices fall. The final thing is entrepreneurship is on the rise, because everybody in the world with the right software, which is a large number of people, can now be an entrepreneur if they want to and can go after these opportunities in many different fields. 

Russ R: So you've been very enthusiastic about Bitcoin. We recently did an episode about Bitcoin. You've actually compared Bitcoin to innovation such as the personal computer and the internet. Very bold claim; what's the source for that enthusiasm? 

Marc A: This is not a claim that I have made about anything else in the last 20 years. This is the first time I've said this. That indicates the depth of seriousness which I take it. Bitcoin and the ideas underneath Bitcoin ... Bitcoin is this broad topic which in the computer science world is called crypto currency. [inaudible 00:34:55] this area of R&D that's been going on for 20 years. One of the things about Bitcoin that's important to understand is it's not just an overnight thing that somebody just dreamed up. [inaudible 00:35:02] 20 years of really hard work on the part of a  lot of brilliant computer scientists. They finally catalyzed in the form of this Bitcoin thing. There's very deep, intellectual background behind Bitcoin. 

The big breakthrough that's underneath of Bitcoin that is called distributed trust. The idea is take seven billion people, put them all online with their smartphones. In theory, you have the ability to do business with anybody on the planet but how do you know who to trust, right? How do you do trusted transactions? How do you send money from point A to point B, right? Knowing who's sending it, knowing who's receiving it, knowing that the money is digital money, that it's not being copied along the way which is called the double spending problem. How do you do a transaction with digital money in a way where everybody else around you is able to verify that that transaction actually happened?

People can't say I was frauded or I never got the money or whatever. How can you do that in a way that doesn't require centralized institutions? How do you do that where it doesn't require a bank, credit card company, or a payment processor?

Russ R: or the Department of Justice; the police. it'd be great if you could avoid the police. 

Marc A: That's exactly right. Let's talk about this for a second, the way contracts work in the US is you sign a piece of paper. Well, what happens if somebody forges a signature. Well, you call the cops. You take it to court. You have a lawsuit. You go through all this stuff. You're exactly right. You either are working with employees who are working with contract law and with courts. You immediately fall back on the centralized institutions. You hope they get you the right outcome. What if you had a digital contract that was unforgeable? Once you signed it, that was it. It was provable after you signed it and nobody else could've signed it. 

Russ R: What you signed you had to keep. That there was no uncertainty or virtually no uncertainty that you'd keep the promise that your signature represented; because that's the other piece that's always uncertain. 

Marc A: The first thing is just being able to interact. There are consequences to many of these things, but the first thing is to be able to interact. Let me give you a basic concept. [inaudible 00:37:15] cost of ownership; who owns what? Who has title to what? In the west, we take it for granted that we've got title. Real estate titles, we've got. We've got title agencies. We've got contract law around titles and all the rest of that. Ultimately, there's enforcement if somebody tries to squat at somebody else's house. It's unfortunate but we have very clear ways of determining what's what. Of course, ... 

Russ R: ... they're very expensive those titles. When you buy a house, a frightening large amount of money goes to prove that you're actually buying and selling the house that you both have in mind. There's a big set of institutions around it. 

Marc A: That's exactly right. In much of the rest of the world, in much of the developing world, there isn't clear title. [inaudible 00:37:55] written about his a lot. This used to be a problem in India. I don't know what the number is now, but there's some large percentage of real estate in India and it's just not clear who owns it. This is a generalized problem. If you can't have land, do you have the basis for capital and all the things economists talk about. Then you say, we need to have a system to which everybody in the world can establish ownership. Then have consensus too of who owns what and have a way to transfer ownership from one person to another in a way that can be validated and can be trusted without having to recreate these giant centralized institutions; which might either take decades to build in systems where the government's not strong enough to do that yet or might just be [inaudible 00:38:39] expensive. It may not be possible what we might consider to be a modern title system for land in the world where incomes are much lower. 

It might be part of the development trap. It might just not be cost effective [inaudible 00:38:52] required to let people develop economically. What if we could just do that digitally? What if we could just do that on the internet for free? Well, we can send email back and forth for free. I can send messages back and forth. Why can't I send title back and forth? There were a set of breakthroughs that had to happen around trust and photography that had to happen that in fact happened over the last five or 10 years. The key breakthrough was the Bitcoin breakthrough by this anonymous inventor, [inaudible 00:39:22] who came up with this idea of the block chain, this trust model for establishing who owns what, who controls what, who has committed to what at different points in time. That's a really big breakthrough. You can think about that breakthrough. Bitcoin, people think of it as digital money. It is digital money but its deeper than that. 

It's potential also digital contracts. It's potentially digital title, digital ownership, digital keys, digital assets, unique media files, which has always been a big problem on the internet, single copies of media could be done this way. Ultimately, digital stocks, bonds, loans, insurance contracts; you can kind of see where I'm heading with this. The distributed trust breakthrough is a a wedge that technology has now made possible. Now what's going to happen and is happening right now is hundreds and soon thousands of entrepreneurs starting companies to do software based contracts, software based keys, software based signatures, software based title, all these different categories using this underlying technology. That's what going to happen in the next five years and that's what we're funding. 

Russ R: What could derail that? What do you think affects the viability, not of Bitcoin, but of this crypto currency distributed trust breakthrough. Is that breakthrough over? Is it over? we're done. It's solved. We don't have to worry about it anymore or are there things that you think are still uncertain about it?

Marc A: At the highest level it's hard to see it stopping. The reason it's hard to see it stopping is it's just math. It's just math. It's just bits. It's like stopping [inaudible 00:41:11]. For example, [inaudible 00:41:17] Turkey's going through this right now where something happens politically and they decide they don't want bad behavior on twitter or YouTube so they ban twitter. The next thing you know is hackers in that country find three different ways for people to still be on twitter or all the behavior on YouTube then they ban YouTube. Increasingly, they look like they're doing terrible things to their citizens. Then at some point they just turn the entire internet off. The problem is, if you shut the internet off you tend to drive everybody out into the streets. That's the last thing you want if you're trying to prevent a revolution.  

If you're north Korea and you can prevent people from using the internet, you can stop all this stuff, but I don't know how modern countries can shut off the internet. I think we're past that point. Short of shutting off the internet, you'd have to take a very aggressive path to intercept these bits. It's like trying to prevent people from talking. You could try except there are an enormous number of people who want to make sure that the free [inaudible 00:42:18] of information doesn't stop. So ... 

Russ R: ... you're talking about the government response, but what about the private hacking response? Do you think the ability to hack into someone's Bitcoin wallet, for example, is going to be a problem in the future or is that quote solved? Is that problem of duplicate money? I forget the technical term you used, the digital copy. I pay somebody and then they can buy two different rugs with the same coins. Are those technical problems over or solved or do you think there are other risks involved technologically?

Marc A: Those problems are solved in theory. This is a complicated question so I'll give a fairly complicated answer. Those problems are solved in theory. The reason we know they're solved in theory is because, like I said, this isn't just an overnight thing. This is something people have been working at for over 20 years. Every step of the way, they've been trying to break it at the same time they've been trying to build it. Bitcoin itself has been out for over five years and many of the best hackers in the world have spent five years trying to break it. There's been a huge financial incentive to break it. It has not been broken. Can I prove beyond a shadow of a doubt that it's never gets broken? No. 

Do I know that many of the best hackers in the world have been trying  hard for years and have been unable to break it? Yes. In the real world, how do you know that something's secure? At some point, you know something's secure because people have tried to break it and failed. How do I know vaults are secure? Well, people haven't been able to open it. Theoretically, it's in a very good place. [inaudible 00:43:51] by the way, we feel it's in a good enough place to [inaudible 00:43:54]. We watch. We're deep in this world. We're deep in the security world. We know a lot of hackers so we track this stuff very carefully and nobody's making any progress cracking it; so far so good.  

Every year that goes by, you get more and more assurance. You have more and more evidence that it hasn't been broken. That's in theory and that's important. It's important that that be the case in theory. 

Russ R: Counts. 

Marc A: Then there's a practice, it has to get implemented in the real world to get used by normal people. There you get into things like your Bitcoin account is going to be protected by a password and if you pick the wrong password, and your password gets easily guessed by a hacker, then somebody could take all your Bitcoins. That's still the case, but in a sense, of course that's the case because that's the case with everything. If you do that with your email, people can read all your email. If you leave your car unlocked with the keys in the ignition in the middle of the street, come back in two hours, it probably won't still be there. 

It sort of reducing down to this broader question of making sure that digital systems that we use are generally secure. There's all kinds of work into that throughout the industry using new kinds of authentication methods; using fingerprints, retinal scanners, all these different approaches to make this more secure. At some point, you do have the types of product issues, but it's certainly every bit as secure as an online banking system as an example. Well put it this way, it's more secure than [inaudible 00:45:21] online bank. It's more secure than the Obamacare website. It's more secure than most commercial websites. It's beyond the point where you usually worry about this in terms of building a business. You just need to work with your users to make sure they do the responsible things. 

Russ R: If Bitcoin were widely used and accepted and it's on the road to being that payment system, would you be comfortable with large chunks of your wealth in your Bitcoin wallet?

Marc A: Yeah, definitely. [inaudible 00:45:53] very clever about Bitcoin. Money doesn't actually have to be online. One of the [inaudible 00:45:59] of Bitcoin is, you don't  actually have the money in the wallet. Bitcoin is numbers. You can actually store your Bitcoin in a [inaudible 00:46:04] and print your Bitcoin on paper and store it in a safe deposit box. There's a variety, it's called cold storage. There's a variety of cold storage methods. There are actually companies that are going into this business of Bitcoin cold storage. It's almost like a safe deposit box business. The safe's to store your family's jewelry in a safe deposit box in a bank. Well, yeah, just buy the vault. 

Russ R: More or less. 

Marc A: By the way, the other thing is insurance. You can insure your jewelry. There will be a variety of different insurance methods through Bitcoin. Bitcoin wallet companies themselves are going to have insurance and then you yourself will be able to buy insurance against these kinds of risks. It'll be like anything in the real world. It'll be culmination of you don't carry all your money in your back pocket with you in the form of cash every day. You store some of it in a bank account. You maybe store some of it in gold in a safe deposit box. Maybe you store[inaudible 00:47:00]. Maybe if you're really paranoid you bury it under your front porch. It's kind of the same thing with Bitcoin. You put it on paper and bury it in the proverbial [inaudible 00:47:09] under your front porch if you want to. 

Russ R: Well, let's shift gears. Let's talk about the news business. You've written about that recently. Most journalists are very pessimistic or worried about journalism. they're the people who work for newspapers that I talk to. Other journalists are less worried. You're optimistic about the future of journalism, why?

Marc A: Yea, I take a very different perspective on this. It's a perspective based entirely on business and economics. I'll kind of describe why. If you study the history, the news business is actually an old business. It's been around for about 500 years. [inaudible 00:47:45] through the first 450 years of the newspaper business, it was a brutally competitive business. one of my favorite books is a book called, Infamous Scribblers which was the history of the news business in colonial America. It's sort of a slice in time thing of what it was like to be in the newspaper business in colonial Philadelphia, 1770. Which was like when Ben Franklin was [inaudible 00:48:10] business. 

What you realize is it was a brutally competitive business. Any given city would have 15 different newspapers. They would all have a different subjective point of view. Some of them would be political attacks [inaudible 00:48:25]. People were writing under pseudonyms. I think Franklin himself had a dozen different pseudonyms he would write under to [inaudible 00:48:33] different agendas. It was kind of this rolling free for all of activity, information, news, efficacy, and politics. It was kind of this zoo. 

It ran that way for part of 50 years. By the way, it created very large empires in the process. The first empire [inaudible 00:48:49] were very big businesses based on that kind of approach. What happened, I think was, especially in the US after World War two, the news business consolidated into oligopoly structure. In particular in the newspaper biz, the consolidated into local monopolies. This was due to scale economics per city. In any given major city in the US, over the course of a couple decades, you went from 15 newspapers to five newspapers ultimately down to one newspaper. You had the Chicago Tribune in Chicago. You had the LA Times in LA. It was only the largest cities would have a few newspapers, but even there you'd have a dominate one like the New York Times. 

Then 50 years passed where, if you were a journalist, by definition you were working for a monopoly. Those of us that have worked with companies over the years, there's a big difference in interacting or working for a monopoly versus working with a company that's in a competitive business. It's the difference between dealing with a company that has to compete everyday versus a company that doesn't have to compete. Every monopoly has the same model, which is we don't care because we don't have to. 

You have these companies, they were business like any other and they had problems. They can act like monopolies. They had generations of managers; two generations, three generations passed. At a certain point, you only had people going to work for these companies who wanted to go work for  a monopoly. By the way, it worked. These businesses got better and better. The newspaper business didn't actually start to collapse until after 2005. [inaudible 00:50:30] grew tremendously even though the initial phases of the internet boom. They had very big margins so the business executives certainly made a ton of money; [inaudible 00:50:42] expense account, big fancy buildings, lots of long lunches, the whole thing.  

Then what happens of course, the distribution technology changes. The reason these all centralized in monopolies is because of the scale of economics distribution; having the printing press and the [inaudible 00:50:56] trucks that would actually get the newspaper out. You had a scale advantage if you were the sole provider. The internet striped the monopoly status on the distribution up from all these companies. 

Russ R: Then they took the revenue stream away from them too. You had to [inaudible 00:51:11] in the classifieds. 

Marc A: They did something very specific there. It wasn't so much that you had new online newspapers that did the same thing that the offline newspaper did. It was the product got unbundled. In the old days, people had this sort of romantic view of the newspaper was like this [inaudible 00:51:29] of democracy that the journalists liked to talk about. The reality was most of the newspaper was the grocery store ads, the car dealership ads, the want ads, the classified ads, the sports scores, the stock quotes, the funny pages, the horoscopes, Dear Abby, entertainment news, TV listings. It was this bundle of information and it made sense for all that information to be in a bundle. It made sense for all the revenue streams associated with all those components to be in a bundle because of the cost of distribution. 

