How We Measure Success

Interesting comment discussion between me and iamronen this morning. It started with me making the assertion that most founders start companies with the goal of building a "financially successful business."

iamronen then pointed me to a Jeff Atwood post from earlier this month where Jeff says:

Yes, Stack Overflow Internet Services Incorporated©®™ is technically a
business, even a
venture capital backed business
now — but I didn't co-found it
because I wanted to make money. I co-founded it because I wanted to
build something cool that made the internet better
. Yes, selfishly
for myself, of course, but also in conjunction with all of my fellow
programmers, because I know none
of us is as dumb as all of us

For those that don't know, Jeff is a founder of our portfolio company Stack Overflow.

So then iamronen asked me if we would be happy if Stack didn't make profits but did make enough money to sustain itself (a non-profit?).

And I answered with this:

if hundreds of millions of people all around the world are learning and improving
their lives with stack powered knowledge exchanges, i will be thrilled

And I will be thrilled. But my answer doesn't really mean that we would be happy if Stack became a non-profit. We are financial investors and we do want to see our portfolio companies become valuable.

My answer to iamronen suggests something else. At USV we do focus on financial metrics, but our number one goal for our companies is to build very large networks of engaged users. We believe if they do that, they will build value for themselves and us.

So that is how we measure success first and foremost. We believe very large networks of engaged users will ultimately create significant financial value for everyone involved.


Comments (Archived):

  1. Deckerton

    Network size plus engagement = success. Got it.

  2. gregorylent

    i believe one of the characteristics of this current time will be seen as one in which “value” is being redefined.what it means to be a human being. what the earth is. what nature is. what profit is … all under forced does not measure value very well at all.this is a fun river to swim in, this one that is expanding the understanding of value.

    1. CJ

      I disagree, money measures financial value very well. However, it does not measure social value very well, nor does it measure educational value…etc. What we need is not a redefinition of value but better, more capable and relevant metrics to measure value in categories other than money.

      1. William Pietri

        Could new metrics make things worse, not better?One of the problems with focusing on financial measures is that people tend to ignore the bigger picture. They focus on cash, and ignore value. But introducing different metrics may just give people a new and different way to ignore the big picture.I’d rather keep the cash metric, but deemphasize it most of the time. I’d rather people treated it like their heart rate: important, but mostly ignored.

        1. CJ

          I just think that having metrics that measure non-financial value gives financial incentive to investors. Once that’s accomplished and you can assign a financial return to ‘saving the whales’, the whales will actually be saved.It’s not about giving entrepreneurs another metric master or excuse to become a slave to profit, but giving those with the money something more concrete to use as a basis for making investments into areas that wouldn’t normally attract investment money.

          1. Donna Brewington White

            Love your train of thought in these comments, Malcolm. Finally had to actually respond rather than just “like.” “…but giving those with the money something more concrete to use as a basis for making investments into areas that wouldn’t normally attract investment money.”Not only wisdom but a true example of principled pragmatism. (Think I may have just coined a phrase.)

      2. marcoiacono

        Malcolm, check out my comment below on Impact Investing. Check out the framework being built to measure social and environmental impact –

    2. adamwexler

      i’d refer to some of guy kawasaki’s comments in this instance. i completely agree with him when he explained how you will often make money if you make meaning. if you get that twisted, your vision may become blurry & your morals often compromisedfor those interested, here’s a quick video of his explanation:

  3. OurielOhayon

    Fred, i am not sure to understand the point of this post. Is there any other way to measure the success an internet company?

    1. fredwilson

      well most people would suggest revenues and profits are the way to measurevalue

      1. OurielOhayon

        but isn’t it just a natural evolution of the right network effect getting built. I am not sure there is a contradiction.

        1. fredwilson

          yes, that is our viewbut it is not a view that everyone shares

          1. OurielOhayon

            i guess this is becomes sometimes there are pitfalls between the moment youcreate a network effect and the moment you start monetizing. but as an earlystage investor, the only tangible metric for success if the one your arerightly pointing at

  4. @Sundelin

    I agree. I believe value creation and value capture should be viewed as distinct processes as the source that creates the value may not be able to capture it, even in the long run. I agree that, value capture should not only be considered to happen at an instantaneous moment in time but through the ability to capture value in the future.The purpose of all businesses should be to create value. Value for customers, for suppliers, partners, employees, investors, communities, society, etc. If this value creation is difficult to replicate, through loyal users, large networks of developers, brand recognition, patents etc there will be opportunities for the company to capture some of the value it creates and make the investors happy 🙂


    Unless…. the value and revenue model are in the byproduct of the initial business model and the out come may have even larger returns financially and in Branding….Marco Giunta

    1. Fred T

      Which becomes a pleasant landslide post-valuation in the next series rounds. Yes, that is inherently possible.

  6. Chinmoy Mandal

    What happens if the number of users suddenly start dropping… for example MySpace

    1. Matt A. Myers

      If you’re not paying attention to how things evolve and don’t understand why they’re evolving how they are, and you don’t evolve along with them … then well, your company doesn’t have a proper driver.MySpace is doing some ‘damage control’ now – they might be okay if they know why they’re doing that damage control…I should just be a consultant…. but generally I imagine I wouldn’t be listened to until I have my own large successes.

      1. CJ

        I typically find that most people listen to the consultants with the least amount of success, rather than the opposite. But then I’m cynical about that sort of thing… 😀

    2. William Pietri

      People interested in this topic should read “Stealing Myspace”, a book by a Wall Street journal reporter about the rise and fall of Myspace.It’s pretty obvious that Myspace proves Fred’s point. They didn’t start out with Jeff Atwood’s focus on value creation. They were just trying to make money. And because of that, they didn’t create as much long-term value for their users as competitors like Facebook did.

    3. fredwilson

      that is not goodwe worry a lot about that

    4. Rocky Agrawal

      An oldie, but a goodie……covers the decline of Friendster. (This was before Facebook popped on to the scene.)

  7. Matt A. Myers

    For a business to make money, it takes eyeballs.The more eyeballs, the more potential revenues.You can gain more eyeballs with engagement.You can make people happier and trust you more by providing valuable information or with other reward – thus making people return, thus building your traffic base.It’s good for society and it’s good for business, but business is ‘cutthroat’ so it’s not so healing for the soul; You just have to figure out a way to make it through.–Thank you for having that discussion iamronen and Fred – namaste

    1. ShanaC

      yes thank you and namaste, I agree with that sentiment.

    2. fredwilson

      you saw our exchange, eh?did you read his post on namaste?i really liked it

      1. Matt A. Myers

        Yup, I certainly did. I really liked it too. :)Namaste is something I’ve learned to appreciate more and more the more yoga I do. I didn’t understand it at first like I imagine most don’t, but once you start to experience blissful moments and previously unimaginable states of calm, clarity, relaxation and understanding … you start to be able to attach those experiences, the feelings, and the gratitude to the word. It has a lot of positive energy attached to it, and when directed at someone will certainly have an affect.


