Posts from entrepreneurship

Butter

I once asked a famous celebrity chef how he made his pasta taste so good.

He answered “Butter. Lots of it.”

When we land in Paris, jet lagged and cranky, we head right to our favorite street cafe and order strong coffee, baguettes and butter. And our systems are restored.

Butter is one of my life’s treasures. I love it.

Butter is also something we look for in the products and services we invest in at USV.

My partner Nick coined the term Butter, at least inside of USV, and he wrote about Butter on his blog recently, explaining what it is and why we look for it.

I particularly like this part of his post:

On the consumer side, Butter means end-user experiences that are frictionless and joyful.  For example, I recently went to China and was blown away by the QR Code experience — straight butter wherever you go, linking the real world to the online world.  Duolingo is Butter for Learning.  Nurx is Butter for Health.  Coinbase is Butter for Crypto.  Amazon Prime is Butter for e-Commerce.

https://www.nickgrossman.is/2019/the-butter-thesis/

Nick provides some good guidelines on how you can make your product or service buttery in his post.

We look for buttery products and services to invest in because customers look for buttery products and services to use. It is really that simple.

So when you design and build your product or service, make it buttery. That will lead to all sorts of good things.

Bigger Isn’t Necessarily Better

Crunchbase has a story up today explaining that Series A and Series B rounds make up between 25% and 35% of all $100mm+ “supergiant” rounds every year.

That’s interesting but what would be more interesting is to compare the cohort of companies raising Series A and Series B supergiant rounds to the rest of the companies in a given year that raised Series A and Series B rounds.

What would interest me are success rates between the two cohorts. One could measure how many of each cohort are alive five years later. Or one could compare the stock price appreciation over the five year period between the two cohorts.

I have found, and written here, that performance of VC backed companies is inversely correlated to how much money they raise.

There are all sorts of reasons for that, but mostly it is that money is a burden, and anchor, it weighs you down and slows you down.

So I’d like to see the data on these supergiant A and B rounds. I suspect it will be pretty poor.

Grinding

It is tempting to search for the one magic move that will make everything better. A new VP of Sales. A new database layer in your tech stack. A new brand for your company. Moving everything to the cloud. More capital in the business.

But it is rarely one thing that a business needs to succeed. It is often a little bit of everything.

Back in the early days of Twitter, we could not keep the website and API up. We would hire advisors and they would recommend something new and we would try it and we would still go down. It was terribly frustrating and threatened the business.

During this period of instability, Twitter purchased a search engine called Summize. Summize was a small team of engineers, most of whom had come out of AOL.

After we cut the deal to acquire Summize, I asked Jack Dorsey, who was running Twitter at the time, how we planned to integrate the Summize team. He looked at me and said “we are not going to integrate them, they are going to integrate us.” And Jack made Greg Pass, Summize’s engineering leader, Twitter’s engineering leader.

It was interesting to watch Greg and the Summize team tackle the “fail whale.” Instead of searching for a magic solution, they instrumented the entire system and just started rebuilding every part that was about to break.

It was a slow and steady approach. It took time. But within six months (or thereabouts), we had a much more stable system. And after about a year of this approach, we had mostly said goodbye to the fail whale.

Grinding isn’t very satisfying. It is hard to stand up in front of everyone and say “we are going to fix things around here bit by bit with a lot of hard work.” Big flashy moves are an easier sell most of the time. But they don’t work nearly as well and are prone to complete and abject failure.

If given a choice between a flashy operator or a grinder, I will take a grinder every time. It is a much higher percentage bet. It requires faith and patience and the results are sometimes hard to see. But if you look at the results from grinding it out over a long enough time frame, you can see the power of that approach.

Cash Management In Startups

When I was in my mid-20s and had just gotten a job in venture capital, I read a piece on Alan Shugart, the larger than life founder of Seagate, one of the most successful disk drive companies. Alan was quoted as saying that “cash is more important than your mother.” That got my attention because mothers are really important.

Over the years, I have learned what Alan meant. Cash is everything in a startup. It is the fuel that keeps the car running. And startups fail largely because they run out of cash.

I was working with one of our portfolio companies yesterday on a cash forecasting model, a practice that I strongly recommend and appreciate greatly.

Forecasting cash is more art than science, particularly in a growing company where there are all sorts of unpredictable things (revenue, infrastructure costs, hiring pace, receivables, etc).

But like all practices, it is about the practice. You have to engage in cash forecasting, you have to engage in it regularly, you have to adapt to changing conditions on the ground, and you have to internalize the puts and takes and their impact on operations.

When a company gets mature in their business operations, has repeatable revenues, and has a strong balance sheet, you can run the business based on an annual plan or a semi-annual plan.

But early on in a company’s life, you are going to have to operate on an ever changing plan. If the revenues are coming in more slowly, you hire more slowly. If you want to wait another six months to raise more capital, you have to buy that time with changes to the operating model.

That is the back and forth between cash management/forecasting and operating. They go hand in hand.

It all starts with a cash forecasting model. It looks like a forward-looking profit and loss statement. But you do it on a cash basis. And you include balance sheet items like security deposits, equipment purchases, etc in it. Think of it as forecasting your checking account over the next year.

