When Sam originally sent an email for me to do this course, he said “Ben can you teach a fifty minute course on management?” And I immediately thought to myself, “Wow, I just wrote a three hundred page book on management. So that book was entirely too long.”
I didn’t actually have time to collapse the three hundred pages into fifty minutes. Like Mark Twain, I didn’t have time to write a good short letter, so I’m going to write a long letter. But in this case, I am going to teach exactly one management concept.
I see CEO’s mess up this one management concept more consistently than anything else. From when they’re very, very early to when they’re very, very big as a company. It’s the easiest thing to say and the most difficult to master. The concept in musical form is from Sly and the Family Stone. “Sometimes I’m right and I can be wrong. My beliefs are in my song. No difference what group I’m in.”
That’s the musical version of today’s lesson. For those of you who are musical, you can leave now.
When you’re making a critical decision, you have to understand how it’s going to be interpreted from all points of view. Not just your point of view and not just the person you’re talking to but the people who aren’t in the room, everybody else. In other words, you have to be able, when making critical decisions, to see the decision through the eyes of the company as a whole. You have to add up every employee’s view and then incorporate that into your own view. Otherwise your management decisions are going to have weird side effects and potentially dangerous consequences. It’s a hard thing to do because at the point when you are making a decision, you’re often under a great deal of pressure.
Let’s get into the agenda. I am going to cover four cases. First, I am going to cover demotions, which are very emotional. Then raises, which are also emotional. Then we are going to evaluate one of Sam’s blog posts, which is news to Sam. I figured I’d tease him since he invited me to do a fifty minute management class after I wrote a three hundred page book.
Then I’m going to talk about history’s greatest practitioner at this, I’m wearing a shirt with him on it, and how he used it to do something that nobody had ever done and has ever done since in human history. Basically complete mastery of the technique I am going to talk about.
So, first business example, you’ve got an executive, and do you demote or do you fire him? This comes from an actual conversation, an actual real life situation that I was working on with a CEO. The basic situation was this: he had a great executive he had hired. He was working harder than anybody else in the company and was doing everything he was supposed to. Everybody liked him because he worked so hard and was a generally a smart person, but he was in over his head knowledge-wise. He did not have the knowledge and the skills to do what the company needed him to do or really compete against the competition. So he couldn’t actually keep him in the job, but he was a great guy. So the question is, should I fire this person or can I just move him into a lower role and bring in a person above him. That would be cool. Let’s look at how you make that decision.
You are, in this case, the CEO. It’s really hard if somebody comes to work every day at six AM, is working until ten PM, and is working harder than anybody in the company. It’s really hard to just say, “Well sorry, nice effort but you don’t get an A for an effort. You get an F because I fired you.”
Nobody wants to have that conversation. A demotion is kind of neat because from a CEO’s point of view, he can keep him in the company. He works so hard. He’s a great example of somebody who gives great effort. He’s got a lot of friends in the company, so from a cultural stand point it’s a win/win because he gets to stay. Then I can bring in somebody who can solve my problem but I don’t have to create another problem.
If you think about it from the executive’s perspective, it’s like, “I don’t want to be demoted but I really don’t want to be fired because if I get fired, that’s a way harder more complicated thing to explain to my next employer that I got demoted. Getting demoted is, well I didn’t really get demoted. I got a new job, a smaller title.”
The last thing it enables, theoretically: the company values all of our employees. We brought you in. We made a commitment to you as an employee and it will enable you to keep growing with the company. This was the conversation I was having with the CEO and I said, “Well, wait a minute. Let me ask you this. What’s the equity package that this executive has?” He goes, “Well, what do you mean?” I was like, “Well I would like to see direct level of compensation? Does he get a Vice President level of compensation? Does he have 1.5%? Does he have 0.4%?”
That gave the CEO pause. He’s like, “Well, he does have 1.5% of the fully-diluted equity of the company.” And I was like, “Ok. So you’re an engineer in your company. How do you feel about somebody who used to be the head of sales who brought in with 1.5%? What do your engineers get? Do they get 0.1% of the company? 0.2%? What are they getting at this point? How are they going to feel about somebody who is NOT the Head of Sales with one point five percent of the company?” And he was like, ” Uh oh.” And I was like, “Yeah! Uh oh. Because how fair is that? Are you going to take the equity away? Are you up to do that? Are you up to go back and take back his compensation? How productive do you think he’ll be if you take away his compensation? Secondly, will people give him the same respect now that you’ve demoted him? Because they knew him as this and now he’s that. “I knew you when you were Head of Sales now you’re the Regional Manager and you’re telling me what the f*** to do? You’re telling me I need to make that call? It seems to me you got demoted. Who are you to talk to me? I am the up and comer. I am going to be the next VP of Sales at the company.”
All these things come into play. When you look at the end, you may think you are dealing with one person. You may think that this is a demotion or a firing of one person. What does it mean according to that one person? But what you are really doing is saying, what does it mean to fail on the job? Particularly the highest paid, the highest compensated job in the company from an equity standpoint. And then, what’s required to maintain your equity? Is it good enough to put in an effort or do you have to get a result? In different situations at different levels, the answers will be different. If this had been a person who was not an Executive brought in from the outside, but someone you promoted past where they should have been and didn’t ever get that equity, maybe you make a different decision but you have to understand what it’s going to mean to everybody, not just the person you’re talking to.
Example two: An excellent employee asks for a raise. A good employee, this isn’t like the last employee. First thing you think is they’re really good, they asked me for a raise, they didn’t ask me for no reason. They asked me because they think they deserve it. I want to retain them. I want to be fair! They’ve done a great job. I know that if I give them this raise, it’s going to be all love coming my way. If I give you a raise we’re good. You got a raise! It’s awesome.
From your perspective you know what you want to do when somebody asks you for a raise. What about from their perspective? How would they take it if you gave them the raise. You have to remember, for them to get to point where they ask you for a raise, they did not wake up one morning and say, “I am going in and asking him for a raise.” This is something they’ve thought about a lot. They’ve compared their other options. They may have an offer from another company. It’s something their spouse probably has been talking to them about. It’s a serious thing. If you give it to them, they’re very likely to feel very good about it. They may be paranoid, like ” Why you giving me a raise?” But very unlikely. Much more they’ll feel like…
(Plays “The Shmoney Dance” video)
For those who don’t know, that’s Bobby Shmurda and Rowdy Rebel doing the Shmoney Dance. That’s the reaction you’ll get. So there is a lot of momentum to say, “Yes look. You know they’ve read Sheryl’s book. They’ve leaned in and I’m going to reward them for doing all that.”
By the way, that book has very good advice. I’m not knocking Sheryl, I don’t want you to misinterpret me. However, you knew there was going to be a however, you have to think about it from the point of view of the employee who did not ask for a raise. They may be doing a better job than the employee who did ask for the raise and in their mind they are going, “Ok, so I didn’t ask for a raise and I didn’t get a raise. They asked for a raise and they got a raise. What does that mean?” One, you’re not really evaluating people’s performance. You’re just going, whoever asks, gets. That means I either need to be the guy who asked for the raise, though that’s not how I feel. I do my work and I don’t necessarily want to ask for a raise. Or I just need to quit and go to a company that actually evaluates performance. You can really make the person who doesn’t get the raise feel pretty pissed about it Don’t think that when someone is walking through your company doing the “Shmoney Dance,” that other people aren’t going to notice.
They are going to be fired up about that raise. You can say it is highly confidential that I am giving you this raise. It’s not confidential.
The cultural conclusion is that everybody in your company is going to feel that they now have a fiduciary responsibility to their family to ask for a raise all the time because if they don’t, they may be missing out on a raise that they would have otherwise gotten. Talk to any experienced CEO and they will tell you this is true. If you give out raises when people just ask you for them, you will have a lot of people asking you for raises. That is called encouraging behavior.
What do you do? The right answer is you have to be formal to save your own culture. I know this is always this is the thing that causes people running startups fits because it’s like, ” Well I don’t want a lot of formalities. I don’t want a lot of process. I want it to be organic. We want to do yoga. We want to only smoke organic weed.” Sorry that was a Peter Thiel kind of way. Peter got very focused on who was smoking weed a little while ago.
But the process actually protects the culture because what it does it says, look we’re going to look at all inputs. We are going to have a formal way of saying anybody who wants a raise, come talk to me. I’m not going to give you a raise but I am happy to hear your story. I’m going to talk to all the people you work with so I get like a understanding. I am going to evaluate all the work that you’ve done, so I know where I actually rate and what my actual opinion is. I am going to do it periodically, I’m not going to do it daily. If I were fast moving I would do it every six months or even once a quarter. At the end of that process I will tell you what your raise is, I will tell you if you’re getting one or if you’re not getting one, but I’m not going to do things off cycle. I’m not going to do things when asked. There is one process and that’s it.
When I used to be CEO and I had executives, the bigger you become the harder this gets because the more aggressive the people working for you are. To be an executive it turns out you have to often be pretty aggressive. In most companies that’s how you get to that level. I would go, “Look, you can lobby me all you want after the process is and I give you your raise, but you know what? I am not hearing it. I already went through my process. I got your input going in. I got everybody else’s input. I’ve got so many people and so much money and you got what I believe is right.”
Having a process gets people to be more comfortable because they don’t have to always be on edge about, “Am I asking for what I deserve? Or am I getting aced out because of who I am, what I look like? I am not buddy buddy. I’m not at the golf course with you or I’m not doing whatever you like to do? I don’t have to worry about any of that because I know your process. You’re going to evaluate everybody and then you are going to give them what’s fair.” That’s a much better way to handle that and it means that you’re actually understanding what everybody thinks, not just the people you are talking to at the moment.
Now we are going to get into some fun stuff. We are going to evaluate Sam’s blog post. There are some very good things in it and there are some things I am going to discuss.
This is the excerpt. “Most employees have only have 90 days after they leave a job to exercise their options. Unfortunately this requires money to cover the strike price and the tax bill…” I’ll explain this a little more later, but I want to read it first. “… for the year of exercise. This is often more cash than what the employee has.” This is the key. The employee often has to choose between leaving the job and walking away from the vested options i.e. the money that she has because she can’t afford to exercise or being locked into staying with the company for all the wrong reasons. So it’s a particularly bad situation when an Employee gets terminated. And I’ll get into that and that’s a really key point. “This doesn’t seems fair. The best solution I have I’ve heard is from Adam D’Angelo, “ a very, very smart guy “at Quora. The idea is to grant options that are exercisable for 10 years from the grant date, which should be nearly all the cases. There’s some tricky issues to this.” Blah, blah, blah. “But it’s still far better than just losing the assets. I think that this is policy that all startups should adopt.”
Was Sam right? Is this a policy that all startups should adopt? Let me first explain again what the policy is. Currently, the way almost every stock option package in startup world is this: you get stock that vests over a period of time. When you leave you have, and it depends on the company, 90 days. If you do not buy your stock in that period, it’s gone! It’s not yours anymore. Which, depending on when you entered the company, could be a big problem. A lot of companies today that have a high valuation, like an Airbnb or an Uber, when they bring you in they go “Wow, if you look at your 409A price compared to the preferred price, the stock we’re giving you right now, the options are already worth 10 million dollars.” And you’re like” Woooo! 10 million dollars. I’m rich.”
