Sales and Marketing; How to Talk to Investors

Tyler: Ok. Great! Thanks for having me.

My name’s Tyler. I’m the CEO of Clever. What I want to talk today is about sales. I graduated college, where I studied math and statistics, and thought I was destined for this world of finance. I was about to start at a hedge fund, but at the last second a friend of mine roped me into joining his startup to do sales, which I knew nothing about. I had to figure it out on the fly. I spent a couple of years there figuring out sales for this very early stage company. When it came time to start Clever, I started Clever with two co-founders who were very technical and very product oriented. We wanted to build this product for schools and I thought that experience would have no relevancy whatsoever. It turns out that what I picked up while doing sales at this previous job has been a huge part of what’s made Clever grow so quickly today.

A quick background on Clever: we build software for schools. We are an app platform for developers that is used today by about one in five schools in America. We started it about two years ago.

Sales has been key. I want to use this time to share some of the things that have worked for me along the way. Of course, there’s a million ways to do this, so you’ll find what works for you.

First I want to start about how I used to perceive sales. A lot of people see sales as having mystique around it. It’s people who are articulate and impossibly charming. They have these killer closing lines that they use. This is how I saw sales. I think this is how a lot of founders I talk to see sales because they say things to me like, “You know, we’re just going to work on the product and build a great product and then when it’s finally finished, we’re going hire the sales people.” What I’ve learned is that when it comes to “hiring the sales people,” as a founder, the reality is that it’s you. Paul Graham likes to talk about how there’s two things you should be doing at any point in time when you’re starting your company. You should be either talking to your users or building your product. The talking to your users part, that’s selling. This is intimidating to some people because they’re like, “I’ve never done sales, and I wouldn’t even know where to begin.” It turns out that as a founder you have some unique advantages that make it possible for you to be really, really good at sales. One of those is your passion for the product and what you’re building. The second is your knowledge of the industry and the problem that you’re solving. Those two things actually totally trump sales experience from what I’ve seen.

This is actually my co-founder doing sales. This is what sales looks like in the very early stage of a startup. It’s not Don Drapers. It’s a lot of calls like these. This is something that even as a founder who has never done it before, is very easy to do but you have to commit yourself. What we did at Clever is we dedicated one founder, which was me, to peel off and say, “Ok, Tyler you gotta go figure this out and work on this full time because it’s so important to our business.”

The first thing that everybody knows about sales is it’s a funnel. You have these different stages of the funnel and you move your customers through it. A pretty common category is the prospecting category. We were trying to figure out who’s even interested. Then you’re having a lot of conversations, which is the second level of the funnel. Then you’re finding out who’s really serious and you want to close them and sign the deal. Then you’re in the promised land of revenue. I thought it would be interesting to talk about each stage and a couple of strategies that we’ve used at Clever that have worked well, so that these aren’t abstract but hopefully lessons you can use at your start up.

Prospecting is the process of figuring out who will even take your call. There’s this guy at Everett Rogers who has created a technology life cycle adoption curve. He describes it as a bell curve where you have innovators who will try new things, early adopters, mid-stage adopters, late adopters, and laggers. One of the things that was really helpful for me in understanding sales at an early start up is he’s quantified the tail of this bell curve. This part over here are innovators, those are your potential customers. It might seem discouraging that only 2.5 percent of companies are your potential customers or would even consider buying from a startup that has no users and no revenue, but I found the opposite. I found it extremely helpful to have this frame of mind because when only 2.5 percent of companies will even take your call or consider using your product, you realize what a numbers game this becomes. If you want to reach that 2.5 percent and you want to get some early sales, you’re hopefully starting to realize you have to do a lot of calling. You have to talk to a lot of people.

In the early days Clever, this was my job. In the first two months of YC I reached out to over 400 companies trying to to get them to take a call and talk to us about what we were building.

There are three methods that I have found to be most successful in prospecting and getting these people. One is your personal network. That’s obvious. I’m not going to spend any time there. Another one is conferences, which is surprising to a lot of people. The one that people are most familiar with is cold email. When I say conferences, people think I am talking about CES or E3. The kind of conferences where sales happen look more like this. In the early days we would go to a lot of these because you’ve got to go to where your users are. If you’re selling to CIO’s and there happens to be a gathering of them at a hotel in Milwaukee, guess what? That’s where you should be. So we went to conferences like these. We got the attendee list in advance. We’d email every single person in advance and try set up meetings so when we got there every single minute of that trip was was well spent. It was huge in Clever’s early days. This is where met all of our earliest customers.

The second thing I mentioned is cold email. A lot of people don’t know how to write cold emails. It’s actually easy and the key is not to write a lot. Your email should be concise. This is an email template that I used early on. You’re welcome to copy it but it’s really short. Here’s who I am. Here’s what I’m building. I’d love to talk to you about this. Could we find time tomorrow? It’s really easy and you can customize this for every business you want to sell to. Find out who the right person is to send it to and you can send out quite a few of these.

That’s prospecting. The reason this so important is because you have to build that first layer of the funnel.

Then you have to get them to take your call. This is another place where a lot of founders have questions about what to actually do. The biggest thing to take away, in fact if you ONLY take away one thing from this presentation today this should be it, is when you get them on the phone, remember to shut up. That’s really surprising to people. So many founders, when I help them with their first sales pitch, would finally get somebody on the phone who wanted to talk to them about their product and they’d be so proud of this thing that they’d been building for the last three months that all they wanted to do was get on the phone and talk about every feature and talk about why it’s the greatest thing in the world. I have that temptation too. It’s just part of being really proud of something.

It turns out that if you watch the best sales people, the top one percent, or you have a chance to listen in on a call with some of those people, the most surprising thing is how little talking they do. In fact I’ve seen calls where the sales person told me their goal was to only spend 30 percent of the call talking and have 70 percent of the call be the other person. They would ask a lot of questions. They’d say things like, “Why did you even agree to take my call today?” “This problem that we’re talking about solving for you, how do you solve it today?” “What would your ideal solution look like?” They’re not doing the talking. They’re doing everything they can to find out what this person needs and hopefully understand their problem even better than they do. That’s what really great sales is. This is something I drill into everybody at Clever. It’s a really important part of sales. If any of you use UberConference, they have this amazing feature where when you hang up a call it sends you an email automatically and tells you how much you talked versus how much the other person talked. Looking at one of those emails, I can tell immediately how likely the sale is based on how much talking we were doing. Do a lot of listening. Really understand their problem.

The other part of this stage that surprises a lot of people is you have to follow up. Here’s a lot of different steps that you go through: emailing somebody, not getting a response and emailing them back. Calling them, leaving a voice mail. Having a pricing call. There are probably sixty things on this slide that could be steps for closing a deal. These aren’t random things — this was the second deal Clever ever signed. These are all the different steps that we had to do in order to get this done. You can see there’s a lot of really embarrassing things up there. I emailed somebody and they didn’t respond. I emailed them again and they didn’t respond. I emailed them again. This was from somebody who wanted to buy our product. Isn’t that crazy? That surprises a lot of people. I see so many founders who think they have a great call with someone and send an email, but don’t hear back. They say, “Oh that person might not be interested.” Well guess what? This is what it looks like in the best case. You really have to have kind this unhuman and unreasonable willingness to follow up and drive things to closure.

I qualify with that with one thing which is to say when starting a company your time is extremely valuable because it’s your only resource. You couldn’t possibly do this for every single person who might buy your product. Your goal should be to get people to a yes or no as quickly as you can. Where you die is if you have a thousand maybes and sometimes I talk to founders who say, “Oh yeah I have this great pipeline of a hundred people who have expressed interest in our product.” The maybes are what kill you. If you can get to a yes or a no, in some ways a no is even better than a maybe because it allows you to move on and focus somebody who might be a yes.

So, have a super human level of follow up and ambition, but make sure you’re focusing it on the right pieces.

Alright, so you’ve talked to a ton of people. You’ve had all these phone calls. You’ve followed up with them to the point where they know you’re not going away and they’ve got to sign an agreement. This final step is something if you haven’t done before it might seem hard but it’s actually really simple. It’s called red lining. You’ll send over an agreement and their lawyers will mark it up. Your lawyers will also mark it up and you kind of go back and forth. If you’re part of YC this is really easy because YC has standard template agreements that they give you so you can just use those. But if you weren’t part of YC you have to figure this out on your own.

One of the things that I am really excited about is as part of this presentation, YC has agreed to open source their deal documents. The documents that YC founders use are going to be available to everybody. So this should never be a barrier to anyone who wants to do sales for their start up. You’ve got some great documents. The other place where so many smart people go wrong is they don’t remember what their goal is. Your goal is to sign some deals, get some reference customers, get some validation, and get some revenue. If you don’t do that, your startup is toast.

In light of that it’s really surprising how many smart people will want to do ten rounds of document review over the most minor points because of pride. Whatever. Make sure the agreement is the way you want it but then sign and move on. I’ve seen founders spend month quibbling over some indemnification clauses. Their business would have been way better off if they’d just signed the deal and moved on to the next one. That’s one trap you can fall into.

Another trap that I see founders struggle with a lot is they’re talking to a company who says, “I will use your product but I just need one more feature.” Or they say, “You know I’d love to use your product but it doesn’t have this one feature. So we’re just not ready.” To most people, especially if you’re ambitious, when somebody says that to you, what you want to think is, “Oh. I can build that feature and then they’re going to use my product.” The problem is it almost never works that way. Somebody telling you that they want to use your product but it’s missing this one feature, I would almost map that to a pass in your mind. Nine times out of ten if you actually build that feature and go back to them, there will be one more feature or some other reason that they’re not using the product.

If somebody says to you, “There’s this one thing that’s preventing us from using your product.” I would do one of two things. One say, “Well that’s great! Let’s sign an agreement and we’ll put in the agreement that we’re going to build this feature.” In which case, if you build it you’re off to the races. More commonly, what we did at Clever was we would say, “That’s great. We’re going to wait to see if we hear that demand from more customers.” Once you have a lot of customers requesting it, then you should build it. Then you don’t have to worry about doing something that’s a one off, which is what you really want to avoid.

The other trap I would highly recommend you try to avoid is the free trial trap. The customer says, “Can I get a free trial?” You can’t blame them that’s a totally reasonable thing to ask for. The problem is when you are starting a startup you need revenue. You need validation. You need users. You need commitment. Free trials get you none of those things. You do all this work and if you end up with a free trial, unfortunately you haven’t made as much progress as you think, it’s actually terrible. You think you’ve made progress but at the end of the free trial you’re going to have to sell them all over again. The way I handle this that has worked really well is that when somebody says, “Can I get a free trial?” you say, “We don’t do free trials. We do annual agreements and what we’ll do is for the first 30 or 60 days, if for any reason you’re not happy, you can opt out.” That’s a way to get you the things that you need while giving them the comfort that they might need to take a chance on a startup. That minor change actually makes a night and day difference when you’re thinking about these things.

Alright, so you’ve prospected. You’ve had a lot of conversations. Now you’ve closed people. You’ve gone through the red line process. You worked out the free trials. You’re on your way to your first sales. Early on, you can think of sales as just like any other thing at a startup. You don’t have to do things at scale. In fact you can purposely do unscalable things to try and get early customers. That’s the fun part. The other thing that is important to keep in mind is once you’ve done this enough, what you should start thinking about is what aspects of this are repeatable. What aspects are we going to scale further? Christoph Janz wrote this really great blog post online about the five ways to build a hundred million dollar company. He talks about how he can have a thousand customers buy a product that costs a hundred thousand dollars. Or he can have ten thousand customers buy a product that cost ten thousand dollars. Or he can have a hundred thousand customers by a product that cost a thousand dollars. Even though you don’t need to know on day one which bucket you’re going to fall into, most companies do fall into one of these buckets. If you want to be in the elephant category of a hundred thousand dollar product, you’re going to have a really high touch sales cycle. That’s Salesforce. That’s Workday. If you think that you’re going to be a rabbit and sell products for a thousand dollars a year and your sales process involves flying out to see them, and eight demos, and three months of redlining, then you probably have to rethink something.

I see a lot of startups who want to be rabbits that don’t think about how to do it in a scalable way. That’s one area where you can get under water or it just forces you to increase your prices.

This is how I think about different businesses. It will be helpful for you when you get started and once you’ve done sales to say, “Ok, where am I?” The corollary to that is, “How do I have to price my product to be a viable business?”