It didn't make any sense to have 20 different specialized newspapers covering all those different topics. It made sense to have one everything was funneled in. You put that on the internet then all of a sudden, to your point, Craigslist takes all the classifieds. Yahoo movies takes all the movie listings. Yahoo finance takes all the stock quotes. ESPN.com takes all the sports scores; and on and on. The product got unbundled. The distribution monopoly fell away. The competitive battle started immediately. 

The competitive battle has been really fascinating. You had newspapers competing with newspapers who didn't used to compete. The New York Times and the LA Times never used to compete and today they do because users on the web can go to either one equally. The New York Times would have never viewed CNN as a competitor in the old days, but in the new world, New York Times.com  or CNN.com; two different websites. You have competition across media channels. You have this great unbundling taking place and the revenue vanishing. It felt like the perfect storm. 

If you're inside one of these media companies searching for a news publisher, it's like the entire thing is collapsing. There's a lot of truth to that, but the root cause is you were used to being a monopoly. You weren't used to competing. What's the answer to this entire thing going to be? It's going to be to compete. It's going to be a take a stance of every business in the world that actually has to compete for a living and figure out fundamental questions. What's my differentiation? What's my competitive advantage? What's the appropriate cost structure? Who are my customers? What do they want? Where am I unique? Where am I not unique?

It's a time when we need proprietors for news organizations that are like the proprietors from the [inaudible 00:53:48]. We need proprietors, owners, and managers who full on capitalists, full on aggressive business people who are very good at spicing up markets and identifying revenue opportunities, very good at rationalizing cost structures and all the things that you have to do in a normal business. Of course, this causes the journalists to freak out. They're like, my God. The whole point of objective journalism is you have this separation church and state and the business isn't supposed to affect the journalism. How are you going to fit all the business people [inaudible 00:54:15]? It'll ruin the whole thing. 

I think the exact opposite answer, which is the way to guarantee high quality journalism is to have it be a business. If you don't have a successful business, you have a charity or in worst case scenario, bankruptcy. You have to solve the problem as a business. The good news is that the market is much larger than it used to be. This is something we think of a lot about in tech. We think that in venture capital. We think about what's the market size of what you're going after. The internet has caused you all these problems but the internet has given you a gift which is a much larger [inaudible 00:54:48] market. 

Even the New York Times, historically its total market size for people it could distribute a physical newspaper to in New York. Today its [inaudible 00:54:58] market is the entire world. Hundreds and hundreds of million people around the world who need to know what's going on. These businesses need to be reconstituted around market segments that have a need for differentiated products, but many of those market segments are [inaudible 00:55:13] than it used to be. 

Business and finance news will be the leader in the recovery because the rise of the number of people globally who need business and finance news is growing very fast. Of course, those people have expense accounts. They can easily afford to pay for information that valuable to them. I think the Wall Street Journal from here is going to do really well. I think that the Financial Times probably  [inaudible 00:55:37] under a new owner, at some point is going to do really well. Then there's a variety of new startups in business and finance news that are growing very fast that are going to do very well. General news and other categories of news will follow.

Russ R: It's an inspiring story. I happen to agree with it. I think you're right. There's a lot of romance about being a journalist that I think isn't even true. The objectivity part and supporting democracy, we do need journalism to ... is journalism as useful for exposing tyranny and corruption? I think it will continue to do that. I'm like you, an optimist. How about ... We're low on time but I want to hear your thoughts about two areas that everybody cares about which are healthcare and education. We talked a lot about [inaudible 00:56:22] on this program. Do you think they're real or overblown? Are they going to revolutionize education in the ways that we've been talking about? Is software going to change healthcare in the next five to 10 years? I think it will but I'm curious what you think. You're smarter than I am. 

Marc A: [inaudible 00:56:39] I think the answer to education is a broader question. I think the real question is a broader question. The existing education, especially at the college university level, actually works pretty well. I always tell people if you can go to Stanford, go to Stanford. My friend Peter [inaudible 00:57:00] was like, don't go to college. Go to Stanford, go to Harvard. I went to the University of Illinois; great school. Go to Purdue. Go to university of Washington. These are great. By the way, there are also great private high schools or public high schools that are very good. It's great, if you can get there that's great. 

There's a very large number of people in the world and a large number of kids coming up who are never going to go to any of those places. We know that because the numbers just don't work. Run the math on how many people are there in the world today ages five and below who are going to hit the high school and college market in terms of age, five, 10, 15 years out. What I'm saying we know for sure is they're not going to be on a physical ivy league campus or a physical university state school campus. They're either not going to get education, which would be a disaster for the entire planet or they're going to have to get educated in a different way. The only way to scale the education system to meet the needs of everybody on the planet that needs to be education is through software. 

It's a ridiculous cost prohibitive exercise to try to figure out how to replicate the campus model for the number of kids that's going to ned to be educated. You were asking about it over a 20 year period, we have to solve this problem of software. A large part of the future of the planet depends on solving this problem of software. It becomes a moral issue quite quickly. We have to figure out how to do that. The argument that's almost a complete waste of time is would you rather have a muke or boat sitting in the lecture hall at Harvard. That [inaudible 00:58:38]. 

Russ R: I couldn't agree more. People say, face to face is so much better. I said, yeah, if you have a good teacher. How many people have a good teacher? It's much better to have a great teacher on the internet than an awful teacher face to face. There's no comparison. 

Marc A: Or no teacher face to face. 

Russ R: They don't show up in certain parts of the world. 

Marc A: Exactly, that's the big thing that has to be tackled. The other thing is I think there's two kinds of students. The thing I hear from American educators, especially at top-tier institutions is, you don't understand. You're naïve. Kids don't want to get educated. They only got to class reluctantly and if you're not on their tails all the time, they won't even do their homework. They're out partying all the time. To me that's like a sense of people who are [inaudible 00:59:22] lazy. There's a much larger number of people in the world who do not have that problem and whose parents do not have that problem. The difference between educated and not educated is fundamental differences in quality of life. It's absolutely fundamental and everybody knows it. There's no [inaudible 00:59:38]. 

This whole thing where people lack motivation for an education. Yeah, rich [inaudible 00:59:44] might like motivation but like everybody else in the world he's got to have the motivation in spades [inaudible 00:59:49]. 

Russ R: Yeah, they're kind of [inaudible 00:59:51]. 

Marc A: We collectively have to figure out. This is a challenge. Companies play a role here. Governments play a role. Non-profits are playing a really big role. [inaudible 00:59:59] fan. A lot of people are. What he wants to do [inaudible 01:00:07] is going to be just tremendous. By the way, teachers play a huge role. One of the huge opportunities, you're obviously an example of this is, but the best teachers in the world are going to be able to have a much bigger impact as a result of this. 

Russ R: Make more money.

Marc A: You need to make more money and [inaudible 01:00:19]. Exactly, this is one of those things where a lot of the best teachers are going to get really fired up by what this means for them and the impact this can have on the world. They're going to play a big role. That plays out. [inaudible 01:00:33] 

Russ R: Healthcare. 

Marc A: Healthcare, the challenge in healthcare is also the opportunity in healthcare which is to fix the incentives. The pessimistic view is that it's sort of an unfixable situation because the incentives are badly aligned and if you're not paying for your own healthcare and don't understand what you're buying, then you don’t care what it costs. That's when you get this out of control thing. Even if in theory you could break the cost disease and bring productivity [inaudible 01:00:59]. Nobody has the right incentives to do it so it'll never happen. The two really positive things that are happening right now in the US that we're looking at very carefully are; number one, this dramatic rise in high deductible health insurance. A lot of this is being sparked as a consequence of ... This may be one of the big positive benefits of the Affordable Care Act. A lot of people now are going to be operating under healthcare plans that have two thousand dollar deductibles. All of a sudden, a pretty high percentage of the actual health events that you deal with, you're going to be paying significant amount of money out of pocket. 

Russ R: That'll change behavior. 

Marc A: Exactly, right. All of a sudden, it goes right back to the smartphone. If you give people the right kind of smartphone app, where instead just going to whatever doctor, paying for it and getting like you would in the old days, without of control costs; what if you could get the answer through your smartphone or could find it cheaper? For example, one of the big things in healthcare is a lot of people go to see doctors [inaudible 01:02:00]. Today's healthcare system, you have no reason to not go to the doctor. In the future, it's an easily diagnosed and resolved problem that a nurse can help you with. You'll be able to just do that. 

By the way, you'll be able to do things like [inaudible 01:02:12] scoring on the providers so you could find a really good nurse or nurse practitioner to deal with whatever your minor problem is and pay a lot less money. That's one big opportunity. The other giant underestimated thing that's happening is more big employers are self-insuring their employee [inaudible 01:02:29]. These really big multi-nationals, they're actually footing the bill for their employee's insurance more and more. There you have very professional management teams, finance departments, HR departments that all of a sudden have a huge incentive to drive down costs. They can't drive down costs in a way that's going to damage their employees because that would be counter-productive.

They'll drive away the talent, but they have a big incentive to optimize [inaudible 01:02:54] straight to their corporate bottom line. We're seeing big companies as much more interesting adopters of new technology on behalf of their employees. There's a big opportunity there. Obviously this is a big one. This will take a long time, but you can envision a culmination of changing economic incentives combined with new technology, combined with increased role of individuals and big employers combined with technological advances. it certainly gives you wedges to come in and start having an impact. 

I would say there's reason for mild optimism. Then hopefully over the course of the next 10 to 20 years we can start going after some of the really big [inaudible 01:03:36]. 

Russ R: Last question, are you worried about anything remotely like the singularity or the fear that technology is going to put everybody out of work except for the handful of people who can create the new software that's going to make our lives better? What's your feeling about that? Optimist or pessimist?

Marc A: Very optimistic as follows; we live in such a cynical and pessimistic time that nobody wants to think about the other side of this so I'll put it out there. We are, with the smartphone, with the internet, with google, with open source [inaudible 01:04:14], with all these things we're talking about; we're putting unbelievable tools in the hands of everybody on the planet to be able to do things in fundamentally better ways, get access to information, communicate, access global market, access up to date pricing for goods and services, open online storefronts, educate their kids, on and on. It's like the Swiss army knife of all time. You give somebody a smartphone all of a sudden the entire world opens up. 

It's hard for me to believe where another three, four or five billion people are going to be able to be able to purchase a [inaudible 01:04:54] in a market economy for the first time ever in a fundamental integrated way and that's not going to lead to enormous economic growth. How could that possibly be the case? We basically have to believe that all these people are going to have all these tools, all these opportunities and they're going to do nothing with it, right? Which seems to me [inaudible 01:05:17]

Russ R: All the good jobs will be taken. 

Marc A: Exactly. 

Russ R: There won't be any news. Somehow there won't be any new ones. 

Marc A: Right at the point of maximum opportunity, co-creation will come to a complete halt. I'm on the other side of it. I think we are on the verge of what could be globally a much faster rate of growth than we're anticipating because so much more talent is going to get unleashed. There's so many people all over the world who have not been able to participate in the economy at their full potential, who are now going to have the opportunity increasingly to do so. That means potentially a flowering of  human creativity, innovation, entrepreneurship. You've got global spread of the entrepreneurship culture. You've got just what's happening in China alone with entrepreneurship is spectacular. You've got the global spread of venture capital. You've got the creation of all these new businesses, industries. 

You've got fundamental breakthroughs happening in science and research; you've got all of these incredibly powerful changes happening and really human potential being unleashed. I think, the big questions are around institutions and leadership; which is, are the governments, the government's systems, and the economic systems going to be setup, reformed, structured in the right way so people can actually take advantage of these tools?

Are you going to be able to raise money for your company? Are you going to be able to keep money for yourself and your company or is it all going to be taken in taxes? Are you going to be able to hire employees or are you going to have European style labor laws everywhere where you can never fire anybody so you can't hire anybody? The sort of really big policy questions become even more important because they affect a lot more people. Of course, there are many countries in the world that have extremely ambitious and hungry, talented populations where the governments systems are still, at best, described as [inaudible 01:07:12]. They need to be reformed. 

We need modern market-based economies. We need modern democracies. We need those ideas to spread as fast as possible. I think it will be a time of great political turmoil is probably my prediction. I think the number of government changes, government turnover, literally revolutions in the streets seems like it's on its way up. People are becoming less willing to accept a bad state of existence because they're becoming more aware of the alternative. I think they'll be a lot more political change, pressure, and strife. I think the stakes are going up. 

Russ R: My guest today has been Marc Andreessen. Marc, thanks for being part of Econtalk. 

Marc A: Great, thank you so much Russ. 

Russ R: This is Econtalk, part of the Library of Economics and Liberty. For more Econtalk go to Econtalk.org where you can also comment on today's podcast and find links and readings related to today's conversation. The sound engineer for Econtalk is Rich [inaudible 01:08:17]. I'm your host Russ Roberts, thanks for listening; talk to you on Monday. 

Coming soon: Book recommendations from Dustin Moskovitz. Follow me on Twitter for first notification!

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/689403 2014-05-14T02:10:37Z 2014-05-14T02:17:07Z Hacking AngelList syndicates with cofounder Naval Ravikant

I recently posted "Feature Request: Transcripts or Summaries of Tech Founder or Investor Interviews". I decided to pay for a transcription service to transcribe a few startup videos that I've been meaning to watch - and why not share them! Please let me know if these are useful as I plan on continuing to pay for transcriptions.

Please excuse the typos - I pay for these transcriptions and haven't combed through the errors on this one.

Hacking AngelList syndicates with cofounder Naval Ravikant

Speaker 1: Today’s episode of this week in Startups is brought to you by audible.com, a leading provider of spoken audio information and entertainment. Listen to audiobooks whenever and wherever you want. Visit audible.com/twist for your free audiobook. By snapterms, online legal protection made simple. Visit snapterms.com and enter the code TWIST to receive 10% off. By Amazon web services, get the resources you need to easily get started with AWS activate, a new global program for Startups including AWS credits, training, developer support, a Startup community forum and special offers from third parties. Learn more and sign up at AWS.amazon.com/activate.