What they don’t necessarily tell you is in order for you to get that money, because the preferred is worth 10 million dollars, your options are probably going to cost you 2.5 million dollars when you leave. If you don’t have that 2.5 million dollars in 90 days, it’s gone! You just lost all your money. So Sam is like, wow! That’s fucked up! And so he wrote a blog post and he said everybody should change it.
The first question that you have to ask yourself is, “This has kind of been around since the 80’s, so why has a rule like this been around for 30 years?” It turned out, Sam, I don’t know whether he figured this out or just intuited it, but he was right. Something actually had changed. Up until 2004, there used to be a law called APB Opinion Number 25. That law was the old way to account for stock options. It’s also the law that all the guys went to jail on. I know a lot of people who caught a case on APB 25, so I’m glad it’s gone. It’s a very confusing law. A lot people did not understand it and they literally went to jail.
When that was a law, if you gave somebody 10 years to exercise their options, you would never have been able to go public and you would never have been able to be acquired because you were taking an expense that was tied to your stock price. The more your stock went up, the more compensation expense you’d have to take. The worst thing is you wouldn’t know what it was going to be. It was totally unpredictable, so you could never forecast earnings. Ever! Because your earnings would be a function of your stock price. The more your stock price went up, the more money you would lose. In those days, people did not look through stock option expenses. It just wasn’t doable. That’s why everybody’s agreement was written at 90 days. That’s why it’s there. So absolutely it’s the right thing to question it being there. Are you guys following? You get this? This is more complicated than the first two examples, but it’s a very important one.
Your perspective on this, if you have employees, is you want to be fair. Nobody wants to say to a hire,”Hey you got all this stock in 4 years… SIKE!” Especially when you fire someone. “Hey you’re fired! I feel real bad about it BUT guess what? You know, I am also going to take all your money too!”
That’s a problem. This is the thing that you have to keep in mind, you have to think about the people who are staying and you want to reward the people who are staying. The perspective of the Employee who leaves, and this is really critical because this is your reputation, is I worked a year, where’s my years pay? Now you’re telling me about this 90 day exercise? I know it was in the small print of my stock option agreement but my Hiring Manager never told me about that. They never told me I was going to need 2 million dollars to get my stock. Which I don’t have. So if I was rich I’d get my stock? That’s not fair. So now I am fired and then I’m screwed. Guess what? I am going to tell EVERYBODY how you screwed me over. That’s a real reputation problem. That’s something that you have to consider for policy.
You also have to consider the employee who stays. One thing that they’re going to ask themselves is, look they’re leaving and every time anybody leaves it’s like, was that smart? Your Employees know each other better than they know you. In any company, I don’t care what company you are. Often the person they’re really working with is going to be the person they know more. If that person leaves they’re going to go ” Well, should I leave too? What did they get and how does that compare to my deal?”
If we look at the situation and analyze it, there are a lot of components. First, companies tread a lot of people around here, the average is somewhere around 10 percent. It’s probably getting higher, particularly if you are in San Francisco just because of the culture there. Silicon Valley companies dilute like 6-8 or even 10 percent a year for employee options. You have to keep in mind that as mean as it is, if that employee leaves and can’t exercise their options, those options come back to the pool where you can potentially give them to people who are already there. You’re actually taking less dilution. That’s something that you have to think about. I am not saying you have to act on it but it’s something that you have to think about it.
Secondly, losing all your stock is a very big incentive to stay. That could be good news or bad news. It could be good news in that you get to keep somebody you might have lost. It could be bad news in that you kept them for the exact wrong reason: they have handcuffs on. You may get an Employee that is worse than not having an Employee. On the other hand, a 10 year option on a highly volatile security, for those of you who have taken that class, is valuable. 10 years option, volatility and length, that’s the value of an option.
10 years on a Startup stock, that’s a valuable thing. Remember the employee who stays doesn’t get that. The employee who stays just gets a stock. They don’t get the new job and the new stock. They get one thing but they don’t get both things. You have to weigh that in. This is a hard one. It should be reevaluated by every company. I wouldn’t go as far as Sam and say it should be adopted by every company. You have to think about what you want. I would offer two Alternative Cultural Statements. One is, we treat employees with straight forwardness. We’re going to be fair and therefore you get 10 years to exercise your stock. What we said we’re going to give you, you’re going to get regardless of how rich or poor you are. That’s just a done deal.
The second way to handle it – no companies do this, which is why I actually really like this post that he wrote – is you can say up front, ” Look you are guaranteed to get your salary but for your stock to be meaningful, these are the things that have to happened. You have to have vested. Two, you have to stay until we get to an exit. Untile the company makes it. You’ve got other money.” Finally, the company actually has to be worth something. Because 10 percent of nothing is nothing. The reason we set the policy this way is we really value people who stay. So don’t join this company if you are going to join another one in 18 months because you’re going to get screwed. Our policy guarantees you’re going to get screwed.
Those are two ways to handle it. It really depends on you and how you want to run your culture. With all these things, it’s critical to think it through from everybody’s prospective because when push comes to shove, that’s going to matter. That’s going to change the outcome of your company.
Sam: I am actually revising my recommendation slightly.
Ben Horowitz: Let’s hear it.
Sam: No, it’s that I think there needs to be more incentive to stay. If someone gets fired, I still think they get screwed a lot of the time.
Ben Horowitz: The other thing that’s really important, that Sam pointed out, is how much money you have. If you have the money, you don’t get screwed. You can buy your stock. You do take some risks, but you can buy your stock. If you don’t have the money, you don’t have the money.
Now we’re getting to the person on my shirt: Toussaint. He was the best at this and I want to take you through some examples because they’re very powerful. Toussaint was born a slave. He wasn’t just born a slave, he was born a slave in the most brutal place to be a slave, which was the Colony of Santa Domingo, now known as Haiti. This was a much more severe form of slavery, as were all the sugar growing areas, then in the US, which was historically a very brutal form of slavery. To give you some numbers, over the course of slavery, somewhere like 400 years, a million slaves were brought to the US. At the end of slavery, there were four million slaves in the US. In that same period, in the sugar growing countries in the Caribbean, two million slaves were brought over and at the end of slavery there were seven hundred thousand left. From just a quantitative perspective, nearly 10 times more brutal. I am going to read this to you. I don’t know if I quite have time but I don’t care. I’ll read you a description of slavery in Toussaint’s area.
Whipping was interrupted in order to pass a piece of hot wood on the buttocks of the victim. Salt, pepper, citrus, cinders, aloes and hot ashes were poured into bleeding wounds. It’s not to heal them. This is to make it worse. Mutilations were common. Limbs, ears and sometimes private parts to deprive them of the pleasures which they could indulge without expense. Their masters poured burning wax on their arms and hands and shoulders. Emptied the boiling king sugar over their heads. Burning them alive. Roasting them on the slow fires. Filled them with gun powder and blew them up with a match. Buried them up to their neck and smeared their head with sugar that that the flies might devour them. Fastened them to the nest of ants or wasps. And made them eat the excrement, drink the urine, lick the saliva of other slaves. One Colonist was known `in moments of anger to throw himself on a slaves and stick his teeth into their flesh.’
That’s the slavery that he grew up in. It’s really important to understand this because to get out of that perspective was not easy. But he had a vision that was threefold. One, he wanted to end slavery. Two, he wanted to actually take control of the country and run the country. And three, he wanted it to be a world-class country. Not one in which he had simply freed the slaves but one that could compete on a worldwide basis. That was his mindset going in. What I read was the environment he came from.
A management example is conquering the enemy. The sequence of battles that occurred in Haiti were, he first had to defeat the locals. Once he defeated the locals, there were several countries that were very, very interested in taking control of Haiti. Principally Spain, England and France. He had to defeat those armies as well. When he conquered them, he had to decide what to do with the conquered soldiers and the leaders on the other side. He took into perspective three different points of view. One, his soldier’s point of view. Two, his enemies point of view. And finally ,the point of view of the resulting culture. What kind of country was he building? The army was going to be the seed corn for the culture of the whole country.
From the soldier’s perspective: do we get to pillage? Soldiers like to pillage. It’s something for their work. The second thing is they’re trying to kill us so we should kill them. That’s a basic perspective of the people who are fighting for him, the most important people to Toussaint. I put pillage up there, a couple of things to know, one I didn’t put rape up there. Very interestingly, not only did he not allow rape among his army, but he didn’t even allow his officers to cheat on their wives. If they did he would get rid of them because he was so concerned about the resulting culture. What was it going to be? Was it going to be productive? Was it going to be the best in world? Or was it going to be something less than that? That was his mindset going in. His army was actually famous for not pillaging. They were already actually used to this. This was one of the most surprising things to the conquered people to the point where where even the white people were very impressed because he would go into their city and not pillage even though he would win. Again, this is because he took a long view of the culture.
This is an important subtle point. He believed the culture of Haiti, because it was a slave culture, sugar plantation culture, was pretty low grade compared to what he had experienced in Europe when he dealt with the Europeans. He thought that slave culture was even more broken than Haitian culture because it’s the kind of culture where, “Oh you don’t do what I tell you? I’m going to beat you to death. I am going to blow you up with gun powder.” If you think about the behavior that ensues from that, that was the culture he knew he needed to replace. He knew he needed to upgrade.
His solution when he conquered the British, or the Spanish, or he conquered the French, was he would take the very best people from the opposing side and he would make them generals in his army. You probably didn’t expect that. Here are the guys trying to kill him. He’s leading a slave evolution and when he conquers the enemy, he actually incorporates them into his army and makes them part of it. He wanted the expertise and he wanted the culture to be at a much higher level.
The second question he had, this even more complicated, was what do you do with the slave owners? You’re leading slave revolution, you take control of the country,what do you do with the slave owners? Three perspectives again. For the slaves, you want to kill the slave owners. There is no question. That’s your land now. You won. F them. From Toussaint’s perspective, it was more complicated because he wanted Haiti to be a first world country and sugar was really important. The whole slave economy was the sugar economy. On the other hand, he was a slave and he had to have been pretty upset. Particularly given the type of slavery. But he didn’t know how to run a sugar plantation and he didn’t have any business relationships for trading sugar. So what to do? If you look at the slave owner perspective, it’s pretty interesting because they’re coming at it – and this is the point of view that he actually had the discipline to understand – they were coming from a cost structure that was predicated on slave labor. Their business didn’t work without slave labor. If they had to pay people their cash flow wouldn’t work. They paid a lot of money for the slaves up front and they paid a lot of money for the land. In their mind, that was how business worked. You can’t just change the economics and have it still work. They knew they had some power because of the position they were in.