Those are some of the things I figured out building sales at a few different companies, specifically on this very narrow stage of zero to one million. After you get to one million, you’ll find there’s a million blog posts about how to get from five million to fifty million or ten million to a hundred million, but not the zero to one step. I wanted to focus the presentation on that because there’s not as much written about it and it is something that I think is very opaque to our founders. I figured this out just by doing it and I’m confident that if you’re starting a company you can too. If for whatever reason you would like to join a startup that’s figured it out and hone your skills and hone your craft, we are hiring at Clever. That’s an option. If you do want start your own company and you have questions about sales, I put my email address up here. Feel free to reach out at any time. I am happy to help.

Thank you.

Sam: Thank you very much! That was awesome! Now we’re going talk about a little more about how to raise money. Michael Seibel is first going to talk about how you give a pitch and then Qasar will do investor role playing.

Qasar: Yeah, so this isn’t mind blowingly new. It really is a basic blocking attack. And the one point we wanted to make before we get started is we actually don’t spend a lot of time at YC focusing on this. The main reason is the best way you can make your pitch better is to improve your company. If you – if you have traction and your product is doing well – these conversations are like the investors want to see you succeed. If you remember anything, it’s make your company better and the pitch will be easier.

Sam: We’re going to spend the time in three kinds of sections. Before the meeting what Michael will kind of focus on will do kind of a role play what meetings actually look like and then we’ll just wrap it up. We are going to do Q&A at the end. We’ll save five minutes. If there is something we don’t cover please write down your questions and we’ll go through them.

Michael: My name is Michael Seibel. I am a current YC partner. I started two companies. One was called, which I ended up selling to Amazon. The other was called Socialcam, which sold to Autodesk. What I want to do is break down and demystify the process of creating a pitch. What happens too often when I see companies coming to talk to me is that they don’t know how to simply explain what they do or how to ask for money. That’s basically what you have to do as a founder.

We’re going to go over four things. The first is your 30 second pitch. You need to be armed with this constantly. This is basically how you talk about your company. It’s magic. Whether you’re talking to people who want give you money or don’t want to give you money, this is your go to.

The second is your two minute pitch. This is for people who are more interested. This is people who you might want to raise money from or people who you might want to get hire. People with whom you need to get a little bit deeper. Notice that’s where I stop. A lot of people practice ten/thirty minute pitches or hour pitches. That’s all garbage. You can get everything you need done in two minutes. One thing I like to tell founders is the more you talk, the more you have an opportunity to say something that people don’t like. Talk less and it will probably be better.

I want to tell you about when to fundraise because I think a lot of companies get this a little bit wrong. And then quickly how to to set up investor meetings.

The 30 second pitch is so simple. It’s three sentences. You can take your time. You can breathe when you do this. You don’t have to get that much information out. The first is one sentence on what your company does. Everyone I meet for the first time screws this up. You have to be able to do it in a way that is simple and straight forward, that requires no further questioning on my part. You have to assume I know nothing. Literally nothing about anything. This is how you make it super simple. What we tell people is apply the Mom test. If in one sentence you cannot tell your mom what you do, then rework the sentence. There is a one sentence explanation that your mom or your dad is going to understand. So really, really start there. It’s ok if you use basic language. It’s ok if you say, “Hey we’re Airbnb and we allow you to rent out the extra room in your house.” That’s simple! You don’t have to say, “We’re Airbnb and we’re a marketplace for space.” I don’t know what that is! That’s going to require more time. Use simple language, it’s very important.

The second is in a multi-billion dollar market, it’s pretty simple to do this. You know Airbnb might say, “How big is the hotel market? How big is the vacation rental market? How big is the online hotel booking market?” These are simple numbers to look up on Google. It makes an investor understand, “Oh wait. If we’re big, if we really blow this company up, it could be worth billions of dollars.” Don’t skip this up. Second sentence. How big is your market?

Third sentence, how much traction do you have? Ideally this sentence is saying something on the order of, “We launched in January and we’re growing 30 percent month over month. We have this number of sales. This amount of revenue. This number of users.” Very simple. If you can’t speak to traction because you’re prelaunch, you need to convince the investor that you’re moving extremely quickly. “The team started working in January. By March we launched a Beta. By April we launched our product.” Convince the investor that you guys are moving fast and that this isn’t some long slog. You guys aren’t thinking about this like a big corporation. You’re thinking about it like a startup where you can move fast and make mistakes. That’s all you have to do in 30 seconds. Three sentences. From that basis you should be able to start a conversation about your company. From that basis I understand exactly what you do. You have no idea how valuable it is to be able to explain to someone what you do in 30 seconds. Internalize that. If you take nothing else away, that’s going to help you.

Ok. Two minute pitch. Now you got someone you actually have to convince of something. Maybe even someone you have to ask for money. So I like to add four additional components. And these also go by very quick. The first is unique insight. Now if you talk to VC’s they’ll say stuff like, “What’s your secret sauce? What’s your competitive advantage? What’s unique insight?” It’s all the same thing. When I think about unique insight, what I think about is here’s your opportunity to tell me something that I don’t know. Here’s your opportunity to tell me something that the biggest players in the market you’re trying to enter don’t understand. Or don’t do well. This is the AHA moment and you better have it down in two sentences. The AHA moment. So you got to crystalize all the reasons why you guys are going kill the competitors or the really intelligent thought that got this business started in two sentences. And I need to AHA. You can see whether it’s happening when you’re saying it. That’s why I like two sentences so you get in and out fast. So if I look at you and I’m like, “Uh.” Then it’s ok. You nailed it. If I look at you and I’m like, “I already knew that.” Then you didn’t nail it. If I looked at you and I just don’t understand what you’re talking about you definitely didn’t nail it. So practice that unique insight. In your two minute pitch that’s all you’re going to get – you’re only going to get two sentences to get that out there. So it can’t be complicated. And that’s basically the theme of this whole thing right? It cannot be complicated.

Next – how do you make money? You know your business model. I see so many founders run away from this question because they think things like if I say advertising people are going to be like “Oh that’s stupid.” Just say it! Don’t run away. If it’s advertising – say advertising. Facebook’s a massive advertising business. So is Google. If it’s direct sales – it’s direct sales. If it’s you know a game and you’re selling in app add ups – like that’s fine. Just say it. Don’t run away from the sentence. It only has to be one sentence long. Where founders get tricked on how you will make money is they say, “Well – we’re going to run advertising. Maybe some virtual goods. We’re going to figure out how to this. And maybe this. And maybe this.” Well now you’re saying nothing. Now you’ve told me you have no idea how you monetize this. This was a check mark that I just wanted to write. And then I am going to monetize it – instead I am writing a bug question mark. So do the thing that everyone else your industry does to monetize 95 percent of the time – say it and move on. Like it’s totally ok. No one’s going to hold your feet to the fire and say three years later you didn’t monetize this way. But it’s much better to be clear and concise than it is to start spouting out every single way your company can make money.

Then next one is team. I think that this answer is actually really clear. I think you’re trying to do two things. If your team has done something particularly impressive – you need to call that out. “We were the founders of PayPal.” Probably want to say that. “We were the founders of Amazon.” Probably want to say that. So if you guys have done something that is made investors money. You want to say that. If not, then please don’t go on about the awards your team has one or the PhDs – I don’t care. I don’t care. What we want to hear is how many founders. Hopefully between two and four. We want to here is how many them are technical? How many engineers versus business people. Hopefully it’s fifty/ fifty of more engineers. We want to hear is that how long have you guys known each other? We don’t want to hear that you guys met a founders dating an even three days ago. Ideally you’ve known each other either personally or professional for at least six months. We want hear is that you’re all working full time. It’s really helpful. We’re all committed to this business. And what we wanna hear is how you met. That’s it. You can get in and out of that two sentences very easy. Your only way to build credentials is if you have accomplished something. And with an investor, typically if you accomplished something that’s made someone some money. So don’t try to over inflate yourself if you don’t have that stat on your resume. Move on. The more you talk about a bad thing – the worse it looks.

So the last one is the big ask. When it comes to this, you have to figure out whether this is a conversation involves fundraising or not. What I tell people is like this is the time where you kind have to know what you’re talking about. This is a time where you have to know are you raising on convertible note. Are you raising on a safe. You have to know what the cap of that safe is. You have to know how much money you’re raising. You have to know what the minimum check size is. These are things where if you don’t know these things, investors going be like, “These guys aren’t serious. Or they haven’t done their homework.” So where’s the rest of this whole thing you shouldn’t use any jargon. This part you shouldn’t just be like “Oh we’re just raising some money.” Now is time to actually use a little bit of that jargon. If you don’t know that jargon – Google search it. Like it’s real simple. You’ll guys learn it fast. That’s it. That’s all your pitch. Done. Game over. Now you let them talk.

When to fundraise? This is important. You’ve got this little growth graph here. Investors like to invest based on traction. It is literally always better to raise money when you have more traction than less. Often times though, you will be in a situation where you’re just starting or you just launched. What you need to do is you need to think about how you flip the equation. Your entire mindset should be: you are the ones asking investors for money and therefore they are strong and you are weak. How do you create a scenario where you are strong and they are weak? That’s where you want to be fundraising. First, how do you know that you’re strong? If investors are asking to give you money, you’re strong. That might be a good time to start fundraising. If investors aren’t asking about giving you money, are you talking to people about your start up? Or are you running super stealth? If you’re talking to people about your start up and you’re getting the word out, either through the press or just through talking to your friends or people you know doing startups, that’s a good way to start feeding that.

The second this is, have you created a plan so that you can launch and grow without needing to raise a bunch of money? 95 percent of the startups that I meet can get a product to market with a very little bit of money. Never put the investor in the ultimate position of power. “We can’t do anything until you give us money.” You always want to flip it around. You always want it to be, “This thing’s moving. We all left our jobs. We’re all working full time and it’s moving. If you want to jump on, great. If not, there are a lot of angel investors.” That’s the attitude you want to have. That’s the confidence you want to have. If you need money early, always plan on needing less money. Always be able to show that you’ve got a fully committed team that’s working fast. That’s going to be how you gain an advantage when you can’t show traction. If you can show an investor that you haven’t launched yet but you’ve done eight months of work in one month or two months and you’ve got a great team that have all quit their jobs and they’re totally committed, then you get some advantage back. You don’t get all of the advantage unless you have launched and are growing.

Finally how to set up investor meetings. This is really, really simple but I’m surprised at how many companies don’t get this right. The first is you want a warm introduction from another entrepreneur preferably. Or a previous investor of yours. That’s where you want to start. If someone who’s past on your company as an investor offers you to make introductions that’s kryptonite. Don’t touch that. So first warm introduction. Very simple. You don’t want to cold call these people. You don’t want to bum rush these people. The person – the credibility of the person who is introducing you to an investor is big part on whether the investor will take that meeting.

Second, think in parallel. So many people that I meet will run the fundraising the super slow process. We met with one guy this we. We’re going to schedule a meeting with another guy next week. Another guy three weeks from now. When you’re fundraising you’re on. It’s a sprint. It’s not a marathon. So you want to schedule all of your meetings during the same week. It’s extremely hard to do but here’s one trick that I love – tell when you’re emailing investors you getting those warm intros the investors email you back you say, “Hey we would love to set up a meeting but we’re building like crazy for the next two weeks. So can we set it in that third week?” Right? So then you’ve emailed everyone that. Right? So everyone schedules that meeting three weeks out. It’s better for them because their calendars open. It’s better for you because you’ve got all you meetings in one week. And also what did you do? You hinted, “Hey. I am not desperate for the money. We’re building. Like I can meet you in three weeks but we’re building. We’re busy.” Like it’s signally all of the right things. So, that’s the best way to kind of go about how you’re gonna do that. The last thing is one team member should be investing in fundraising full time. It shouldn’t be something that takes over the whole company. Because it’s very, very distracting.

So with that – let’s kick it off to the next part of this. Who am I handing it to?

Dalton: Hi. My name is Dalton Caldwell. I’m one of the partners at YC and one of the things that we’re going to do today real quick is a mock pitch. And first of all I know this is a bit contrived. This is – in this format of like a college class, we’re going to do our best to have fun and kind of demonstrate what it’s like. And I realize there’s a million reasons why this – why you can say, “Of this isn’t realistic of what pitches really like.” But again there’s a lot that we can show you.

Just in terms of my background – over my career I’ve raised 85 million over several companies so I’ve sat in a lot of investors meetings. So I’m going to be pulling as many things as I can. So again, we’re just going to try to show you something to talk to and use it as a learning session. You already did your intro earlier Qasar right?

Qasar: I’ve done a couple of startups.

Dalton: Cool. We’re going to do two pitches and go through them pretty fast. As Michael said, these tend to go fast. Let’s go dive into the first one.

Qasar, I understand you’re coming to pitch me today. What can you tell me about what you do?