Jason: Hey everybody! Hey everybody! It’s Jason Calacanis and this is this week in Startups to show what we learn how to build companies and board that we have a doozy for you today. This is my exclusive interview with Naval from AngelList. We sat down at the Launch Hackathon and we had an incredible conversation about what matters in terms of building companies, raising money for those companies from Angel investors and the future of Angel investing.

Now that we have this crowdfunding syndicates, it’s an incredible episode. It is required listening for any entrepreneur in 2013 and 2014. Get in there and listen to this amazing episode.

[Singing]

Hey what a great amazing episode. This was with Naval. Stay tuned for our friend James Altucher on the audible author series coming right up.

Please join me and welcome Naval Ravikant. All right. Welcome Naval.

Naval: Thanks. Thanks for having me.

Jason: I appreciate you’re giving up your Sunday to come to talk to all of us.

Naval: I think these people are doing the real work. I’m just sitting here and talking. 

Jason: They are. They are. 

Naval: Which I think it’s still cold. 

Jason: You started as an entrepreneur. You can pull up slide number one here. You had two companies I think of note. Tell us about them.

Naval: Yeah. Epinions was a company started in the first [bubble 00:02:31], the .com boom and it was a product review engine. It went public as far as shopping.com. Then vast.com is a white label classified big data analyst company. It’s still private, doing pretty well. 

Jason: Now, those companies, what was your role of them, founder, developer?

Naval: Yeah, founder and CEO.

Jason: Founder and CEO.

Naval: Yeah. 

Jason: When you look at that first wave and that crazy bubble with live through, compare it to what some people are calling Bubble 2.0 or at least frothy and it tells we use it.

Naval: Yeah, it’s frothy for sure in that it’s completely different. First Bubble, our first wave you could say there were tons and tons of money being poured into silly projects. You get literally a hundred million dollars behind something that was just made no sense and had no chance of ever making that money back. 

Things are very, very different now. The markets are much larger. Everyone is on the internet. Everyone’s got on their pocket. We had broadband. We have 4G. People are much more comfortable using things, paying for things. There’s API stock structure. Scale the opportunities play a hundred experts. It was back then. 

It’s much, much cheaper to build a company. Epinions, we spent five million dollars just building the first original Web site because there was no open source softwares. You use [Solaris 00:03:41] servers and Sun and pay some licenses in oracle databases and host our own data center because data centers weren’t established and key one lines and there was no CSS. We had to write everything in tables from scratch. No deploy scripts.

You just have to build everything from scratch. What used to cost five million bucks to do, eventually cost five hundred thousand dollars to do and that cost fifty thousand dollars to do. Now, we’re in a completely different phase. We’re in [inaudible 00:04:06] explosion sort of scenario where there’s tons and tons of small startups and more and more being started every day. They’re very cheap and you need to start. 

That said these are still winner take all markets with huge network effect. You get this incredibly outsized one of hundred companies winning and they win huge. The nature of the market has fundamentally changed. The distribution curve is very different. I do think it’s actually a much [inaudible 00:04:31] time to be investing as long you’re evaluation is sensitive and you stand the portfolio dynamics of how few companies actually succeed. All your returns are going to come from being in one or two at those winners.

Jason: A lot of talk of a Series A crunch and being very hard for people to get that series A. Is it true or not?

Naval: It is true. The numbers of companies is split, gone up by a factor of a hundred at this point or rounds to that. The number of venture capital is not increased. What venture capital now does is basically growth capital. Series A has really done by the accelerators and the Hackathons. Series B is done by the Angels, super Angel seed funds. Series C and up is where the VC start.

I think I believe there is a fundamental misunderstanding still working its way through the system about how to build a company, which is people think the right way to do it is to kind of raise a million, a million and a half from some Angels then prove something out then go to VCs and try and raise series A which is a classic model and that fails. 

Really the right answer is fifty thousand dollars build your product, launch it, accelerator style. Five hundred thousand dollars prove something big. Then maybe your next round is a million, million and a half and get to profitability because it doesn’t take that much to build a company anymore. 

Those of you who are trying to hire like 30 or 40 people into your company, you’re setting yourself up for a very, very tight funnel that you you just squeeze through on the growth capital side with the VCs.

Jason: Why is this go … I will go small or go lean strategy in your opinion being probably the most knowledgeable person of the angel space? Why in your opinion is this the best reason?

Naval: Small teams are innovative. They move faster. They get more stuff done. Most of AngelList was built by six people. Even today after ramping up quite extensive last year, we’re only still 15 people. It doesn’t take a whole lot of people. Look at Instagram four people, Snapchat, 20 people. To the extent that you’re hiring a lot of people especially in software, that’s most your ego talking. Unless you’ve got a billion dollar opportunity tiger by the tail and you’re clearly winning and people are throwing money at you, do not scale up. Pretty much you’re scaling of a debt at startups.

Jason: Great. 

Naval: Keep in mind it’s in everyone who’s writing checks incentive to tell you to scale prematurely. 

Jason: Why is that?

Naval: Because they’re going to bill you out. They’re the ones who are going to show up and then negotiate the terms to bill you out. It keeps them relevant and powerful. The part of the reason why AngelList exists and Angels exist is because the cost of building companies come down so much that the number of people who qualifies investors are some exploded. They couldn’t make a difference before. A twenty-five thousand dollar check would make no difference to you in 1999.

Jason: Yeah, but a twenty-five thousand dollar check can build a proof a consent.

Naval: Today.

Jason: Today, right.

Naval: But not through early.

Jason: The VCs or some of the bigger investors, they suddenly realized they might miss the chance to own 30% of your company?

Naval: They do it now but they do it through growth capital. They wait until you’re big and growing then they come in and they bid. The venture capital game at this point has become about branding yourself and to get good deals that are obviously hot deals.

Jason: Let’s talk a little bit about AngelList in the early days. Maybe we pull up slide number two for a quick second here. You started doing Venture Hacks and you even started writing this great blog post unpacking the venture capital industry back in 2007. People were not happy about you doing this, were they?

Naval: Yeah, it was mixed results but at the end of the day, information knowledge wants to be free. [Nivy 00:07:59] and I used to sit around and talk a lot about how opaque term sheets were and how as a founder. This is basically pre-accelerator, pre-blogging. You go in and you get a term sheet from a venture capitalist and we have no idea what it means. You basically sign … The series A was the most important. You basically sign your life away then you find out five years later what it meant. 

There was a game theory to this whole thing, to all the different terms in how to play out [V2 rights 00:08:22] and all that stuff. Even your lawyer, although your lawyer you could trust as your lawyer, nevertheless they spent more time serving to VCs and working with an ecosystem. You were the single move player in the game. The VC is the multi move player in the game theory sense. They’re always going to get the benefit of the doubt.

They created all these things that were standard and then your lawyer would say, “Oh, that’s standard. That’s standard. That’s standard. That’s standard.” Pretty soon you find out, that evaluation is temporary but the control is forever. You’ve given a control every company. It’s no longer your company. You’re the entrepreneur but you’re working for somebody else. I think it’s a horrific situation that still many, many entrepreneurs I know it.

I just had another coffee meeting yesterday … I’m sorry, Friday with an entrepreneur who was doing great or his company is flying high. VC took over, merging another company, kicking him out. It still happens. You got to be very careful. 

We wrote it all down in Venture Hacks, but people said stop telling me how to negotiate the term sheet. Get me a term sheet. That’s where Angel started. 

Jason: Next slide. As you can see here, the most recent version I think of Angel is or one of the recent versions, it started just you e-mailing people opportunities that you met when you were out having coffee with people, is that correct?

Naval: That’s right. Yeah, I was having all the … I had a small investment fund that’s investing startups. I remember I had coffee with one investor and he said, “Oh, I got this great high deal and we should move on it before anyone else finds out about it.” I was like, “Really, 2007 still works like that? You can use proprietary information to get some kind of advantage, it doesn’t make sense.” This is 2010. 

I’ve talked to [Nivy 00:09:51] and I said, “Look, I know a bunch of investors. I do deals. Let me just take my deal. I start sharing it.” We took 25 investors. We started sending out just e-mails, and then we searched the Mailchimp, and then we had Wufoo and then nine months later we started coding.

Jason: The site has gone quite big now. How much has been raised through the site as a result of the site?

Naval: Yeah, it’s about a couple a hundred million directly through the site. It’s a result of introductions from the site. It depends and I count them like for example we introduced Sherwin to Uber. He put in 100K into C and then he did the Series C later. Do we count that or not? We don’t. 

If we just count direct investment through introductions, it’s about two hundred fifty million bucks by ten million a month. Then on top of it, we also move it by four million a month, five million a month, just purely online through what we call it through syndicates essentially where people commit to small dollar checks online.

Jason: You yourself have invested in a lot of companies. Maybe we can go just to slide number five. 

Naval: Yeah, it’s far too many.

Jason: Yeah. It’s impossible to read but how many companies have you invested in and what you’re current pace of investing?

Naval: I probably do one a month small, one a quarter big, very opportunistic. I mean this business that I love technology. I love entrepreneurship. Even I keep telling myself, “No. I’ve done investing.” I’ve got enough investments. I always see something new and shiny come along like “Oh, that’s a great idea.” Those people didn’t know what they’re doing and I just get caught up in it. It’s hard not to.

Naval: Let’s talk about something big which is the [jam-zat 00:11:27]. Explain to folks who don’t know what that is? What exactly happened that is relevant for founders?

Naval: Yeah. It’s sort of the only major by its partisan built to pass congress and get signed into law in the last four years which both sides sort of supported. It is a whole bunch of nice things for startups. There’s stuff that allows companies go public more easily. The shareholder rule, the 500 shareholder max is raised getting up 2000 shareholders. 

But the two most interesting things from most recent in the audience is one is the general solicitation band is lifted, which means you can fundraise in public. It used to be illegal to go out there for example even at this conference stand up here and say, “I’m fundraising”. That used to be against the law. Supposedly you’re only allowed to market to accredited investors basically proven rich people that you had a pre-existing relationship with. 

Now that’s changed. You can market to anyone. The downside is you can do a lot more work after the fact to prove that they’re rich and sophisticated and can take the risk. That can be pretty the owners. You got to check their income tax forms, talk to their lawyers, credit reports, those kinds of things. We’re automating that and building that in AngelList and we got to provide that as a free service to everybody. Be accredit ones and then we use it wherever you go.

The other piece that’s relevant is through crowdfunding where non-rich people can invest small limited amount using Startup. That’s coming down the pipe. It’s still not legal yet. In all these cases, the SCC drives additional regulations to kind of mandate how it works. SCC being a C, they’re going to automatically lead a little bit more towards what Wall Street once or how hedge funds work. We always have to write to them and get the community together and say, “Hey, look this is how Startups is doing. This is how it needs to be a startup friendly.”

Jason: You decided when … I guess it was September to launch public facing syndicates. I was one of the first to sign up for it. 

Naval: Yes, if there’s a hundred times many startups, we need a hundred times many investors. That just seems logical. You’re not going to have billion dollar funds allocating capital into all these little startups here fifty thousand dollars at a time. This micro VCs must exist and they need a platform. We created a platform for micro venture. 

What syndicate is it allows any Angel who is putting their own money, [scheming 00:13:44] the game which keeps you ethical and moral. To also raise money on the fly in the Cloud from people who want to back them like kit starter before equity. You can build up and put them in the backer base. Get first look at your deals and exchange for having first steps on them. We try to make it very simple and move it all online. What we have is we now have close to a hundred Angels who across them have close to a hundred million dollars in annualized backing. 

Every time they write a check, their money gets multiplied 5x, 10x, 20x, comes into the same terms, gives them a piece to the profits. We formed a single purpose LSC in the sky that aggregates the money and puts one signature under the cap table which that Angel controls. 

The backers are basically backing people who are putting their own money at risk, only paying a piece of the profits. There are no fees. They can start or stop backing at anytime with one click. They owned interest in the LSC which good itself is a secondarily traded and they got a beautiful in the sky dashboard brokers to view of all their holdings.

For the lead, they basically have a liquid back end to LPs now. They don’t have to be a full time venture capitalist. They can continue to do their job as an entrepreneur or whatever they want. Once in a while when they see a good investment from our entrepreneur, they are now in trust. They can scale up, do the series, this whole C drown with the Series A and then move on.

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They’re second only to probably Mailchimp in terms of their support of the program. I really do thank them. You should too on your Twitter account. Go ahead and say thank you at Snapterms and tell all your friends, don’t waste the ton of money on your terms of service. Go to the pros, and the pros are the folks at snapterms.com. Thanks again, Snapterms. 

Where do you think this is going in terms of your doing it right, doing it lean strategy which you outlined earlier which is to say, if somebody was going to do the fifty thousand, five hundred thousand, one point five million dollar deal, it seems to me that alliance would exactly what AngelList syndicates and AngelList sub classic is capable of doing.

Naval: Yeah. Essentially doing incubators AngelList and syndicates, Super Angel, seed funds, you should be able to get to escape velocity, and that’s the point at which you go for venture essentially especially in the consumer side. It’s a little different in the enterprise or hardware but especially in the consumer side. No, series A “VC” wants to talk to you unless you have escape velocity or unless you’re an extremely branded entrepreneur and even then they want you to have a product in some indication that you’re going to hit escape velocity.

Jason: I kind of hit that road already now.

Naval: Yeah. I think even the Super Angels and the seed funds are starting to operate in that basis. The bar has gotten really, really high because there’re so many startups. 

Jason: You have to show traction.

Naval: You have to show some traction, or you got to show something, or you have to show, you do something really unique and difficult which is very hard to calibrate because everyone thinks we do something unique and difficult but you need a third party validation on that.

Jason: Something like Pinterest or Airbnb or even Dropbox might own its surface not look very difficult. Those things if they existed today, what would they need when each of those examples in your perception to get an A round from a top to your VC?

Naval: Today, the need like a hundred thousand monthly users climbing fast kind of thing, at least.

Jason: Dropbox would have to have a hundred thousand monthly users climbing at 20%?