So what was the answer for the slave owners? The solution was one, to end slavery. Two, let the slave owner keep their land. Three, make them pay their workers. There was no more slave labor. In order to fund that, lower their taxes. You guys ought to be kind of impressed with that.
Lower the taxes of the slave owners after you defeat the slave owners and end slavery. But the bigger goal was he wanted a stronger culture. The way he treated those slave owners, the need to keep the economy going was important. Let’s look at the results. First of all, Toussaint’s revolution is the only successful slave revolution in the history of mankind. There has never been another one and, hopefully we won’t have slavery in a big way, there won’t be another one. He’s it. Two, the plantation owners kept their land. Three he defeated Napoleon. He had a booming economy and a world class culture. Under Toussaint, Haiti had more export revenue than the United States. That’s how successful he was in the revolution. This is the power of looking at a situation not just from your point of view, but from the point of view of all the constituents. Even the people you hate. Which is hard to do when you are a CEO and harder to do when you are leading the revolution.
In conclusion, the most important thing that you can learn, and one of the hardest things to do, is you have to discipline yourself to see your company through the eyes of the employees, through the eyes of your partners, through the eyes of the people you are not talking to and who are not in the room.
Now I will take questions.
Q: If you have to fire or demote an executive, how do you have the conversation and then how do you explain it to everyone else?
Ben Horowitz: Right, this is great question. Clearly it’s some kind of failure. You failed on hiring. You failed on integrating. They failed at their job. The first thing when firing the person is to really try to be honest. You’re feeling like you failed. Common reactions are, you suck and so I am firing you. Screw off. That’s not good because it’s not really true. You may be feeling that way. Another common mistake is to be too mushy. It’s not you it’s me. This feels like a weird break up with an ex-boyfriend that you really didn’t like.
Generally when you hire people, you try to hire the very best. You hire people who are qualified to do the job. The reason they fail on the job is you made some mistake in the hiring process and you didn’t match them to the needs of your company accurately enough. That’s the number one reason why this fails and so that’s generally a good place to start. To say look, here’s how we are and here’s what I didn’t recognize about us and about you when I made the decision. It is what it is. We’re going to have to move on.
When you talk to the Employees about it, it’s different. You can take somebody’s job, you have to take their job, but you don’t to take their dignity. This is something Bill Campbell taught me. It’s not necessary to get up in front of the company and say, “I blew that mother fucker out. I capped his ass.”
In fact it’s not good. Nobody feels good about that.You might feel proud of yourself but nobody else feels good about that. The right thing to do is thank them for their work. Like let people know that they’re moving on. You don’t have to explain all their personal details. It’s more important to leave them with their dignity and let them go on to live another day. What you say at that meeting is their reputation, because everybody in your company is going to call on that person when they try and get their next job. If you start saying a bunch of BS about them, that’s not going to be good and it’s not going get interpreted as we screwed up, it’s going get interpreted as he screwed up. You have to be very honest with them but you have to make sure you preserve their dignity when you talk to the company.
Q: I was reading your book yesterday. How did you deal with all the stress? Was it meditating? Hip Hop?
Ben Horowitz: The answer is I used to be 6 foot 4 and good looking so clearly not very well. I get asked that a lot and I have a great answer for it. I have a wonderful wife who is sitting right here. I will oar and he borrowed that technique from him but applied it in a much kind of more dramatic context. He had British, French, Spanish, slaves and mulattoes, most of the mulattoes in Haiti at that time were pro-slavery. That was another issue, but his leadership was so great, everybody wanted to join him.
Q: How do you incorporate Toussaint’s ideology and get people who were previously against you on your side?
Ben Horowitz:What he did in general is the right thing. You have to show them a better way, as a leader, if somebody’s your enemy and you need to convert them. This happens in business too. Somebody is a competitor and you want to bring them over but you don’t want to bring in, ethically, people who switch from one competitor to another. Your culture has to be elevated, your mission has to be elevated. Your way of doing things has to be just better. That was what was so compelling for the rest of the army.
Q: I am curious to learn how you have built a culture around people and among the entrepreneurs that you work with that has differentiated you in the market from all the other venture capital firms.
Ben Horowitz: Probably not the best question for me. I can ask Sam that. I don’t know. The question is how we do build a culture out at Andreessen Horowitz that is differentiated us from all other VC’s. I feel like that is certainly the goal. We have been around for 5 years now. The attempt that we made, it’s for the rest of the world to judge if we succeeded, was this: in the old days of VCs, when I was a entrepreneur, the basic idea was you have an entrepreneur or inventor and they get a company to a point and at that point they either are ready to be CEO or you would go find a CEO to replace them and build “the company.” Our cultural philosophy is that the founder and inventor are special. We’re going to design the firm and the culture of the firm to help the founder develop into a CEO. We do a lot of systematic things different. The two biggest are all of our partners are founders or CEOs. It’s an original model where some sort of experience is required. That’s a joke.
If you are an advisor to a CEO you have to have have been a CEO. Imagine that. That’s why I like Sam, he used to be a CEO. He doesn’t talk about it that much but he was a CEO and was good at it. The second part is that a professional CEO will bring in, in the old days, a network of people that knows. Guys who brought technology in big corporations to important partners in the field to people in the press. We try to build that network on your behalf at the firm. I think we do a better job of that than anybody else. Those are the ways that we try to be different.
Q: Putting yourself in other people’s shoes is very important. Can you give us some tips?
Ben Horowitz: Putting yourself in other people’s shoes is difficult in management. It’s hard in daily life. It’s even harder in management because it’s the stress at the moment. If a great employee is asking you for a raise, it is very hard for not to respond because you do not want to lose them and they are not asking you for a raise randomly, they are asking you for a reason. If you don’t have a process in place to go stop back out, you have to pause yourself. If somebody comes to you with something that you know is important, you want to feel like you have all the answers. Right now you guys are asking me questions and if I don’t know the answer I will make something up because I want you guys to think I am smart.
The most importan thing is to pause. If you know something is really important and you haven’t thought it through, just to say, “I am taking this really seriously but I have to pause because I have to think it through from all perspectives. I’m going to come back.” I end up doing that a lot just because there are a lot of things that you run into that you have never seen before. Most CEO’s, including myself, learn this the hard way. You go ok, I’m going sneak away with this. Nobody’s going to see me give them the raise. I’m going to do it and it’s going to be all under the covers. Confidentiality baby. Then it blows up in your face three weeks later and you’re like, “Oh my God. What have I done?” Or three months later or even a year later. Then once it’s a year later, it’s a huge problem.
You’ve taken what was a little emotional problem and you’ve turned it into a forest fire. We call it a Kimchi problem. The deeper you bury it the hotter it gets. It’s a Korean joke. It takes practice. It’s very difficult to do. My friend Bill Campbell, this is his big skill. People always trying to describe him to me and I’m like that is not him at all. That’s not what he’s good at. He’s good at seeing the company through the eyes of the employees. If you are good at that, you will very likely be an elite leader.
As I looked through the syllabus of this class and thought what would be useful skills, what I’ve been thinking about is how do you see yourself as a founder? How do you think about what the skill set is? And what are the things you should be thinking about in terms of: am I ready? How do I get ready? Is it the right thing for me? These sorts of things.
So let’s start with the perception of what a great founder is. And classically this tends to be Steve Jobs, Bill Gates, Elon Musk, Mark Zuckerberg, Jeff Bezos. And it’s an image of founder as Superwoman, or Superman, who has this panopticon of skills. I can use the word panopticon because I am here at Stanford. It’s things like, I can do product market fit. I am great at product, I am great at strategy, I am great at management. I can fundraise. I can do all of these skills and the thing you are looking for in a great founder, in the idea of the founder as a super person, is I am looking for someone who is awesome at all these things. They are well rounded, they are diverse. They can bat on all skills.
And part of how I found this emphasized, in the beginning of my own entrepreneurial journey, I remember reading an article that said Bill Gates is smarter than Einstein. And you are like, Bill Gates is really smart and is very accomplished, but I am not sure smarter than Einstein is really a phrase that even Bill Gates wants to be next to. It’s partially because of this image of a founder as super person. Which is, a great founder can do anything. Jump over tall buildings in a single bound, all of these sort of things. And the reality is that a founder is someone who deals with all these different headaches and no one is universally powered.
Generally speaking you hope to have a couple super powers. Some things that are a unique edge to you, some things that are unique to the problem you are trying to solve, some things that will help you get an edge. Because competitive differentiation and competitive edge is super important. But it’s not actually a function of genius.
And frequently it’s very hard to tell the difference between madness and genius because usually it’s the results that play out. Sometimes when dealing with uncertain environments you may even be genius and later may be thought to be a mad person. Or you may be a mad person and turn out lucky, you may turn out genius. It’s actually a challenging set of how do you think about these sets of skills. And when us, mere mortals come into this sort of battle, what is the right way to think about it?
So when I thought about this question, on how is one a great founder, these are all skills that are super important. These are all things that you say, okay, this is really really important to do and you must in fact do this well. And it begins to look like a superhuman task. And what I did was decide to take a superset of these and focus on the interesting things to think about. What is it that actually makes a great founder? Because it’s not actually that you score ten out of ten of these, you become the entrepreneurial olympian. You are actually the best at all these things.
So let’s start with team. One way, I think, to explode the myth of super founder is usually it’s best to have two or three people on a team rather than a solo founder. It’s not to say that solo founders don’t actually play out and they can, successfully. But most often two or three people is much better. When I look at these things as an investor, and I say what is a good composition of a project and founders that are likely to succeed, it’s usually two or three of them. And the reasons are, we have already talked about that there’s this very broad set of skills. There is this whole set of questions on how you adapt your company or be successful. If you have two or three founders, you have different skills you can compensate. Because, by the way, everyone has weaknesses. You can compensate for each others weaknesses. In the diversity of problems you encounter as a founder, you can actually attack them.
Other things I suggest when you look at, essentially, a founding team, is to have a real high preference for having co-founders, having a high degree of trust for those co-founders, because one other way on the whole entrepreneurial thing to die is you get a year down the road with your co-founders and then you are going through a messy divorce. That is not always but frequently fatal. And also the diversity of the tasks that you do. The next thing is location.
Frequently, I have had told to me, Oh Silicon Valley aggregates all this super talent, which it does. The reason why Silicon Valley startups are so successful is because all of these great people–immigration which is hugely important for talent and founders that immigrate here. Now if you think about it from basic math, even if you take something that Silicon Valley is super strong at, which is essentially software skills in the last two decades, not all the great software companies move here. Not all of them can move here. There are many of them in other various parts of the world. And so why do I put choice of location up there? It’s one of the things it comes down to in thinking whether or not you are a great founder. Well the reason is, because of what great founders do is seek the networks that will be essential to their task. And they realize it’s not just about, I am superman, I can do this anywhere. I can do this in Antarctica, etc, in order to be successful, I have to go to where the strongest networks are for the particular kind of thing that I am doing. And Silicon Valley, by the way, is super good at some kind of tasks, some places that you essentially try to solve certain types of problems. But it’s not good at all of them. Let me take two examples.