Qasar: We’re building a communication platform that will allow businesses and consumers to collaborate on one single platform rather than in the fractured state that they’re in right now.

Dalton: I don’t follow.

Qasar: Think about WhatsApp or Snapchat. Those are for consumers. We want to do that for businesses. I have to do this with a straight face. What that means is we want to enable consumers to talk to businesses. That’s the goal of our business or what our startup is.

Dalton: Who uses this product? What does the product do?

Qasar: It’s for consumers and businesses. A messaging product that allows consumers to send-

Dalton: Why would a consumer want to use your product?

Qasar: Because they want to message a business.

Dalton: What can you tell me about the market and the opportunity? What’s the size of this company?

Qasar: Messaging companies are really big obviously. WhatsApp sold for 19 billion dollars. Snapchat is really growing very quickly as well. We think the opportunity is very big.

Dalton: Can you tell me a little bit about your traction, your numbers. Have you given this to people yet?

Qasar: We don’t want to open the kimono and go into all the details here. I had a high level hour live, we definitely have thousands of users in the Bay area. Hundreds of businesses.

Dalton: Can you tell me who some of those businesses are?

Qasar: There’s ones that you’ve been to. We don’t really want to get too much into the details because we’re still early, we’re trying to stay stealth.

Dalton: Ok well, can you tell me about what you’ve learned so far. What insights that you’ve had from the customers…

Qasar: Yeah the consumers are sending messages to these businesses. And we think that’s great. So and these businesses are responding to the messages and we think that’s – I don’t think that’s obvious that would happen.

Dalton: So can you tell me about what your business model is and how…

Qasar: Yeah so we, we charge businesses like a monthly rate. We haven’t precisely figured out what that is. We – right now we’re free for the few hundred companies we’re in right now. But we’re looking to probably do a monthly…

Dalton: How much do you think a business would be willing to pay?

Qasar: We thing certainly ten to fifteen thousand dollars a month…

Dalton: Ok. So anyway can you tell me a little bit about your team and who you have working on this.

Qasar: Yeah we have five founders. Technically I am the only one who’s full time. Right now. We’re raising money. So we can get you know the rest of the team on board. Yeah

Dalton: Can any of the founders program or…

Qasar: Yeah. I mean we have – one of them has a Bio PhD but he’s really picked up coding. The – I am a python developer. I did – I learned python the hard way.

Dalton: Look at the time. Well it’s been really great meeting you. Please keep me in the loop. This sounds fantastic.

Qasar: I will send you an update.

Dalton: Just keep me in the loop as this progresses.

Qasar: I’ll send you an update. Great. That was awful.

Dalton: Ok. So let’s go through.

Sam: That’s disturbing.

Dalton: That was obviously not strong. Let’s talk about some of the mistakes. First of all, you need to make sure the person you’re talking to knows what you do.

Qasar: This seems really simple but it’s not.

Dalton: So many times people get flustered. They get nervous and they start talking really fast. There’s no way you’re ever going to convince anyone of anything if they don’t know even what your app actually is. You have to know your numbers obviously. If you’re very vague or evasive, don’t even have a meeting. If you don’t feel comfortable telling an investor what your numbers are, don’t even meet with them. It means you’re not ready yet.

For market size, try to give some plausible bottom up analysis and don’t just name drop big companies that aren’t even related to what you’re doing. People tend to do that a lot. Try to have insights. Try to convince me that there is something that I don’t already know about the market that I learned talking to you. Also, why are you working on this? Why are you suited for it? Is it a good thing to do? Finally, he didn’t drive the conversation anywhere. Obviously that went poorly and he just let the conversation flail around until I cut the meeting because I ran out of time as fast as I could.

That was not a good pitch. Let’s try that again.

Qasar. Ok. Let’s do this.

Dalton: Qasar, I understand you have a company. Can you tell me a little bit about what you guys do?

Qasar: Yes, we’re a messaging product. That’s kind of vague. What we allow you to do is essentially message a location. When you walk into a Crate and Barrel, you can send the Crate and Barrel manager a message like, “Hey. There’s puke in the hallway.” Or if you’re in the airport “I am trying to find this specific gate ’cause I am not at this airport, “Where is the terminal for Virgin?” Or if you’re at Target, “What aisle is the shampoo in?”

Dalton: So is this a mobile app?

Qasar: On the consumer side we have an iOS and Android app but getting consumers to download apps is obviously very difficult.

Dalton: I don’t usually download app just to send a message to Crate and Barrel.

Qasar: Most businesses have a call to action which says text the owner directly. We tested a bunch of copy that works the best in small print. In small print we have the messages are anonymous. They also lower the barrier to entry. I think that most counter intuitive then we’ve learned in the kind of launch that we’ve had – in three hundred fifty locations in Bay. We’ve been doing this for about three months. We’re about 11 percent weekly growth rate in terms of requiring businesses but most counterintuitive thing that we learned – Because we weren’t actually sure is – Will people send messages while they walk it work…

Dalton: Do people send messages

Qasar: and they do.

Dalton: Like what’s the number one type of message that people send?

Qasar: So originally we started the product thinking this is going to be like in location feedback. That was the premise. In location feedback. What we found is more than half the messages are actually not about feedback at all. They ask things like, “We were in this location in San Jose – this khaabob stand – Father and Son and we say messages that went through the satellite like are you hiring? And that’s like very strange because you would think like why wouldn’t you just ask the owner? But we realized that we know this is the owner and the person who’s walking in doesn’t and so they do prefer to actually just text the owner because I think that’s an easier reading.

Dalton: Ok so it’s like a suggestion box. It’s like a way to just like message a business

Qasar: Initially that’s what we thought what it was. But what we actually discovered was vast majority of – I shouldn’t say vast majority. Over half the messages are just things like, “When do you open? When do you close? ‘Cause that’s not on Google. Do you – are you catering? Do you have any reservations available tonight?” etc.

Dalton: Ok look – in terms of your traction is sounds like you said some businesses. Like tell me about what you guys have right now.

Qasar: So we have three hundred and fifty businesses – all from San Jose to San Francisco. We sold them ourselves as three founders. We’re all technical but we actually did all the sales because we learned a lot about how these businesses work. We actually come from a retail background. We originally built this product for large enterprise players like Starbucks and Walmart but we recognized at closing those contracts and our limited amount of runway wouldn’t really be possible. So we wanted to get the product in the hands of users so we did S&B’s. And that’s when discovered, hey this like messaging product…

Dalton: Ok that sounds interesting. It sounds like you have customers. How can this be big though? Like ok – maybe you can get whole thousands of words….

Qasar: So in terms of like numbers – we see one and half messages on average per location per day. That might not sound a lot but for a business that’s getting thirty messages – you take like a Yelp review or a Google review in a life time of business they might get five or seven. So they’re getting a huge volume of messages relative to what they tend to experience and they’re private so they are not public. So in terms of how do we actually make money, it’s not – you know frankly speaking we don’t have a very clear answer there. The two pats are the S&B side or the LC side the large customer side. Large customers we know from a retail experience just regular feedback tools are are three to four million per per year. So like a Sears – where we came from. S&B’s we’ve tested are willing to pay 50 dollars a month. So I, you know certainly I think this is – can be a large business but there’s clear ways to make money but…

Dalton: I can see that. Just a couple things. Like, can you tell me about distribution strategy and also just a little bit about the team

Qasar: Yeah, so distribution – so the thing that we learned in selling through these S&B’s is really freaking hard. The formula LTV minus CPA – Life time value minus Cost Proposition A in S&B is never going to work out. So we have two solutions – one is to go up market like we originally planned to Starbucks or Walmart’s. Or two is actually essentially pair with consumer facing companies Yelp, Google, Facebook…

Dalton: Have you been talking with them. Are they going to actually do it?

Qasar: Yeah – so we’ve talked to Google and Facebook. We’re meeting with the Apple. We’re basically want to introduce every time you search for a business there should be a message button. We want to get consumers in the habit of knowing they can send essentially a text message to any business. That can help us get broad distribution. Our real vision is to become kind of that infrastructure – that messaging infrastructure between consumers and businesses. If that doesn’t work – Let’s say Google, Facebook and Yelp don’t want to give up that valuable property – it’s really an add unit. We do just want to sell this an s feedback tool to large players.

Dalton: Alright. Can you tell me a little about the team – we’re running low on time.

Qasar: There’s three of us. All technical. Mike and I did a company before. Sonny was an ex school engineer. We come from retail. So our first start up was a failure. So I don’t know if that’s good or bad. We’ve worked together – we’re all technical. We all built everything ourselves. And we sold everything ourselves.

Dalton: Ok.

Qasar: So we already had a couple of conversations with your firm. We’re raising five hundred thousand on an 8.5 million convertible note. Of that five hundred two hundred -fifty is committed by Mike Maples, Eli Gill and Aden Sinket. And Mike with Floodgate is willing to fill the round. We think you’re – you particularly – you and your firm can bring a lot to the team with your retail experience. Is this something that’s interesting to you?

Dalton: Yeah – you know I think this is really interesting. I mean I would need to talk to a couple of more folks on my side but I do think that this – this could be pretty big.

Qasar: Yeah since we’ve had a couple of conversations before and we’re certainly willing to meet again. We are closing a round this Friday and so certainly take time and let you other partners know. I will be available between now and Friday. I’ll give you another call before Friday before we close the round. But we’ve love to actually see you – see you in the run.

Dalton: Ok. Well it sounds good. I got to go but thanks for that

Qasar: Great. Thanks.

Dalton: So in terms of that one you know – some key points here is try to actually tell a narrative that makes sense to people. You noticed there was narratives there talking about people – how they really use it. We were able to like tie it down to the real world. Which is good. He was able to demonstrate insights and actually tell me something I didn’t already know about the market. Like there were some tid bits. It was more of a collaborative meeting where it felt more like a conversation than just like I was interviewing about something in my opinion. He actually asked for money. You saw I could have easily been just like, “Ok. Got to go.” But he did talk about fundraising as Michael mentioned. And he was able to provide all he context and all the the questions to actually have a serious conversation with him. If he was KG about it or shy about and clear on the numbers there’s a very good chance I probably would have just ended the conversation due to time pressure.

Qasar: Yeah. It’s interesting we sit on this side a lot. You really – you can tell when people are very passionate and know their business very, very well. And that’s what you have to become.

Ok so closing thoughts here before we – what you want to do after the meeting. Before we get into Q&A. We’re running a little short on time.

After the meeting the first just like Tyler said in the sales things follow up. This is important. Anything other than a check or wired funds is a no. So they we got to keep talking to partners – I assume that’s a no. And so you do want to put some pressure. The way you can do that is get deal heat. A deal heat is just a term that means there’s a demand to be in your round. This is the easiest way and important way to drive a price, etc. Do diligence on investors, So let’s say you have that five hundred thousand to raise for your seed round on the 8.5 million like we used as an example, Do diligence on the investors – If you do find – I do the diligence on Dalton and I found that hey he’s actually not great investor, I can get Millan or Mike Maples or whoever to actually fill the rest of the round. It’s uprising to us how money entrepreneurs don’t do this. You would – it’s like you would actually spend a lot of time hiring somebody – you’re selling a part of your company to somebody you should know who you’re selling it to to make sure they’re the type of people you think they are. And then last – know when to stop. So some founders get so good a fundraising they just want to it all the time because it’s much easier to do than actually building the company.

Dalton: Fundraising does not equal success. Nobody realizes that. We’ll say this now but I am sure that everyone will still equate fundraising with success and read about someone’s fundraising and assume that means they’re successful.

Qasar: My intuition about why this is true is because a lot of smart people applied to good schools and to good jobs and they think fundraising is just another application that they can check off. Building a company is much more ambiguous.

Sam: Can you guys just stick around for a few minutes after to answer questions?

Thank you guys very much that was great!


This is awesome; I’ve been watching the lectures on this course, and isn’t it absolutely amazing, the content? And now, you’re stuck with me. We’ll see how that goes.

Unlike Paul when he was talking in the Q&A and you guys asked him what he’d do if he was in college today and he said physics, I actually indulged myself. I went and did physics at Cambridge. I think physics is an amazing class to give you transferable skills that are really useful in other areas, but that’s not why you’re listening to me today; physics isn’t the class.

So I paid for college doing online marketing, directions marketing. I started with SEO in the 1990s. I created a paper airplane site, and had a monopoly in the small niche market of paper airplanes. When you want to start a startup also see how big the market could be. (In the long term, it wasn’t great.) But what that taught me was how to do SEO. And back in those days it was Alta Vista, and the way to do SEO was to have white text, on a white background, five pages below the fold, and you would rank top of Alta Vista if you just said planes 20 or 30 times in that text. And that was how you won SEO in the 1990s. It was a really, really easy skill to learn.