Naval: At least 20. Yeah, 20 is probably the minimum.

Jason: Wow. They weren’t doing that when they raise previously?

Naval: Yeah, but the bar just moves up in the market constantly. 

Jason: Wow.

Naval: Yeah, that’s just the nature of the [beast 00:18:47]. I think Dropbox its first round was pretty money of three million or four million, something like that. The evaluations were lower back then. In 2007, ’08, ’09, the evaluations are probably like two, three, four million. In 2009, ’10, ’11, ’12, they kind of went little crazy. Got up as high as 6, 8, 10, now they’re coming back at that 3, 4, 5 range. 

Jason: What do you think of the accelerators and their future and all of this? I mean we have obviously the [wide commenter 00:19:17] and texters are for sure, the gold standard went there. Then a lot of people creating derivative, knock off, or with good intention and sometimes well-executed, sometimes not well-executed. What is your advice to folks? Should you give 6% of your company away for 15K and join with our company or was it worth it?

Naval: Yeah, accelerator is a very complicated topic. We’re basically witnessing the unbundling advice controlling money, knowing what’s to give controls. That’s where the Angels come in. They come in with money. Syndicates bring backers and more money. The accelerators have sort of branded advice and institutionalize it. I think [inaudible 00:19:58] the new graduate schools except and instead of paying to go, you get paid to go. Instead of going out and getting a job, you got and create jobs. Instead of doing derivative work, you do original works. They’re better at graduate school and they’re shorter and faster.

If you’re just starting out, if you don’t know the context, if you need some help in which you’re building, if you need a network and if that first 25, 50K really matters to you, then by all means do an accelerator. If you have already built your product and start to get a little bit a traction, you can get their on your own. If you’re pretty savvy about how to build a company, and if you already had your network in place, then it’s a pretty expensive deal. But obviously it depends on the accelerator. 

Yes, there are too many accelerators but there are also too many VCs, there are too many companies, there are too many Angels. There’s always too many of everything in this business. It’s like the Kentucky derby. Yeah, there are 16 horses running. Their 15 too many but you don’t know in advance which 15 are too many. That’s the whole point. You have to let them all run. 

On the accelerator side, you could have argued that [texters 00:20:54] were redundant but they turned out to have some great classes. Angels Pad is redundant. It turned out that to be a great set of ex Googlers. Lemnos is redundant.

Jason: Which one is the most impressive to you in the last year? Pick the top … pick your top three most impressive accelerators that aren’t like [inaudible 00:21:07] than last year or texters?

Naval: Yeah, I don’t want to so much pick favorites. I would say I was …

Jason: What’s the most impressive class?

Naval: Yeah. I was surprised by a couple of outliers that came in from that field. Startmate seems to [inaudible 00:21:20] scheme Australian and bringing the best Australian company.

Jason: Which one is that?

Naval: Startmate.

Jason: Startmate?

Naval: Yeah. They bought some really good companies from Australia. They’re little off the radar. MuckerLab has had some great companies out of LA. There’s been Lemnos Labs has had some great hardware.

Jason: Where are they?

Naval: Lemnos are right here. They’re in the city.

Jason: Specializing in hardware?

Naval: Yeah, they had momentum machines which just get to find out by coastline and airway which a guy done by Andrei Sin and a few others. Angel Pad obviously crashed it MoPub exit but there are lots. To find your Startups is killing it internationally. Maybe they have a great space in mountain. Even the US they can beat the [inaudible 00:21:57] and texters and all that. But you go international, do the only game in town and they have a great brand and great reputation.

Jason: If you had an idea today which you can get your basic funding for … but you could go either enterprise or consumer. Let’s say you had the idea for Twitter and Yammer and you’re sitting there with your team of four. You’ve got your funding equal for either ideas, so you could get your 50 or 100K to start building, which one should you build and why in today’s market?

Naval: Well, it depends. First, build the one that you’re more passionate about because you have to be the best in the world to what you do. It’s the old Glen Ross. Number one gets a Cadillac. Number two, gets a set of steak knives. Then number gets fired. That’s the salesman hierarchy and it’s kind of the entrepreneurial hierarchy too. You have to be number one. In that sense you need to be passionate because you’re competing against the best in the world doing what they love to do. 

That said most people are much more passionate about consumer stuff. If you can get excited and be passionate about something on the enterprise side, if you have some experience there, it would probably be foolish to wander away from that. 

Jason: What are the chances of success today for Startups pursuing an enterprise strategy versus a consumer’s strategy? If you just say out of 10, this many will have a pretty good outcome versus a not good outcome?

Naval: Yeah, a consumer it’s some fraction of one out of 10.

Jason: Less than one.

Naval: It’s less than one. Yeah, and an enterprise is probably … it was like one out of three, one out of five. It’s probably one out of 10 now because it’s getting crowded. It’s just good to just teach your class. But that said entrepreneurial ventures fail all the time. Most of my companies fail. I actually started seven companies and I’ve launched for about 40 or 50 projects over my career. Angel is the first one that I would truly say its product market entrepreneur fit for me and might succeed down the road.

It’s a low heat rate over your career but you only have to be right once. It’s like your relationships. You only get married to one person. It’s like what you study in school. There’s only one set of things you study that stuck with you that you made a career out of. You only have to be right once or twice. Just keep trying. Just keep reiterating. Flow with it. Stay open. It helps if you have an arc or a theme through your life like people Evan Williams I think are always hammering on the same problem.

Jason: Publishing.

Naval: Yeah, micro publishing or easy publishing on the web. He just keeps hammering the same problems, so he just gets better and better and better at it. It helps if you have sort of an arc or a bent to your life and you’re not just hopping from sphere to sphere project. But that said, just a lot of this market timing and you learned a lot of lessons. 

At first you learned how to … you do everything wrong. You make a whole set of mistakes by your first startup. Then the second one, maybe you do things right but you do it with the wrong people. The third one, you might do with the right people in the right way but at the wrong time. You learned all these painful lessons and so it’s just don’t lock. Just stick with it.

Jason: How many years did it take you to get to Angel Hacker? How long have you been into this profession?

Naval: AngelList?

Jason: AngelList rather.

Naval: I started early for my generation but back then everyone need to start Startups later. My first Startup started when I was 23. I started AngelList when I was 36 and now I’m 39.

Jason: Thirteen years.

Naval: Thirteen years pounding at Startups non-stop. I always like I would do my startup during the day out of my day job. I ran home at night. I brainstorm more startups. I just love it. 

Jason: We’re going to get to audience questions in a minute. When you started AngelList, there was significant pushback from powerful people. 

Naval: I don’t think anybody who is doing well under the current structure likes change but AngelList is a byproduct of the fact that Startups have gotten so cheap to build. They’re so many of them. Whether it was called AngelList or it was called something else, it would exist in some form or another. It’s one of those things … There has to be a place in the ecosystem to organize all the companies and all the investors. 

Jason: What was the thing you found out about later that you thought was like somebody try to stop you the most because people have tried to stop this training. What some examples of people who tried to see the names of people. But have you tried to [scuttle 00:26:17] this project?

Naval: Sure. I mean the number one way in which people try to scuttle is people have a lot of money and they’re used to the old way of investing. We’ll tell the entrepreneurs “Don’t go in AngelList. Only the desperate companies go on there.” I think we’re sort of …

Jason: The desperate people go on there?

Naval: Yeah. It was the same thing they got said about [White Com 00:26:32] in the early days. I think at AngelList we work very hard to make sure there’s no adverse selection. We don’t take a cut from you from listing or forgetting funded. We don’t … All companies are on there. Now you have Yelp and Pictorn and others is recruiting on there. There’s no social stigma to being on there. That was something we fought with over the years.

Jason: They tried to make the companies look like they were the desperate ones. I agree with that. 

Naval: Yeah. I don’t think it’s any like grand conspiracy. I think it’s more just human nature. It’s just like when you’re telling your investors that “Hey, I have unique access to deal flow. I’m this person that sees things that other people don’t see.” You have to be consistent with those statements that you’re making all the time. You go to entrepreneurs and you basically keep under this illusion of proprietary deal flow. I think people have given that up to now. 

Deal flow is public, its access as proprietary. Access as proprietary still based on fuzzy brand but I think what we are arguing is that first we’re going to make that transparent. What you’re value add is, let’s see, put your cards on the table and let the entrepreneurs know and give the choice. 

The second is there are a whole bunch of people today who are highly value added who have good access but don’t necessarily have the capital and that’s what syndicate sells. We’re sort of unbundling all the pieces to make them transparent. This idea that there are only certain people can invest and see and other people who can do growth is a false dichotomy.

If everyone can see everything, than you can cross boundaries all day long. You should have …

Jason: You’re back.

Naval: We’re back. You have Angels who should be able to do a series C or series D. There’s no reason with someone like you or David Sax at some point shouldn’t be able to put a million dollars into a company, have a ten million dollars syndicate behind you and do series B. At the same time a venture capitalist should be able to say, “Hey, the accelerator deal, I want to set up an accelerator in the cloud but I want to offer a hundred thousand dollars or hundred fifty thousand dollars for the 6% instead of the twenty five thousand dollars and here’s my structured network.”

The moment you take all the companies and all the investors and you fit all them in one place together, people can start cross pollinating. 

Jason: I got it. When you started getting that resistance to AngelList, did that act as motivation and a signal that you were doing something right? Or did it make you feel like maybe I’m becoming an outcast? I’m too much of a rob-aroused?

Naval: Well, I’ve always been an outcast, so that’s easy.

Jason: It’s kind of easy to accept.

Naval: Yeah. [Red Herring 00:28:57] hit a job on me back on the day which says something like this guy will never work in this town again.

Jason: That’s what people say when you went to AngelList.

Naval: Yeah, and Red Herring is gone and I’m still here. 

Jason: Yeah, you [inaudible 00:29:09] Red Herring.

Naval: Yeah, but I don’t care about that. The reality is just made sense. I mean there’re some things you just know with the core of your being that you’re meant to do in that array. You don’t care what other people think. It’s like when I married my wife, all kinds of people start coming up and giving me opinions, “Oh, she’s really good for you or I think this man …” I don’t care. I don’t need the opinion. I got it.

Jason: You should hear what they think with your wife?

Naval: Yeah, exactly. They try to talk a lot of it. Yeah, I would say that if it’s a right company then that means you know your domain. You know you’re meant to do it. Yes, other people’s data matters. If they really mean well for you and they have data, keep an open mind. But if they’re just giving you opinion on whether it worked or not, that’s useless. Just go to write a comment in TechRanch. 

Jason: Right. How bad is journalism today? Specifically … I’m not going to mention any publications, but just in general, being inside who sees the actual real data, the real information and you have journalist who are writing who have never run a company, never failed, never succeeded, never took the company public, never sold the company, never did lease, never done investments basically opining on the industry, what percentage do they get right overall this sort of tech press? On a percentage basis, a hundred facts, how many they are right?

Naval: Facts. 

Jason: Facts, opinion they have.

Naval: They probably have the most to the facts right but they missed all the new ones and the new ones matters a lot. The problem is that journalists are not domain experts. Not really. Then they do not have much time. They’re paid on page user whatever. They don’t dig in. They don’t have the time to dig in. A lot of reporting is very superficial and incorrect. 

The interesting part is the people who know the most and who can do the best writing are bloggers like Samuel Shaw for example. He is entrepreneur and now a VC. Understands that space, builds a brand by blogging, and you see there’s a lot. A lot of the great bencher brands now get though by blogging because those people can really, really dig in and understand the new ones. 

The problem is that they’re incentivized. The moment you’re a venture capitalist, then you can start talking about how it’s really important that you take growth capital and you take money from the right people a.k.a. me and that you scale it fast. You have to filter out all the bias in the system and there’s a lot of bias in the system. Everybody has something that they’re going to try to sell you. I’m frankly when in business, right, because this is all business, at the end of the day, you’re here to build the product to make money. You’re not here for just to …

Jason: It’s not charity.

Naval: It’s not charity or you’ll be in the art gallery or you’ll be in the studio or something? Because the business everyone has bias, everyone has an incentive bias, and you guys attract their bias out when you listen to them, and what calls me is just a huge amount of blogging that goes on with no disclosure of the bias or maybe it’s just little line at the bottom. But the whole thing just drips of bias.

Jason: Right.

Naval: I think fundamentally people get passed that. People don’t like … They don’t necessarily it was like the sound of truth because it is harsh but I think people like the feel of truth. They know what truth feels like. I think it’s very important whenever you’re communicating with other people in this industry to try and drop your bias. That’s very hard to do. Very few people do. 

I think that’s one of the reasons why Fred Wilsons ABC blog is so popular. Whenever I read it, there’s just like a certain honesty that comes off the pace. James Altucher, a guy bleeds on every page. He’s so painfully honest, I cannot believe him.

Jason: It’s train rack and awesome.

Naval: But yeah, people if like such honesty, such truth, I wish there are more journalists and bloggers like that who spent the time, did the homework and try to remove the bias from the reporting. 

Jason: What makes a company … because I’m going to start putting companies obvious at the back? I’m hoping to put the top two or three companies here and put them out to syndicate if we make them real companies. What makes a company … this is final question before the audience goes … what makes a company in your mind worthy of me or Kevin or Dave putting it out to our syndicate? What do you want us to feel [inaudible 00:32:58]?

Naval: Yeah. I mean what makes a great company is actually different than what makes it a great syndicate and obviously I’m trying converse it true but one of them is reality. The other one is perception of reality. Reality, what makes a great company these are great founders who can build the great product that are going after an open market. That is your judgment call. That’s why syndicates exist. That’s why we don’t believe in this concept that you can just have a giant list of companies in the Cloud and you can somehow pick the winners and the losers without ever meeting them.

Someone has to go in there with judgment and access and do the homework and spend time with the company and figure out if the founders know what they’re doing. 

Jason: Great founders, great execution, great market.