One is Groupon, I don’t think Groupon could have ever been founded here. Even though it’s a software product, it even generates a network. Obviously a lot of the great networks are here and use internet technology as a mobile product and everything else. All of which we have a lot of great skill here in Silicon Valley and the networks are really good for this. One of the things that was central for Groupon for it’s early days, was having massive sales forces. And a massive sales forces, strengthens and weakens a workforce, tends to go together. Silicon Valley, tends to be pretty adverse to plans that involve, Oh we are going to rent a twenty-five story building and in twenty of those stories we are going to have floors of sales people. And thats how we are going to get our thing going. That kind of plan here tends to not get a lot of interest, tends to get a lot of criticism, tends to not have talent aggregate to it, tends to have financiers talk about things like cap efficiency, and network effects, and other kinds of things that are key here. And so it’s actually not a surprise that in fact, Groupon was required to be in Chicago, which is really good at this, as a way of getting going and showing that even software startups can be in other places. But even if you begin to think about it, you say what kind of other kinds of startups would someone be an idiot to move here to do.
Think of someone doing a fashion start up, not fashion a la Poshmark which is a mobile marketplace that are a bunch of things good here. But I’m designing a new fashion company. And I’m going to come to Silicon Valley to do it. That’s actually not a great idea. The fashion company might be a great idea but you want the networks that support what you are doing. So part of the reasons why, where should I locate my start up, is a test for thinking about am I great founder is because part of the thing that happens when you are founding a company is, I will go to where this is successful to do. The metaphor I often use for entrepreneurship is jumping off a cliff while assembling an airplane on the way down. And the reason I do is because it’s hard, it has a quasi mortal exit, which are default dead so you start taking every possible chance to actually win. So great founders will move to where the network is. This network is graphically Silicon Valley for tech startups, for mobile, for marketplaces this is a really good place to do it. For a bunch of other things, you should think about a different location.
Now here is something that’s very en vogue. Very conventional to say you’re a contrarian these days. So let’s talk a little about what what a contrarian actually is. So it’s actually pretty easy to become contrarian. It’s hard to be contrarian and right. Particularly when you are thinking about, is my idea contrarian or contrarian enough. How does a smart person actually disagree with me? Because if you can’t think of a smart person who isn’t just ignorant or just crazy or anything else, but is a smart person that is somewhat of an expert may think that your idea has some serious challenges than it actually isn’t contrarian. Contrarian is relevant to an audience. So when you are thinking about contrarian in terms of a really good contrarian idea is like, say it’s consumer internet, okay what would other consumer internet people think is actually in fact not a good idea. And part of when you think about contrarian is to say, okay what do I know that others don’t know? Because it isn’t just, oh I’m brilliant and other people aren’t, it’s the reason my contrarian thing is right. It’s a very bad test, that happened to be true, of course lightening can strike you in the field. So think a lot about what is it that I know that other people don’t know. For example, in the very early days of LinkedIn, part of what I advise all founders to do is talk to every smart person who will talk to you and give you feedback. So with LinkedIn I walked around and said here’s my idea, what do you think?
Two thirds or more of my network, including some very smart people, all thought I was nuts. The reason why they thought I was nuts was because I said it’s a network product, it’s only valuable with a bunch of people in it. The first person has no value until they invite the second one. Second person, first person have no value in it they already know each other. When do you actually begin to deliver on your use case, which is 500K to a million people. And so you are never going to get to size. It’s never going to grow. Now what I knew was that the critics didn’t know was that I could think of a set of different way by which people would say hey look I believe in the vision of this. I think it’s interesting, or I think a product like this should exist, or I’m willing to play around with it. And I can level those sets of interest to grow the network to get to enough size that you can begin to deliver on the value propositions which Linkedin had. And that was the specific thing that I knew that the critics weren’t thinking about. So when you think about being contrarian, you have to think about how is it that smart people disagree with me, that disagree with me from a position of intelligence. And there is something that I know that they don’t know that will actually play out to be true. Now in this case, in general, as a founder it’s good to be contrarian in the real sense.
Now the last part on the contrariness is to think about, there are lots of different ways to be contrarian. For example, a frequent one will be, others think you have a good small idea, but actually that’s not small, it’s large. Or actually in fact you can assemble the talent or while most consumer cellular startups tend to be, another LinkedIn example, only successful with the rocketships, actually a compounding curve can be very very valuable. LinkedIn never had it’s rocketship moment, it was compounded year by year. But in consumer internet that becomes atypical in the pattern.
So here you begin to get to a bunch of sorts of problems that essentially founders run into. Well should I be doing the work? Or should I be recruiting people and delegating the work? And classically the answer to this is, actually in fact you need to do both. In fact, not only do you need to do both, you need to sometimes do one at 100% and sometimes the other at 100% and even though this is not so good at math, both at 100%. And so what you will see, this is sometimes classic, when you start thinking about what makes you a great founder, is you navigate what are apparent paradoxes. Another one I frequently talk about is, you’ve got to be both flexible and persistent. And the reason for this is entrepreneurs are frequently given the advice to have a vision, stay firm against your adversity. Realize that you have this vision that is contrarian to what people think and just stay on track. Get through the difficult times and get there. The other piece of advice given with each equal vigor is listen to data, listen to customers. Pivot, be flexible. Part of the thing this comes out to be in terms of being a great founder is to say well, when should I be persistent and when should I be flexible. And the vehicle I most often use for this is you should have a project you are doing, like a company, an investment, a thesis that essentially says why you think, possibly contrarian, why you think it is potentially a good idea. It should include what you know you think other people don’t know.
And then as you are going into the battlefield, you go am I in fact increasing confidence in my investment thesis? Or decreasing value in my investment thesis? Because if I am increasing confidence then I hope to stay on track. Be persistent and, by the way, sometimes even with adversity your confidence can increase. If it’s decreasing that doesn’t mean jump out. Paypal, LinkedIn, Airbnb, a whole bunch of startups I’ve been a part of have had months where you are like, Oh my god why did we ever think this was a good idea? It’s kind of a valley in the shadows moment. For example, at PayPal, it was August 2000, we were bringing in twelve million and the expense curve was exponentiating, we had no revenue, and a decrease in confidence. However we said, what do we do in order to fix that and that gives you your immediate action plan.
Another one is, should I have belief or should I have fear? Should you essentially go, well I have this vision of the way the world should be and I should ignore everything else and I should just go with that. Well again, part of what being a great founder is, is being both able to hold the belief, to think about where it is you want to be doing and want to be going, but also be smart enough that you are essentially listening to criticism, negative feedback, competitive entries. Where you are going, okay is this changing my investment thesis? Is this changing what I am planning on doing? It doesn’t mean you lose confidence, you have the confidence but you also essentially have the patience. Again in this kind of thing is how do you put these two things together. Should I focus internally? Should I build a product, ignore the world, ignore competitors? Or should I focus externally, should I be recruiting? Should I be meeting people? Should I be gathering network intelligence? Again the answer is both. And the reason why I’m focusing on these type of habits, it’s both rather than either or, is part of what makes a great founder is the ability to be flexible across these lines. To sometimes be 90% one way, sometimes be 80% the other way. Be executing the judgement on what does the current problem look like?
How is it that when I am trying to solve this that I should say this is what we should be doing and how should I be dividing the work? Part of when you think about these things is you say, this is another one that is classic, is people say well I am completely motivated by data its what customers say to user groups. I have a lot of entrepreneurial mythological, other kinds of things to talk about is gathering data, be guided on the data. Well actually in fact, data only exists in the framework of a vision that you are building, a hypothesis of where you are moving to. And the data can even be negative and you can think, well actually in fact this negative data means that I need to change or alter the way that I’m thinking about something. But I actually keep on a specific vision about what I’m doing. And by the way, sometimes when you have the specific vision you don’t necessarily actually ever end up at that big vision that you were thinking about.
So for example, you know at PayPal we distributed these tshirts that said the new global world currency. Well actually in fact, I know Peter has been here, one of the jokes I told Peter was actually we do have this new world currency, what we are trading is in dollars you may have heard of it, it existed for a while. Where essentially a mass merchant for that– now of course this is message is what’s happening with Bitcoin though thats a whole nother topic there. However, the key thing is that vision saying we’re creating a universal network that allows anyone to pay anyone to be a merchant to bring the electronics into the speed of commerce at any business that is being transacted. That vision kept a true north, but first we say well first we are going to have a banking model, then we think we are going to have a debt model, we are actually going to have a mass merchant model. How does that actually play out? So you are always combining the vision and the data, and data is within the framework of the vision. And sometimes the course of what you learn changes your vision.
Now this is actually one of the ones that I we save this special picture for one of the ones that I actually think is quite key.
Normally entrepreneur founders are thought about as being the risk takers. Where everyone else cowers in fear at this notion of risk, they boldly go out. Now that’s true, you have to be a risk taker, you have to be thinking about how do I make a really coherent risk because in fact the only really big opportunities, the only contrarian opportunities smart people disagree with you on happen to be ones that have more risks associated with them. On the other hand, part of the skill set, that when you are beginning to apply how you think about risks as an entrepreneur is how do I take intelligent risks? How do I take a focused risk, but if I’m right about that one thing then a bunch of other things break my way. And once I start doing that I try to figure out how to make my own shot possibility as high as possible? How do I minimize other risks? How do I essentially take this risk in an intelligent way that doesn’t just go, oh yeah risk to the wind who cares but lets go. So this kind of combines that, this image is the best of the images that we found, is kind of the sense of that. Now back to what I was saying in terms of having an investment thesis.
Part of having a thesis is you chart it out as a list of bullets. For example with LinkedIn, everyone was going to be benefited by a public professional network, everyone will realize, including companies, that it’s better to have it play out this way. The initial setup adoption will come from essentially people who visualize the world, play with it, and eventually the mass market will come on as they begin having a network, that is already having a network, with value proposition to them. That’s what an investment thesis can look like and then you have economics, initially recruiting, and broadening those things.
You have that investment thesis, and you say is my investment thesis increasing or decreasing confidence? Do I think that the data that I get from the market, when I talk to smart people, how does that change my confidence in it? This is how you minimize risks. For example, very early days in Paypal, part of what happened was they said they were going to do cash and mobile phones with cash on Palm Pilots because its really easy. We actually realized the cash from Palm Pilots wouldn’t work even before we launched the product. Basically what happened I went in and said to Max and Peter, I said here’s our challenge–this group probably doesn’t remember what Palm Pilots where, they were early PDA’s. And so we lived in what was Palm Pilot central and the whole use case was splitting the dinner tab and everyone at table would have a Palm Pilots budget tab. Zero to one in every single restaurant. So you could, even by just thinking through the direction you are on you are going to hit a mine field and you need to pivot. And thats when Max Legend came up with the idea saying action packed sent by email. We can have email payments as the backbone of this and we were like yeah thats a good idea. Of course that what the whole thing pivoted into. And that is part of thinking though minimizing the risks as you are executing.