When I went to college, being a physicist, I thought paper airplanes would make me cool. I was actually the nerdiest person in the physics class, so I created a cocktail site, which was how I learned to program and that grew to be the largest cocktail site in the UK. That really got me into SEO properly when Google launched. So with Google you had to worry about page rank and getting links back to your site, which basically at that stage meant one link from the Yahoo directory, got you to the top listing in Google if you had white text and a white background below the fold as well.

When Google launched AdWords, that’s really when I started to do all my marketing. That meant buying paid clicks from Google and reselling them to eBay for a small margin of like 20% using their affiliate program. That was what really kicked me into overdrive, into doing what everyone nowadays talks about as growth, growth hacking or growth marketing. In my mind it’s just internet marketing using whatever channel you can to get whatever output you want, and that’s how I paid for college and that’s how I went from being a physicist to a Marketer – transitioning to the darkside of the force.

So what do you think matters most for growth? You’ve had tons of lectures, and people have said it over and over, so what do you guys think matters most for growth?

Audience: Great product.

Schultz: What does a great product lead to?

Audience: Customers.

Schultz: And what do you need those customers to do?

Audience: Spread the word.

Schultz: Yes that’s it, retention. Retention is the single most important thing for growth. Now we have an awesome growth team at Facebook and I’m super proud to work in it, but the truth of the matter is, we have a fantastic product. Getting to work on growth of Facebook is a massive privilege because we are promoting something that everyone in the world really wants to use, which is absolutely incredible. If we can get people on, and get them ramped up, they stick on Facebook.

So many times, I got to advise multiple startups. My favorite was working with Airbnb, but I’ve worked with Coursera, I’ve worked with other ones that haven’t done as well as those guys. But the one thing that’s true, over and over again is, if you look at this curve, ‘percent monthly active’ versus ‘number of days from acquisition’, if you end up with a retention curve that is asymptotic to a line parallel to the X-axis, you have a viable business and you have product market fit for some subset of market. But most of the companies that you see fly up, we’ve talked about packing and virality and all of this stuff, their retention curve slopes down toward the axis, and in the end, intercepts the X-axis.

Now when I show this job to people, they say that’s all well and good, you had a million people a day in terms of growth, when you started the growth team at Facebook, or ‘you were at 50 million users, you had a lot of people join your site so you had a ton of data to do this.’ We used the same methodology for our B2B growth , getting people to sign-up for services advertisements, we used this to understand how much growth we were going to have in that market as well. And at that point when I joined Facebook, the product was three days old. And within 90 days of the product launching, we were able to use this technique to figure out what the one year value of an advertiser was, and we predicted it for the first year to 97%. So I think it’s very important to look at your retention curve.

If you see here, this red line is the ‘number of users’ who have been on your product for a certain number of days. So a bunch of people, will have been on the product at least one day, but if your product has been around for a year, you’ll have zero users who have been on it for 366 days. Make sense?

So what you then do is look for all of your users who have been on your product one day. What percentage of them are monthly active? 100% for the first 30 days obviously, because monthly active, they also end up on one day. But then you look at 31. Every single user on their 31st day after registration, what percentage of them are monthly active? Thirty-second day, thirty-third day, thirty-fourth day. And that allows you, with only 10,000 customers, to get a real idea of what this curve is going to look like for your product. And you’re going to be able to tell, is it asymptotic? It’ll get noisy towards the right side, like I’ m not using real data, but you’ll be able to get a handle on, whether this curve flattens out or does it not. If it doesn’t flatten out, don’t go into growth tactics, don’t do virality, don’t hire a growth hacker. Focus on getting product market fit, because in the end, as Sam said in the beginning of this course: idea, product, team, execution. If you don’t have a great product, there’s no point in executing more on growing it because it won’t grow. Number one problem I’ve seen, inside Facebook for new products, number one problem I’ve seen for startups, is they don’t actually have product market fit, when they think they do.

So the next question that people ask over and over again is, what does good retention look like? Sure! I can have 5% retention, but I’m guessing Facebook had better than that. That’s not going to be a successful business. I get really pissed off when people ask me that question, because I think you can figure it out. I love this story; this is like my one gratuitous story (link on powerpoint) that I’m throwing out here, so the rest of it may not be as gratuitous. But this is a picture that was published in Life Magazine in 1950 of one of the Trinity nuclear bomb tests. There’s a guy named Jeffrey Taylor. He was a British Physicist who ended up winning the Nobel Prize. He was able to figure out, from looking at this picture (picture on powerpoint) what the power of the U.S. atomic bomb was, and Russians were publishing similar pictures, just using dimensional reasoning. Dimensional reasoning was one of the best skills I learned during my time studying physics back in the UK.

What dimensional reasoning is, you look at the dimensions that are involved in a problem, so you want to figure out energy, newtons, meters, newtons as a kilogram, meters seconds to minus two. You want to figure out kilograms, meters squared, seconds to minus two, and then you try to figure out how you can get each of those numbers from what data you have. The mass is the volume of this sphere, so that’s a meter cubed, so you’ve got meters to five over seconds to minus two and he was able to use that to figure out what the power of this atomic bomb was and what the ratios of the power between the Russian and the U.S. atomic bomb was, and essentially reveal one of the top secrets that existed in the world at that time.

That’s a hard problem. Figuring out what Facebook’s retention rate is, is not a hard problem. How many people are there on the internet? 2.4 billion, 2.3 billion. Okay, Facebook is banned in China, so what now?

Audience: 2 billion.

Schultz: So 2 billion people on the internet. Facebook said around 1.3 billion users in terms of active users. You can divide those numbers by each other. And yet that won’t give you the right answer. Of course not! But it’s going to give you close enough to a ballpark answer of what the retention rate looks like for Facebook. If we signed everyone on the internet up, then you will know it’s higher than that. Similarly, if you look at WhatsApp. They’ve announced 600 million active users. How many people have Smart Phones? You can figure out that number – that number is out knocking around. It can give you an idea of how many users there are. Amazon has a had a pop at signing up almost everyone in the United States. You know how many people are online in the United States, and you have a good idea of how many customers Amazon has from the numbers they throw out. Different verticals need different terminal retention rates for them to have successful businesses. If you’re on ecommerce and you’re retaining on a monthly active basis, like 20 to 30% of your users, you’re going to do very well. If you’re on social media, and the first batch of people signing up to your product are not like, 80% retained, you’re not going to have a massive social media site. So it really depends on the vertical you’re in, what the retention rates are. What you need to do is have the tools to think, ‘who out there is comparable’ and how you can look at it and say, ‘am I anywhere close to what real success looks like in this vertical?’

Retention is the single most important thing for growth and retention comes from having a great idea and a great product to back up that idea, and great product market fit. The way we look at, whether a product has great retention or not, is whether or not the users who install it, actually stay on it long-term, when you normalize on a cohort basis, and I think that’s a really good methodology for looking at your product and say ‘okay the first 100, the first 1,000, the first 10,000 people I get on this, will they be retained in the long-run?

So now, how do you attack operating for growth? Let’s say you have awesome product market fit. You’ve built an ecommerce site, and you have 60% of people coming back every single month, and making a purchase from you, which would be absolutely fantastic. How do you then take that, and say, ‘now it’s time to scale.’ (Now it’s time to execute was the last thing on your forum right? *to moderator*.) That’s where I think growth teams come in.

My contrarian viewpoint is, if you’re a startup, you shouldn’t have a growth team. Startups should not have growth teams. The whole company should be the growth team. The CEO should be the head of growth. You need someone to set a North star for you about where the company wants to go, and that person needs to be the person leading the company, from my opinion, that’s what I’ve seen. Mark is a fantastic example of that. Back when Facebook started, a lot of people were putting out their registered user numbers. Right? You’d see you registered user numbers for MySpace, you’d see a registered user numbers for ___11:38, you’d see registered user numbers. Mark put out monthly active users, as the number both internally he held everyone to, and said we need everyone on Facebook, but that means everyone active on Facebook, not everyone signed up on Facebook, so monthly active people was the number internally, and it was also the number he published externally. It was the number he made the whole world hold Facebook to, as a number that we cared about. If you look at what Jan has done with WhatsApp I think that’s another great example. He always published sends numbers.

If you’re a messaging application, sends is probably the single most important number. If people use you once a day, maybe that’s great, but you’re not really their primary messaging mechanism, so Jan published the sends number. Inside Airbnb, they talk about ‘nights booked’ and also published that in all of the infographics you see in side TechCrunch. They always benchmark themselves against how many nights booked they have compared to the largest hotel chains in the world. They have at each of these companies, a different north star. The north star doesn’t have to be the number of active users for every different vertical. For eBay, it was gross merchandise volume. How much stuff did people actually buy through eBay? Everyone externally tends to judge eBay based on revenue. Actually, Benedict Evans has done this amazing breakdown of Amazon’s business, which is really interesting to look at their marketplace business versus their direct business. So eBay is all marketplace business, right? So eBay’s being judged by its revenue, when it actually has 10 times Gross Merchandise Volume going through the site. That was the number that eBay looked at when I was working there. Every different company when it thinks about growth, needs a different North star; however, when you are operating for growth it is critical that you have that North star, and you define as a leader.

The reason this matters is, the second you have more than one person working on something, you cannot control what everyone else is doing. I promise you, having now hit 100 people I’m managing, I have no control. It’s all influence. It’s like I tell one person to do one thing, but the other 99 are going to do whatever they want. And the thing is, it’s not clear to everybody what the most important thing is for a company. It would be very easy for people inside eBay to say, ‘you know what? we should focus on revenue,’ or ‘we should focus on the number of people buying from us’ or ‘we should focus on how many people list items on eBay.’ And Pierre, and Meg, and John, those guys as various leaders, have always said ‘no, its the amount of Gross Merchandise Volume that goes through our site, the percentage of e-commerce that goes through our site, that is what really matters for this company. This means that when someone is having a conversation and you’re not in the room, or when they’re sitting in front of their computer screens, and thinking about how they built this particular project or this particular feature, in their head it’s going to be clear to them that it’s not about revenue, it’s about Gross Merchandise Volume, or it’s not about getting more registrations, registrations don’t matter, unless they become long-term active users. A great example of this was when I was at eBay in 2004, we changed they way we paid our affiliates for new users. Affiliate programs are a bit out of fashion these days, but the idea of an affiliate program is essentially, you pay anyone on the internet a referral for sending traffic to your site, but it’s mostly about getting access to big marketers who do it on their own.

We were paying for confirmed registered users, so all of our affiliates were lined up on getting confirmed registered users to the eBay site. We changed our payment model to pay for activated confirmed registered users. So you had to confirm your account and then bid on an item, or buy or list an item, to become someone that we paid for. Overnight when we made that change, we lost something like 20% of confirmed registered users that were being driven by the affiliates. But the ACRUs (15:45) only dropped by about 5%. The ratio between CRU to ACRU went up, and then, the growth of ACRUs massively accelerated. The cause of this is, if you want to drive CRU, if someone searches for a trampoline, you land them on the registration page because they link you have to register and confirm before they get their trampoline. If you want to drive ACRUs, you land them on the search results page, within eBay for trampolines, so they can see the thing they want to buy, get excited, and then register when they want to buy it. And if you drive just CRUs, people don’t have an amazing magic moment on eBay, when they visit the site. And that’s the next most important thing to think about: How do you drive to the magic moment that gets people hooked on your service.

In the lecture notes for this course, I’ve stuck in a bunch of links to people I think are brilliant at this stuff. For example, regarding the retention curve I showed you earlier, there’s a link to this guy Danny Ferante who is incredible talking about retention curves. The magic moment there are two videos linked: one is Chamath talking about growth, who is the guy who set up the growth team at Facebook, and the other, is my friend Naomi and I talking at f8 four years about how we were thinking about growth back then. In both of those videos, we talk about the magic moment. What do you think the magic moment is for when you’re signing up to Facebook?

Audience: See your friends.

Schultz: See your friends. Simple as that. I’ve talked to so many companies, and they try to get incredibly complicated about what they’re doing, but it is just as simple as when you see the first picture of one of your friends on Facebook, you go ‘Oh my God, this is what this site is about!’ Zuckerberg talked at Y Combinator about getting people to 10 friends in 14 days; that is why we focus on this metric. The number one most important thing in a social media site is connecting to your friends, because without that, you have a completely empty newsfeed, and clearly you’re not going to come back; you’ll never get any notifications, and you’ll never get any friends telling you about things they are missing on the site.

