Posts from entrepreneurship

Video Of The Week: Building Global Companies Quickly

Bloomberg’s Emily Chang did a great interview with Reid Hoffman earlier this week. I first caught some of it on Bloomberg’s TV channel.  I cannot find the entire video but parts of it are available on Bloomberg and YouTube.

Here’s a segment I like where Reid talks about a course he’s teaching at Stanford on rapidly scaling global companies and how different types of companies require different strategies to do that.

Update: Emily sent me a link to the entire interview on Twitter this morning. It is here

Getting The Deal Done

There’s a scene in Ben Horowitz’ book The Hard Thing About Hard Things when LoudCloud was burning through cash and financing options were challenging and so they went public. The valuation of $450mm was much lower than they had hoped and getting the deal done was hard but they got it done. It saved the company and ultimately the company, after changing its name to Opsware, sold to HP $1.6bn.

Here’s the opening text from a story about that LoudCloud IPO:

Shares in the company climbed 15 cents, or 2.6 percent, to $6.15 on a volume of 15 million shares. This gives the company a market value of about $450 million, less than half the $1.1 billion it planned for in its earlier filings.

Thursday, Loudcloud raised $150 million when it sold 25 million shares for $6 each to large investors such as mutual and pension funds. Lead underwriters Morgan Stanley and Goldman Sachs twice changed the size of the offering to make it more appealing to investors.

Initially the company planned to sell 10 million shares, or a 9.6 percent stake of the company, at a range of $10 to $12. The terms changed to 20 million shares, or a 30 percent stake, at a range of $8 to $10 in mid-February. Thursday, the company altered the terms again, offering 25 million shares at $6 each, or 34 percent of the company.

“It’s desperation,” said Dave Nadig, a portfolio manager with, who said he will not buy the stock. “I think they’re pretty much standing on street corners trying to find people to buy. They need the $150 million to build their business.”

Sometimes you just need to get the deal done. When you are burning through cash and need to finance your company, the terms might suck, but the cash doesn’t. So you do the deal and live to fight another day. Marc and Ben did the right thing at LoudCloud and Jack Dorsey did the right thing at Square.

If you believe in your business and yourself, take the money and get back to work. A financing is not an exit. The price matters less than the cash most of the time.

Long Roadmaps

I’ve been thinking a lot about entrepreneurs with long roadmaps recently. I blogged about this four years ago. And while I captured some of what is special and important about long roadmaps in that post, I don’t think it really does this issue justice.

So I’m back for more on this one.

A big vision is critical for a big success. You have to know where you want to be in a decade or more. That’s where the long roadmap comes in.

But the mistake most entrepreneurs make is the try to ship most or all of their vision in their first product. And that’s a terrible idea.

The best companies start with a very narrow product that nails something pretty simple but powerful. And then they go from there.

This is true in both enterprise and consumer applications.

A long roadmap is comprised of many short and focused roadmaps, each leading to the next one.

It’s like you want to drive from NYC to LA. You start by driving to Philly. Then you drive to Pittsburgh. Then Cincinnati, then St Louis, then Kansas City, then Denver, then Salt Lake City, then Las Vegas, and finally you drive to LA. Each trip is its own thing and you plan it out carefully and then execute it with focus and energy, not thinking about where you want to end up beyond the next city.

Another good analogy is a basketball season. You want to win the NBA championship. But you get there one game at a time.

I was emailing with an entrepreneur last night who has a long roadmap. And we were discussing this very thing. He said he was very patient. And I replied that building a great company is a combination of patience and impatience in equal doses applied unevenly. Impatient short term, patient long term.

A long roadmap helps you be both.

Chris Poole

Back in 2011, USV invested in Chris Poole’s startup Canvas. I worked closely with Chris on that investment and they built something great called DrawQuest. But it did not turn into a sustainable business and eventually Chris shut it down. All through this time, Chris ran and managed 4chan, a service he built and launched when he was 15. Yesterday Chris announced that he had sold 4chan to Hiroyuki Nishimura, a pioneer of Japanese web culture and founder of 2Channel, the inspiration for 4chan.

I have watched Chris struggle with his creation. He felt enormous responsibility for it. Like a child who has issues and you know it but you love him or her anyway. He did the very best he could with 4chan and from where I sit, never really got any credit for that.

Communities are not like other websites and mobile apps. The people who hang out in them feel a sense of ownership of them. The regulars here at AVC feel that way to some degree I am sure. And so running a community on the web/mobile is probably a lot like running a community in real life.