Here’s another one that’s kind of classic which is, should I have this long term vision or should I be solving a local near term problem? Again the answer is both these paradoxes. And the question is, you should jump between them. You should always have a long term vision in mind because if you actually completely lose your directions eventually you will find yourself somewhere in field thats not a good path out of. But if you are not focused on solving the problem thats immediately in front of you you’re hosed. So part of the question about how to put these things together is you say, okay short term- what’s the thing I need to be doing today? Have I made progress today? have I made progress this week? But is it largely on path? So I will give you an example of how this plays out in terms of financing or in terms of strategy. People frequently think product strategy is fundamental to how startups- I have a product idea, thats a thing, I’m a founder. Actually the next level down on strategy is usually product distribution and whether its consumer internet or enterprise, or anything because actually in fact no matter how good your product is if it doesn’t get the customers you’re hosed.
So usually you have to have product distribution. It is more fundamental than what the actual product is. And the one below it is financing. The reason it’s financing is because if you run out of money and the whole effort goes away, even if you have a really good idea, it doesn’t work. So frequently when you are executing on a good strategy you are actually in fact, when I am raising money, this fundraising, I’m thinking about the next fundraiser. I’m thinking about how I’m set up for it, I’m establishing relationships that would be key to that. And I’m not executing like, oh the only thing that matters is I get to the next fundraising. You have this business that you are building, but I’m thinking that as a core strategy in terms of how I’m executing frequently you are thinking how does my product distribution work such that the financing works well. And that’s kind of how you architect these things together.
So how do you know you might be a great founder? Well you should have some super powers. It’s generally speaking useful to be a good product person. It’s useful to have good skills about leadership, bringing networks in, persuading people, and it’s useful to be able to- and this is kind of fundamental, is recognized whether you are on track or not. To have that kind of belief but also paranoid about am I tracking against my investment thesis? And when you do that the right way and you are learning and you are assembling people and you are assembling that around you. That’s generally speaking how you end up being a great founder. Now classically, and I deliberately put up five white male pictures, is classically you have, these are the iconic founders. But in fact, founders can be very diverse. They can be extraordinarily talented at different areas because there’s different kinds of external companies. There’s different kinds of problems that they are trying to solve. And I don’t mean diversity in term of gender, race, etc. Diversity in age, diversity in experience. Jack Ma was a teacher before he got into this. That’s the kind of thing that you should think about.
So the question is how you cross uneven ground? How you assemble networks around you? How you get people to assemble? It’s a constantly changing problem to face when you are trying to found a company. So I think the thing I was trying to get people to think about was, this is to say, there is not one skill set, there is an ability to learn and adapt. And an ability to constantly have a vision that’s driving you but to be taking input from all sources and then to be creating networks all around you. And that’s essentially what makes a great founder. So your ability to do that while crossing uneven ground in the fog, which is kind of the way entrepreneurs, did you always know this was going to work? No, unless you are crazy. Although sometimes crazy works. So with that I will now go to a few questions. But it was kind of this mindset of founders which is kind of key. And if theres’ no questions, oh here.
Q: I’m curious how you targeted, you selected a different strategy to strengthen your investment thesis and help it take off. It seems like every startup faces that same challenge.
A: So one really fundamental thing is to think about product distribution as key. And for LinkedIn we had a couple things going for us. One, the web was boring in 2003. Basically what happened was everyone thought that consumer net was over. So people were doing clean tack and enterprise software and everything else. It’s a much harder problem now. Because everyone thinks the internet and mobile is interesting. So breaking through the noise is really the key. So the strategy we used wouldn’t work. We just basically set up, sent out some invitations to a group of people, and then tuned the mechanism, did PR. One of the people, one of the decisions we made early that was right was to say should we only allow it as invite only or should we allow cold signups? The reason we should allow cold signups is because the people who are super enthusiastic about this weren’t necessarily the people we know said they would sign up and spread it. That sort of thing were all the kind of decisions we made. Now that challenge is much harder. The challenge when you think about product distribution is how are you competing for potential customers or potential members time? And what are they-what do they have to believe in? Back in 2003 was like oppression may not work that’s potentially a good idea. What the hell? I’ll play with it theres not a lot of other things for me to look at. Today theres tons of things. So your strategy today when you are looking at product distribution has to be what is my really decisive edge? What is the hack that I know that other people don’t?
Q: How do you know if someone is a good founder or not?
A: I’m a huge believer in references. I only meet with someone when they come to me through a reference. So one of the things by the way is after this I have to run off because I have a meeting to get to. If you want to get time and attention with me, find a reference. That’s not a pitch to using LinkedIn, it’s a question of this is how you sort out time. Like Sam knows me, and so a reference to me is in fact the way I do this. So example, when I met with the AirBnB guys a part of the reason why I could interrupt them two minutes into their pitch and say, Im going to make you an offer to invest. I want to hear the rest of the pitch because I think what you are doing here is magical and awesome. Was because I had already had references on them. That was only two minutes, not thirty minutes. Because I had already knew about them before coming in. And by the way, by and large that is some version of what is true to most great investors. And its that network that’s really key.
Q: Do you believe destiny of insight to be a great signal for great founders?
A: I would definitely say that the ability to say coherently what you are targeting, to articulate something that isn’t trying to boil the ocean, or a swiss army knife approach. One focus, like you are right about this and it works. That is actually pretty important in being able to judge a founder. Because if you don’t have that level of clarity, you are not going to be able to assemble the network behind you. You are not going to be able to get investors, you are not going to be able to get employees, you have to be able to articulate a very clear mission about what you are doing. Insight is helpful although a little bit of this depends on the stage. I find myself attracted to founders who have analyzed the problem in a good way. But often times I have seen great founders who have not present good analysis but have an instinct about what they are doing. So you more chart what is going on around them.
Q: How do you keep persistence when starting?
A: Well LinkedIn went through, for those of you who remember we were treated as the little alternative to Friendster, then Myspace, then Facebook. We had a lot of the, we are the little tiny one next to these respected giants each at the time. Ultimately, for me when I was thinking LinkedIn, this gets back to the investment thesis as a mechanism. I continued to believe the right economic system designed for every individual’s life, and organizations life to have public professional profiles. But that world is the way the world should be. everyone is much better off with it. And we are getting closer to that than everyone else. It may be that it hasn’t taken off as fast as I would have liked it. It may be that the general world has gone, oh the social stuff is really interesting. We could only get in the news the summer of 2003 by saying we were Friendster but for business. It’s completely nonsensical once you begin to look at the thing. But it was like, okay we will cover you because you are Friendster but for business. But that was important to get people to begin to pay attention to us and so the confidence was, that world I still have confidence in, I still believe should exist and no one is getting closer to it than we. It’s taking us maybe longer than I hoped to get there but thats okay.
Q: What is it that gets you wrong about someone who is going to do the distance?
A: To some degree you can only fully cross these minefields by going and doing it. So you can be wrong about your hypothesis. The kinds of things that frequently get you wrong or you think a person— for example I frequently use in interaction is I push on the idea and what I’m looking for is both the flexibility and persistence. What I’m looking for is, I have conviction, and what I’m thinking I’m arguing it. But I am listening to what you are saying. And I am adapting to the concerns you have with that. Sometimes you will find someone that says, look I have learned to mimic that behavior so I have learned to say, for example I have learned to look like I am reasoning with you and I look like I am thinking about the challenges you bring up, but actually in fact I am ignoring you. Ignoring me might be fine. But ignoring the world in general is usually disaster.
And so these are the kind of things that in the measurement essentially getting wrong. Most often the kind of reference questions asked about founders is adaptability, one of the phrases I look for is infinite learning curve. Because each entrepreneurial pattern is to some degree unique and new. And can you learn the new one? Does the learning break down or is there some skill set? is there an ego issue that gets in the way? Like everyone must adulate me and that will cause you to behave wrongly in adapting to the problem. I think I have one last question.
Q: What makes a great co-founding team and what makes a good way to evaluate a co-founder?
A: The first thing is, it’s super important to collaborate really well. That was the point I was making during the team. If in fact you don’t have serious trust– So the key thing is when you are thinking about founders is do you have a diversity of the necessary strengths across the board. Frequently you need one technical founder, at least. Frequently you need someone that is going to be dedicated to the business side for fundraising, these sort of things. A classically skill set and usually its some composition across them. Its kind of what you think of founders one, when you think about a founding team. When you get the next level deep, one of the things people classically tell you is don’t invest in a husband and wife team. And that adds a little extra freight to it and everything else because the is extra dynamics and all that.
I actually think what you are looking for is, do they collaborate well. Do they help each other get to truth? So for example, I am most part when I am talking to a team. I am looking for when they are reasoning to each other, not just all singing from the same thing. But did you think about this? Or what about this as a challenge? You are navigating the field of battle which is a bunch of risks. For example, one of the things that was pretty common in Paypal is, Max who invented the prod systems and everything else, would frequently come into Peter’s office, Peter Thiel, and say here are some things that are going to kill us and let me focus you on them. So it’s not like we are all saying oh yes we are all singing our Kumbayas but we are adjusting to what is truth and what is the problem we need to solve? And what’s the problem in short term and what’s the problem in long term? How are we tackling it? And that collective problem solving, that collective learning is the kind of thing that actually makes a great teams.
Q: So different founders, different areas. How do you identify them?
A: The talk was aimed at what is unique about the mindset I think of founders. There is great founder across all. All founders– there are differences. For example, in software speed to market, speed to learning is really key. In hardware if you screw it up you are dead. So accuracy really matters. If you build and ship the wrong thing you are hosed. So generally speaking as an investor, and this is part of the reason a lot of investors have a certain set of things they learn really well and reapply, is because they try to understand a domain really well to be able to identify which of the founders in this domain really matter and if we are investing in this domain how do we do that well? So there are attributes that are unique per domain. for example, one of the classic ones is, how good must you be at operational efficiencies in terms of margins, cost control, etc. You are dealing in the worlds of atoms including in commerce, you have to be really good at that. You are doing a digital game, like a Zing start up it doesn’t matter at all, right? So you look for that sort of fit somewhere. Part of the beginning of this is that it’s not in fact one person is good at at everything. One of the funniest conversations I had with a friend of mine who works for me at my first start up, Social Net. He looked at me and said, Reid I would never hire you to be a manager at McDonalds. I was, I wouldn’t either. I would be terrible at that. So its the skill set that fits but also the whole point of this is actually being able to navigate a set of things that look like paradoxes. Sometimes being heavy on one, sometimes being heavy on the other. And having the right judgement at the moment at what you are doing and thats what tends to be more universal.
Q: How do you know when to pivot?