Naval: Right, that what’s makes a great company. What makes a great syndicate is you have to convey that to people somehow. The way you convey those will be just use a catch all term signal. It has to be a high signal deal. Are the founders accomplished? Have they done something in the past that would indicate their capable of things in the future? Is the syndicate lead a good judge? Do they have a good track record? Do they have early traction? Do they have any indication that the dogs, [or eating the 00:33:53] the dog food so to speak? 

Is the product visually appealing? Or is the space not too crowded? Is it novel? Is it new? That matters too because on AngelList people see everything. By the time you see the third, or fourth or something, it almost is a matter how well-executed. These people are sort of already made up their mind with the space and probably invested in something. That’s what we call signal.

The backers and the syndicate case, right now, today most of them are actually pretty high value angels. For example, just this morning I’m looking at my dashboard, and one of the syndicate deals that’s out there right now, Jeremy Stoppelman and Charlie Cheever just committed CT, one of the founders of Quora and the CEO of VL. 

Those people really shouldn’t be backers. I mean they are backing because they don’t necessarily want to do coffee meetings but they’re interested in this company. They believe in the lead but they don’t necessarily spent a lot of time in the company, this money economic state.

But the real backers are going to be limited partners, funds, people who are out of market, wealthy individuals who are not professional investors. Those people, you need to also send them a high signal but also show them there’s not a lot of access in this deal because otherwise someone is going to say, “Why am I paying you the carriages? Why am I following behind you? Why not I just go direct in the deal?” We call it high signal low access. That’s kind of our balance. 

Jason: I was thinking if I did a video with the founders talking about the plan, and maybe showing it in me preparing with questions, would you think it would add value to the people where they want to … the backers want to see me interviewing? Could that be an advantage as a backer?

Naval: It might. My experience so far is that most investors don’t watch videos just statistically speaking. That said we have Q&A function on the profiles now, so you could ask questions and they give that answers. I think you get the same effect but in the more easily digestible format. 

Jason: I got it.

Naval: You could add a video too. I don’t think it hurts, so just thinking on a ROI basis you [crosstalk 00:35:41].

Jason: What if I wrote a blog post about why I’m jazzed up about the company in the team? Would that be …?

Naval: That would be helpful. 

Jason: That would be helpful. Okay.

Naval: But I think one of the very important things here is that the backers really need to understand. You need to convey to them things like what deals am I showing you so that if they know that there’s no adverse selection, you’re not just keeping the best deals for yourself and then send at the [inaudible 00:36:00]. 

They have to also understand that this is extremely high risk investing and that they should spread their bets over a long period of time. Be very careful and go slowly. It’s not gambling because gambling is a negative expected value in the house. It’s working against you actively. Hopefully it’s a positive expected value and it’s good for society. But the distribution curve of outcome looks a lot like gambling. 

Jason: I got you.

Naval: People have to understand that and be comfortable with the risk and the fact as no liquidity.

Jason: What should an investor do in terms of number of deals? Ten deals? Thirty deals? Fifty deals? If they were going to optimize for a number, if it was your cousin and they said, “I have a hundred thousand dollars, should I do a thousand dollars into a hundred if I’m able to do that or should I do to two thousand into fifty?”

Naval: Yeah, I don’t think it’s a single right strategy there. It depends obviously in the conviction that you have around a given company. But just realize you can have enormous conviction on a given company and still you’re usually going to be wrong. That’s the nature of the business. 

I would think that to get a decent portfolio in the Angels space, you probably need to be at least 25, 30 companies if you might guess. You could certainly take the point of view that you should do a lot more. There are practitioners who do less. They’ll do 10. But for those people that are diligence using to hack on those companies or putting a lot of wood behind that, already spending a lot of time with the companies. These are classic early stage venture capital type approaches. Unless you want to put in that time in diligence, you cannot narrow your portfolio down that much.

One thing you could say is maybe a little unfair but diversification is a hedge against a lack of knowledge. But here no matter how much work you do, you’re probably still not going to have more than 30% knowledge. Seventy percent is still up to the market and out in the air and so many things can go wrong.

Jason: Sure, pivots yet to come. Let’s take three questions or four questions from the audience and then we’ll get back to work. If you have questions, raise your hand. I want to make sure people in the back of the room also. Scott you’re a runner. After you get this first person, I want you to run all the way at the back to the next person. I’m joking. You can do two in the front, two in the back.

Speaker 4: Hi! What’s your position on [inaudible 00:38:03]? Is AngelList plans on using Bitcoin or something?

Naval: I’m personally a fan of Bitcoin protocol. I think it’s very innovative and world changing. Anyone who is interested in http for example should understand Bitcoin because I think it’s a next generation kind of protocol for distributed contracts. I have a little blog post that I think that it’s put up recently, as far as Angel itself … except in Bitcoin that’s kind of just a gimmick at this point. Like no one really uses it is a currency at scale. Those days have not yet arrived and may never. 

Angels already operates in a highly regulated space with all kinds of mine fields. I don’t need to introduce Bitcoin in that I make my life a headache. That said, the moment it makes sense your bet, we’ll support it. I mean it’s a great thing. 

Jason: Do you think there’s a chance that Bitcoin could become a total … what are the chances big coin becomes total wipeout like somebody hack the system or something bad happens where people just loses complete trust or government intervention or something?

Naval: Extremely high. I think right now the value of Bitcoin is based on like a 1% chance of a huge positive outcome or a single digit percentage chance of a huge positive outcome. That’s why it fluctuates so much because when those odds change like 2.5%, 3% the evaluation goes up drastically or down. That’s why it’s so [bottom 00:39:22]. If there were a hundred lottery tickets to buy like Bitcoin, I buy more and diversify. Unfortunately there’s only one. 

Most people say Bitcoin is going to fail are probably right in the absolute sense like you may lose an investment but are they right in the sense that crept occurrence is going to go away? Or the proof of work function or the distributed ledgers is not going to make a huge impact in computing? They’re wrong about that. It is a fundamental technology melt.

Jason: The distributed ledger … the distributed ledger, explain that in plain English to somebody why that’s important?

Naval: Basically when you exchange money with other people electronically, you always go through a central authority and you need the central authority to keep track of who sent who money and so who’s got it and to prevent double spending. In other words, I get write you a check, I write somebody else a check, the way we know the check bounces, go to the central authority. The banks reconcile it and know that, “No, you can’t send that same money to two people at the same time.”

Bitcoin has the thought that probably decentralized way. It does that through a proof of work function which is way beyond the scope of this discussion but just go to my blog, look it up, and then through a distributed ledger to keep track of the transaction. Distributed ledger means that the record of all the transaction is stored in every wallet. Every user at all times has a record of every transaction, ever done in the history of Bitcoin. 

Jason: You get pretty big at some point.

Naval: It is. There are ways to prove it and to put it part of it in the Cloud and its security look up and make sure that you’re only growing on the right part that you’ve authenticated in the Cloud. It’s solvable, but the basic idea is that you should not have to rely in anybody else to authenticate that a transaction happen. You can look inside your own wallet and say, “Oh yeah, that transaction happen in an absolutely, verifiable, irreversible way.

Jason: Next question. 

Speaker 5: First, I just wanted to say, thank you guys for creating up a platform and a space for us to be creative and just do some great things. Secondly, I just wanted to ask especially with the AngelList you and the syndication model that you’re using, you’ve really kind of gone out of the box about how to come up with different ways in solving problems. I just wanted to know … because you were talking earlier about the issue with series A funding, is there anything that you were aware of with regard to flexible purpose corporations in California and the models that those might make for different types of investing in the future as well as your social startups as well?

Naval: Yeah, there’re definitely investors who focus on social startups and dual purpose startups and started submitting but it’s not a lot of investors. They’re solely not on the venture side. They tend to be much more in the Angel side. I know for example Tony Hsieh at Zappos and Tabreez Vergee and Mitch Kapor, and Johnny when people like maybe want to look at Startups that have a social mission with them but they’re not getting the huge amounts of LP dollars. These tend to be people investing their own money or raise small amounts of purpose driven money.

There is more of becoming but it’s still difficult. I would say you absolutely have to make it viable in every respect as a for profit business. Then if you happen to get one of these social interest investors consider that gravy but don’t count on it. Don’t think it’s going to give you any advantage.

Jason: It might actually give you disadvantage, would it not?

Naval: I think it does give you some slight perceived disadvantages with most investors. Yeah.

Jason: When a pitch starts out with, we’re going to give this amount of our profits to charity, the first thing I think is what is the business that’s going to enable you to do that or one just make a really great business and go be Bill Gates, [inaudible 00:43:06] away after you build the great business. 

Naval: That’s one good point of you. Some of it is you have to believe that every company that we’re building here, these are not hurting people. Hopefully we’re not launching drawing the tax or whatever torching people. We are helping the system. We’re creating advancing forward at creating jobs, creating very great products. Look at how the iPhone has just improved the lives of people all around the planet. I would argue Steve Jobs is the greatest humanitarian in the last century in that he empowered more human beings with the computer in their pocket than probably anybody else. 

Is AngelList socially conscious? I like to think what we’re doing is ethical and helpful and stands up for the underdog in a little person. But we can’t help everyone. We fail all day long and I don’t pitch that mission. I just pitch it as we’re building a great company in the business that we’re passionate about that allows us to recruit people and raise money and stayed focus and motivated. But of course we’re going to do it in ethical, socially, helpful kind of way.

Jason: Okay. Next question?

Speaker 6: Hi, I’m James Young for Telex Networks. Just curious on how long does it normally take traction, take to get some good traction on AngelList to get recognized each because [inaudible 00:44:19] on there for a while now but it just seems like many were not messaging it right or whatever.

Naval: Look, very few companies get funded as a percentage of the ones that are in the entire ecosystem, whether it’s here, whether it’s at AngelList, whether it’s wherever. It’s not a question of messaging necessarily. Basically right now companies get funded in one of two ways. One is … actually three ways … one is they have an investor offline who has a presence online and they bring the company in, other syndicate lead or send it to their followers and gets fund on that basis. 

Second is you can just get discovered which is there are investors to say, “Well, I want to invest in that parking metered company, smart parking metered company.” They go look at everything in the space and Angels may reach out to all of them and then they find one. 

Third is we feature it and we feature … we review for featuring every week. We review hundreds of companies and we look for which ones have tractions or novel interesting. In anytime of profile updates we go back to reviewing it. Unfortunately there really is no self-service reach out to investors for everybody because that turned into a giant spam fest. 

You just have to basically keep updating your profile, using it as a calling card with investors. Perhaps it will get picked up and they do all they long. I mean five, 10 companies a week get funded but hundreds apply every week or not even apply but list. I think you have to treat it a little bit more like a LinkedIn. It’s not necessarily going to be the only way you find a job but it helps to have a resume on LinkedIn if you want to get a job.

Jason: What are some of the hacks if you will things that work really well? I have a lot of people say like, “Oh, I’ll just give you free shares at my company to … let me put you down as a [inaudible 00:46:03] or not as I take it.”

Naval: That doesn’t do that much. Those hacks don’t work. We close those hacks whenever possible. Really, the hack the works the best is having a great company, having a really kick ass up to date profile and keeping it up to date. Every time you get an investor for example at each year round, you add them and we notify all that investor’s followers that Jason is now investing in the round. People pile in. 

People get the signals and notice and we’ll notice, “Oh, they put up three months of 30% growth. We should feature this company.” The data flows through the signals. Data are all structured and so it’s easy to track and there are lots of investors now using our API. We do probably five times of volume through our API that we do through the side browsing itself. 

Jason: So many can hit the API and say show me the company. Is that a report that this amount of growth?

Naval: Correct.

Jason: Fascinating. 

Naval: Yeah.

Jason: You’re a big fan of this rolling close on a convertible notes because it allows you to put, “Oh, Dave more invested this week and Jason Calacanis this week and whoever, Jeremy next week.”

Naval: I wouldn’t say this is to be a fun. I just think that it has certain advantages and one of those that you can keep fundraising all the time. The idea that you fundraise once then it’s closed up for 18 months, then suddenly somehow magically reopens and closes again, that is an artificial old model driven by the realities on how venture capital and fundraising used to work. The reality says now more of a blend. You can probably do your fundraising over six months where you can keep convertible note open. 

After that to keep it open, you probably have to show some real traction because the signal from the original investing will now sort of be dying down. 

Jason: I got it. One more question and final question. Two up here? Here comes Scott. He is running, get that real quick. Thanks God. 

Speaker 7: Hi! Given what you know about this space, do you think it’s possible for Startup that does crowd source knowledge similar to Wikipedia to succeed? What would it take?

Naval: That’s a specific question. Everything that’s great on the internet is crowd sources some level or another. It’s very rare to find a business that isn’t some variation and crowd sourcing. Uber is crowd sourcing the backend. [Limos 00:48:10] and resembling them together. Google is crowd sourcing the intelligence says in the backend. Even the companies that don’t look like their crowd source are fundamentally crowd source. 

With the internet … internet companies generally do that works really well is they aggregate huge amounts of desperate knowledge of individuals and pull them together. In that it says theoretically yes but the devil is so much in the details. 

Jason: One thing I would add to that is just people often look at the Wikipedia as like a roadmap and I think it’s kind of a black swan. It’s like it needed to exist in the world. It exists and now it no longer needs to be done. This idea that you could make a better Wikipedia or that that is some sort of a roadmap, I think [crosstalk 00:48:53] because there’s a lot of pitches.

Naval: Yeah. You have to do some fundamental orthogonal way, either something will have to change. Like for example, mobile came along and Wikipedia didn’t keep up which is not true but something would have [inaudible 00:49:02] a lot of change. Or you have to have a fundamentally different take on the problem. 

For example Quora you could argue is trying to augment or not replace but stand alongside. Wikipedia isn’t equally powerful and important entity but they’re basically saying is, “Oh, we’re going to crowd source knowledge for things where its specific knowledge and you need the answers from multiple individuals and there’s no single canonical factual answer.” Quora works much, much better for those kinds of things. 

I think you may have to look for an adjacent domain of knowledge that Wikipedia cannot address or doesn’t choose to address. 