      I agree that engaged eyeballs are a good sign that you are delivering something worth paying for. Eyeballs alone as a metric are not enough.As Leo Burnett once said, and I’m sure I’m paraphrasing – “anyone can walk in a room with a sock in his mouth and get your attention” K–

  8. LIAD

    i predict “colourful” discussion on this post. – I remember presenting to my board a strategy of “GROW FIRST, MONETISE LATER” – they concurred. We did great on the first half, the second half was a different story. – With the recession and Sequoia’s “end of good times” presentation, I thought that strategy these days would result in an investor giving you a quick sharp kick in the nuts. Entrepreneurs have mollified their visions accordingly – which is a shame. – When Joel of Stack Overflow announced on his blog USV’s investment he wrote something which shows USV doesn’t just talk the talk but also walks the walk – “Brad Burnham (USV partner), suggested that we don’t hard code our revenue model too early. If the platform creates value for a lot of people, he told us, we’ll have plenty of opportunites to make money that actually make the site better”- Its great USV still swing for the fences by allowing and encouraging entrepreneurs to GO BIG. Thats a huge USP there alone.

    1. CJ

      USV understands that financial value can be derived from other kinds of value, it’s rare to find a company with that kind of foresight and patience but then it’s not surprising when you consider USV’s values. One of the biggest things that’s impressed me about USV is the hacking education initiative. With that, they’re focused on fixing the education system (creating value for students) and they assume that financial value will be created for them (and others) as a by-product (it almost certainly will), instead of looking at how they can make money on recreating education first and whether it actually creates educational value second.Value is an interesting thing to discuss because most people consider it only in the financial sense, but USV seems to get that different types of value can be related and if you create any kind of value for a large amount of people, financial value follows soon after.

      1. MakeMoneyFirst

        You state “financial value can be derived from other kinds of value” – WTF!Further you state “Value is an interesting thing to discuss because most people consider it only in the financial sense” – If value is not in the fianncial sense – what other sense could it be.

        1. William Pietri

          In the Lean analysis (as in Lean Manufacturing) value is always in the eyes of the customer.Most of the things that are valuable to people aren’t obviously and directly valuable in the financial sense. Respect, trust, comfort, engagement, joy, awe, accomplishment, satisfaction, and belonging are some of the many things that people want that aren’t tradable commodities. But if you create those kinds of value, you can generally find a way to extract cash.For example, consider Zappos. All they did was sell shoes on line, something plenty of people were doing already. What they did differently was to create additional value for their customers. Not by selling better shoes or selling them cheaper, the financial values. But by giving them a more satisfying shoe-buying experience, by creating trust, giving respect, and demonstrating caring.That allowed them to extract extra cash versus their competitors through higher prices, which made their business sustainable. But they did this by seeking to increase customer value, not cash income.

        2. CJ

          OK, one example – Baseball Cards. A pack of cards was a nickel or so back in the day but the right card from the right pack can now go for several thousands of dollars. Why? The material value of the card is a few pennies or less but the sentimental value to collectors is worth much more. The financial value of the card is derived from the sentimental value to a collector, this is the perfect example of value converting a non-financial value into financial value.

          1. kidmercury

            no question folks, i think it’s safe to say malcolm has easily won this beef with makemoneyfirst.

          2. Mark Essel

            Does the exchange make sentiment a financial value? Shouldn’t it by definition?I think about value much of the time, many forms defy financial equivalents yet always connect back to dollars and cents. Consider transplants that save human lives but are in limited supply. Lotteries attempt to move organs out of financial value only but extraordinarily resourceful people like Steve Jobs can still buck the system. Not judging Steve in any way, he’s fighting to survive.

          3. CJ

            Mark – I wouldn’t say so. Sentiment is no more a financial value than oil, soybeans or corn. Just because they can be converted to money doesn’t mean their existence is based on finance. I’d say in this case, the money is more a tool of acquisition, rather than the basis of existence.

          4. Mark Essel

            Cash value in this case a means of transfer, providing liquidity for resources. But all parties need to trust the medium

        3. Fred T

          Ok. Point taken there. You definitely want to put money first. That may work on the first round.But once you start swimming in a big lake with big fish, you may want to start re-thinking on how your value can further disrupt the market while all these big fish already have all the financial value ready to be deployed at their disposal.

      2. Rocky Agrawal

        my favorite example of this is vs. has been around forever. they’ve got a list of high school students and you can go on, enter your information and see who else was in high school at the same time. in order to actually email them, you have to pay between $2.50 and $5.00 a month.contrast that with facebook. i’ve reconnected with many of my high school friends for free. (somehow i’ve got more high school friends on facebook than i did in high school, but that’s another matter.) by enabling these sort of network effects, facebook has created a much bigger opportunity.sure, some people would pay $5 a month to connect with classmates, but that’s a tiny number of people compared with what facebook does.i believe that’s the distinction fred is getting at.

  9. marcoiacono

    Curious – how do you think impact investing trends might fit into the VC business over the next few years? If we are talking about metrics other than financial performance – why not try to measure social or environmental impact through a standard framework. Organizations have already started developing taxonomies

  10. Fredrik

    Dear Fred.I really liked this blog post for it reminded me about a book I read long ago which I believe that possibly you and many of your readers also have bumped into at some point.In Atlas Shrugged, by Ayn Rand (… there is a character called Francisco d’Anconia, a champion of industry and multi millionare. He at one point holds a speech where he defend money from those who say that money “is the root of all evil”. One of my own conclusions from this speech is that money, in most occasions, is a measure of success.Read the full speech at http://www.capitalismmagazi

  11. Dan Ramsden

    The intersection of this blog with (1) the cash flow theme of MBA Mondays, and (2) the larger directional issues of Brad’s government article, is probably where the web business currently resides. Which is to say, the sector is maturing, but is not quite there yet.

    1. fredwilson

      that’s an interesting observation dani’d love to see a blog post with a slightly longer discussion of it

  12. ShanaC

    Interestingly- back to Albert’s point and points that you have made: You can have very large networks creating significant value for everyone (or at least most people)- however most of that value may not be diverted into the company that creates and maintains that service.Twitter and Facebook are good examples. So were the early days of netscape (they had server software) I suspect the vast financial power of networks are actually hidden from the people who want to leverage them to make money, since there seems to be no good way to have complete domain every every aspect of the money making process…

  13. kidmercury

    i disagree with the notion that large networks lead to more profits. IMHO what leads to profits is control — this is part of the appeal of the apple/facebook strategy style of platform governance. however, such high degrees are control are difficult to tolerate as networks grow. from this perspective, the control needed to obtain profits is more easily obtained in a smaller network.i do think there is an opportunity to create a large network by connecting smaller networks. however, i wonder how profitable this large network will be. i’m inclined to think it will be primarily a cost center where smaller networks can share costs.i think the logic fred presents in this post is “SaaS logic”; what i am referring to is the model that will work better with federated governance systems. IMHO google is as big as the web platform can get without being social; facebook is as big as it can get without being federated.

    1. Tereza

      Sorry Kid you know I love ya but I have to disagree with you on this one, my friend. While control has a positive effect on profits, I’d always put my money on scarcity.What do you have that no one else has, that lots of people desperately need?If you crack the code on it….Kerching.