A: Part of the reason why having an investment thesis and your confidence in the rest of the place and being pretty clear on that is generally speaking the answer I give to people is if your confidence is unmeasured for a fairly long time or is decreasing, because measured for a long period of time it should be decreasing, then its decreasing and you go into intense mode. We try to figure out what types of things you can do to increase your confidence and thats failing. Thats a seriously good time to think about pivoting. You might have a thesis on raising money, you may have a thesis on what’s the pattern on what the product distribution on growth or viral, or anything else will work. Well I tried these three things and this fourth thing doesn’t seem as good as the other three. The next two things seem even worse. That begins to decrease your confidence. And that is when you should think about pivoting. A frequent mistake when it comes to pivoting is waiting until you have been crashed into the wall and everything is dead. And you can’t maneuver any more. And thats you waited way too long. Now in times of personal career goals and so forth. One of the things I meant to talk to you during the slide, one of the classic questions is balance. I actually think founders have no balance. One of the funniest conversations I ever had was with the governor of Colorado, was like we are going to attract really great entrepreneurs here because we have this balanced lifestyle. Literally if i ever hear a founder talk about how I have a balanced life they are not committed to winning. So the really one great founders are, I am going to literally put everything into doing this. Now it may only be for a couple of years. I may do this for a while but hile I am doing this i am unbalanced. You are super focused on this. You work really hard and there are lots of ways to die.
Thanks for having me! I’m Stanley, the founder of DoorDash. It’s really amazing to be here, because it wasn’t actually that long ago when I sat in your seats. I was class of 2014, graduated in CS, as well as my cofounder Andy. For those of you who don’t know what DoorDash is, we’re building an on-demand delivery network for local cities. I want to start off with this photo that I took a few months ago. This was the night when we just raised our series A. I took this photo as I was walking back to where I lived; I actually lived in Roble at the time on campus. I took this photo because I realized just how ridiculous the combination of things I was holding in my hand was at the time. I was holding my CS247 homework, my tax forms (it was April – so I had to fill out my tax forms), that yellow speeding ticket, and right below that was a $15 million piece of paper I had just signed from Sequoia. And that kind of summarizes just how ridiculous our journey has been, doing this while I was at Stanford, and then transitioning this to an actual startup. I want to share with you that story today.
It all began two years ago in a macaroon store. It was my junior year at Stanford during the fall quarter. At the time, I was really passionate about building technology for small business owners. I sat down with Chloe, the owner of Chantal Guillon, a macaroon store in Palo Alto at the time, just interviewing her, trying to get feedback on this prototype we’d been working on, and also just learning about what her problems were in general. It was during this meeting when Chloe first brought up this problem of delivery. I remember she brought down this really really thick booklet. She showed me pages and pages of delivery orders, and a lot of these orders she had to turn down because there was no way she could have fulfilled them. She had no drivers, and she ended up having to personally deliver all these orders. That was a very interesting moment for us.
Over the course of the next few weeks, we talked to around 150 to 200 small business owners, and when we brought up this idea of delivery, they kept agreeing with us; they would say, “You know, we don’t have delivery infrastructure. It’s such a huge pain for us. There aren’t any good solutions out there.” This led us to wonder, delivery is such a common thing, such an obvious thing; why hasn’t anyone solved this yet? Like, we must be missing something here right? We thought it was maybe because people had already tried this in the past, but they failed because there wasn’t consumer demand for this. We asked ourselves, “How can we test this hypothesis?” We were just a bunch of college kids at the time. We didn’t own trucks or delivery infrastructure or anything like that; we couldn’t just build a delivery company overnight right? So how could we test this assumption we had?
We decided to create a simple experiment with restaurant delivery. We spent about an afternoon just putting together a quick landing page. When I went on the Internet, I found some PDF menus of restaurants in Palo Alto. We stuck it up there and added a phone number at the bottom, which was actually our personal cell phone number. And that was it. We put up the landing page and called it PaloAltoDelivery.com. This is actually what it looked liked (PowerPoint slide): It was super simple, ugly, and honestly we weren’t really expecting anything – we just launched it. What we wanted to see was just would we receive phone calls, and if we got enough phone calls, then maybe this delivery idea was worth pursuing.
So we put it up there; we weren’t really expecting anything, and all of a sudden we got a phone call. Someone called! They wanted to order Thai food. And we’re like, “This is a real order; we’re going to have to do something about it.” So we’re in our cars and we’re like, “We’re not doing anything right now, might as well swing by, pick up some Pad Thai, and let’s try to see how this whole delivery thing works.” And we did. We delivered it to some guy up on Alpine Road I remember. We asked him, “How did you hear about us, what do you do?” He told us he was a scholar, and then he handed me his business card and told me he was the author of a book called Weed the People. That was our first ever delivery. It was like the best delivery/worst delivery you could ever ask for.
And then yeah, the next day we got two more phone calls. The day after that we got five, then it became seven, and then it became ten. And then soon we began to gain traction on campus through PaloAltoDelivery.com which is pretty crazy, because think about it: This was just a landing page. You had to look up PDF menus to place your orders and then call in. This isn’t exactly the most professional-looking site, yet we kept getting phone calls; we kept getting orders. And that’s kind of when we knew that we were onto something. We knew we found a need people wanted when people were willing to put up with all of this.
I think another key point to remember is we launched this in about an hour. We didn’t have any drivers; we didn’t have any algorithms; we didn’t have a backend; we didn’t spend six months building a fancy dispatch system – we didn’t have any of that. We just launched because at the beginning it’s all about testing the idea, trying to get this thing off the ground, and figuring out if this was something people even wanted. And it’s okay to hack things together at the beginning.
At YC there’s a mantra we like to talk about that is doing things that don’t scale. So at the beginning we were the delivery drivers. We would go to class, and then after we would go deliver food. We were the customer support; you know I sometimes had to take phone calls during lectures. We spent afternoons just going down University Avenue just passing out flyers trying to promote DoorDash. We didn’t have any dispatch system so what we had to do was use Square to charge all of our customers. We used a Google Doc to keep track of our orders. We used Apple’s Find My Friends to keep track of where all of our drivers were. You know, just stuff like that, just hacking together solutions to try to get this thing off the ground. In fact at one point we were growing so fast that Square actually shut us down because we were under suspicion for money laundering. I mean think about it, we were getting small chunks of $15-$20 orders coming in at a rapid pace. Luckily, my cofounder Tony worked at Square so he just emailed some buddies there and everything was solved.
Another thing about doing things that don’t scale is it also allows you to become an expert in your business, like driving helped us understand how the whole delivery process worked. We used that as an opportunity to talk to our customers, talk to restaurants. We did dispatching which helped us figure out – you know, we manually dispatched our drivers and that helped us figure out what our driver assignment algorithms should look like. We did customer support ourselves, getting real-time feedback from customers. I remember for the first few months when we got started, we would manually email every single new customer at the end of every night asking how their first delivery went, and how they heard about us. We would personalize all these emails: If I saw someone order chicken skewers from Oren’s Hummus, we would say “Oh I love Oren’s Hummus. How are your chicken skewers? How did you hear about us?” Feedback like that was really valuable, and customers really appreciated that.
I remember this one time – this was during YC – we had just come out of a meeting with one of our restaurant partners, and we heard about this ice cream place that had just opened up on University Avenue called Cream, and we wanted to go try it out. Then all of a sudden, our cofounder back at our office/house texted us saying “Oh we need drivers on the road; we got a huge spike in demand.” So we debated for maybe about 10 seconds if we should go get ice cream or should we go deliver. We obviously went to deliver, but that kind of became our motivation on scaling, like you know, if we would scale, then we could go get ice cream next time.
Now of course we scale across different cities. Now we have to worry about building automated solutions, building dispatch systems, and figuring out how to match demand and supply – all that fancy technology stuff. But none of that mattered at the beginning because at the beginning it’s all about getting the thing off the ground, and trying to find product-market fit.
Just to summarize, there are three things I would say I learned from doing DoorDash. First, test your hypothesis. You want to treat your startup ideas like experiments. The second thing is, launch fast. We launched in less than an hour with a really simple landing page. And finally, it’s okay to do things that don’t scale. Doing things that don’t scale is one of your biggest competitive advantages when you’re starting out, and you can figure out how to scale once you have your demand. And then maybe once you’ve scaled, then you go get that ice cream. Thank you
Q: How did your first customer hear about you?
A: Our very first one, I have no idea. We just launched in Palo Alto; we didn’t do any marketing, so I assume he just must have typed in “Palo Alto delivery” into the web browser. And then after that, we did barely any marketing. I think I sent out one email to my dorm, and that was about it. It was all through word-of-mouth. And that kind of just validates how strong the need we found was when people are just talking about you, and willing to put up with a terrible user experience, terrible design, and stuff like that.
Q: When you started, it seemed so obvious to you, you were wondering why, what the reason was nobody had done this before. What’s your answer now looking back?
A: Looking back I think the biggest thing is mobile. Now everyone has one of those in their pocket, and we saw that trend and thought what if you could design a delivery system that was entirely based off mobile, where you didn’t have to have any infrastructure, or delivery fleets. Instead of hiring drivers full-time or purchasing vehicles, what if you could tap into more of an on-demand pool of independent contractors, and only send orders to them when they have time. So that’s kind of the insight we had; everything was done through mobile.
Q: Did you know you were going to be a startup, or were you just making some money at first?
A: At the time we were all just really passionate about building technology for small business owners, and obviously this delivery thing came out of an experiment with the landing page. It was literally an experiment. We weren’t expecting anything, and it just took off, and we just went with it. And logistics was always something we were really passionate about as well, like logistics of transportation – the perfect fusion of how you can help small business owners through delivery.
Q: Did you launch the mobile site first or the website?
A: We started with this landing page right here which took us about an hour to launch.
Q: How does DoorDash stand out amongst a very competitive space?
A: At the beginning consumer demand was never a problem, even up until now. So for us it’s just about finding a need and just focusing on serving that demand. At the beginning competition doesn’t really matter.
Q: How long did it take you to get incorporated into a company?
A: We launched in January 2013, and then we did YC that very summer. When we decided to take this idea through YC, we incorporated.
Q: Where do you plan to go beyond food delivery?
A: For us when we started DoorDash, it was always about helping small business owners and figuring out how you served this for any local merchant whether you were a macaroon store, restaurant, or furniture shop. That’s still our focus; that’s our long-term vision. For now we are just focused on restaurant delivery as a way to scale, but ultimately that’s where we want to end up in.
Sam Altman: Next is Walker Williams, founder of Teespring. He’s been working with YC for about a year and a half, something like that. I almost rejected him, which sounds like a dumb idea, but now they’re making hundreds of millions of dollars in revenue, so very luckily I did not. Walker is also going to talk about doing things that don’t scale.
Walker: Thank you guys for having me! My name is Walker; I am the CEO/Founder of Teespring. For those of you who don’t know what Teespring is, we are an e-commerce platform that allows entrepreneurs to launch products and apparel brands without risk, cost, or compromise. Today the company is about 180 folks and we ship tens of thousands of products each day. I want to talk to you about one of the most fundamental advantages you have as a start up, and that’s that you are able to do things that don’t scale.