Jason: There’s also a little bit of just one [inaudible 00:49:34], a little bit of fatigue in the crowd, so a lot of people think like you just started and then just a lot of people going to show up but when I started over the last decade of people doing crowd funding stuff is you build and nobody shows up or few people show up. You’d have to really have a long term slow build a fire from tinder and twigs and then build it up to a fire. 

Hey listen. This has been a fascinating discussion. Naval, as always you’ve been very insightful and honest which always makes you a great fire as I chat. Let’s give it up for Naval. 

Naval: Thank you everyone. 

Next up on the list: Book Recommendations from Dustin Moskovitz.

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Chris Barber
tag:blog.chrisbarber.co,2013:Post/690671 2014-05-13T20:09:37Z 2014-05-14T02:04:25Z a16z Podcast: Valuing Today's Fast-Growing Software Companies (Transcript)

I recently posted "Feature Request: Transcripts or Summaries of Tech Founder or Investor Interviews". I decided to pay for a transcription service to transcribe a few startup videos that I've been meaning to watch - and why not share them! Please let me know if these are useful as I plan on continuing to pay for transcriptions.

Please excuse the typos - I pay for these transcriptions and haven't combed through the errors on this one.

a16z Podcast: Valuing Today's Fast-Growing Software Companies

Scott K: Hi. This is Scott Kupor from Andreessen Horowitz and I'm here with Preethi Kasireddy and Jamie McGurk from our corporate development teams. We want to talk today a little bit about SaaS evaluation, so I'm going to start it off. For me, if you watch any of these news programs in the morning on all of our favorite cable news channels, it's pretty easy to hear the constant refrain which is holy cow this SaaS Companies are overvalued, what is going on here? Are we back in '99, 2000 just like we were kind of 14 years ago.

I think what people need to understand is a framework for how do even evaluate if that's actually a true statement. That's what I'm hoping we can cover today and I thought we'd maybe kick it off with Jamie. Give us a kind of a perspective on, what do you think is going on? What is causing all this bubble talk? What would do people need to understand and actually figure out, look is it in fact the case that we're in the bubble or is this all just normal behavior?

Jamie M: I think there's two things that people look at and point to the bubble and one is revenue multiples that a lot of these SaaS Companies are trading at, and I think it's both current and it's future expected loses, so lack of profits of a lot of the current public SaaS Companies that people look at those two things and they say, "Holy cow, Workday is trading it at 1.20 plus times revenue and expected loses for years are come," and they say, "This has to be a bubble." I think those are the two metrics that people tend to focus on that leaves them to conclude that are in a bubble.

Scott K: I think that's right, so we've got to train the world to say the way you evaluate companies is you look at the income statement, and you say, "Okay, how much revenue did you say generate? And how much only for share does it generate? If those are good then we all clap and applaud and go by the stock and if they're not, we all run for the hills. What's the problem then it maybe Preethi you're going take us off here, so my wise at wrong so what's the problem would actually just looking at revenue in EPS for this SaaS companies?

Preethi K: For SaaS it's a little bit different from perpetual models. In SaaS, you're getting the revenue from the customer over an extended period of time whereas perpetual models, you can look at the income statement because you get the revenue for the license in the period that they pay for and then you get maintenance fees overtime. You're covering your cost right away from the perpetual license, but in the SaaS you get it overtime and so that profitability doesn't happen until a certain period in the customers lifetime. Once it become profitable you have this huge existing base of customers that are paying your recurring revenue over time and your margins are actually higher than a perpetual model.

Scott K: Yeah, maybe we should unpack it all because for everybody. Maybe there's a simple example the way I think about it right. If you're a Oracle in the traditional model, I go sell your license for $10 million, I get that $10 million from you and then right in the [corn 00:03:03] which I sold you that business. I got $10 million that [throws 00:03:06], flows right through to my income statement. So all is good and I can pay my sales guy, I can pay all my other folks. I think most of you guys disagree that for a company like that the income statement is actually pretty good, that's a pretty relevant indication on what's happening to business, right?

Jamie M: It is an importantly the cost to acquire that company was incurred in that period before or during and as they paid for it. That cost is realized up front.

Scott K: That's right. We can actually see the profitability of that customer right away. We know that customer paid us ten million bucks. We know we paid our sales guy a commission. We paid some engineering guys to develop that software and we know right in that quarter whether that was a good purchase or not for us as a company. I think if we use that same example on the SaaS side if you work day for example and you sell a $10 million deal to a customer, that deal could over 12 months, 24 months, 36 months depending upon what the contracts are and Preethi to your point you've got this weird imbalance, which is, I've signed a contract that says I'm getting $10 million for the customer. There's no way that customer is actually paying me that $10 million today. They are going to pay me month by month as they use the service and so I've got this weird thing, which is I've got to go still pay the sale guy. I've got to pay all the engineers.

I've got to pay all the support folks immediately for that thing but that $10 million now is not coming in, in one quarter. It's coming in four quarters, eight quarters, 12 quarters depending upon how it works. Is that the right way to frame it? Is that the fundamental thing that you think is missing when people look at simple revenue and EPS.

Preethi K: Yes, exactly and that's why we tend to look at billings as fall, which is the sign of contracted revenue that you have coming in from customers and that really is like a leading indicator of revenue growth, and that's why you see a lot of investor focusing on billings more so than revenue itself. Because if Workday for example, signed a three-year contract with a customer and they have that unearned revenue on the balance sheet, you know that revenue is going to be coming in on the next three years. There's predictability in the cash flow, there's visibility into the future and what's different about SaaS is that a lot of financial analysts like it because you can really predict the cash flows over time.

Whereas in a perpetual license like you said, it's really every quarter, or every year you have to go out and acquire new customers. With SaaS you have an existing customer base and so you know that you are going to get revenue from that.

Scott K: Let's come back to that and I actually want to pick up on the billings com you made because my like spidey senses start going off every time we say, "Hey, forget about metrics that are actually in the financial statements. Let's go make up some new metrics to actually measure the business," and again, for those of us who are old enough to remember 99/2000 we used to talk about things like eye balls and stuff like that. You couldn't find those things anywhere in the financial statements and so I think people always get nervous right and this maybe some of the skittishness you have in the market where people say, "Once you actually have to invent metrics to explain why a business is valued in a certain way, that's scary."

Maybe you could just unpack billings right and maybe Jamie you can jump in here. Give people a sense of what that means and also how they actually see that in the financial statements as opposed to three of us just saying, "Hey, just trust us like the billings are really big."

Jamie M: Sure, I think a great example of that is Castlight's recent IPO where if you look at what the revenue was on the income statement on a trailing basis or even on a forward projected basis it was fairly modest, and certainly didn't justify the valuation that Castlight achieved post IPO. What investors are really looking at is the billings and I think that all comes down to predictability with a big bookings billings backlog that helps investors predict what next year's revenue is going to be and even the following year's revenue is going to be.

Think of billings as a backlog of future revenue. That really gives comfort that the growth rate is there and that they will achieved those revenue milestones.

Scott K: I know it's not always the case but often times you can get a good proxy for billings by looking at the balance sheet. You can look at things like deferred revenue, and there's all kinds of funky accounting rules that sometimes some of it may be in there and some of it maybe not but my understanding at least is when the Wall Street analysts look at these things they are looking at kind of change and deferred revenue, quarter over quarter as a proxy for this concept of billings. Is that pretty right?

Preethi K: Yeah, exactly. Deferred revenue is a liability on your balance sheet and it definitely represents ... usually represents new billings that you acquired in a quarter that you haven't serviced or renewal billings that you are getting from existing customers that you haven't serviced yet. Any change in that will indicate whether your billings are growing or shrinking, and that's really a good leading indicator into revenue growth.

Scott K: Right, well that's good to know. We are going to talk about billings. We are not literally inventing new financial voo doo metrics. We are actually talking about things that people can look to the GAAP financial statements and get good sense of how they are. I want to come back to something Preethi said earlier either, which is this whole concept of acquiring a customer with the idea that that customer is profitable but potentially over a longer period of time than we are used to thinking about.

Again, if we go back to maybe the simple example we started with, that Oracle customer. That customer is going to give us a bunch of license revenue upfront so they are immediately profitable, which is a great and wonderful thing and then they'll typically pay us a maintenance, an annual maintenance contract maybe 15 or 20 percent of the software license revenue. That's all good and that's actually quite profitable revenue but Preethi you kind of mentioned which people don’t quite have a firm grasp on it is in a SaaS company, what we are doing is. We are saying, "Hey, we are going to spend a bunch of money upfront to acquire this customer. On our income statement it's going to look bad."

"It's going to look like we are crazy and we are burning cash in parking lot because of that," but the whole theory is that customer probably is going to be with us for a long time. They are going to be sticky. We may be able to sell more stuff to that customer over time. Maybe just give a perspective on what is it about SaaS, why should people believe that that SaaS customer is going to stick around for 3, 5, 10 years any more so than that Oracle perpetual license customer and how does that play in to how people think about long-term profitability?

Preethi K: Yeah, sure. In SaaS businesses it's two different sales. First you're acquiring the customer and then you are retaining the customer and so we look at a lot of metrics around that around churn and so forth, which give us that conviction a customer is going to stay with you for a long time. If you are trying to [inaudible 00:09:26] then you know that you are going to keep that customer for let's say three years or so. You have an idea of how much that customer is going to provide value for you over their lifetime. If you can compare that to how much it costs you to acquire them and see whether you are becoming profitable on a company that's a good indicator of whether you can sustain and continue to spend money to acquire customers.

What happens is that the more you spend money to acquire customers in the beginning the more negative you go in cash flow, and a lot of investors have trouble understanding this. For example, a  company will spend a ton of money, and acquire customers, and they are just starting to reach profitability but when they actually accelerate that growth they'll go into an deeper negative cash flow. Then when they come back up to reach profitability they'll start growing faster and that's that ... like that balance a lot of investors and board partners don’t understand, and right when you are about to press the accelerator a lot of people will tell you to stop, no slow down growth but that's in fact not the case for SaaS.

SaaS it's more of a land grab market where you have to acquire a lot of customers early on, and become the market leader, and that's what investors are paying up for. That idea of negative cash flow in the beginning versus a perpetual license where your cash flows are generally pretty not as negative is something that investors struggle with.

Scott K: That's definitely an interesting point and I do want to come back to that one. Jamie, lets dig a little bit deeper on this concept of customer acquisition cost and then Preethi did mention life time value, right. Just maybe help people to understand how to think of those because again, the way I think without people understanding the details there's always this fear that, "Hey, we are spending a bunch of money to acquire this customer. We have no idea if that's actually a good thing or not." How do investors should think about, "How much money should u be willing to pay for a customer relative to how much value I think I can get out of that customer over a period of time?"

Jamie M: In the previous professional license model you go out, and acquire a customer and you can base that against what that sale was worth at one time. That's fairly straightforward. In a SaaS model as Preethi mentioned the customer lifetime is uncertain. It's hopefully in perpetuity as well but you really don’t know. You have to ... the stickiness of your customer is really dictated in part by the product really because in a ... you have constant updates. If you are a sales force customer, if you are any SaaS model customer you are constantly updates to the product even on a daily, weekly, monthly basis versus you have a product that you buy and you buy maintenance for a three-year-period you are making another purchase decision at the end of that three-year-period.

You almost have to spend to reacquire that customer if you are the company selling them the product versus a SaaS model the purchase decision is made one time up front and of course, the relationship with that customer dictates how long they stay on board but you have the opportunity to keep that customer and make them sticky. I think those are the two things you have to ...

Scott K: I think that's interesting. To me I think there's a very good argument for why a SaaS is a lot more sticky, and I think a lot of it has to do with that. I think the other thing is and we see this a lot on in companies, which is as purchasing decisions have moved away from the CIO as the central purchasing control of all these things and now you've got department level purchases. You see a bunch of SaaS companies, Machado would be a great example of a company that's selling to the marketing department, right whereas in the old world you had to always sell to the CIOP.

To me part of the stickiness argument I think in favor of SaaS is you've got decentralized budgets now. You don’t have a throat to choke any more in the company. You actually get to go sell to the marketing department, which I think as a vendor is actually a good thing. Then at the same time because SaaS is so easy to use in many cases, and user interfaces are really big component of this stuff, there are probably many more users in each department of these SaaS products than we actually ever had before. Again, if you go back to old ERP products they were probably five to 10 to 20 power users in these organizations who ever touched these things, and knew about them.

Now you go to salesforce.com literally every inside sales person, and every customer account person has a license for this stuff and I think to me those are arguments why these software is even more sticky than traditional software because it's just permeated the enterprise in a different way than traditional products. You guys think that's true or no.

Jamie M: I do think that's true and I do think there's one other component to, which is there's a lot more cross-functional collaboration. Marketing to engineering, or marketing to the direct sales, or to the front office ... to corporate office I think a lot of that collaboration has allowed these systems to proliferate. As they use the same systems they are communicating across the same systems that has ... we've seen a lot of these systems proliferate throughout an organization now as well.

Scott K: Great. I want to come back to a point Preethi you made earlier and I would call it the growth hurts problem, which is these SaaS businesses are weird in the sense that the more customers I acquire and the faster I try to acquire them you have this major negative cash flow problem. You almost exacerbate your financial statements and make them look worse even though you are actually trying to do a good thing, which we think is grow the business faster. In the end, does that all work out, and is that a rational strategy for these companies to do to or are we better off just saying, "Hey, look. Cut the losses, don’t grow so fast. Let's just harvest what we have and be happy with the business.

Preethi K: Yeah, sure. To answer that question I want to use NetSuite as a example. If you look back to 2010 to 2012 they spent a lot more S&M and they went into negative cash flow territory but that helped them accelerate revenue growth and although their bottom line looked bad their top line looked great and that's good but then how do you know over time that this is going to look better and you gain conviction from that because by looking at by understanding the fact that an existing customer costs a lot less to service and keep than a new customer. There's stats out there that show that an existing customer costs one third of the cost to acquire a new customer.