  14. MakeMoneyFirst

    I wonder how many of YOUR investors or stakehlders share that same sentiment. If you are not in business to make money – then your business will fail. Even non-profits are in business to make money – they just want to keep more for themselves.Money should come first – all that other touchy / feelly crap can come later. It does not matter if your network is large – if you can’t make money – you lose your network and you lose your business.

    1. fredwilson

      we are making money for our investorswe have returned almost all of our first fund alreadyand we have only sold three of our 21 companies in that fundour investors understand our model and support us in our execution of it

      1. kidmercury

        i hope some day there will be an exchange where folks can trade shares in VC funds in very small amounts (i.e. $50 increment or something). lol, do you have any idea how many jokes that would open up for me, lol

  15. MattCope

    If I were Fred, and Stack became a non-profit (and all the other cool portfolio companies became NP, too) I would be extremely unhappy. Even if they made many many other lives easier/better.LP’s would pull their funds (and maybe sue), I would lose my awesome VC job, many cool companies wouldn’t get funded, and my family would likely have to downgrade their lifestyle.What I think this post is saying is “We want our companies to build communities because they lead to profits.” I would add “And we make profits because they lead to even better things for ourselves and those around us.”

  16. PhilipSugar

    This is in a nutshell why you are successful but more importantly happy. (you really seem happy)If you have to get up everyday and the measure of your success is how much money you will make it is very hard to find happiness. Frankly this is why I think so many Lawyers and iBankers are miserable sob’s. (sorry but most go into those professions with the goal to make money, and they measure their success by how much they make)I think its great to have change the world goals. The goal can also be less than that, as Ellie stated a while back there is a ton of satisfaction being an entrepreneur pushing the ball up the hill.If as a VC your first goal is money you engage in lots of behaviors that really piss off the other party i.e. Entrepreneurs, because generally if money is your God you mainly believe its a zero sum game and your goal is therefore to take as much away from others as you can.Great post on a Sunday morning to really reflect on life.

    1. Fred T

      And why do I keep referring back to this upcoming quote? It is because I always wake up in the morning knowing that somewhere, someone out there is happy our product made their lives better.”Being the richest man in the cemetery doesn’t matter to me … Going to bed at night saying we’ve done something wonderful… that’s what matters to me.” -Steve JobsGreat post, Fred W. Seeing everyone enjoy the value of what we created is definitely life-changing, and of course we don’t mind sharing its other forms of value/rewards with those who believed in what we created in the first place.

      1. COMRADITY

        I can think of several very financially successful companies that were built on the premise of serving the purpose of making lives better to make money and are sustainable because they stick to that purpose.And I can think of several failures that attracted a lot of investment because they all thought they were going to make a lot of money.Net: the surest way to make money is to make and sell something with the purpose to make lives better.Katherine Warman Kern@comradity

        1. Fred T

          Right there with you, Katherine.

        2. JLM

          I would even take it a step further and say that most companies which are successful over the long run have identified a group of folks — customers — who literally may not be able to live or find happiness without their product.

          1. COMRADITY

            Bingo. In fact, when I’ve worked with companies who lose steam, it is often because they’ve forgotten, or even betrayed the trust of, these folks.This can happen when the focus becomes increasing the number of customers, without considering the risk of losing the base consumer franchise. Or, when a supplementary, but conflicting, source of revenue becomes essential to the survival of the business. For example, when ad $ become critical to a newspapers’ survival, how do they make editorial decisions which benefit both the subscriber and the advertiser?Charlie’s baker, above, who does not want to expand, loves to bake but doesn’t enjoy the admin/management side of business. Ray Kroc (McDonald’s) enjoyed it. He was obsessed with replicating a quality experience. Franchisees are called owner/operators because he wasn’t interested in investors in it for the money. The franchising fees were structured to assure the owner/operator made money first to attract the best. In fact, the corporation really didn’t make the big bucks until they went public and used the proceeds to buy the land under the stores and collect rent on a percent of sales basis. This secondary source of revenue is complementary with the core value of the business – serving the owner/operators so they can serve the end customer. Since corporate got into the real estate business, they support the owner/operator with better real estate selection, and consider the risk of lowering average store sales by expansion.K–

          2. Tereza

            Totally agree!To have done great business together over a long period of time — that satisfies financial but well beyond that those higher order satisfactions — is a really special thing.These are the people that you want to do business with over and over again….and they with you. It is just an absolute pleasure to make that magic happen again.I suspect this is the same dynamic when VCs back their previously successful entrepreneurs….and those entrepreneurs come back to those VCs.And I suspect it’s why VCs like to see a first time entrepreneur whose previous business relationships are ones where those folks want to pile on again for the next ride.There are some people you just love doing business with. It’s not just work, it’s a joy.

    2. JLM

      The choices are not that money is irrelevant or money is your god. That is a false choice.Money can be a necessary ingredient in an entrepreneur’s ability to make his dreams a reality and it can fund his dreams and it can be like a good friend you would loan your car to but not your wife.Or a really good sailing mate who you would take a run around some buoys with but not sail around the world with.Or a guy you would like to be in a fox hole with but not marry your sister. Or brother — DADT notwithstanding!You can make money, have fun, respect your fiduciary obligations and use OPM to put a bit of cash in your own pocket with which to fund good works that appeal only to you.Money is not the enemy and it is not your soulmate. But it can be your friend. Kind of like a dancing partner with whom the relationship ends when the music stops.When money teams up w/ an entrepreneur you do not sell your soul, you only rent your brain.Keep it real and don’t ever get mad at the money. The money always changes its mind.

      1. COMRADITY

        Exactly. A relationship with an investor is not “For better, For Worse”.There are two different issues here.One is starting a business strictly to make money without considering the positive or negative value to the customer or the society at large. The consensus here seems to be that we all want to make money by making things better.The other is should a VC consider an investment a failure if it does some good for society but doesn’t deliver a return on investment. While it may mitigate the VC’s personal disappointment, it doesn’t change the VC’s metric for success or failure.Entrepreneurs, on the other hand, must make decisions on how to manage money (whether from revenues or an investor) based on both sides of the coin – adding value to the investors (including the entrepreneur) or the customer. As long as targets are being met, the entrepreneur has a lot of control over those decisions. And if there are no outside investors, an entrepreneur may choose to lose money. But when outside investors are involved and financial targets are not being met, the entrepreneur loses control over those decisions.So it is important to pick VC’s, investors, bankers, and lawyers who will be there to turn lemons into lemonade before they go bad. And it is important to reach out to them without freaking out about losing control.K-

        1. Tereza

          That’s a great comment.One thing that never ceases to surprise me is how seldom people ask their prospective business partners (Investors, customers, suppliers, a new boss) what they’re measured on. What will success look like, tangibly.Then your business dealings with them should always be in the context of what they told you.Your ‘job’ for them is to help them hit their metrics.Your job for your company is to define for each of your people their specific role in hitting those metrics. And then also provide or enable the other higher-order needs (respect, learning, sustainability, etc.). But without the former there is no latter.