I define things that don’t scale as things that are sort of fundamentally unsustainable; they will not last; they will not bring in the millionth user. Where they break, it’s usually time but it could be a number of other things. But it’s really growth strategies that won’t take you to a million users. There are three places I want to focus on today. First one is finding your first users. The second one is turning those users into champions, and the third one is finding your product/market fit.
So finding your first users: The first thing you have to understand is that there’s no silver bullet for user acquisition. You know, everybody, and this includes me when we got started, looks for that dream solution, that paperclip campaign that has tremendous ROI, some accelerating partnership that’s going to springboard you into the stratosphere, and affiliate agreement; something that solves it for you. But the reality is for the vast majority of companies and in fact for every company that I’ve had the chance to speak to the CEO of, that’s just not possible – those are unicorns. And most of the companies that from the outside look like they’ve had this dream growth curve, the reality is that those first users were impossibly hard to get. Let me tell you about the story about this ridiculously unsustainable business.
So this is Teespring in 2012 (PowerPoint). When we first launched, the business couldn’t have looked worse. It took days of meetings; we had to offer free designs, and days of revisions back-and-forth, we’d have to launch the product ourselves, we’d have to do the social media, all to sell about 50 shirts to a local nonprofit and generate about $1000 of revenue. Anybody looking in would’ve said, “You guys have to give up, this is a terrible idea.” But as time went on, those users started to add up, and I think something you have to understand is when you first launch a company, just by virtue of the fact that it’s a new product, you’re going to be bad at selling it right? You’ve got no idea what the pain points of customers really are. You’ve never sold that before. You don’t have any success stories to point to, or testimonials. Those first users are always going to be the hardest.
And so it’s your responsibility as a founder to do whatever it takes to bring in your first users. It’s going to be different for every company. The common thread that I hear is, founders need to spend personal time and effort, a lot of their personal time and effort to bring those users in themselves. It could mean a number of things – anything from sending 100 emails a day, getting on the phone and just calling as many people as you can, going through a network like Stanford or Y Combinator. Anything you can do to just get that first user. I really equate it to pushing a boulder uphill. And if you think of a smooth hill when you get started, the incline is the steepest and those first inches are the hardest. But over time as you get farther and farther, the incline steadies out, it gets easier, and eventually you reach a point where you’re at the top of the hill and the boulder starts to roll on its own.
And so for those first users, you cannot just focus on ROI in the sense of time. Do not expect to spend an hour and return thousands of dollars. Maybe Stanley was one of those unicorns – really incredible story. But for most of us, those first two users are going to take a lot of handholding, a lot of personal love, and that’s okay – that’s essential for building a company. The one caveat of that is, I don’t recommend giving your product for free. And there are plenty of exceptions to this rule, but in general, cutting costs or giving the product away is an unsustainable strategy I wouldn’t recommend. You need to make sure that users value your product. And you know, people treat products that are free in a much different way than a paid product, and often times it can give you a false sense of security like, “Oh we’re getting all these users; surely we can convert them to paid.”
The second aspect is what happens when you get those users? How do you turn those users into champions? A champion is a user who talks about and advocates for your product. Every company with a great growth strategy has users who are champions. The easiest way to turn a user into a champion is to the delight them with an experience they are going to remember, so something that’s unusual or out of the ordinary – an exceptional experience.
The easiest way to do this early, and again something that is completely unsustainable – it’s not going to scale forever – is to just talk to those users. People will say this all the time, it’s sort of the core tenant of Y Combinator, is talk to users. I cannot stress how important it is that you spend a large chunk of your time talking to users. You should do it constantly, every single day, and as long as possible. Today at Teespring, I’m still the catchall email address, so anytime anybody misspells “support” or writes an email address that doesn’t exist, I get that email. And so I still do about 10 to 20 customer service tickets every single day; I spend hours each night reading every single tweet, probably a little bit OCD, but that’s okay; I read through all the Teespring communities. You’re never going to get a better sense for your products than actually listening to real users. Especially in the early days, the product and the feature set you launch with is almost certainly not going to be the feature set that you scale with. So the quicker you talk to users and learn what they actually need, the faster you can get to that point.
There are three ways to talk to your customers. You can run customer service yourself. Up until Teespring was doing about $130-$140,000 a month, my cofounder Evan and I did everything in customer service. This is one where there’s going to be an instinct to quickly pass off, and that’s because it’s painful. Even today when I open our customer service portal, I have an emotional reaction where my stomach sinks because it sucks talking to so many users who have had a terrible experience, and it’s painful that something that you love and put so much effort into, to know you got it wrong or somebody didn’t treat them right. But it’s so important that you go through that and learn what you need to build, and what you need to fix.
The second step is to proactively reach out to current and churn customers. Churn customers are customers who have left. This is one that often falls by the wayside in the pursuit of new customers, but you want to make sure that your customers are having consistent good experiences; you don’t want to take your current users for granted. When a user actually leaves your service, you want to reach out and find out why, both because that personal outreach can make the difference between leaving and staying; sometimes people just need to know that you care and it’s going to get better. And even if you can’t bring them back, there’s a chance that you can learn from the mistakes you made that caused them leave, and fix it so you don’t churn users out in the future in the same way.
Finally, the one I’m probably most OCD about is social media and communities. You need to know how people are talking about your brand. You need to try to make sure that when somebody does have a bad experience, and they’re talking about it, that you make it right. Problems are inevitable: You’re not going to have the perfect product; things are going to break; things are going to go wrong. That’s not important. What’s important is to always make it right, to always go the extra mile and make that customer happy. One detractor who’s had a terrible experience in your platform is enough to reverse the progress of 10 champions. That’s all it takes, is one to say, “No you shouldn’t use those guys for X reasons,” to ruin a ton of momentum.
There are examples in the early days where we would mess up massive orders. We’d print out colors slightly wrong; it would be the wrong size, and it would be half of our GMV for that month. We would know we got it wrong, and the customer would be unhappy, and the instinct was to say that it was only a little bit off, not completely wrong, or that it would be fine. But the reality is you just have to bite the bullet and make sure it’s right. And the customers who are originally the most frustrated tend to turn into the biggest champions and the longest term users.
The last one I want to talk about is finding product/market fit. What I mean by that is the product you launch with will almost certainly not be the product that takes you to scale. So your job in those early days of a startup is to progress and iterate as fast as possible to reach that product that does have market fit. And as engineers your instinct is building a platform that’s beautiful, clean-code, and that scales. You don’t want to write a duct tape code that’s going to pile on technical debt. But you need to optimize for speed over scalability and clean code. An example of this is in the early days, we had a couple enterprise customers come in, sort of bigger nonprofits, and say “Hey, we really like your service, but you’re missing these fundamental things, so we’re not going to use it.” And we looked at what it would take to build out those features, and we weren’t sure if they were going to work out long-term, but we wanted to try it.
My cofounder Evan, who is our CTO and a million times better developer than I am, ran the math and figured out that if we did it the right way, it was going to take about a month to build out these features. A month for a startup – you live in dog years – a month is a year, and that just wasn’t going to do. So he actually went out and duplicated the code-base, duplicated the database, and was able to basically build a completely different product so that he didn’t have to worry about the existing users to serve these enterprise customers. We gave them the tool, they on-boarded, and generated a lot of revenue. Eventually we learned what features were core, and we integrated them into the core product. But what would’ve taken a month, we were able to do in three to four days.
A great rule of thumb is to only worry about the next order of magnitude, so when you have your tenth user, you shouldn’t be wondering how you are going to serve one million users. You should be worried about how you’re going to get to 100. When you’re at 100, you should think about 1,000. It’s one of those things where necessity is the mother of invention, so when you hit the breaking point (the Twitter Fail Whale is a great example), and in Teespring there were month-stretches where every single night the site would crash – every night. Every single person on the team would go to sleep with their phone on loud, under their pillows, so inevitably when their phones went off, we could quickly restart the server and go back to sleep; this would happen daily. But the reality is that it was worth it, and you’ll end up with these huge pain points and all this technical debt and regret, but it’s worth it just to get to that end goal and that product fit faster. You will make it work; you will survive. Those bumps are just speed-bumps, and speed is so so important early.
The lesson that I’ve been learning lately is that you want to do things that don’t scale as long as possible. There’s not some magical moment; it’s not Series A, or it’s not when you hit a certain revenue milestone that you stop doing things that don’t scale. This is one of your biggest advantages as a company, and the moment you give it up, you’re giving your competitors that are smaller and can still do these things, that advantage over you. So as long as humanly possible, as long as it is a net positive, you need to spend time talking to your users, you need to move as fast as possible in development, but don’t give it up willingly; it should be ripped from you.
To practice what I preach, I want to give you guys my email address. If you guys have any questions, if you want to learn about Teespring, or if you want to print some T-shirts (fingers-crossed), just shoot me an email. I’d love to help and I’d love to speak to you.
The last thing is, we’ve created an official “How to Start a Startup” T-shirt with Sam. All proceeds are going to Watsi.org. I couldn’t miss this opportunity to sell, so if you guys want to grab one of the official tees, just go to teespring.com/startup; it’s supporting a great cause.
Q: What convinced you to get into the market of T-shirt printing when there is so much competition in this business?
A: I think there are two factors to it. First, I completely agree. From the outside, people have been telling us that this is a silly idea since day one in every order magnitude we reach. People will come and say, “This is a terrible idea. Why are you doing that?” But the reason why we launched Teespring is because we ran into a personal pain point. We identified a need and found that there were no great current solutions. I was a student at Brown trying to create a “Remember the Bar” shirt for a dive bar that got shutdown, and I realized that nothing matched my needs. And so because I knew that I had that pain point, and I knew there was market fit, and I had seen people adopt the product, I knew there was something there. And it was also one of those things where you could sort of feel the wind on your back where people were adopting the product quickly. The pain point was clearly there; it’s not a met need. So I would say that most times, great ideas start out by looking like the silly ideas, and then you can feel out whether or not there is a scalable business by how people are adopting it and whether it is possible to bring customers onboard.
Q: Are nonprofits your biggest customer base?
A: No, today our biggest customer base is entrepreneurs who are trying to build brands and businesses. We have a little over 1000 people who make their full-time living on Teespring today via brands they’ve launched. And the other side is influencers, so YouTube stars, Reddit communities, bloggers who want to add product merchandise as a way to create a brand and monetize that affinity. Those are our two biggest markets. We still work with a lot of nonprofits, and love working with them. They are still part of our business, but just not the majority.
Sam Altman: Now we have Justin Kan. Justin was the founder of Kiko, and the Justin.tv which became Twitch. He is going to talk about Public Relations.
Justin: I’ve started a lot of start-ups, but I think you’ve heard a lot of awesome “how I got started” stories, so I’m going to talk about something very specific that people always have questions about, which is press: how do you get it and how does it work? This is kind of like an abridged version of what we talk about at Y Combinator. Hopefully you guys will find it helpful.
When most people get started with entrepreneurship, they think about press and being in the press as something that happens magically. They think about journalists out there, trying to get the best stories – it’s like a meritocracy – which is absolutely not the case.