So for Facebook the magic moment, is that moment when you see your friend’s face, and everything we do on growth, if you look at the Linkedin registration flow, you look at the Twitter registration flow, or you look at what WhatsApp does when you sign up, the number one thing all these services look to do, is show you the people you want to follow, connect to, send messages to, as quickly as possible, because in this vertical, this is what matters. When you think about Airbnb or eBay, it’s about finding that unique item, that PEZ dispenser or broken laser pointer, that you really really cared about and want to get ahold of. Like when you see that collectible that you are missing, that is the real magic moment on eBay. When you look on Airbnb and you find that first listing, that cool house you can stay in, and when you go through the door, that’s a magic moment. Similarly on the other side, when you’re listing your house, that first time you get paid, is your magic moment or when you list an item on eBay, the first time you get paid, is your magic moment. You should ask Brian what he thinks, because they’ve done these amazing story boards which I think has been shared, about the journey through a user’s life on Airbnb and how exciting it is. He’ll be talking in around three lectures time; he’s awesome about talking about the magic moment, and getting users to feel the love, joy, and all this stuff.

Think about what the magic moment is for your product, and get people connected to it as fast as possible, because then you can move up where that blue line has asymptotic, and you can go from 60% retention to 70% retention easily if you can connect people with what makes them stick on your site.

The second thing to think about, that everyone in the Valley gets wrong is, we optimize when we think about growth for ourselves. My favorite example is notifications. Again, I’ve talked to and advised many different companies; every single company when they talk about notifications goes ‘Oh, I’m getting too many notifications, I think that’s what we have to optimize for on notifications.’ Okay, are your power users leaving your site because they’re getting too many notifications? No. Then why would you optimize that? They’re probably grown-ups and they can use filters.

What you need to focus on is the marginal user. The one person who doesn’t get a notification in a given day, month, or year. Building an awesome product is all about think about the power user, right? Building an incredible product is definitely optimizing it for the people who use your product the most, but when it comes to driving growth, people who are already using your product are not the ones you have to worry about. So in this Danny Ferante video there’s also talk about our growth accounting framework that we use to think about for growth. We looked at new users, resurrected users (people who weren’t on Facebook for 30 days and came back) and churned users. The resurrected and churned numbers for pretty much every product I’ve ever seen dominate the new user account once you reach a sensible point of growth a few years in. And all those users who are churning and resurrecting, had low friend counts, and didn’t find their friends so weren’t connected to the great stuff that was going on on Facebook. So the number one thing we needed to focus on, was getting them to those 10 friends, or whatever number of friends they needed. So think about the user on the margin; don’t think about where yourself (21:08), when you’re thinking about growth.

So for operating for growth, what you really need to think about, is what is the North star of your company: What is that one metric, where if everyone in your company is thinking about it and driving their product towards that metric and their actions towards moving that metric up, you know in the long-run your company will be successful. By the way, they’re all probably all correlated to each other, so it’s probably fine to pick almost any metric, whichever one you feel the best about, that aligns with your mission and your values – probably go for that one. But realistically, daily active users fairly correlate to monthly active users; we could have gone with either one. Amount of content shared, also correlates with how many users there are, because guess what? You add a user, they share content. So a lot of things end up being correlated. Pick the one that fits with you and know that you’re going to stick with for a long time. Just have a North Star, and know the magic moment that you know when a user experiences that, they will deliver on that metric for you on the North Star, and then think about the marginal user, don’t think about yourself. Those are, I think, the most important points when operating for growth. Everything has to come from the top.

So the last area is tactics. So let’s say you’ve found your niche market that you’re going to have a monopoly on inside the mousetrap market. It’s a silenced mousetrap fir sitting under beds, so if that the mice come to your bed overnight, they can be killed without waking you up. That’s your niche market. Your mousetrap is better than anybody else for that market. What typically happens in Silicon Valley is, everyone thinks marketers are useless. I thought marketers were useless when I was a Physics student, so I’m sure that you guys as Engineering students you must think that we’re awful people who aren’t useful to have around.

‘Build it and they will come.’ That is something that is very much the mantra in the Valley, and I don’t believe it’s true; I believe you actually have to work. There’s a good article in the lecture page from interviewing Ben Silverman. We talked about how the growth of Pinterest was driven by marketing. I’m biased of course.

The first tactic I want to talk about is internationalization. Facebook internationalized too late. Sheryl said it broadly in public and I definitely agree with that.

One of the biggest barriers to our long-term growth, and one of the biggest things we had to deal with, was all the countries where there were clones. Famously ? (23:55) had Fakebook.css in their HTML, and there were a ton of sites like that out there, whether it was ?, a clear clone, Mixie, Cyworld, Orkut; they were all these different social networks around the world that grew up when Facebook was focused around the U.S. Internationalizing was an important barrier we needed to knock down, and knocking down barriers is often important to think about for growth. Facebook started out as college-only, so every college that it was launched in was knocking down a barrier. When Facebook expanded beyond colleges to high schools, I wasn’t at the company, but that was a company-shaking moment where people questioned whether or not Facebook would survive,if the culture of the site could survive.

Then after, expanding from high schools to everyone – that was just before I joined – it was a shocking moment; that’s what spurred the growth up to 50 million, and then we hit a brick wall. When we hit that brick wall, that was when a lot of existential questions were being asked inside Facebook whether any social network could ever get to more than 100 million users. It sounds stupid now, but at that time, no one had ever achieved it. Everyone had tapped out between 50 and 100 million users, and we were worried that it wasn’t possible. That was the point at which the growth team got set up; Chamath brought a bunch of us together. He said very publicly he wanted to fire me on multiple occasions. Without Chamath, I think none of us would have stayed at the company; we were a really weird bunch of people – but it worked out. The two things we did, I think that really drove growth initially was, 1) We focused on that 10 friends in 14 days 2) Getting users to the magic moment. That was something that Zuck drove because we were all stuck in analysis paralysis and, ‘Is it causation? Is it correlation?’ Zuck would say ‘You really think that if no one gets a friend, that they’ll be active on Facebook? Are you crazy?’

The second thing was internationalization – knocking down another barrier. When we launched it, I think there were two things we did really well: 1) Even though we were late (and stressed about being late) we took the time to build it in a scalable way; we moved slow to move fast. You can actually view the full story from Naomi on one of the video links from the lecture page. What we did was draw all the strings on the site in FBT, which is our translation extraction script and then, we created the community translation platform, so we didn’t have just professional translators translating the site, but we could have all our users translating the site. We got French translated in 12 hours. We managed to get, to this day, 104 languages translated by Facebook for Facebook, 70 of those are translated by the community. We took the time to build something, that would enable us to scale.

The other thing is that we prioritized the right languages. Back then, the four main languages were French, Italian, German, and Spanish (and Chinese, but we are blocked in China). Now look at that list – that’s today’s distribution of languages. Italian isn’t on the list anymore; French and German are about to fall off. In the last year we quadrupled the number of people on Facebook in Hindi. Building for what the world is today is an easy mistake to make, and it’s a lot of what the other social networks did. We built a scalable translation infrastructure that actually enabled us to attack all of the languages, so we could be ready for where the future is going to be. You’ll probably be able to see some of our summit in India about where we want to go with language translations.

These are the tactics I want to go through now: Virality, SEO, ESPN, SEM, Affiliates/referral programs. I think there are two ways to look at virality. There’s a great book by Adam L. Penenberg called the Viral Loop that goes through a bunch of case studies of companies that have grown through viral marketing. I strongly encourage you to read this book if you’re interested in viral marketing, as well as advertising. I think Ogilvy on Advertising is great as well because in the chapter 7 you can’t think of anything else stick a car to billboard with super glue and people will buy the super glue. He has some really great creative tips. So virality. Sean Parker has this really great model that he told us about when I joined Facebook, which is to think about virality about a product, in terms of three things. First, is payload – so how many people can you hit with any given viral blast. Second, is conversion rate, and third is frequency. This gives you a fundamental idea of how viral a product is.

Hotmail is the canonical example of brilliant viral marketing. Back when Hotmail launched, there were a bunch of mail companies that had been funded and were throwing huge amounts of money at traditional advertising. Back in that time, people couldn’t get free email clients; they had to be tied to their ISP. Hotmail and a couple other companies launched, and their clients were available wherever you went. You could log-in via library internet or school internet, and be able to get access to that. It was a really big value proposition for anyone who wanted to access it. Most of the companies went out there and did big TV campaigns, billboard campaigns, or newspaper campaigns; however, the Hotmail team didn’t have much funding as they did, so they had to scramble around to figure out how to do it. What they did was add that little link at the bottom of every email that said, ‘Sent from Hotmail. Get your free email here.’

The interesting thing was that it meant that the payload was low: You email one person at a time, you’re not necessarily going to have a big payload. Maybe you send around one of those spam emails, but I’m not sure I’d click on your link. The frequency is high though, because you’re emailing the same people over and over, which means you’re going to hit those people once, twice, three times a day and really bring up the impressions. The conversion rate was also really high because people didn’t like being tied to their ISP email. So Hotmail ended up being extremely viral because it had high frequency and high conversion rates.

Another example is Paypal. Paypal is interesting because there are two sides to it, the buyer and the seller side. The other thing that is interesting is that its mechanism for viral growth is eBay. So you can use a lot of things for virality that may not look necessarily obviously viral. If you said to a seller that you were going to send them money – I can’t think of a higher conversion rate. Frequency was low, and payload was low. But Paypal did this thing where they gave away money when you got your friends to sign up, and that’s how they went viral on the consumer side. They didn’t have to do that for sellers, because if I said ‘I am going to send you money via this,’ you will take that. And even on the consumer side they went viral because if someone says ‘Sign up for this thing and you’ll get ten bucks.’ Why wouldn’t you? So they were able to go viral because their conversion rate was high on the buyer and the seller side, not because their payload and frequency was high. Make sense?

This is a really good way to look at virality if you want to say, ‘Is this product viral?’ Facebook was not viral via email sharing or anything like that. Facebook was purely viral via word of mouth. The interesting thing about Paypal and Hotmail, is to use them, the first person has to send an email to a person who wasn’t on the service. With Facebook, there is no native way to contact people who aren’t on the service. Everyone thinks that Facebook is a viral marketing success, but that’s actually not how it grew. It was word of mouth virality because it was an awesome product you wanted to tell your friends about.

Q: In the first round, it makes sense for there to be a low payload. Will the payload increase in later rounds as the campaign grows and people send more and more e-mails?

A: First and foremost, I think you only send emails to a small number of people. So compared to the massive viral engines that exist today, where you import someone’s entire contact book and send them all an e-mail, or where you post to everyone’s friends on Facebook, the actual payloads are still very small even if it’s everyone that you e-mail on a frequent basis you hit. I’m also thinking per email sent out, how many people are on it. But it’s a fair point that as more people get on Hotmail, they’ll send more emails, and as more people use email, the product grows more and more successfully.

Q: Does a point of conversion matter as well?

A: On Hotmail you click to sign up, but on a billboard you have to remember the URL, go to the website, type it in, find the registration button, click register and sign up. Anything you can do to move friction out of the flow, do it. Going from a billboard ad to an online ad removes huge amounts of friction from the flow.

Q: Are frequency and conversation rate related?

A: Absolutely. If you hit someone with the same email over and over again, or the same banner ad, the same rules apply to every channel. The more times you hit someone with the same Facebook ad, the less they’ll click. That’s why we have to, like creative exhaustion, rotate creatives on Facebook. Same with banner ads and news feed stories. The fiftieth time you see that IQ story on your news feed, you are not going to want to click on it. The same is true with these emails. So if you send the same email to people over and over again with an invite, you will get a lower conversion rate. ‘The more you hit someone with the same message, the less they convert’ is fundamental across every online marketing channel.

Second way to look at virality, which I think is awesome, is by this guy Ed. Ed runs the growth team at Uber now; he was at the growth team at Facebook. He was a Stanford MBA student, and did a class similar to this where they talked about virality and built viral products. The interesting thing is, if you look at Uber, they’re incredibly focused on drivers. It’s a two-sided market place, so they need drivers. It’s a huge part of their focus as a team, even though they’ve got probably the best viral guy in the world at the company.