          1. COMRADITY

            You are right Tereza, the entrepreneur’s skill in managing people, not just money, is an important make or break factor.Speaking of the higher-order needs you talk about in the last paragraph . . . have you seen Daniel Pink’s presentation “the surprising truth about what motivates us”…K-

          2. Tereza

            Katherine that’s a terrific video. I just tumbled it with props to you. Thanks!One thing I added in my comment is, replace the words Company, Manager and Employee with Family, Parent and Child.It’s all the same stuff.The skills from one are totally transferable to the other.I wish I could put my lessons from parenting on my resume!My family and kids stretch my management skills in a million ways every day. There is never a dull moment.

          3. COMRADITY

            I saw the Dan Pink presentation a while ago and it keeps coming to mind in conversations. A sign it is very relevant. Consistent with the tension between money and contributing something of value that everyone is talking about here. The animated whiteboard illustration makes it fun to watch, too.Glad you enjoyed and passed it on, too.K–

      2. PhilipSugar

        Money is what enables us to build great data-centers or hire great people, or make calculated risks that put “holes above the waterline in our companies”On a personal note.Money is what enables us to buy a stack of Garmin 530’s, or a boat, or restore old houses on the Chesapeake.When bean counters (I am one) start to pursue money for money alone they forget there isn’t a hill of beans to count if nobody wants to give you beans, taking beans from somebody else is a strategy but it leaves you unhappy because instead of making a pile of beans you always think you could have gotten some more of somebody elses…..gotten an extra basis point, padded an extra hour, etc.I’ll give an easy example. GM should have been in the business of building great cars. I know for a fact (know the plastic salesperson here in DE) they were willing to save $200 per car to have the shitty plastic that powdered apart versus Lexus quality plastic.

        1. JLM

          You must be a pilot. I am a Bonanza driver with a couple thousand hours.There is nothing in the world more beautiful than a couple of Garmin 530s and a great A/P.You punch in the flight plan. You take off from Nachez enroute home from the Right Coast with full mains and tips and circle the city and Mississippi River from 1000′ starting your climb to cruise altitude and punch in the autopilot; dodge a few CN buildups and in a couple of hours you are watching the sun setting in the west as you glide into Georgetown, TX (just north of Austin).Wipe down the wings, hop in your ’66 Impala fire engine red convertible, get a cerveza & barbecue at Duke’s and then slowly drive home — just you and Pat Green on the tape deck.Kiss your wife (or somebody else’s if so inclined), jump in the pool and celebrate life, liberty and the pursuit of happiness. Is this a great country or what?All because of the twin Garmins and that wild streak in your soul. So yeah, money makes a lot of good things possible.

      3. PhilipSugar

        I thought about this as I dozed on a plane. JLM your “mission” is to take companies that are not using discipline and rigor in their operations and developing and enforcing these to generate operational efficiency.That is a great skill, that is a great mission…..and therefore it generates great returns for you and your investors.You can tell me if you think I’m wrong.Best regards.

        1. JLM

          I believe in picking the low hanging fruit in life and I believe in keeping my head on a swivel in order to not miss anything that is going on about me. I think life and business are easier than cherry pie.My theory is grounded in the concept of the 360 degree businessman who never stops learning, who exerts positive energy to learn things that otherwise would cost money, who is unafraid to learn anything and to always have a plan.I believe in taking prudent risks and I abhor a vacuum. I believe that superior leadership and hardwork can overcome anything if they can be concentrated at the critical point of influence.I see business today as sorely lacking in fundamental business disciplines — planning, budgeting, setting objectives, investing real time in the development of talent, training to the desired outcome, standardizing processes, documenting processes through checklists, identifying and implementing the Best Practices; having a constant view of the economic performance of a business through a useful dashboard and exquisite financial reports and detailed analysis of the actual results visited by the responsible parties in a quarterly meeting in which subordinates report to me the performance of their unit; driving businesses by no bullshit analytics, knowing what the competition is doing at a CIA level of intelligence gathering, attracting world class talent (in particular the very best possible CFO without a field marshal’s baton in his knapsack and paying him 1.5 what he can make anywhere else and working him to within an inch of his life in the process) while paying them very well.I believe that we play like we practice and I try to practice hard. I know that people need motivation but more importantly they need a bit of inspiration, coaching, motivation and a pat on the back.I believe in doing things, in particular setting the intellectual basis for doing things, before somebody writes a damn book about it; but, I also read anything I can get my hands on and I am always stealing half of some other guys idea. Read the Checklist Manifesto, a great read which validated what I had been doing for years.I believe that when you make order from chaos, value will appear. I believe it takes about half a decade to become an overnight success.I am scared to death that most of my success has been totally attributable to luck and the help of others and thus I am afraid of jeopardizing my karma, mo jo, ju ju and lagniappe. I believe that kindness to others is the only way to keep the karma alive plus I enjoy being kind though outwardly I am truly a prick.I have found that floating in Barton Springs is actually more relaxing and fun than floating in any of the multiple pools at Barton Creek Country Club and thus I strive to be Everyman rather than the guy behind the gated community fence.I know that people are, in many instances, waiting to be led and will follow anybody with a plan but that their payroll check is a sacred trust. I know that OPM is really owned by pensioners and folks for whom this is not a game.I know that just about nothing beats a cheeseburger, a bacon/egg/cheese breakfast taco and that family is more important than anything in the world.I know that life is great fun and that work and fun can be balanced. I am always working and having fun and always having fun and doing work.I know that I type too fast and talk too much. But, hey, that’s just me. So you are not wrong.

    3. muratcannoyan

      Spot on. Having a goal beyond money is critical for recruiting, sales and ultimately business success. Seems like a sound investment strategy to invest in people and businesses that have multiple reasons for being.

  17. Adrian Scott

    Excellent metric for the initial days and months of a startup, and more.

  18. Keith Bluestone

    Great post… you inspired me to write down a few thoughts on seeing a poster on the wall at a consulting client: “Goal in 2010: $10B in Revenue.”http://keithblue.blogspot.c…

  19. William Pietri

    Yeah, i don’t think there’s much actual difference between those two perspectives. Well, I don’t think there’s necessarily much difference.Great businesses create a lot of value and then extract some of that value as cash. They use the cash to pay the bills, support the people creating value, and reward the risk-takers. Jeff is focusing purely on the value creation. As he probably should, because creating value is the hard part. But sane founders know that you can’t lose money forever, so if they want to keep creating value, they have to at least break even. As Doug Carlston, Broderbund’s founder, puts it: “Profit is permission to continue.”Fred, what I really appreciate here is that you are that rare financial person focused on value creation rather than cash extraction. As an entrepreneur, that’s the only kind of money I’d want to take, because I think it will make us both richer in the end. Do you have any notions on why so many financial people don’t get that?