If you look at the breakdown of your revenue as the portion that's recurring versus the portion that's new increases. That means the more renewal revenue you have the higher the margins are on that renewal revenue because you are not spending as much money on the renewal customers. Your profit margins go up over time but it's hard to tell that in the early years of a exacerbate company. All these exacerbate companies are six to seven year in their life time and this is going to happen 10, 15 years down the road and it's going to take a while. They have to establish that big customer base, and a large recurring customer base before you can really say they have really strong margins but based on what they've been tracking, and their margin improvement over time so far I think we can say that they're on the right track.

Scott K: We've seen at least in the public companies that have been around for a little while we've actually seen demonstrable improvement in their margins over time. We are not yet in nirvana in the sense they are not throwing off 30, 40 percent operating margins probably for most of these companies but it sounds like at least there's enough traction to show versus a couple of years ago now that growth is paying off in many respects in terms margin improvement. Is that fair?

Preethi K: Yeah, exactly and SaaS businesses generally have higher gross margins as fall. It gives you more room to pump money into sales and marketing, and R&D and so forth to continue that product development that you need to do to have a sticky customer.

Scott K: Yeah, Jamie maybe you can come in on this. I think the other thing that maybe gets lost a little bit here is a little bit nuance in the technology is what are their economies of scale are there for SaaS companies over time. We've talked a lot right and Preethi just brought this up, which is this concept of sales and marketing scale, which is, "Hey, it costs a lot to buy this guy up front but the cost of servicing that customer over time are low."

The other one that I think people don’t pay as much attention to is on the R&D side. This concept of you hear people talk about this concept of multi-tenancy and my personal view that also means to me that over time it's scale you ought to actually have much more research and development leveraged in these companies than you do in a traditional perpetual license company. I don't know if you agree with that or not but maybe just give some perspectives on what that might look like and what that means.

Jamie M: Sure and I think it's particularly evident in models that involved hosting and storage, and networking. The multi-tenancy that you point to is often used. That's a term that's used when talking about cloud-type deployments. If there's a shared infrastructure or a built in infrastructure that ties over a larger number of customers they are in essence sharing that cost. You get a lot of leverage to the extent that you are fully utilizing that infrastructure and spreading it over a number of customers, a number of deployments and therefore a larger revenue base. You do get a similar type of leverage ...

Scott K: You've almost ... we've talked about timing issues in SaaS companies, which is timing of revenue and timing expense. This is almost a second timing problem, which is in order for me to go sell to my first customer I've got to buy some storage equipment, I've got to go buy some network equipment, I've got to build the software. That's a big fixed cost that I have to undertake, and my hope of course, is that as I build more and more customers that that cost that ... the margin cost that gets assigned to each customer ought to be better and better. Again, you've got this funny timing issue which is to go get those customers. I have to actually incur this first big, fixed cost.

Again, when I look at my income statement I've got small revenue, big expenses but I've got to wait over time to see how that works. Is that the way to think about it?

Jamie M: Yeah, that's right. It's not completely ... you don’t incur the entire cost upfront amortize it over time but it's also not modular. You are not adding a fixed number or a amount of incremental cost per customer. Of course, your infrastructure can scale over time as you grow the business but to your point, you will have to start with a fixed amount of infrastructure to the extent into the that your growth can support that. It doesn't grow [inaudible 00:19:58]. It's you are getting ...

Scott K: Right, certainly at a minimum cash perspective I'm going have to go to be at a cash on this stuff. The accounting laws may help me amortize and depreciate that expense over a period of time. I think the other part about this to which goes back to the core of multi-tenancy and a lot of us here came from the enterprise software world. When you have enterprise software you are always maintaining multiple versions of the software all the time. You had customers who were on versions 1.x. You guys probably saw Microsoft just deprecated what was it XP or something the other day and there was this whole outcry. It turns out that every ATM on the world is being run on XP and so now we've got to go figure out if our money will actually come out the next time we go to the ATM.

My point is that in an enterprise software world, you always are maintaining different versions. You've always got on different versions and that has a real cost that I think people who haven't been in the business don’t appreciate because now I've got engineering teams dedicated to it, my support teams have to be bifurcated. The beauty I think at least of multi-tenancy SaaS generally, which I think also goes to our broader point about why these companies ought to be more profitable over time is every customer or at least in most cases. Most customers are running the same version of the software, right and I've got all kinds of economies of scale of my R&D organization not having to worry about that version that I released ten years, ago and what legacy customers I have.

Again, Preethi I know we are not quite yet to maturity for most of these companies but is it logical to think that R&D expense again as a percentage of revenue over time for these companies ought to be lower than they are in traditional companies and therefore again another reason why we think profitability is better for SaaS companies?

Jamie M: Typically, yes because you are not maintaining multiple versions for multiple customers. As you said, you have just one customer with SaaS and that's the beauty of SaaS really.

Scott K: Yeah, it's interesting. The other thing I was going to take us to a completely different industry but I think has a lot of analogies to SaaS, which is the cable industry, the telephone industry. What's interesting to me is none of this stuff is actually that new this concept that we are talking about here, right.  If you think about a company like Comcast or you think about AT&T they've got the same problem, which is it costs a lot of money to acquire customers. It's one reason why the marketing right for these companies is so big but the reason they are willing to do that and spend hundreds of millions of dollar on marketing is once they get you as a customer the likelihood of you staying is pretty good.

Then now they've got this again, same thing like SaaS. It's a subscription business, so every month they are charging your credit card for a certain amount of money. I think it also explains why every time you threaten to switch from AT&T to Verizon they are very happy to accommodate the things and try to keep you as a customer. I don't know. Jamie, if you look at it maybe there's other analogies in the market but what is it that's giving people so much of an angst about SaaS when in reality subscription business have been around for a long time and there's really nothing new here. Is there something else you think that's making this harder for people to understand or is it just that because everyone's been trained on the perpetual license model that this is natural thing which people have to go through which is switching their mindset from perpetual license to recurring revenue businesses?

Jamie M: I truly believe that it's more of a switching the mindset because fundamentally the difference between whether it's an Oracle or one of the older perpetual license model, fundamentally they are delivering the same end result to a customer. They are just doing it in a  different way. I do believe it's more of an understanding not just how the business model is shifted but how the impact on the financial statements is shifted and how the profitability of a new SaaS company or a relatively young SaaS company is going to look different than the profitability of that Oracle, SAP, Microsoft, et cetera.

Of course, those are in different stages of their life cycle but at the same time they are fundamentally realizing revenue and costs in a different timing period. I think it's a retraining. It's not a total brand new thing. It's just a new way of looking at a similar type of product.

Scott K: Just to net it out maybe I think where we came out is we've got thus fundamental problem, which is everyone loves to look at the income statement. We've trained the whole world to say, "Look at revenues, look at EPS and then lets figure out what revenue multiple, what PE multiples will be put on these businesses," and that's how we ultimately value them. It sounds like at least based on what we've talked about you've got a fundamental challenge with that model versus the SaaS model which is you've got all these timing problems that revenue doesn't all come in upfront like it did in perpetual license. Most of the expenses do.

You've also got this other concept of I've got incur lots of cost to incur a life time value that we think is going to be varied positive, certainly we'll see over time. It really is I think a function of helping people understand what are the proxies they could look for in the near time. Preethi you mentioned it. What is the customer acquisition cost relative to our projected life time value, and these are all things that actually we can estimate based upon the financial statements. We have to help people look towards those types of proxies as opposed to going back to the traditional valuation parameter we've talked about.

Thanks. I appreciate the time and I was with Preethi Kasireddy and with Jamie McGurk from the team and we are signing off.

Next up on the list: Hacking AngelList syndicates with cofounder Naval Ravikant, as well as Book Recommendations from Dustin Moskovitz.

Click "Subscribe to updates by email »" to get notified.
]]>
Chris Barber
tag:blog.chrisbarber.co,2013:Post/688634 2014-05-12T05:10:15Z 2014-10-03T07:52:17Z Industry and Trend Research

Personal notes on my research on different industries and trends. A few friends asked to read the notes, so I'm sharing them here. Will be updated occasionally. 

List of largest companies by revenue (Wikipedia)

  1. Oil and gas (23 out of the top 65 largest companies)
  2. Automotive (9 out of 65)
  3. Retail (5 out of 65)

Industries To Watch In 2014: The 10 Fastest-Growing Fields (Forbes)

Top 10 Fastest Growing Industries (IBISWorld)

The 7 fastest growing industries of 2013 (VentureBeat)

This doesn't seem like a very accurate list.

  1. Green and sustainable energy (20% YoY)
  • Green homes ($103bn revenue in 2012), solar panels ($5bn/yr industry)
  • Personal care (15% YoY)
    • Alternative exercise ($8.3bn industry in 2017), self tanning ($609mm revenue in 2012, projected >$1bn by 2017)
  • Online and for-profit education
    • Online universities ($28bn/yr), for-profit universities (expected to be >$1bn by 2017) [surprising that for-profit universities aren't already a $bn industry]
    • 47% defaults on loans
  • Social network games (128% YoY) [or 2.2%? This infographic is rather terrible]
    • $bn by 2017
  • Mobile apps (128% YoY)
  • 3D Printing (14% YoY projected growth)
    • $5.2bn industry by 2020
  • Generic pharmaceuticals (6.3% YoY projected)
    • $53bn revenue in 2012

    Terrible infographic and questionable information.

    The Fastest-Growing Industries Over The Last Year (2014, Forbes)

    The Future of Employment: How susceptible are jobs to computerisation? (University of Oxford)

    B2G: The Excitement of an Old-Line Industry (Formation 8)

    Even small governments make for big customers. By revenue, many cities and counties would rank in the Fortune 500. These massive institutions, the number of them, and the need for productivity and technology gains means that extracting value is possible at scale.

    The Smart Enterprise Wave

    Government

    Problem: State and local governments spend more than $30 billion on old enterprise software, built for the paper environment. Knowledge workers cannot derive insights, ask relevant questions, or manage information flow. Sometimes they cannot even tell how much money their entity spends. As a result, cities across America find themselves in financial crisis – in California alone, three cities filed for bankruptcy in 2012.

    Energy

    Problem: Energy consumption in developed and emerging markets continues to rise while production becomes more challenging. As easily accessible sources are depleted, producers must target more technically complex fields to extract natural resources. For example, more than 50% of original U.S. oil reserves remain down hole leaving 100 billion barrels ($10 trillion) which are not economically recoverable today.

    Financial Services

    Problem: Private wealth management firms spend more than $10 billion to separately create and maintain their financial aggregation, reporting, and analysis infrastructure. Innovation is slow because no single platform exists. Millions of people receive PDFs from funds and manually enter data into their systems from a variety of schemas, causing confusion, enabling fraud, and inhibiting sophisticated analysis.

    Healthcare

    Problem: The healthcare industry remains largely paper-based, and current systems are ill-equipped to handle transformational innovations, such as electronic medical records, cheaper testing solutions, and full genetic sequencing for individuals.

    Business Services

    Problem: Although many functions, such as sales, recruiting, and business development, have transitioned into the cloud, data analysis still requires manual collection and input. Volume, accuracy, and timeliness of information are compromised in the process, which reduces the value of the information in these digital systems.

    Read the whole thing.

    How The World's Billionaires Get Rich (Forbes)

    Industries that produce Forbes Billionaires Worldwide

    1. Investments: 148
    2. Fashion and Retail: 146
    3. Real Estate: 129
    4. Diversified: 125
    5. Food and Beverage: 100
    6. Technology: 95
    7. Manufacturing 89
    8. Energy 83
    9. Finance 78
    10. Media 69

    Top 5 Billionaire-Producing Industries Per Region

    Asia-Pacific

    1. Real Estate: 71
    2. Diversified: 52
    3. Manufacturing: 41
    4. Fashion and Retail: 29
    5. Technology: 26

    Europe 

    1. Fashion and Retail: 62
    2. Investments: 31
    3. Metals & Mining: 30
    4. Energy: 26
    5. Food and Beverage: 26

    Middle East & Africa 

    1. Diversified: 36
    2. Construction & Engineering: 9
    3. Finance: 8
    4. Metals & Mining: 7
    5. Food and Beverage: 6

    The Americas

    1. Finance: 21
    2. Fashion and Retail: 19
    3. Food and Beverage: 16
    4. Diversified: 14
    5. Media: 11

    USA 

    1. Investments: 102
    2. Technology: 53
    3. Media: 34
    4. Energy: 33
    5. Food and Beverage: 33
    6. Service*: 31
    7. Fashion and Retail: 28
    8. Real Estate: 27
    9. Manufacturing: 18
    10. Sports: 15

    (6-10 from How America's Wealthiest Get Rich from 2012)

    How Self-Made Forbes 400 Billionaires Earned Their Money (Forbes)

    Top 10 Ways to Become a Billionaire

    Self-made Forbes 400 billionaires

    1. Investments: 77
    2. Technology: 45
    3. Real Estate: 22
    4. Fashion and Retail: 18
    5. Media: 17
    6. Food and Beverage: 15
    7. Energy: 12
    8. Health care: 11
    9. Sports: 10
    10. Manufacturing: 10

    Top 10 Ways to Become a Billionaire

    Heirs on the Forbes 400

    1. Investments: 19
    2. Service: 17
    3. Fashion and Retail: 17
    4. Energy: 16
    5. Food and Beverage: 14
    6. Media: 11
    7. Manufacturing: 10
    8. Real Estate: 5
    9. Diversified: 3
    10. Technology: 3
    11. Health Care: 3

    The Most Profitable Small Businesses (Forbes)

    1. Offices of Certified Public Accountants: 16.5%
    2. Offices of Chiropractors: 15.3%
    3. Freestanding Ambulatory Surgical and Emergency Centers: 15%
    4. Other Accounting Services: 14.9%
    5. Offices of Dentists: 14.7%
    6. Tax Preparation Services: 14.7%
    7. Offices of Orthodontists: 14.4%
    8. Offices of Lawyers: 13.4%
    9. Sales Financing: 13.3%
    10. Portfolio Management: 12.2%
    11. Drilling Oil And Gas Wells: 12%
    12. Offices of Optometrists: 11.5%
    13. Lessors of Nonresidential Buildings (except Mini-warehouses): 11.3%
    14. Offices of Real Estate Appraisers: 11%
    15. Lessors of Miniwarehouses and Self-Storage Units: 11%
    16. Insurance Agencies and Brokerages: 11%
    17. Other Activities Related To Credit Intermediation: 10.7%
    18. Investment Advice: 10.7%
    19. Offices of Physical, Occupational and Speech Therapists, and Audiologists: 10.6%
    20. Offices of Physicians (except Mental Health Specialists): 10.4%

    Roadmap to Buying Business Software (Capterra)

    A useful to read to understand the software buying process of enterprises.