I have sat on condo and coop boards. They are not like regular businesses. They are where people live. And so the debates and disputes are more personal and more emotional. Take that and multiply it by the millions and you get a web/mobile community like 4chan or reddit. Managing that sort of thing is not pleasant.

And yet Chris did it dutifully for over twelve years. Contrary to the beliefs of many in the 4chan community, Chris didn’t take a real salary from 4chan. It was truly a labor of love.

And so when I sat with Chris for lunch last week, a day or two after the sale had finally closed, he seemed more relieved than anything else. This was not a Internet entrepreneur after a big exit. This was something else entirely.

There aren’t many who understand the Internet like Chris. And I’m not talking about the technical architecture (although he understands that pretty well). I am talking about the social architecture of the Internet. I am talking about what people do on the Internet and why. He’s seen the belly of the beast. He’s lived in it. And he’s come out the other side with his soul and his spirit intact. That is a massive accomplishment that dwarfs whatever financial return he made on the sale.

I am not sure I’ve ever been prouder of someone I’ve worked with to be honest.

Some Thoughts On Labor On Labor Day

When one looks back over the history of the development of the modern economy from the agricultural age, to the industrial age, to the information age, the development of a strong labor movement has to be one of the signature events. Capitalism, taken to its excesses, does not allocate economic value fairly to all participants in the economic system. The workers, slaving away to build the railroad, the skyscraper, etc, provide real and substantial value to the overall system and yet, because they are commodified and interchangeable parts, they don’t always get their fair share of the economic value they help to create. So the labor movement provides the market power that each worker individually cannot provide.

The emergence of the middle class in the developed world in the 19th and 20th centuries has as much to do with the emergence of a labor movement as it has to do with anything. And a growing middle class in turn drove economic development as the obtained earning power was spent on needs like homes, cars, education, etc.

I am a fan of the idea that labor needs a mechanism to obtain market power as a counterbalance to the excesses of markets and capitalism. I think we can look back and see all the good that has come from a strong labor movement in the US over the past 150 years.

However, like all bureaucratic institutions, the “Union” mechanism appears anachronistic sitting here in the second decade of the 21st century. We are witnessing the sustained unwinding of 19th and 20th century institutions that were built at a time when transaction and communications costs were high and the overhead of bureaucracy and institutional inertia were costs that were unavoidable.

One has to think “if I were constructing a labor movement from scratch in 2015, how would I do it?”  My colleague Nick Grossman coined the term “Union 2.0” inside our firm to talk about all the organizing tools coming to market to assist workers in the “gig economy.” But I think Union 2.0 is way bigger than the gig economy. The NY Times has a piece today on workers in a carwash in Santa Fe organizing outside of the traditional union system. One can imagine leveraging technology, communications, and marketplaces to allow such a thing on a much larger scale.

I don’t know how much the traditional union system taxes workers to provide the market power they need. But if its like any other hierarchical system that we are seeing replaced by networks and markets, the take rates are in the 20-40% range and could be lowered to sub 5% with technology.

That’s a big deal. And I suspect we will see just that happen in my lifetime. I sure hope so.

Recommending Recommenders

It seems like more and more of my engagement with various services I use involves some sort of recommender. The new version of Google Maps on my phone recommends a certain way to get from one place to another along with a couple other options. SoundCloud and Spotify are generating awesome recommended listening streams to me. Twitter tells me what I missed when I was away and gives me Highlights on my phone. Gmail recommends who else to send the email to. Etsy shows me things I might want to buy.

I am sure all of you are experiencing the same thing. Web and mobile apps are getting smarter and smarter about each of us and recommending things to us that until recently we had to figure out all by ourselves. It almost seems like recommenders are table stakes these days. You can’t even play in the game unless you can do this sort of thing. And that requires a data science team to sift through all the data on your service and make smart recommendations to your users.

This is one of many things that has tilted the web and mobile game in favor of the larger and more mature companies. But there are also tools that you can use to get machine learning as a service to compete with the big guys. Our portfolio company Clarifai has an API for machine learning for images and video, for example. If you are building a service that has a lot of images and video and know you need to build a recommender but don’t have the machine learning expertise in house, you may be able to do a lot with Clarifai.

My partner Albert calls this sort of thing the “unbundling of scale” and it is something entrepreneurs need to do more than ever as the big “new incumbents” are turning scale into advantage using data science.