  20. Harry DeMott

    Looks like I got to this comment stream late in the game today. Lots of good sentiment all around.There is a subtlety missing from this discussion of the old saw: you can have profits or size – pick one.For an investor like USV (or any other venture investor for that matter) there is an investment time horizon that exists for each investment – and ultimately, that investment has to be harvested. So if you have lets say a 10 year horizon from first investment to ultimate sale as an investor – what Brad says makes absolute sense.Start-ups are not stocks. you don’t trade them. There is little to no liquidity. and they almost always require more capital.So trying to get to a level of profitability right off the bat makes no sense – and in some ways is self defeating because of what you might need to give up in order to achieve that goal.How many users would Twitter have if they had to be profitable today? Foursquare? If Facebook was put to that goal in its first 2 years or so?So for something like Stack Overflow to be put to that test right away is crazy.However, there will come a time when the company, because it has taken in financial investors will have to show a return (and notice I didn’t say it had to become profitable!)And that return can come from finding ways to monetize its engaged audience and becoming self sustaining – and thus having all options open to it – or by selling itself to another investor who wants to nurture the business and grow it to some level of profitability – or by selling it to a larger company who doesn’t care whether it is profitable – but finds value in adding that community to its existing business.All VC’s have limited partners who are looking for financial returns – but it is not black and white how you generate them.My guess is that if the Twitter investors went to sell the company today – they would make many multiples on their initial investment. That’s a financial return just by building a large engaged community of users – despite having de minimus revenues.The truth is, if you build a great company that users are passionate about – there is more than one way to skin the financial cat.

    1. Dan Sweet

      The key that you identified above is the time horizon of your funding source. Lots of VCs end up with a ten year horizon ex-post but most actively manage to attempt to make it more like 2-5 years.The “Why I Sold Zappos” article is a great example of the (all) importance of the time horizon of your backers.It’s great that Fred sees the value in large engaged networks, but be clear, that makes him the exception and not your typical VC. Most VCs are likely to be more concerned with your revenue glidepath and when you will be cashflow positive than your user engagement trends. Especially if those are the projections and slides you used to make the sale. The Return Path example is a great one because the priorities were an integral part of the founder’s visions and communicated up front with investors so he found the right partners.

      1. Harry DeMott

        The why I sold Zappos is really a fascinating case. I know absolutely nothing but what I’d read about it – but if I had to guess – the founder there really believes in his philosophies – and would have probably been happy running the company forever to grow the customer empowerment movement. Sequoia took one look at that – saw the offer and figured it was time to head for the hills.I’ve never understood the duration mismatches in finance. The truth of the matter is that when investing, a long time horizon is really one of the greatest advantages you can have. So why would you ever seek to shorten that time horizon – particularly with start up companies – who should be be on the growth trajectory for quite some time.

        1. Dan Sweet

          in finance more broadly it is all about opportunity cost. you may be doing something great that is likely to end up producing an economic return but there may be higher expected return uses for the money so sometimes people want their money back to go pursue those other opportunities. in VC land another dynamic is that people are often looking to raise their next fund. it’s hard to raise a fund without results in your prior fund. they have a few duds, a big winner or two (hopefully) and the rest of the companies in the middle. they’d rather get some sort of outcome out of the middle group and move on to the next fund at that point.

  21. deepeshbanerji

    but there must be some underlying financial model assumptions, and a plan to get there, to justify the investment?

    1. fredwilson

      not in most of our investments, certainly not in the ones that have no revenuewe want to see a plan to get a large network of engaged users but we do not need to see a plan for revenueswe do want to know how much it will cost to hire and operate the business during the pre-revenue period

      1. JLM

        I think perhaps you are being a bit overly sensitive — there can be no “pre-revenue” period unless somebody can be convinced that there is going to be a “revenue” period. Period.

    2. deepeshbanerji

      Agreed that growing users is good enough for justifying an investment. But if there isn’t a plan for revenues how do you justify the specific $ amount? I imagine it becomes more of an art than science?Secondly – are there cases where user growth didn’t translate to long term ROI? Either in your portfolio or others.

      1. Tereza

        “financial model assumptions” — as in, who are the possible segments ofcustomers? how are they trending? what do they need? what could the pay?and how do you know this? have you spoken to them? do you know thesepeople?If it’s a fabulous business idea some revenue-savvy people should be able tocome up with 1/2 dozen to a dozen discretely different concepts, over abottle of wine.Then the next morning you prioritize them based on reality. Pick just twothat you’ll do. Or just one. Low hanging fruit. They should be the mostaccessible, based on who you and and who you know, how acute their pain is,and how likely they are to cut you a break for something that’s never beendone before. Their saying yes will be doing you a favor. Be ready to makeit worth their while.Park the other ones to the side, but have them in your head in casesomething comes up opportunistically. And think about how these streamssequence. There are right ways, and wrong ways, as they each requiredifferent precursor conditions. Preferably the first rev streams youalready started create conditions to open up those other streams.Then focus on your platform with no revenue and go as far as you can withoutit, with the cash you have in the bank.When you see what’s happening in the market, pull out your plan, and changeit completely based on what you now know.If you had really great foresight, maybe 80% of what you came up with willbe relevant, but needs a whole lot of rearranging and re-casting. Or maybenot!Then go begging to your first customers, with a smile and lots of goodwillto make it a good deal for them.

  22. Elie Seidman

    You have to be mercenary, not missionary in startups. Otherwise you end up changing path all the time to try and do whatever you think is the quick money – and the startup world of 2010 ALWAYS has the shiny new thing of the moment – instead of just focusing on solving customer problems through better product. In the vast majority of categories, if you do a great job on product, you’ll make plenty of money. Some categories are better than others, no doubt, but within each category, I’d bet on a missionary interested in making better product as also being the one who ends up making great money. Net net, I think you get to have your cake and eat it to if you focus on great product above basically all else.

  23. Tereza

    As a longtime strategy/marketing person, I’ve often regarded the finance folks with a bit of disdain. But here’s the thing. We absolutely, positively have to put numbers on the board. That’s the framework for-profit businesses work in. (and if you’re not into that, create a 501c3 instead).I’ve done stuff for non-profits. They generally make me want to tear my hair out. Not clear enough, crisp enough, aggressive enough. Deadlines are too squishy. It always feels the best you can do is just okay. And that’s not good enough for me. I greatly respect people that can make it work but frankly the only way it could for me is if I were a huge benefactor and they have to do what I say. Perhaps sounds rude, but I’ve learned this from experience.But back to for-profits. Every truly breakthrough, successful business, where people want to work, has to be about something bigger than the numbers. That ‘bigger thing’, call it a mission, is your foundation. It must be made of rock, not sand. You and your people have to believe in it. The successful businesses I’ve started or been a part of believed the world was going to be a better place because of what we were doing. Our True North.And every time the mission was non-existent or rang hollow, it did not end well.And USV is, at this stage, totally turned on by building huge platforms and networks. And I think that’s a neat way to look at the world. For now. Eventually, it will evolve to something else. But let’s not be naive and deny that the business of a fund is to get money from Investors and deliver them a return. This is a fiduciary responsibility and no amount of Kumbaya is going to change that.Look. All this bottom line/anti-bottom line talk is useful to revisit here and there. But it’s nothing new. Sustainability, great places to work, diversity….these are not new concepts by any stretch. I’ve done major stuff on this going back 10+ years in multi-billion dollar settings as well as in startups. And sorry to say but it’s no different in either place. The key is not in the talking. It’s in the doing. Need to just bite the bullet and freaking do it. That’s where bravery, balls, sacrifice come into play. Would your kids be proud of what you’re doing? In my observation these are brought to life through edge-case decisions that are more about time and effort sacrifices than financial ones.