Before you think about press, one of the things you really want to consider is who you want to reach, as well as your actual goal. I know when I got started I wanted to be in the news because I thought that’s what you did as an important company. It turns out that if you don’t have any goals, you’re not going to achieve them – that’s true of pretty much everything. And with press, if you aimlessly just want to be covered, it’s not going to do anything for your startup. If you don’t have an actual business goal, then it’s not a good use of time.
So there are many different goals. With Socialcam, which is a spinoff of Justin.tv, our goal was to be known as like video Instagram and be thought of in that context. When it was time to pitch to our Silicon Valley investors and influencers, we really wanted to get covered in tech press and be positioned as this new, hot social app.
With Exec one of my goals was to get customers. Exec was like a local cleaning service, and our goal was to get people in San Francisco to use it. It wasn’t useful to get national press because 99% of those people couldn’t use it. So we targeted initially local press like SF Chronicle, who would directly talk to people who could potentially use our app. TwitchTV, which is probably what you guys mostly know, is like ESPN for gamers, kind of like a live stream community for gamers. Our goal was to reach the gaming industry. Now it’s like 55 million uniques and people in the gaming industry know about it, but when we started nobody really knew that; it wasn’t a place to advertise, we were a very small gaming community. Our goal was to get people in the gaming industry, whether they were developers or advertisers, to think about us as an important place where influencers were. So we really targeted industry trades and game dev blogs. Stuff that the industry was reading.
So what’s an actual story? I think there’s a bunch of different types of stories, but these are the ones you usually see in startups. Product launches are when you launch a different version of your app.
There’s fundraising; for whatever reason, the press loves to write about fundraising even though it’s not very interesting. So like if you raise a million dollar seed round you can pretty much get that covered.
Milestones are metrics, like if you’ve achieved one million dollars a week in revenue. The company that bought Exec just announced that they achieved one million dollars a week in revenue, and it was covered pretty widely. Business stories, which happen when you’re already a successful company, The New York Times, The New Yorker, or Business Magazine, will want to cover your startup story. You don’t have to worry about that in the beginning.
What I like to call stunts – I don’t know if you guys remember, but a couples years ago, this YC company called WePay dropped a block of ice with money frozen in it outside of a PayPal developer’s conference because PayPal was in the news for freezing various developers’ account. It was widely covered because it was such an interesting thing, you know, it got them in the story, they wouldn’t have been talked about in the context of PayPal at all.
Hiring announcements: If you’re a big enough company and you hire someone really important, people will want to cover that.
And finally contributor articles which would be you writing some sort of industry overview or some opinion piece, maybe a tech blog, stuff like that.
Basically any of those things can be a story. Something that people usually don’t think about when you’re trying to start a startup is, when you start a startup, you think that everything you’re doing is interesting, but that may not be true for other people. What you really need to think about objectively is, if I wasn’t the founder of this company, would I want to read a story about what I’m pitching? So your incremental feature release or your 2.01 feature release might not be interesting just because you added “Find Your Contacts” on Facebook. You really want to take a step back before you invest the time in actually trying to pitch a story, and think, “Will anyone actually really want to read this?” What journalists and bloggers are really looking for are things that people actually want to read.
The other thing is you don’t actually have to be very original – your press doesn’t have to be original. It just has to be what I like to call “original enough.” You don’t want to be the second-coolest company to raise $5 million on Kickstarter – the first guy gets all the news. The first video game console to raise $10 million on Kickstarter was huge news because they were the first in that category, even though a lot of people had raised a lot of money for Kickstarter before. Think about your stories in the context of other things that have been written and if they’re like novel enough or aren’t something that was just written about in the news.
So one of the actual mechanics of getting the story (this is pretty tactical), if you want to get your news in the press, basically there are some really easy steps to follow: Think of getting press like a sales funnel. You’re going to talk to a lot of people but not all of them are going to convert – so you shouldn’t be upset when one individual person or reporter doesn’t write your story. The first thing is you have to think of it like a story. The second thing is you want to get introduced to any reporter or multiple reporters who are going to write about your thing. It’s much much easier, just like any business development, to get in touch with them through someone, rather than cold emailing them.
The best thing to do is go to entrepreneurs who were just written about or friends who were just covered on TechCrunch, get them to introduce you to that reporter who wrote about them. The reason that’s good is because from the entrepreneur’s perspective, the easiest thing in the world to do is to introduce you to the reporter who already wrote about them. They don’t need anything else from the reporter, and they’re actually doing that person a favor if the story is interesting; it’s not like you’re asking for intros to investors or people they would want to hire as employees. And then from the reporter’s perspective, they’re getting introduced to someone who they already vetted as interesting; they’re getting an intro from someone who they believed was interesting enough to write about, so by the transitive property, they’re going to think you’re probably interesting.
So you get an email from this guy who introduces you to the reporter, and you want to get in contact with them with enough time to get them to write a story – let them know probably a week in advance or more, because they’re not going to drop everything they’re doing to just write about your news. A lot of people, especially first time entrepreneurs, will come and say “Justin I’m launching this product tomorrow. Can you get me in TechCrunch?” That’s probably not going to happen unless you already have a relationship. The best thing to do is give yourself some lead time; get that intro in advance.
So once you’ve set a date for your news to go out – you’re going to launch a product in two weeks – you have this intro, you’ve set up some sort of meeting, and you really want to get the reporter to invest time and effort into you because there’s a sunk cost fallacy at play. Basically, the more time they spend with you, the more likely they are to write about you. The best thing to do is get a face-to-face meeting. Some bloggers don’t actually want to meet face-to-face, but like if not that, then get a phone call. The worst thing to do is just have an email exchange because it’s very easy for them to forget about it or ignore it.
The next step is actually pitch them. What I do is actually write out the ideal story that I want to see published in bullet points, and memorize it. And when I have a conversation with them if it’s in person, the conversation is structured like my outline, and they’ll be taking notes. Then they’ll go transcribe those notes into a story. So basically what I wrote will be translated into an actual story. By preparing, you can actually control more of the conversation and not forget critical things like mentioning your cofounder’s name or the awesome features in your app are.
If I’m doing this over the phone, I’ll make sure to have the bullet point list in front of me and I will make sure to walk through a conversation that includes all those things. So you have a pitch, they take notes, and they’re going to write the story at this time. The next thing to do is follow-up like a couple days or day before your actual news goes out. You want to send them an email that says “This is the time we’re launching the app; thanks for meeting; here’s collateral if there are any videos, photos, or screenshot you want to include; how to spell your cofounder’s name or your name. I just include all the information that I really care about and bold it. And then that’s it. Hopefully the day comes when you press submit on the release to the App Store and at the same time, they released their article on TechCrunch and you are famous.
So a lot of people ask us about PR firms. So I think in the beginning it’s kind of like, everything you do in a startup, you want to do yourself. And it’s actually pretty easy especially with tech press and bloggers who constantly need new things to write about. I strongly encourage people to try it themselves, and kind of get started by learning the process themselves before they hire anyone. One thing I’ll say is that firms can only help you with the contacts and the logistics, but they can’t help you know what’s interesting about your company, or – I’m never been able to have any one that’s told me what the stories that I’m producing on; they’ve only been able to give me a list of reporters I might want to contact. So you really have to be responsible about thinking about what’s interesting about your company and what you’re doing, you know, the roadmap of interesting things that you’re working on.
They’re also really expensive. I think we were spending about $5,000 and $20,000 a month, and for various firms, it’s a lot – for a startup right? It’s generally not a good use of money especially in the early days. Getting press is a lot of work, so you should really make sure it’s worth it. Getting press is like a vanity metric: It feels like you’re being successful because many successful companies like Facebook are covered in the press all the time, but it doesn’t actually mean you’re successful; it doesn’t actually mean you’re making money, getting users, or making those users happy.
Sometimes it’s a really good strategy for getting your first hundred or two hundred or a thousand customers, but it’s really not a user-scalable acquisition strategy, so it’s really something that’s just a bootstrap; you can’t just get like infinity articles written about you. Eventually people are going to get tired of hearing about your company, and usually that happens really quickly right? The pull point about news is that it’s new, so it’s pretty hard, unless you’re like Google, to get covered in the press every week. If you decide it’s worth it though, that you do want to have a regular heartbeat of news, you’re thinking about what you’re doing that matches those seven story types in the future. When I was working primarily on marketing and PR, I would make a schedule on the calendar of when we’re going to launch things and make sure to space them out, but have them appear at regular intervals so people didn’t want to forget about us and we could maximize our coverage.
You also want to keep your contacts fresh; it’s really a relationship business. Once someone writes about you, you should keep up with them because they could potentially write about you in the future. You’re more likely to do something for someone that you’ve already done something for in the past. I would try to establish good relationships with a couple reporters that you could go to for breaking news; it could come in handy later if you’re fortunate enough to have people writing negative things about you; your relationships will help you get out your side of the story.
The last thing is kind of like a golden rule or more of like a “pay it forward:” You should help your fellow entrepreneurs get coverage because they’ll help you get coverage. The best way to get coverage is really through these introductions. Whenever I’m meeting with reporters, I throw out names of other things I think would be interesting stories for them, and usually that comes back. The reporters like it because you’re helping them find interesting stories, and you’re more likely to get leads back from those entrepreneurs that you helped out.
If you’re interested in learning more about press, here are two resources that I really like: Jason Kincaid, who is a former TechCrunch reporter, goes through a great overview that covers a lot of things I talked about in more depth. And then kind of an evil resource is this book called Trust Me, I’m Lying which was written by a former marketer at American Apparel. He talked about ways that he evilly manipulated the press, but I think it’s a pretty good look into the psychology of how stories spread on the Internet; it’s valuable to take a look at. Cool, that’s basically it.
Q: When is the right time to start worrying about press altogether?
A: The first time I launched my first startup, you know my first products, for a lot of them we got zero attention and we didn’t really know how we could get 100 users. I think it’s a really fine way to get 100 users, and a lot of companies at YC when they first launch their product, we’ll encourage them to get out and do one TechCrunch story to get a few people to see it. It’s good to get in the practice. I wouldn’t obsess getting coverage in multiple outlets or anything like that in the very beginning.
Q: How much of a role did you guys play in getting the Pokemon thing out?
A: Twitch had this thing called “Twitch Plays Pokemon” where developers set up a Pokémon Gameboy game that was controlled by chat, so millions of people would be typing in A or B, and the character would wander around aimlessly. That was a huge news story. I think what we did was set the stage by having other news stories that someone from the BBC would Google “Twitch” and be like, “What is this crazy thing that everyone on Reddit is talking about?” They would have some context. The other thing is we didn’t come up with the idea for Twitch. That was like fortuitous, but we helped give it legs by making the company available to talk to reporters and suggesting follow-up stories, not only about “Twitch Plays Pokémon” with 100,000 people watching, but also stories about when they beat the game or when Twitch played Crystal, the new Pokémon version. We didn’t originate the story; it was the community who I think really originated it.
Okay I think that’s it, thank you very much!