Why Capital Markets Matter

On a day when it is likely that the US stock markets will open down and Asian markets are in free fall, it is worth taking a second and talking about why capital markets matter and why they don’t.

If your business consumes capital and needs more of it, then changes in capital markets can affect you.

If your business produces cash flow and you can finance your business, then changes in capital markets are not likely to affect you.

This is one of many reasons that I like to see our portfolio companies get to break even and ideally producing cash flow.

I don’t remember when I said this, but I am glad I did.

Board Leadership

I’ve been sitting on private company boards since the early 90s. I have also sat on a few public company boards and a bunch of non-profit and civic boards. You could say that I am a professional board member.

Like all organizations, boards need leadership. It can come from a CEO, but often it comes from a Chairman or a board member who steps up and provides leadership without being named or titled as such.

The board is tasked with governance. The Board doesn’t run things, but it governs who runs things and how things are run. I’ve heard it said many times that a board does only one thing – hire and fire the CEO. While that is somewhat true, it simplifies the role of the board and trivializes it.

A board’s job is to make sure things are going in the right direction and when they are not to step in and make changes in an attempt to get things back on track. While that can and does include leadership changes, it also involves acting as a sounding board for management’s plans and a being a body that management is accountable to.

A good board can provide immense value to a CEO and his/her company.

If you are not getting what you want out of your board, or worse if your board is causing trouble for you and your company, consider addressing the board leadership question. There is nothing worse than a collection of strong minded people who don’t agree with each other all telling you what to do and pulling you in multiple and opposing directions. If that feels like what is going on with your board, you need to find someone on the board to step up and lead the group. It can be the CEO, but if you are the CEO and you aren’t getting what you want out of the board, it is very possible that you need someone else to provide board leadership. The easiest and best way to accomplish this is to find the strongest and most natural leader on the board, take them aside, tell them what you need from your board and what you aren’t getting, and ask them to step into the Chairman role and assist you in organizing, managing, and leading the board. You can do all of this without playing the Chairman card, but it makes it easier to name the role and put someone into it.

The leader of the Board should help you set the agenda of the board meetings. They should help you decide what is important to talk about at the meetings and what is not. They should help you get through the meeting on time and cover everything that needs to be covered. They should make sure the most important topics get the most air time. And they should make sure that everyone who wants to say things get to say them without taking over the meeting and wasting everyone’s time.

The leader of the Board should chair the executive session at the end of the meeting that happens without you. They should solicit feedback from the entire board and then they should share that with you so that you can process it and get value out of it.

The leader of the Board should also help you manage the most challenging and difficult Board members. They should advise you on how and when to communicate with them and what to emphasize and what to ask of them.

Most importantly, the leader of the Board should become your partner in managing your investors, your Board, and your company. They should be someone who can put their interests aside and act with the best interests of the company and management at heart.

If and when you find this person, they will be incredibly important and valuable to you. I’ve seen many people play this role masterfully over the years and I play it from time to time myself. It’s a very time consuming but rewarding job.

The Other Benefit Of Fundraising

The reason people go out and fundraise is they need capital for their business. I would not recommend doing it for any other reason. It’s hard and time consuming work and can be extremely frustrating.

But there is another benefit of fundraising. You get feedback on your business from people who see a lot of businesses like yours every day.

The feedback you get from any one investor can be horrible and you need to learn to ignore off base feedback from idiot investors. And you will find that on the fundraising trail.

However the aggregate feedback you get from a diverse collection of investors, ideally dozens or more, can be super helpful.

So what I suggest to entrepreneurs is to use some sort of note taking system, paper or electronic, and write down the hard questions you got and the points of feedback you received after each meeting. The sooner you do it after the meetings the better.

Then start to sort them into a list of “issues” that you are hearing about your business. And the ones you hear the most are the one to focus on.

These are not just sales hurdles to overcome in your financing (although they are that too), these are the things that make your business less attractive to investors and they are things you need to address in your business.

These issues could be about your team, your product, your competition, your market, your go to market strategy, your business model, etc, etc.

The point I am making is that fundraising is a bit like the customer development process. You are showing your business to the market and it is critical to listen to what the market is telling you as no business is perfect and investors will take the time to tell you what is wrong with yours, often right in the meeting.

So treat your fundraising process as two things. First and foremost, it is about getting the capital you need to operate and grow your business. But it is also a fact finding mission about the things you need to address to make your business better. Don’t forget to do the second thing because it is a fantastic opportunity to improve your business for the long haul.