    1. fredwilson

      i love the kumbaya line

  24. Mark Essel

    I have had long discussions with Ronen, many in disagreement but always left on a good note. Glad to see you mention such a thoughtful question.We all have slightly different value measures but share common value traits as well. Big engaged networks have shown a strong correlation with investor value, but we need to be cautious of the bubbles of 2000 that don’t generate enough revenue to support themselves. I prefer tools that promote external developers building on or connecting to an API, and think they are great growth/value businesses. They should reward entreprenurial investment and charge only modest infrastructure costs.

  25. William Mougayar

    It’s the ultimate goal to have be a platform-company instead of a product-company.With the platform, producer/consumer lines are blurred and the network effect fuels benefits for all, whereas a product company sells a product to discrete customers and it takes a long time for them to become a platform or ecosystem. It takes time and money to build a platform-company as a straight line, as revenue typically comes much later. The Grow First/Monetize Later doesn’t apply to everything. If you grow, grow, grow but can’t monetize, the crash is harder.

  26. leeschneider

    Off the topic of the discussion, but perhaps an interesting feature for Disqus to consider:Would be nice if there was a link aggregator from the comment section of each post. Reading through all these comments I’ve found 3 or 4 links to go back to. I do think the links people add definitely add value to your blog posts.Would be nice if you could see a list of commenter & link.And on the topic of discussion:We started bGreen ( for 2 reasons. 1) we love new and interesting products/technology and the “green” sector is really cranking stuff out these days, particularly on the building/construction side. 2) we want to make money. Both are motivating factors for us.

  27. JLM

    What pure unadulterated nonsense. This is proof positive that there is way too much easy money still floating around in the world even today.Money is simply the store of value which lubricates the engine of commerce which allows an entrepreneur to bring his genius and determination to the marketplace and to get your hands on some requires that entrepreneurs make a meaningful rate of return for those who are supplying the money.There are hurdle rates which get deals funded and there are ROIs which simply do not work. Deal with it.It is a simple concept and one that has not changed for centuries and is not going to change — ever.Grow up and stop feeling so “conflicted” about your own vaingloroius inability to remember the golden rule — drumroll — he who has the gold makes the rules. VCs are not philanthropists with their funds. When you hit it big, YOU can be a philanthropist with your share of the loot.VCs are entitled to be demanding given their miserable track record of success. The very best bat .333 and the worst are stuck at .125.If you cannot chin up that simple concept, then go become a poet. Drive a truck. Live in a tent. Home school your kids. Because all the good alternatives require money.Your employees come before your investors? Well, then perfect the ability to eat newspaper and defecate money because your employees’ first concern is whether their paychecks arrive on time and, more importantly, clear the bank. Lattes in the break room are a bit further down on the list of priorities if the payroll is not secure. Payroll requires money.Everything in life is a matter of priorities, risks, commitments and, ultimately, honor.When you start taking OPM, you have a legal, moral and honorable obligation to play THEIR game by THEIR rules otherwise don’t take the money and brush up on your iambic pentameter.If I were an investor in an enterprise in which the CEO were “conflicted” about his own personal motivations I would have my boot so far up his ass he would be able to taste the leather.When you have rung the bell and are standing at the pay window, then you can begin to have flights of fancy as to how much you revere your employees, how you just want to change the world and whatever else floats your boat.And, guess what? Now, you will be able to afford to self-fund any and all of that fun stuff.In the end, you posit a false choice — you can, in fact, do great work and you can make a great profit but if you take somebody else’s pension fund money then you damn sure better get comfortable with the concept of fiduciary obligation because there is some pensioner somewhere who is counting on you. Work comes before play.I have raised, spent and returned well over a $1B in real money to investors and have never felt the hair shirt once. Don’t be so damn swishy. Embrace your fiduciary obligations. I have had a bunch of fun along the way, hit some long balls with men in scoring positon and made some handsome returns for my investors. I have made more than a few of my key employees millionaires and have ensured that a few secretaries have the option of sending their kids to Harvard. With my share, I have contributed generously to my alma mater (repaid a debt of honor really), bought more than a few charity auction things I have absolutely no need for and done some truly good works with it. I am not the least bit ashamed of having done well. I was eating out of my competition’s chili bowl while they were sleeping.But when the money talks — even now when often my money is side by side with theirs — I listen. The world is basically divided into users of money and suppliers of money. I am a user and I do not begrudge the suppliers calling the tune from time to time. Engage with them and you will find that their concerns and insecurities are understandable, predictable and legitimate. Hell, I’ve even been wrong a time or thousand.Don’t get mad at the money!

    1. Tereza

      Thanks we so needed that. There’s been a lot of magical thinking the last few days and a dose of reality is what the doctor ordered.When there’s no business…..none of the other ‘higher order’ things that’ve been debated mean a damn thing. There’s nothing to fight over. There’s just nothing.

      1. CJ

        Except that what we’re talking about IS business, it’s just not business models that are based on profit pressures. The internet, with it’s lower expense model, allows one to put off profits in lieu of building value which will eventually be converted to profits. USV, as I understand it, cares less about immediate profits and more about burn rate and value creation. Why? Because they realize that once an idea reaches critical mass, profiting from it becomes a lot easier and the profit is greater.Value creation IS business, it’s just not as easily modeled because sometimes the initial value isn’t financial and people get skittish when you try and sell them on a business that doesn’t expect to make money…yet. But if you can see the long-term picture you realize that as long as you can keep expenses low and scale at a multiple of the amount of money you’re consuming to run the business you have an excellent chance at turning a profit…eventually. I understand though, in the finance community you don’t find a lot of people comfortable with the terms ‘eventually’ and ‘no revenue model’. *shrug* I just see it as a new way of doing things, doesn’t mean the old way is bad, this is just different.

        1. Tereza

          I don’t disagree with you but left it out to keep things simple.Facebook and Twitter are exceptional examples of starting free and building that platform. I’m doing my own business that way too. I hope it works.But in the bigger picture, I find this confuses people.Revenue is always harder to get than folks expect, and I feel like lots of startups derail when that time comes to convert to revenue. They just haven’t thought hard and smart about it in a strategy of “build it and they will come”.And it may be pennies instead if dollars, due to capital efficiciency. And that’s okay, if you can get the projections to work.But eventually, everyone has to bring in revenue, if they are to be a sustainable company. There is no exception to this.

          1. CJ

            “But eventually, everyone has to bring in revenue, if they are to be asustainable company. There is no exception to this. “Totally Agree.