So with virality, you get someone to contact import (35:12) let’s say. Then the question is, how many of those people do you get to send imports? Then, to how many people? Then, how many click? How many sign up? And then how many of those import. So essentially you want people to sign up to your site to import their contacts. You want to then get them to send an invite to all of those contacts – ideally all of those contacts, not just some of them. Then you want a percentage of those to click and sign up. If you multiply all the percentages/numbers in every point in between the steps, this is essentially how you get to the point of ‘What is the K factor?’ For example, let’s says 100 people get an invite per person who imports, then of those, 10% click, and 50% sign up, and of those only 10 to 20% import, you’re going to be at 0.5 – 1.0 K factor, and you’re not going to be viral. A lot of things like Viddy were very good at pumping up stories. They got the factor over 1, which is perfectly doable. But if you’ve got something that doesn’t have high retention on the backend, it doesn’t really matter. You should look at your invite flow and say ‘okay, what is my equivalent to import, how many people per import are invites sent to, how many of those receive clicks, how many of those convert to my site, how many of those then import,’ in order to get an idea of you K factor. The real important thing is still to think about retention, not so much virality, and only do this after you have a large number of people retained on your product per person who signs up.

A couple more things we are going to touch on: SEO, emails, SMS, and push notifications.

In SEO, there are three things you need to think about. First one is keyword research. People do this badly all the time. So I launched this cocktail site I told you about, I spend a year optimizing it to rank for the word cocktail making, but it turns out in the UK, no one searches for cocktail making- about 500 a month; I dominated that search, it was awesome! 400 visitors a month, it was amazing. Everyone searches for cocktail recipes, and in the U.S., everyone searches for drink recipes. So I optimized for the wrong word. You have to do your research first about what you’re going to go after.

Research consists of, what do people search for that’s related to your site, how many people search for it, how many other people are ranking for it, and how valuable is it for you? Supply, demand, and value. So, do your keyword research to figure out which keyword you want to rank for. There are many great tools out there. Honestly the best one is still Google AdWords keyword planner tool.

Once you’ve done that, the next most important thing is links. Page ranks is essentially how all SEO is driven, and Google is based on authority. Now there’s a lot of other things in Google’s algorithm now, like, do people search for your website, there’s a lot of stuff about what the distribution of what the anchor text is that’s sent to your site, so that if you abuse it or spam it, they can pop out with spam. White text on a white background five pages below the fold doesn’t work anymore.

But the single most important thing is to get valuable links from high authority websites for you to rank in Google. Then you need to distribute that love inside your site by internally linking effectively. We launched SEO in September 2007; I joined Facebook November 2007. When we launched it, but we were getting no traffic from the pages we had launched, public user profiles. So when I went in and looked at it, the only way you could get into any public user profile was to click on the foot of the page for the about link, then click on the blog articles, then click on one of the authors, and then spider out through their friends to get all their friends.

Turns out that Google was like, ‘They bury these pages, they’re not very valuable. I’m not going to rank them.’ We made one change: We added a directory so that Google could quickly get to every page on the site, and we 100Xed SEO traffic. Very simple change drove a lot of upside by distributing the link love internally.

The last thing is that there’s a whole bunch of table stakes stuff for XML sitemaps, and making sure you have the right headers; it’s all covered really well online for you.

Email is dead for people under 25 in my opinion. Young people don’t use email. They use WhatsApp, SMS, SnapChat, Facebook; they don’t use email. If you’re targeting an older audience, email is still pretty successful. Email still works for distribution, but realistically, email is not great for teenagers – even people at universities. You know how much you use instant messaging apps, and how little you use emails. And you guys are probably on the high scale for email because you’re in Silicon Valley. That being said, on email the things to think about: Email, SMS, and Push Notifications all behave the same way. They all have questions of deliverability, so to finish to finish first, first you have to finish. Your email has to get to someone’s inbox. So if you send a lot of spam, end up with dirty IPs, or send email from shared servers where other people are sending spam from, you are going to end up being put in the spam folder consistently and your email will fail completely. You may end up being blocked and have your email bounce. There’s a lot of stuff around email where you have to look when you receive feedback from the servers you are sending emails to, 500 series errors versus 400 series errors; you have to be respectful how those are handled. If someone gives you a hard bounce, retry once or twice and then stop trying because if you are someone who abuses people’s inboxes, the email companies spam folder you, and it’s very hard to get out. If you get caught in a spam house link, or anything like that, it’s very hard to get out. It’s really important with email that you are a high class citizen, and that you do good work with email because you want to have deliverability for the long run.

That counts for push notifications and SMS, too. With SMS, you can go buy SMS traffic via grey routes with people who are having phones strung up attached to a computer and pumping out SMSs. That works for a time, but it always gets shut down. I’ve seen so many companies make these mistakes where they think they’re going to grow by using these kinds of tactics. If you can’t get your email, SMS, or Push Notification delivered, you will never get any success from these. You actually spam your power users and give them notifications they don’t care about, making it really hard for them to opt out. Well, they start blocking you, and you can never push them once they’ve opted out of your Push Notifications. And it’s very hard to prompt them to turn them on once they’ve turned them off.

So number one thing to think about regarding email, SMS, and Push Notifications is, you have to get them delivered. Beyond that, it’s a question of open rate, click rate. So what is the compelling subject line you can put there so the people can open your email, and how can you get them to click when they visit?

Everyone focuses towards doing marketing emails that are just spam in my opinion. Newsletters are stupid. Don’t do newsletters because you’ll send the same newsletter to everyone on your site. Someone who signed up to your site yesterday versus someone who’s been using your product for three years – do they need the same message? No.

The most effective email you can do is notifications. So what are you sending? What should you be notifying people of? This is a great place where we’re in the wrong mindset. As a Facebook user, I don’t want Facebook to email me about every ‘like’ I receive, because I receive a lot of them since I have a lot of Facebook friends. But as a new Facebook user, that first ‘like’ you receive is a magic moment. Turning on notifications throughout all of our channels, increased on our emails, SMS, and Push Notifications, but we only turned it on for low-engaged users who weren’t coming back to the site, so it wouldn’t be spamming for them.

So it was a great experience to think about that. The first thing you need to think about when sending emails, SMS, and Push Notifications is what notifications should we be sending. The second thing you need to be thinking about is how can you create great triggered marketing campaigns. When someone created their first cross-border trade transaction was one of the best email campaigns I was ever part of at eBay in terms of click through rate. It was awesome because it was really timely, and really in context – the right thing to do for the user.

I’d say make sure you have deliverability. Focus on notifications and triggered based emails, SMS, and Push Notifications.

There’s one thing I wanted to finish with, which is my favorite quote by General Patton. It’s so cliche; it’s crazy, but it’s awesome.

“A good plan, violently executed today, is better than a perfect plan tomorrow.”

And one other thing that Chamath instills in us and Mark still instills across the whole of Facebook is move fast and don’t be afraid to break stuff. If you can run more experiments than the next guy, if you can be hungry for growth, if you can fight and die for every extra user and you stay up late at night to get those extra users, to run those experiments, to get the data, and do it over and over and over again, you will grow faster.

Mark has said he thinks we won because we wanted it more, and I really believe that. We just worked really hard. It’s not like we’re crazy smart, or we’ve all done these crazy things before. We just worked really really hard, and we executed fast. I strongly encourage you to do that. Growth is optional.

Competition is for Losers

Sam: Alright, good afternoon, today’s speaker is Peter Thiel, Peter was the founder of PayPal, Palantir, and Founders Fund and has invested in most of the tech companies in Silicon Valley. He’s going to talk about strategy and competition. Thank you for coming, Peter.

Peter: Awesome, thanks Sam for inviting me, thanks for having me.

I sort of have a single idée fixe that I’m completely obsessed with on the business side which is that if you’re starting a company, if you’re the founder, entrepreneur, starting a company you always want to aim for monopoly and you want to always avoid competition. And so hence competition is for losers, something we’ll be talking about today.

I’d like to start by saying something about the basic idea of when you start one of these companies, how do you go about creating value? What makes a business valuable? And I want to suggest there’s basically a very simple formula, that if you have a valuable company two things are true. Number one, that it creates “X” dollars of value for the world. Number two, that you capture “Y” percent of “X.” And the critical thing that I think people always miss in this sort of analysis is that “X” and “Y” are completely independent variables, and so “X” can be very big and “Y” can be very small. “X” can be an intermediate size and if “Y” is reasonably big, you can still have a very big business.

So to create a valuable company you have to basically both create something of value and capture some fraction of the value of what you’ve created. And sort of just to illustrate this as a contrast, if you compare the US airline industry with a company like Google on search, if you measure by the size of these industries you could say that airlines are still more important than search, just measured by revenue. [For airline carriers] there’s $195 billion in domestic revenues in 2012; Google had just north of $50 billion. And certainly on some intuitive level if you were given a choice and said, well would you want to get rid of all air travel, or do you want to give up search engines, the intuition would be that air travel is something that’s more important than search. And this is of course just the domestic numbers.

If you’d look at this globally, airlines are much much bigger than search, than Google is, but the profit margins are quite a bit less. They were marginally profitable in 2012, I think in the entire hundred year history of the airline industry, the cumulative profits in the US have been approximately zero. The companies make money, they episodically go bankrupt, they get recapitalized, and you sort of cycle and repeat. And this is reflected in the combined market capitalization of the airline industry, which may be something like a quarter of Google’s. So you have search much smaller than air travel but much more valuable. I think this reflects these very different valuations on “X” and “Y.”

If we look at perfect competition, there’s some pros and cons to the world of perfect competition. On a high level, this is something you always study in Econ I, it’s always easy to model, which is why I think econ professors like talking about perfect competition. It somehow is efficient, especially in a world where things are static, because you have all the consumer surplus that’s captured by everybody, and politically it’s what we’re told is good in our society: you want to have competition and it’s somehow a good thing. Of course there are a lot of negatives, it’s generally not that good if you’re involved in anything that’s hyper competitive, because you often don’t make money. I’ll come back to this a little bit later. So I think on one end of the spectrum you have industries that are perfectly competitive and at the other end of the spectrum you have things that I would say are monopolies, and they’re much more stable longer term businesses, you have more capital, and if you get a creative monopoly for inventing something new, I think it’s symptomatic of having created something really valuable.

I do think the extreme binary view of the world I always articulate is that there are exactly two kinds of businesses in this world, there are businesses that are perfectly competitive and there are businesses that are monopolies. There is shockingly little that is in between. And this dichotomy is not understood very well because people are constantly lying about the nature of the businesses they are in. And in my mind this is not necessarily the most important thing in business, but I think it’s the most important business idea that people don’t understand, that there are just these two kinds of businesses.

So let me tell you a little bit about the lies people tell. If you imagine that there was a spectrum of companies from perfect competition to monopoly, the apparent differences are quite small because the people who have monopolies pretend not to. They will basically say, and it’s because you don’t want to get regulated by the government, you don’t want the government to come after you, so you will never say that you have a monopoly. So anyone who has a monopoly will pretend that they are in incredible competition; and on the other end of the spectrum if you are incredibly competitive, and if you’re in some sort of business where you will never make any money, you’ll be tempted to tell a lie that goes in the other direction, where you will say that you’re doing something unique that is somehow less competitive than it looks because you’ll want to differentiate, you will want to try and attract capital, or something like that. So if the monopolists pretend not to have monopolies, the non-monopolies pretend to have monopolies, the apparent difference is very small whereas the real difference I would submit is actually quite big. So there’s this business distortion that happens because of the lies people tell about their businesses and the lies are sort of in these opposite directions.

Let me drill a little bit down further on the way these lies work. And so the basic lie you tell as a non-monopoly is that we’re in a very small market. The basic lie you tell as a monopoly is the market you’re in is much bigger than it looks. So typically if you want to think of this in set theoretic terms, you could say that a monopoly tells a lie where you describe your business as the union of these vastly different markets and the non-monopolist describes it as the intersection. So in effect, if you’re a non-monopolist you will rhetorically describe your market as super small, you’re the only person in that market. If you have a monopoly you’ll describe it as super big and there’s lots of competition in it.

Some examples of how this works in practice. I always use restaurants as the example of a terrible business, this is always sort of the idea that capital [accumulation] and competition are antonyms. If someone accumulates capital, a world of perfect competition is a world where all the capital gets competed away. So you’re opening a restaurant business, no one wants to invest because you just lose money, so you have to tell some idiosyncratic narrative and you’ll say something like. “Well we’re the only British food restaurant in Palo Alto.” So its British, Palo Alto and of course that’s too small a market because people may be able to drive all the way to Mountain View or even Menlo Park and there probably are no people who eat nothing but British food, at least no people who are still alive.

So that’s sort of a fictitiously narrow market. There is sort of a Hollywood version of all of this, the way movies always get pitched, where it’s like a college football star, you know, joins an elite group of hackers to catch the shark that killed his friend. Now that’s a movie that has not yet been made, but the question is, “Is that the right category or is the correct category, it’s just another movie?” In which case there are lots of those, it’s super competitive, it’s incredibly hard to make money, no one ever makes money in Hollywood making movies, it’s really really hard.