    Software Buying Trends 2013 (Capterra)

    15% of software purchases only involve 1 person. Of those purchases, 76% are completed in one month or less.

    Slowest Software Purchases (in months)

    1. Enterprise Resource Planning: 9
    2. Supply Chain/Inventory Management: 7.6
    3. Medical Software/EMR: 6.3
    4. Customer Service/Help Desk: 6.3
    5. HR/Talent Management: 5.9

    Fastest Software Purchases

    1. Real Estate/Property Management: 2
    2. Construction Management: 2
    3. Non-Profit/Membership Management: 2.4
    4. Accounting & Finance Software: 2.6
    5. Hospitality Property Management: 2.7

    Top Information Sources for Researching Software Options

    1. Peer recommendations
    2. Software company websites and blogs
    3. Online media

    Most Important Factors in Software Selection

    (in order from most to least important)

    1. Features/Functionality
    2. User-Friendly Interface
    3. Tech Support Availability
    4. Ease of Implementation
    5. Commitment to Customer Service
    6. Vendor Responsiveness
    7. Software Reputation
    8. Platform
    9. Availability of Training
    10. Peer Recommendations

    Top Three Reasons for Wanting to Purchase New Software

    1. Previous software we were using for the same purpose was out of date
    2. Needed/ wanted to increase worker efficiency/productivity
    3. Needed/ wanted to reduce costs by using software to optimize operations/processes

    Average Software Buyer

    Title

    • Director / Department Head: 10.95%
    • Manager / Regional Manager / General Manager (not C-level, not VP, not Director): 18.05%
    • Administrator / Associate / Coordinator / Analyst: 41.72%

    Gender

    • 50.75% Male
    • 49.25% Female

    Age

    • Under 25: 1%
    • 25-34: 18.75%
    • 35-44: 19.5%
    • 45-54: 24%
    • 55-64: 30.25%
    • Over 65: 6.5%

    2013 Annual Revenues

    Future Trends

    The Importance of the Microbiome

    The symbiotic metabolism of the microbiome and human host controls many factors of human health and wellness and microbial dysbiosis is associated with numerous chronic disease states.

    Rapidly increasing knowledge of the microbiome  drives innovation of novel food, ingredients, and supplements focused on personalized nutrition and symbiotic metabolism. 

    Source: Lux Research, Eating for 100 Trillion: Symbiotic 

    Metabolism and the Microbiome Revolution, March 2014

    WATER: Despite high profile flameouts, profitable opportunities abound in the $0.6 trillion industry

    Despite recent headlines, water companies average annual operating profits of 12.9% throughout the entire value chain in this $0.6 trillion industry

    Huge profits abound in the highly political $120 billion public services market, with key opportunities to improve margins through innovation

    Revolutionary technologies in monitoring and wastewater treatment are poised to disrupt the industry and create new opportunity

    Source: Lux Research report “Making Money in the Water Industry

    Precision Agriculture Pays for Itself, but Farm Size and Integration are Keys to Success

    Savings on a per acre basis are anemic for simple systems, pricing out small farms

    Increasingly integrated sensing and decision support systems account for the majority of potential cost savings from precision agriculture adoption

    Algorithms for decision support are the single biggest source of potential savings, but also the least developed at this point.

    Winners in this space will be those that integrate and facilitate on-farm record keeping

    Source: Lux Research report "Every Input Is an Opportunity: How Precision Agriculture Is Redefining the Business of Cultivation"

    More from Lux Research

    • Senior housing construction market will rise from ~$60bn in 2013 to $127bn in 2023
    • The New Sea Wall market will increase from $4bn in 2013 to $9bn in 2023
    • By 2032 wearables will have a 35% installed user base (meteoric growth from 2025 onwards)

    Stanford Link: http://www.gsb.stanford.edu/library/articles/databases/links/lux-research

    Misc


    [Todo]

    s1 filings of largest companies and fastest growing

    areas VCs are interested in

    more on clean tech, biotech

    more on private equity

    compile bills emails for trends

    Companies to talk to who to discover opportunities: 

    • Accountants
    • Web designers
    • Application developers
    ]]>
    Chris Barber
    tag:blog.chrisbarber.co,2013:Post/688766 2014-05-12T04:45:24Z 2015-08-02T07:47:18Z Things to do in Palo Alto and the South Bay (CA)

    On Campus at Stanford University

    Walk through Stanford - especially along the oval

    Rodin Sculpture Garden

    Papua New Guinea Sculpture Garden (in front of Roble)

    Climb onto a building's roof

    Sneak into the Frost Ampitheater at Night

    Sneak into the Old Chemistry Building (supposedly seriously scary)

    The men's bathrooms next to the History Corner and Languages Corner

    During the school year, these are almost always unlocked. Imagine the swankiest public bathroom you can, and now make it Chamber-of-Secrets-esque. They look like funny little huts from the outside, but inside they're pretty amazing. I don't want to give too much away, but there's a lot of funny/raunchy legends about these places. People even throw parties in them sometimes.

    The Whisper Circle next to MemChu

    One of my favorite Arillaga gifts. It's on the right side as you face the front of the church, and just looks like a sort of circular bench area. Go stand in the middle of the circle, and speak out loud to hear what happens.

    Many more here.

    Palo Alto, Evening

    Hookah Bar (though the staff aren't the nicest which often kills the vibe, unfortunately)

    Any bars on University

    Stanford Theatre

    Ice skating at the Winter Lodge (closed during Summer)

    Rooftop hot tub at the Four Seasons: Supposedly there is a waterfall! This sounds pretty epic.

    2. Visiting the rooftop hot tub at the Four Seasons. It has really intense and pretty lights, and the pool is super warm. And there's a waterfall! A hot waterfall! It's totally romantic -- or, if you want to go with someone who's just a friend, that's totally fun, too. Because why are pools so beautiful?

    You can go about this a few ways. Either just walk in and take the elevator to the 4th (I think?) floor. Or, if that would make you feel guilty, start out at Quattro, the bar/restaurant downstairs. After a $16 cocktail or two each, you'll probably feel a more justified -- plus, why not make a night out of it? Or, if you're a real goody two-shoes, you could actually just get a room for the night, depending on your budget.

    Sensory Deprivation Tank (e.g. Float Bay Area)

    Slightly Further, Evening

    Dave & Buster's: 33 minute drive. Expect to spend around $20 on food and $30 on games.

    Movies: Mountain View

    Movies: Redwood City

    Go Karting: Gokart Racer in Burlingame is great. Other places have much worse reviews. Roughly $50pp.

    Paintball: Santa Clara Paintball. Roughly $50pp.

    Evening Pretty

    Joseph D. Grant County Park. Head to Quimby Rd, and look for a spot to stop and look out of the San Jose area. The view is amazing!

    Climb the observatory at Stanford. Technically trespassing. Amazing view. 

    Foothills Park. Go to the end of Alexis drive (Gmaps).

    Just leave your car by that gate, hop over it, and walk up to the hill you can see in the attached image.  Not only will you be able to see the stars, but also all of the Bay Area beneath you, and you'll also be the only people there, cause it's not a very popular spot. Source: Quora

    During the Day

    Palo Alto Zoo on Middlefield Road

    Computer History Museum

    The Dish

    Baylands Park

    Image Source: Flickr

    Bell's Books

    Kepler's Books in Menlo Park

    Foothills Park (Residents of Palo Alto only. Soon to test to see if a Stanford Student ID is sufficient proof-of-residence)

    Bowling Zone in Sunnyvale, 18 minute drive

    California Great America in Santa Clara. Awesome. ~$40pp to get in, ~$15 for food, ~$15 for parking for the group.

    Cuesta Park in Mountain View for some Bocce Ball.

    Rockin' Jump in San Carlos (23 minute drive)

    Sky High Sports/Jump Sky High in San Jose/Santa Clara (25 minute drive) - $13/hr pp

    Laser Quest in Mountain View

    Shoreline Lake in Mountain View

    You can drive if you have a car, but it's also right along the beautiful and legendary Baylands Bike Trail, which is an excellent way to start the date. Then rent a sailboat, paddleboard, windsurfer, paddleboat, or whatever. 

    Enjoy lunch or drinks at the little cafe by the boathouse before you head home.

    Lawn Bowls at the Palo Alto Lawn Bowls Club

    Hiking/mountain biking/picnicking at the Pearson-Arastradero Preserve (10 minute drive)

    Foot massage at the Happy Feet Foot Spa. $25/pp/hour. No reservations required.

    Duck Pond in East Palo Alto

    Date Activities

    Note: All of the other items could also be date activities.

    Contra dancing

    5. Contra dancing. Omg! YOU HAVE TO TRY IT! It's a New England folk dance that's sort of like line dancing, but different. No experience is required -- just show up on time for the free lesson and then dance the night away. TRUST ME. You will love it. You will laugh. And it will be awesome. You won't (and shouldn't) dance with each other the whole time... but after messing up a lot and wondering what the heck is going on, you'll be thrilled to be back in each other's arms. The Palo Alto Contra Dance people meet at the United Methodist Church (it's just the venue, though -- the event is not religious) from 7:30-11pm on the 2nd, 4th and 5th Saturdays of each month. People of all ages attend and are welcome. There's a caller to make sure you know what you're doing... and there is always live music.

    Go to a Spa: Watercourse Way seems highly rated

    Further

    Go to San Francisco. 

    Santa Cruz beaches

    Ocean kayaking in Santa Cruz

    Kayaking in Monterey

    White water rafting in the American River

    Hiking at Sequoia or Yosemite National Park

    Hiking in the Muir Woods

    Another great list

    Food

    Weekend Brunch

    University Cafe

    The Creamery

    Stacks in Menlo Park

    Lunch/Dinner

    Plutos

    Crepevine

    Oren's Hummus

    Veggie Grill

    Dinner

    Cheesecake Factory

    Joya

    Homma's Brown Rice Sushi

    Mexican

    Taqueria El Grullense in Palo Alto (well reputed!)

    24-Hour

    Jack in the Box in Palo Alto

    Subway in Palo Alto

    Happy Donuts in Palo Alto

    Drink

    Old Pro

    Wine Room

    Nola's

    Rose and Crown

    Antonio's Nut House

    Boba

    I used to be a huge Verde fan (taro milk tea or taro freeze)... until I discovered Tea Era's roasted barley milk tea.  Since then, it has definitely replaced Verde as my favorite boba in this area.

    My personal favorite is Fantasia (Cupertino Village), followed by Verde (Mountain View). General consensus among my group of friends are that Verde has better pearl, but Fantasia has better tea... Also, don't forget to order half-sugar in Verde; they're super sweet.

    I've tried Tea Era and Tapioca Express too, but I like them a lot less.

    I recently discovered Ocha Tea Cafe on El Camino and Grant. They make the tea fresh using an expresso machine, just like the way the best places do it in Taiwan.

    Roasted barley and roasted oolong at Tea Era
    Everything else at Verde
    Only Taiwanese popcorn chicken at TapEx

    Source: Quora

    Delivery

    Pizza Hut - Don't forget to search for coupons

    Fluc (Though it seems like whenever I want food delivered, Fluc is never open)

    Cardinal Sushi

    Sources:

    http://www.quora.com/Whats-a-good-plan-for-a-first-date-night-Fri-or-Sat-around-the-Palo-Alto-area

    http://www.quora.com/Palo-Alto-CA/How-shall-I-spend-my-day-in-Palo-Alto

    http://www.quora.com/What-is-a-good-place-to-watch-the-stars-on-a-date-around-Palo-Alto

    http://www.quora.com/What-are-some-good-activities-for-a-team-offsite-in-the-South-Bay-for-a-team-of-size-around-50

    http://www.quora.com/What-s-a-good-plan-for-date-night-with-a-long-term-relationship-girlfriend-around-Palo-Alto-or-Menlo-Park

    http://www.quora.com/San-Francisco-Bay-Area/What-are-the-most-fun-outdoor-adventure-activities-in-the-Bay-Area

    http://www.destinationpaloalto.com/pages/d/attractions?visitor_info_id=12

    http://www.quora.com/What-do-young-people-in-Palo-Alto-do-for-fun

    http://www.quora.com/Palo-Alto-CA/What-are-some-fun-things-to-do-in-Palo-Alto

    http://www.quora.com/Palo-Alto-CA/How-shall-I-spend-my-day-in-Palo-Alto

    http://www.quora.com/Stanford-University/What-are-the-most-interesting-secret-places-on-the-Stanford-campus

    http://www.quora.com/Stanford-Dish/Is-it-true-that-you-can-stargaze-at-the-Stanford-Dish

    http://www.quora.com/Where-can-you-get-food-near-Palo-Alto-after-midnight

    http://www.quora.com/Where-can-I-get-a-burrito-at-midnight-near-Palo-Alto

    http://www.quora.com/Mexican-Food/Where-can-I-find-great-Mexican-food-in-near-Palo-Alto

    Next Step

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    ]]>
    Chris Barber
    tag:blog.chrisbarber.co,2013:Post/689710 2014-05-11T23:11:56Z 2016-03-09T03:47:28Z How to Set Up a Chromecast on the Stanford University Network

    Find the MAC address of your Chromecast.

    This will be displayed in the Chromecast app on your computer during the setup. It will look something like 00:0a:95:9d:68:16

    Then, create a new Stanford network registration.

    Follow the setup as normal, using "other" for the device, and the MAC address of your Chromecast as the wireless hardware ethernet address.

    The firewall setting can be left closed.

    ]]>
    Chris Barber