        2. JLM

          It seems to me that you are somehow confusing the ramp up of a startup business in the Internet age or with social media as somehow being different than a typical startup business ramp up.Today you may deal with different performance metrics during the initial phases but the ultimate destination is to create a cash flowing business.This “no revenue model” is not a finished product, it is just a preliminary phase of an otherwise normal startup ramp.

          1. CJ

            No, I agree that it’s not the destination, but rather a step towards the end result that you describe…profitability. If I gave you another impression, I need to proof read more. 😀

          2. Tereza

            Totally agree.I get nervous when I hear “don’t need to make money”.Because that day of reckoning will come, guaranteed.Unless you die first.

    2. Mark Essel

      Are people losing faith in the system of value we live by now? The change costs are apocalyptic.How do I estimate the price and fee with a dollar that fluctuates with the wind of the Fed? What can we do to avoid inflation here like that suffered before ww2 Germany? My folks survive because of earned pensions and securities, their level of comfort is my own.I care deeply about value (and trust), but not nearly as much about our current system of estimating it.We’re missing something. Freedom, opportunity and money are far too correlated. Perhaps freedom doesn’t exist in the absence of a trustworthy social standard.

      1. JLM

        The simple answer to your question is YES.And at its core it is slowly but surely dampening the excitement and adventure and perhaps the effectiveness of the American dream.It shows up in so many things today as to be incredible.We have devolved to a society which is willing to TAKE a handout and a society which is becoming more and more comfortable with seizing our labor and applying it for purely social — and very unsound and unprincipled and ultimately ineffective — objectives.We are slowly but surely becoming a fish mongery giving out fish rather than a school of fishing teaching citizens how to fish for themselves.

      2. andyidsinga

        There is plenty to make and fix and we can start right now on the street we live on. Building skills that can be traded seems to be an important part to that.Dan Ariely talks about social norms and market norms in his book Predictably Irrational. Social norms allow us to do and create things for others that we would not otherwise be likely to do if considering the current market price for such a service or good.A great example of social vs market norms: An organization puts out a call to lawyers to represent the elderly at a reduced rate of, say, $15 and hour. The organization gets little to no response. The organizations puts out a call again, this time asking lawyers to volunteer to represent the elderly for *free* – this time they get a much better response. Interpretation: when the lawyers were considering the $15 rate they were considering it in the context of market norms whereas when they considered the request to volunteer they were considering it in the context of social norms – helping someone in need etc.It seems to me that building value is building value – just thinking out loud here : maybe when markets are less-predictable social norms start to arise as the way to continue creating and exchanging value.

        1. Mark Essel

          Thanks Andy for chiming in, your example of perceptions shed’s light on the differences of value (social & fiscal) Malcolm and JLM are discussing in the above thread.Btw you’re in my cofounder Tyler Gillies’ neighborhood who I just met a couple of days ago in SF after working together for 7 months. I hear great things about the tech scene in Portland. Another talented software hacking friend Brian Hendrickson is there as well (he’s a founder of Nozzl media which is doing a fantastic job of creating customized local news streams).

          1. andyidsinga

            🙂 Portland is a great town.

    3. David Semeria

      Another fantastically eloquent and entertaining comment JLM – but this time you’re wrong.You overlook one important point: a VC’s returns are based on the fund as whole, not each individual investment. And we all know the 1/3, 1/3, 1/3 rule.I think an extreme summary of Fred’s stance could be: if the investment turns out to be worth nothing (and we assume beforehand that around a 1/3 of investments will) then at least it’s brought some good to the world.This is an ex-post consideration – not ex-ante, as you imply.He then plays his joker by pointing out an obvious truth – if a service is so widely used as to be truly useful to all, it’s very unlikely it’s going to be worth nothing.There is a strong logic to Fred’s arguments, no obvious internal contradictions – and certainly no sense of conflict about whether to do good or make money.

      1. Mark Essel

        Thanks Dave, good counter position.I wonder how often people are faced with one or the other, to do good or make money.

        1. Tereza

          Or to put a finer point on it….if offered a lot of money but a chance it might do bad….would you take it?Shakespeare’s life works were based on this. And so are ours.

          1. CJ

            Depends on how large the chance that bad things would come of it.

          2. Tereza

            True.And I think that the promise of obscene amounts of money has a great ability to distort or distract one’s ability to judge the likelihood of those big, bad things happening.

          3. JLM

            Interesting observation and very thought provoking.I wonder at what instant in time Bernie Madoff decided that wandering off the game board was OK. Ivan Boesky? Michael Milkin?How was he going to get away w/ it? What did he think was going to happen? Why did he do it?I counter that thought with the nobility and simple elegance of a janitor at a school who works faithfully at his job for 40 years and is pensioned off w/ a watch and a thank you.I wonder if he knows how rich he really is? That his faithfulness has been tested for four decades and he has never come up wanting.I reflect upon the life of John Wooden who was an unbelievable basketball coach but an even better man. When he died recently, many people did not know that he had been a 3-time consensus All American at Purdue because his coaching career and his life had so dwarfed that unbelievable accomplishment.Life is a very funny adventure. I really dig it.

          4. JLM

            Funny thing about character — it arrives at the same conclusion whether the amount at issue is big or small. If one establishes that one would ever compromise on matters of character, you are only negotiating price thereafter.Be true to yourself in all things big and small but if true in the small things, the big ones present absolutely no temptation.

          5. Tereza

            Which is also why we have to give our kids just enough to almost — but notquite — hang themselves.Every one of us has to work our way up to bigger and bigger problems. Youcan’t have no practice and then expect to hit the ball out of the park onyour first at bat.There is a lot of (possibly subconscious) muscle memory involved.Oh and by the way, this kind of management is one that many people don’tdo.If I were given money to create a (nonscalable) little company it would bearound teaching people/managers/parents to craft challenges to the peoplearound them that just stretch them beyond what they’ve done. And then do itover and over and over again.The great people I’ve worked for and have known were really excellent atthis. It makes for loyal people who are leaders in their own right.

          6. JLM

            That’s called training, coaching and mentoring. And I agree completely with you.

          7. andyidsinga

            We have to be careful about the: “chance it might do bad” in our thinking and approach – especially when it leads to worst case thinking. Schneier has a good post on worst-case thinking:…Cheers 🙂

          8. Tereza

            I agree that when a business gets into the business of risk mgmt vs value creation it’s the beginning of mediocrity.But every business needs take a couple hours to create a complete list of ‘valleys of death’, have mitigations strategies in place for each. Rank them in order of likelihood and thus what level of dollars and effort you put against them.And then get back to the business of value creation.A growing business is about what you can do, not what you can’t do.

      2. JLM

        Point well made and I certainly agree that the width of the brush stroke accomodates it.My comment was not as focused as it perhaps it should have been and I wandered a bit from the core issues.I was not so much replying to Fred’s original post as to the sense of conflict expressed by comments responding to that post and the broader state of the world that those comments seemed to suggest.

    4. CJ

      Value creates money and there is more than one way to create value. Not all value will be convertible to financial value but in most cases if you create enough value of an alternate type there will be a way to convert it into money. Of course still the ultimate goal is to make money, but the road we take to get there can be different depending on who is walking it.IMHO, there are way too many people who take your line of thinking to the extreme and that’s why we get issues like the Gulf Oil Spill. Someone, somewhere put profit and their investors ahead of safety and the environment and now we’re all paying for it..