So you always have this question about is the intersection real? Does it make sense? Does it have value? And of course there are startup versions of this, and in the really bad versions you just take a whole series of the buzzwords: sharing, mobile, social apps, you combine them and give some kind of narrative and whether or not that’s a real business or not, it is generally a bad sign. It’s almost this pattern recognition when you have this rhetoric of these sort of intersections, it generally does not work. The something of somewhere is really mostly just the nothing of nowhere, it’s like the Stanford of North Dakota, one of a kind, but it’s not Stanford.

Let’s look at the opposite, the opposite lie, is if you are let’s say the search company that’s down the street from here and has about a happy sixty-six percent market share and is completely dominant in the search market. Google almost never describes itself as a search engine these days and instead it describes itself in all these different ways. So it sometimes says it’s an advertising company. So if it was search you would say, well it’s like it has this huge market share that’s really crazy, so it’s like an incredible monopoly, it’s a much bigger and much more robust monopoly than Microsoft ever had in the nineties, maybe that’s why it’s making so much money. But if you say it’s an advertising market, you could say well, search advertising is seventeen billion and that’s part of online advertising, which is much bigger and then, you know, all US advertising is bigger, and then by the time you get to global advertising, that’s close to five hundred billion and so you’re talking about three and a half percent, so a tiny part of this much larger market.

Or if you don’t want to be an advertising company, you could always say you’re a technology company. The technology market is something like a one trillion dollar market and the narrative that you tell about Google and the technology market is, well we’re competing with all the car companies with our self-driving cars, we’re competing with Apple on TVs and iPhones, we’re competing with Facebook, we’re competing with Microsoft on office products, we’re competing with Amazon on cloud services and so we’re in this giant technology market, where there’s competition in every direction you look and no we’re not the monopoly the government’s looking for and we should not get regulated in any way whatsoever. So I think one has to always be super aware that there are these very powerful incentives to distort the nature of these markets, one way or the other.

The evidence of narrow markets in the tech industry is if you basically just, if you look at sort of the big tech companies, Apple, Google, Microsoft, Amazon, they have just been building up cash for year after year and you have these incredibly high profit margins, and I would say that the that one of the reasons the tech industry in the US has been so successful financially is because it’s prone to creating all these monopoly-like businesses and it’s reflected by the fact that these companies just accumulate so much cash they don’t even know what to do with it beyond a certain point.

Let me say a few things about how to build a monopoly, and I think one of the sort of very counterintuitive ideas that comes out of this monopoly thread is that you want to go after small markets. If you’re a startup, you want to get to monopoly. You’re starting a new company, you want to get to monopoly. Monopolies have a large share of the market, how do you get to a large share of the market? You start with a really small market and you take over the whole market and then over time you find ways to expand that market in concentric circles.

The thing that’s always a big mistake is going after a giant market on day one because that’s typically evidence that you somehow haven’t defined categories correctly, that normally means there is going to be too much competition in one way or another, so I think almost all the successful companies in Silicon Valley had some model of starting with small markets and expanding. If you take Amazon, you start with just a bookstore, we have all the books in the world, it’s a better bookstore than anybody else has in the world when it starts in the 1990s. It’s online, there’s things you can do that you could not do before, and then you gradually expand into all sorts of different forms of e-commerce and other things beyond that.

eBay, you start with Pez dispensers, you move on to Beanie Babies, and eventually it’s all these different online auctions for all these sorts of different goods. What’s very counterintuitive about many of these companies is they often start with markets that are so small, that people don’t think they are valuable at all when you get started. The PayPal version of this was we started with power sellers on Ebay, which was about twenty thousand people. When we first saw this happening in December of 1999, January 2000 right after we launched, there was a sense that these were all, it was such a small market, it was terrible, we thought these were terrible customers to have, it’s just people selling junk on the internet, why in the world we want to be going after this market?

But there was a way to get a product that was much better for everybody in that market, and we got to something like twenty five, thirty percent market penetration in two or three months, and you’ve got some walk in to brand recognition, and are able to build the business from there. So I always think these very small markets are quite underrated. The Facebook version of this I always give is that if the initial market at Facebook was ten thousand people at Harvard, it went from zero to sixty percent market share in ten days, that was a very auspicious start. The way this gets analyzed in business schools is always, that’s so ridiculous, it’s such a small market, it can’t have any value at all. So I think the business school analysis of Facebook early on, or of Paypal early on, or of Ebay early on, is that the markets were perhaps so small as to have almost no value and that they would’ve had little value had they they stayed small, but it turned out there were ways to grow them concentrically and that’s what made them so valuable.

Now I think the opposite version of this is always where you have super big markets and there is so many different things that went wrong with all the clean tech companies in the last decade. But the one theme than ran through almost all of them is that they all started with massive markets. Every clean tech powerpoint presentation that one saw in the years 2005 to 2008, which is the clean tech bubble in Silicon Valley, started with where the energy market, where the market was measured in hundreds and billions of trillions of dollars. And then once you’re sort of like a minnow in a vast ocean, that is not a good place to be. That means you have tons of competitors and you don’t even know who all the competitors are.

You want to be a one of a kind company. You want to be the only player in a small ecosystem. You don’t want to be the fourth online pet food company. You don’t want to be the tenth solar panel company. You don’t want to be the hundredth restaurant in Palo Alto. Your restaurant industry is a trillion dollar industry. So if you do a market size analysis, you conclude restaurants are fantastic business to go into. And often large existing markets typically means that you have tons of competitions so it’s very very hard to differentiate. The first very counterintuitive idea is to go after small markets, markets that are so small people often don’t even think that they make sense. That’s where you get a foothold and then if those markets are able expand, you can scale into a big monopoly business.

There are several different characteristics of these monopoly businesses that I’d like to focus on. There is no single formula. In technology there is always a sense that in the history of technology, every moment happens only once. The next Mark Zuckerberg won’t build a social network and the next Larry Page won’t be building a search engine, and the next Bill Gates won’t be building an operating system. If you are copying these people, you are not learning from them.

There are always very unique businesses that are doing something that has not been done before and end up having the potential to be a monopoly. The opening line in Anna Karenina, that all happy families are alike and all unhappy families are unhappy in their own special way, is not true in business, where I think all happy companies are different because they’re doing something very unique. All unhappy companies are alike because they failed to escape the essential sameness in competition.

One characteristic of a monopoly technology company is some sort of proprietary technology. My sort of crazy, somewhat arbitrary rule of thumb is you want to have a technology that’s an order of magnitude better than the next best thing. So Amazon had over ten times as many books, it may not have been that high tech, but you figure oh well it can sell ten times as many books and be more efficient along the way. In the case of PayPal, Bill Turner was using checks to send money on Ebay, it took seven to ten days to clear, and PayPal could do it more than ten times as fast. You want to have some sort of very powerful improvement, some order of magnitude improvement, on some key dimension. Of course, if you just come with something totally new, it’s just like an infinite improvement. I would say the iPhone was the first smart phone that worked, it may not be in fact, but it’s so definitely an order of magnitude of an improvement. So I think the technology needs to be designed to give you a massive delta over the next the next best thing.

I think there often are network effects that can kick in and that really help the thing and these are linked to monopolies over time, the thing that is very tricky about network effects is they’re often very hard to get started and so you know everyone understands how valuable they are. There’s always this incredibly tricky question: why is it valuable to the first person who’s doing something. Economies of scale, if you have something with very high fixed costs and very low marginal costs, that’s typically a monopoly-like business.

And then there is this thing of branding which is sort of this idea that gets lodged into people’s brains. I never quite understand how branding works, so I never invest in companies where it’s just about branding but it is, I think, a real phenomenon that creates real value. I think one of the things, I’m going to come back to this in a little bit, towards the end, but one of the things that’s very striking is that software businesses are often, are for some reason, very good at some of these things. They are especially good at the economies of scale part because the marginal cost of software is zero. So if you get something that works in software it’s often significantly better than the existing solution and then you have these tremendous economies of scale and you can scale fairly quickly.

So even if the market starts small, you can grow your business quickly enough to stay at the same size as the growing market and maintain the monopoly of power. Now the critical thing about these monopolies is it’s not enough to have a monopoly for just a moment. The critical thing is have one that lasts over time and so in Silicon Valley there is always this sort of idea that you want to be the first mover and I always think in some ways the better framing is you want to be the last mover. You want to be one of the last companies in that category, those are the ones that are really valid. Microsoft was the last operating system, at least for many decades. Google was the last search engine. Facebook will be valuable if it turns out to be the last of social networking site.

And one way to think of this last mover value is this idea that most of the value in these companies exists far in the future. If you do a discounted cash flow analysis of the business, you’ll look at all these profit streams, you have a growth rate, the growth rate’s much higher that the discount rate and so most of the value exists far in the future. I did this exercise at Pay Pal in March of 2001 we’d been in business for about twenty seven months and the growth rate was a hundred percent a year, we were discounting future cash flows by thirty percent, and it turned out that about three quarters of the value of the business as of 2001 came from cash flows in years 2011 and beyond.

And whenever you do the math on any of these tech companies, you get to an answer that is something like that. So if you are trying to analyze any of the tech companies in Silicon Valley, AirBnB, Twitter, Facebook, any emerging Internet companies, all the ones in Y Combinator, the math tells you that three quarters, eighty-five percent of the value is coming from cash flows in years 2024 and beyond. It’s very far in the future and so one of the things that we always over value in Silicon Valley is growth rates and we undervalue durability.

Growth is something you can measure in the here and now, you can always track that very precisely. The question of whether a company will be around a decade from now, that’s actually what dominates the value equation and that’s a much more qualitative sort of a thing. And so if we went back to this idea of these characteristics of monopoly, the proprietary technology, network effects, economies of scale, you can think of these characteristics as ones that exist at a moment in time where you capture a market and take it over but you also want to think about, are these things going to last over time. So there’s a time dimension to all these characteristics. So networks in fact often have a great time element where as the network scales, network effects actually get more robust, and so if you have a network business it’s often one that can become a bigger and stronger monopoly over time.

Proprietary technology is always a little bit of a tricky one, so you want something that is an order of magnitude better than the state of the art in the world today. That’s how you get people’s attention, that’s how you initially break through. But then you don’t want to be superseded by somebody else. So there are all these areas of innovation where there was tremendous innovation, but no one made any money. So disk drive manufacturing in the 1980’s, you could build a better disk drive than anybody else, you could take over the whole world and two years later someone else would come along and replace yours. In the course of fifteen years, you got vastly improved disk drives, so had a great benefit to consumers, but it didn’t actually help the people who started these companies.

There’s always this question about having a huge breakthrough in technology, but then also being able to explain why yours will be the last breakthrough or at least the last breakthrough for a long time or if you make a breakthrough, then you can keep improving on it at quick enough pace that no one can ever catch up. So if you have a structure of the future where there’s a lot of innovation and other people will come up with new things and the thing you’re working on, that’s great for society. It’s actually not that good for your business typically. And then economies of scale we’ve already about. I think this last mover thing is very critical. I’m always tempted, I don’t want to overdo chess analogies, but the first mover in chess is someone who plays white, white is about a one-third of a pawn advantage, so there is a small advantage to going first. You want to be the last mover who wins the game, so there’s always world chess champion Capablanca line, “You must begin by studying the end game.” I wouldn’t say that’s the only thing you should study, I think perspective of asking these questions, why will this still be the leading company in ten, fifteen, twenty years from now, is a really critical one to try to think through.

I want to go in two slightly other directions with this the monopoly versus competition idea. I think this is the central idea on my mind for business, for starting a business, for thinking about them. There are some very interesting perspectives, I think it gives, on the whole history of innovation in technology and science. We’ve lived through 300 years of incredible technological progress in many many different domains. Steam engines to railways, the telephone, refrigeration, household appliances, the computer revolution, aviation, all different areas of technological innovation. Then there’s sort of an analogous thing to say about science where we’ve lived through centuries of enormous amounts of innovation in science as well.

The thing that I think people always miss when they think about these things, is that because “X” and “Y” are independent variables, some of these things can be extremely valuable innovations, but the people who invent them, who come up with them, do not get rewarded for this. Certainly if you go back to you need to create X dollars in value and you capture Y percent of X, I would suggest that the history of science has generally been one where Y is zero percent across the board, the scientists never make any money. They’re always deluded into thinking that they live in a just universe that will reward them for their work and for their inventions. This is probably the fundamental delusion that scientists tend to suffer from in our society. Even in technology there are sort of many different areas of technology where there were great innovations that created tremendous value for society, but people did not actually capture much of the value. So I think there is a whole history of science and technology that can be told from the perspective of how much value was actually captured. Certainly there are entire sectors where people didn’t capture anything.