      1. JLM

        We have a bit of language at play here.The term “value” has to be used in a fair, descriptive and accurate context. What you are suggesting — and with which I agree completely — is that there is an adjectival descriptor which can be affixed to value which makes it two different things. Not bad things and not automatically in conflict with each other but as different as a pick up truck and a Ferrari — four wheels, transportation, great utility but must be considered each in their unique context.Financial or economic valueSocial valueThese may be different destinations and therefore the suggestion that the “road we take to get there” is just an alternative path ignores the reality that we may really be dealing with different destinations.

        1. CJ

          I agree wrt your discussion of the term “value”. Further, I think that most ‘kinds’ of value can be converted or ‘mined’ for financial value. So I’d say that while the destinations might be different, there is often a bank along the route to wherever you’re going. Sometimes it’s on a side street, sometimes it’s right there on the avenue, but often if you’re astute enough you can find it while you’re walking the road of value creation, regardless of the type of value you’re attempting to create. Craigslist would be a great example of this.

          1. JLM

            I am attuned to exactly what you are saying and I do not question your observations however I am wary of “she has a great personality” type of sentiments which are simply camouflage for the reality that we failed to ring the bell and get the pay window to open.If anything can be converted to or mined for financial value then it is financial value.If something cannot be converted to cold hard cash — albeit at some future date and perhaps a long way into the future given that we are speaking in the tongue of the start up — then is it not financial value.There is a huge difference between wandering along smelling the flowers, having a good time and making a beeline to the paywindow.

      2. JLM

        As it relates to the BP issue. BP is notorious for going it alone as it relates to many petroleum engineering practices. It is joking said — there is the right way, the wrong way and the BP way.You are overthinking the subject to suggest that BP was using a $350MM rig (contracted for to be accurate) and then trying to cut corners. This was a fundamental failure of operations. Some guy in the field cutting corners without any suggestion from upper management to do that. Countering pool pressure with seawater rather than mud to save a buck. A dumb thing to do.What is really concerning is the failure of the failsafe provisions to prevent the blowout after the stupid decision was made. That is pure fixture failure.BP’s CEO managed to make it incredibly worse by perhaps the most insensitive public utterance ever made in a crisis management situation.Apparently it is one hell of a well given demonstrable flow rates.

        1. andyidsinga

          I don’t think employees or managers cut corners unless they work in an environment that supports or ignores it. Managers lead the work environment and set the tone and expectations even when they are not giving approval for specific actions.

          1. JLM

            In general I agree with your comment and in specific I agree completely when you are dealing w/ “smallish” companies. Management — well, really, leadership — sets the tone in things big and small.I didn’t want to get into the vagaries of well drilling but likely the people involved were contractors rather than BP persons. Nonetheless BP is ultimately responsible for everything that happens or fails to happen on their prospect and lease.I would just make the point that administering an ass kicking to the CEO of BP is unlikely to impact the decision as to whether they put seawater or mud into the drill pipe to counter pool pressure at completion. Obviously the right decision was to use mud — or so we think today in hindsight — but it is not unheard of to use seawater. Judgment call but a very important one apparently.If the BOP equipment had worked as it was supposed to have worked this would have all been an academic exercise showing that most disasters are a “chain of decisions” gone wrong. In this case, horribly and horrendously wrong.Of course, the CEO of BP wins the award for bonehead statement of even this comparatively new century.

  28. William Mougayar

    I’d like to add that having thousands even hundreds of thousands of users without a path for real revenue at some point creates a false sense of success and the house of cards will crumble. (there are many examples of greatly useful apps that no one will pay for or that don’t generate sustainable direct or indirect revenue)

  29. Thomas

    It is not about being successful, it is about being truly significant……R.Sharma……..Cheers, Thomas

  30. Phillips Pat

    With the obvious understanding that the goal at USV is to ultimately make a profit for your investors, I think this Lefsetz letter and linked video within explain what it is you’re trying to say. Frankly, since reading and watching it, I’ve not stopped thinking about it.


      Well I think the Simon Sinek video explanation of why Apple & Wright Brothers succeed where others who seemed as, if not, more qualified, do not is thought-provoking.Communicating new ideas is critical to success and Sinek has an insight about a basic communication key that inspires purchase. And targeting that communication to those who are receptive to hear it is also critical. It can be very hard to find the people who “believe what you believe” on the internet.Since I have been unable to complete watching a single video on the internet since the world cup started, I haven’t seen the end yet! Look forward to that!K—

  31. Michael F. Martin

    Read in conjunction with the last post, this post is quite revealing.USV likes to help entrepreneurs build large networks of engaged user (citizens).Entrepreneur-run large networks of engaged users are like governments.So what is USV financing?

  32. usb flash drive

    I disagree, financial measures cost money very well. However, it does not measure social value very well, nor measure the educational value … etc. What we need values, but better, more efficient and relevant metrics to redefine value for money than other categories do not measure.

  33. Aviah Laor

    “large engaged network” is the new working capital

  34. fredwilson

    that’s a pretty classic stakeholder analysisthere was a good article in Inc Magazine about our portfolio company Return Path where the founder/CEO Matt Blumberg talks about telling potential investors that he puts his employees before his investors in terms of how he values his stakeholders…

  35. JLM

    I am modestly confused between the characteristics of a “good” company which I think you have nailed perfectly and the motivations of a VC.The VC is funding the entrepreneur’s dream. It seems so perfectly noble and transcendental and “keen”.The entrepreneur dreams in HD, in color and sometimes w/ all the lights on. The entrepreneur will kill for his dream.The entrepreneur may recognize all different kinds of currency and ego nourishment and an unfathomable list of “keen” stuff. But the entrepreneur by definition is a bit nuts. Viva la difference!The VC? He wants to put in some money and take out a shit pot of money. For which he is willing to ride shotgun, provide a bit of expertise, guardrail things when they get dicey and consort with crazy entrepreneurs. But for the VC, the big thing is always the money.Why?Because the money — the profit, the juice — funds the VCs dreams which center on big homes, trophy wives, vacation homes, yachts and airplanes and braces for their kids teeth and private school tuitions and other “keen” stuff. Keen to VCs, mind you.Why else?Cause the VC has raised this money from LPs who don’t really give a shit whether the entrepreneur is a good guy or an asshole. The LPs are worrying how they are going to fund the pensions of a bunch of folks who they have promised to pay literally forever. They want the VCs to solve that problem for them and they hope they have teamed up w/ guys who can do just that.The VCs provide a thin veneer of civilized behavior from a bunch of even less sympathetic beancounters and actuaries.So satisfaction of founders and satisfied customers and satisfied employees — to the VC and LPs?Well, not too much cause they need the money to fund their dreams.Sympathetic to the entrepreneurs instincts and yearnings — you bet. But prepared to do the heavy lifting if something goes astray and threatens their investment.And there is nothing wrong w/ that scenario.