You’re the smartest physicist of the twentieth century, you come up with special relativity, you come up with general relativity, you don’t get to be a billionaire, you don’t even get to be a millionaire. It just somehow doesn’t work that way. The railroads were incredibly valuable, they mostly just went bankrupt because there was too much competition. Wright brothers, you fly the first plane, you don’t make any money. So I think there is a structure to these industries that’s very important.

I think the thing that’s actually rare are the success cases. So if you really think about the history in this and this two hundred fifty years sweep, why is almost always zero percent, it’s always zero in science, it’s almost always in technology. It’s very rare where people made money. You know in the late eighteenth, early nineteenth century, the first industrial revolution was the textile mills, you got the steam engine, you sort of automated things. You had these relentless improvements that people improved efficiency of textile factories, of manufacturing generally, at a clip of five to seven percent every year, year after year, decade after decade. You had sixty, seventy years of tremendous improvement from 1780 to 1850. Even in 1850, most of the wealth in Britain was still held by the landed aristocracy and the workers didn’t make that much. The capitalists didn’t make that much either, it was all competed away. There were hundreds of people running textile factories, it was an industry where the structure of the competition prevented people from making any money.

There are, in my mind, probably only two broad categories in the entire history of the last two hundred and fifty years where people actually came up with new things and made money doing so. One is these sort of vertically integrated complex monopolies which people did build in the second industrial revolution at the end of the nineteenth and start of the twentieth century. This is like Ford, it was the vertically integrated oil companies like Standard Oil, and what these vertically integrated monopolies typically required was a very complex coordination, you’ve got a lot of pieces to fit together in just the right way, and when you assemble that you had a tremendous advantage. This is actually done surprisingly little today and so I think this is sort of a business form that when people can pull it off, is very valuable.

It’s typically fairly capital intensive, we live in a culture where it’s very hard to get people to buy into anything that’s super complicated and takes very long to build. When I think of my colleague and friend Elon from PayPal success with Tesla and SpaceX, I think the key to these companies was the complex vertically integrated monopoly structure they had. If you look at Tesla or SpaceX and you ask, was there sort of a single breakthrough, I mean they certainly innovated on a law of dimensions, but I don’t think there was a single 10X breakthrough on battery storage, they may be working on some things in rocketry, but there was no sort of single massive breakthrough. But what was really impressive was integrating all these pieces together and doing it in a way that was more vertically integrated than most other competitors.

So Tesla also integrated the car distributors so they wouldn’t steal all the money as has happened with the rest of the car industry in the US. Or SpaceX, basically, you pulled in all subcontractors where most of the large aerospace companies have single sourced subcontractors that are able to charge monopoly profits and make it very hard for the integrated aerospace companies to make money. And so vertical integration I think is sort of a very under explored modality of technological progress that people would do well to look at more.

And then I think there is something about software itself that’s very powerful. Software has these incredible economies of scale, these low marginal costs, and there is something about the world of bits, as opposed to the world of atoms, where you can often get very fast adoption and fast adoption is critical to capturing and taking over markets because even if you have a small market, if adoption rate is too slow, there will be enough time for other people to enter that market and compete with you. Whereas if you have a small to midsize market, have the fast adoption rate, you can now take over this market. So I think this is one of the reasons Silicon Valley has done so well and why software has been this phenomenal industry.

What I would suggest that we will leave you with is there are these different rationalizations people give for why certain things work and why certain things don’t work, and I think these rationalizations always obscure this question on creating “X” dollars in value and capturing “Y” percent of “X.” So, the science rationalization we’re always told is that the scientists aren’t interested in making money. They’re doing it for charitable reasons and that you’re not a good scientist if you’re motivated by money. I’m not even saying people should always be motivated by money or something like this, but I think we should wish to be a little bit more critical of this as a rationalization. We should ask is this a rationalization to obscure the fact that “Y” equals zero percent and the scientists are operating in this sort of world where all the innovation is effectively competed away and they can’t capture any of it directly.

The software distortion that often happens is because people are making such vast fortunes in software, we infer that this is the most valuable thing in the world being done full stop. And so people at Twitter make billions of dollars, it must be that Twitter is worth far more than anything Einstein did. What that realization tends to obscure, is again that “X” and “Y” are independent variables and that there are these businesses where you capture a lot of X and others where you don’t. So I do think the history of innovation has been this history where the microeconomics, the structure of these industries has mattered a tremendous amount and there is sort of this story where some people made vast fortunes because they worked in industries with the right structure and other people made nothing at all because they were in these very competitive things.

We shouldn’t just rationalize that way. I think it’s worth understanding this better. Then finally, let me come back to this sort of overarching theme for this talk, this competition is for losers idea, which is always a provocative way to title things because we always think of the losers as the people who are not good at competing. We think of losers as the people who are slow on the track team in high school or do a little less well on standardized tests, and don’t get into the right schools. So we always think of losers as people who can’t compete and I want us to really rethink and re-value this and consider whether it’s possible the competition itself is off.

It’s not just the case we don’t understand this monopoly-competition dichotomy intellectually. So we’ve been talking about why you wouldn’t understand it intellectually, because people lie about it, it’s distorted, the history of innovation rationalizes it in all these very strange ways. I think it’s more than just an intellectual blind spot, but also a psychological blind spot, where we find ourselves very attracted to competition and in one form or another we find it reassuring if other people do things. The word ape, already in the time of Shakespeare, meant both primate and imitate and that is something about human nature, it’s deeply imitative, ape like, sheep like and this is very problematic thing that we need to always think through and try to overcome.

There is always this question about competition as a form of validation, where we go for things that lots of other people are going for. It’s not that there is wisdom of crowds, it’s not that lots of people trying to do something is the best proof of that being valuable. I think it’s when lots of people are trying to do something, that is often proof of insanity. There are twenty thousand people a year who move to Los Angeles to become movie stars, about twenty of them make it. I think the Olympics are a little bit better because you have, you can sort of figure out pretty quickly whether you’re good or not, so there’s little less of a deadweight loss to society. You know the sort of educational experience that at a place, the pre-Stanford educational experience, there is always sort of a non-competitive characterization. I think most of the people in this room had machine guns and they were competing with people with bows and arrows, so it wasn’t exactly a parallel competition when you were in junior high school, in high school. There is always the question: does the tournament make sense as you keep going?

There is always this question if people going on to grad school or post doctoral educations, does the intensity of the competition really make sense. There is the classic Henry Kissinger line describing his fellow faculty at Harvard, “The battles were so ferocious because the stakes were so small,” describing academia and you sort of think on one level this is a description of insanity. Why would people fight like crazy when the stakes are so small, but it’s also, I think, simply a function of the logic of a situation. When it’s been really hard to differentiate yourself from other people, when the differences are, when the objectives differences really are small, you have to compete ferociously to maintain a difference of one sort or another. That’s often more imaginary than real. There is always sort of a personal version of this I tell, where I was sort of hypertracked. In my eighth grade junior high school yearbook one my friends wrote, I know you’re going to get into Stanford. Four years later, I went to Stanford Law School, ended up at a big law firm in New York where from the outside everybody wanted to get in and on the inside everybody wanted to leave and it was this very strange dynamic where I realized, this was maybe not the best idea, and I left after seven months and three days.

Other people down the hall told me, it’s really reassuring to see you leave, Peter, I had no idea that it was possible to escape from Alcatraz, which of course all you had do was go out the front door and not come back. But so much of people’s identities got wrapped up in winning these competitions that they somehow lost sight of what was important, what was valuable. Competition does make you better at whatever it is that you’re competing at because when you’re competing you’re comparing yourself with the people around you. I’m figuring out how to beat the people next to me, how do I do somewhat better than whatever it is they’re doing and you will get better at that. I’m not questioning that, I’m not denying that, but there often comes this tremendous price that you stop asking some bigger questions about what’s truly important and truly valuable. Don’t always go through the tiny little door that everyone’s trying to rush through, maybe go around the corner and go through the vast gate that nobody is taking.

Q: Do you have any ways to determine the difference [between a monopoly and a non monopoly] when looking at an idea or thinking about your own idea?

A: I would say the question I always focus on is what is the actual market? So not what’s the narrative of the market, because you can always tell a fictional story about a market: it’s much bigger much or smaller, but what is the real objective market. So you always try to figure it out, and you realize people have incentives to powerfully distort these things.

Q: So which of the aspects, of all these you mentioned, you would you say is applicable to Google?

A: Well, they have they have network effects with the ad network, they had proprietary technology that gave them the initial lead because they had the page rank algorithm, which was an order of magnitude better than any other search engine. They had economies of scale up because of the need to store all these different sites, and at this point you have brand, so Google has all four. Maybe the proprietary technology is somewhat weaker at this point but definitely it had all four, and maybe three and a half out of four now.

Q: How does this apply to Palantir and Square?

A: That’s sort of a set of companies that are doing different copycat payment systems, on mobile phones, there’s Square, there’s PayPal, they have different shapes that’s how they differentiate themselves, one is a triangle, one is a square. Maybe at one point the apes run out of shapes or something like that, but at Palantir we started with a focus on the intelligence community, which is a small submarket. We had a proprietary technology that used a very different approach where it was focused on the human computer synthesis, rather than the substitution, which I think is the dominant paradigm. So, there is a whole set of things, I would say, on the market approach and on the proprietary technology.

Q: What do you think about lean startups?

A: So the question is what do I think about lean startups and iterative thinking where you get feedback from people versus complexity that may not work.

I’m personally quite skeptical of all the lean startup methodology. I think the really great companies did something that was somewhat more of a quantum improvement that really differentiated them from everybody else. They typically did not do massive customer surveys, the people who ran these companies sometimes, not always, suffered from mild forms of Aspergers, so they were not actually that influenced, not that easily deterred, by what other people told them to do. I do think we’re way too focused on iteration as a modality and not enough on trying to have a virtual ESP link with the public and figuring it out ourselves.

I would say the risk question is always a very tricky one, because it’s often the case that you don’t have enough time to really mitigate risk. If you’re going to take enough time to figure out what people want, you often will have missed the boat by then. And then of course there is always the risk of doing something that’s not that significant or meaningful. You could say that a track in law school is a low risk track from one perspective, but it may still be a very high risk track in the sense that maybe you have a high risk of not doing something meaningful with your life. We have to think about risk in these very complicated ways. I think risk is this complicated concept.

Q: Doesn’t the last mover advantage already imply that there’s competition to begin with?

A: Yes, there’s always a terminology thing. I would say that there are categories in which people sort of are bundled together. The monopoly business, I think they really were a big first mover. In some sense you can say Google was not the first search engine, there were search engines before. But on one dimension they were dramatically better than everybody else. They were the first one with page rank, with an automated approach. Facebook was not the first of social networking site. My friend, Reid Hoffman, started one in 1997, they called it Social Net, so they already had the name social networking in the name of their company seven years before Facebook. Their idea was that it going to be this virtual cyberspace were I’d be a dog and you’d be a cat and we’d have all these different rules about how we interact with each other in this virtual alternate reality. Facebook was the first one to get real identity, so I hope Facebook will be the last social networking site. It was the first one in a very important dimension, people often would not think of it as the first because they sort of lump all these things together.

Q: If someone worked at Goldman Sachs out of college and left after six months and is now studying CS at Stanford, how would you recommend rethinking their competitive advantage?

A: I am not great at the psychotherapy stuff, so I don’t quite know how to solve this. There are these very odd studies they have done on people who go to business school, this one was done at the Harvard Business School where it’s sort of the anti-Asbergers personality, where people are super extroverted, generally have low convictions, few ideas and you have sort of a hothouse environment you put all these people and for two years and at the end of it, they systematically end up, the largest cohort systematically ends up doing the wrong thing, they try to catch the last wave. in 1999 everyone tried to work with Mike Milken, this was a few years before he went to jail for all the junk bond stuff.

They were never interested in Silicon Valley or tech except for 1999, 2000 when they timed the dotcom bubble peaking perfectly. 2005 to 2007 was housing, private equity, stuff like this. This tendency for us to see competition as validation is very deep, I don’t think there’s some easy psychological formula to avoid this. I don’t quite know how what sort of therapy to recommend.

My first starting point, which is only going to be maybe ten percent of the way, is to never underestimate how big a problem it is. We always think that this is something that afflicts other people. We always point to people in business school, people at Harvard or people on Wall Street, but it actually does afflict all of us to a very profound degree. We always think of advertising as this thing that works on other people, for all the stupid people who follow ads on TV, but they obviously work to some extent and they work to the disturbing extent on all of us and it’s something we must work to overcome.

Thank you very much.