Once you have that, you need to engage in updating the model regularly and it is ideal to do that as a team, or at least with parts of the team, in the room. That makes it abundantly clear to everyone how operational decisions impact cash and runway.

I like a weekly cadence to this process and I like it to happen with the key senior leaders in the room. That may feel like wasting people’s time. But cash is more important than your mother in a startup, so managing it is never a waste of time.

No Shenanigans

I was talking to a friend today about company values and how important they are but also how lame so many of them are.

I told him that some of my favorite company values come from our former portfolio company Twilio (which in the spirit of full disclosure I am still a large shareholder of).

Twilio’s founder and CEO Jeff Lawson gave a great talk on company values at USV a few years ago and explained how he approached them. This blog post (and audio post) is about a similar talk he gave at First Round.

Twilio’s company values are shown below:

My favorite of them is “No Shenanigans” which translates to “Be thoughtful. Always deal in an honest, direct, and transparent way.”

It is such a great value. It is memorable. It is broadly applicable. It is interpretable. And I can imagine team members running their decisions against it and getting a helpful result that guides them.

That is what company values are all about at the end of the day – helping people make decisions that everyone in the company will be proud of and supportive of.

Like most things that are incredibly valuable, values are not easy to get right, but they are worth investing a lot of time and energy in.

Calling All Founders

NYC’s Partnership runs some outstanding accelerator programs.

There is the flagship Fintech Accelerator which is celebrating its 10th anniversary this year. In this program, founders are connected to the CIOs of the top banks, brokerages, and insurance companies in NYC as they work on their products and pitches. Over the past decade, 69 graduates of the Fintech Accelerator have raised over $1bn. I have written about this program frequently. It is an example of something that you could not do anywhere other than NYC.

And then there is the newest one, the Transit Tech Accelerator, where founders who are building transit companies are connected to the leading transit systems in the NY Metro area while they work on their products and pitches. The MTA is piloting four technologies they found in last year’s program and there are six more transit systems involved this year.

If you want to apply to the Fintech Accelerator, do so here.

If you want to apply to the Transit Tech Accelerator, do so here.

What You Do Is Who You Are

This past summer I read a proof of Ben Horowitz’s new book, What You Do Is Who You Are, and I even blogged about it here without naming the book.

What You Do is about culture, how you make it, how you keep it, and how the big decisions you make and how you explain them set the culture in your organization.

To explain this Ben tells the story of four different cultures that were set by strong leaders:

– the leader of the only successful slave revolt, Haiti’s Toussaint Louverture

– the Samurai, who ruled Japan for seven hundred years and shaped modern Japanese culture

– Genghis Khan, who built the world’s largest empire

– Shaka Senghor, a man convicted of murder who ran the most formidable prison gang in the yard and ultimately transformed prison culture.

https://www.amazon.com/What-You-Do-Who-Are/dp/0062871331/

These stories really make it clear how you set and keep your culture. You will come away from this book with a clear understanding of how your actions will set the culture in your company.

I read Ben’s interview with Connie Loizos and I like what he said here about why he wrote the book:

First, it was the thing that I had the most difficult time with as a CEO. People would say, ‘Ben, pay attention to culture, it really is the key.’ But when you were like, ‘Okay, great, how do i do that?’ it was like, ‘Um, maybe you should have a meeting about it.’ Nobody could convey: what it was, how you dealt with it, how you designed it. So I felt like I was missing a piece of my own education.
Also, when I look at the work I do now, it’s the most important thing. What I say to people at the firm is that nobody 10 or 20 or 30 years from now is going to remember what deals we’ve won or lost or what the returns were on this or that. You’re going to remember what it felt like to work here and to do business with us and what kind of imprint we put on the world. And that’s our culture. That’s our behavior. We can’t have any drift from that. And I think that’s true for every company.

So if you leading your company and you are thinking “ok, great, how do I do that?”, then go get this book and read it. I think you will come away with a much better understanding of what culture is all about.

Bringing It All Back Together

Early-stage companies are exercises in experimentation, iteration, and figuring things out. You try one thing, it sort of works, but you see a tangential opportunity and go after that. Sometimes that leads to a full-on pivot, other times it leads to an evolution of the opportunity.

This process can create multiple products, services, projects, and it can look messy. I love it when founders bring it all back together into one cohesive package. That doesn’t always happen, but when it does, it is a thing of beauty.

That happened this week with our portfolio company Numerai. I saw this tweet by Numerai founder Richard Craib:

If you have not been following Numerai, let me explain.

The initial idea behind Numerai was to build a quant hedge fund using “the crowd” to surface the machine learning models. They do that by running the Numerai Tournament and taking the best models and operating a hedge fund with them. That is what Numerai does and that business is working well.

Along the way, Numerai observed that incenting the players in the tournament with a crypto-asset they could stake on their models was a better way to crowdsource the best models. So they made a crypto-asset called Numeraire.

Numeraire is a crypto-asset that you can trade, own, and, if you are playing in the tournament, stake.

So then Numerai was in several businesses, the hedge fund business and the crypto business.

And then the team observed that there was a generalization of the thing they had built that had much broader applications – a decentralized marketplace for predictions. So they created a protocol called Erasure that allows anyone to build markets for predictions.

It started becoming a fairly messy story.

But last week it all started coming back together when team successfully ported the Numerai Tournament to operate on the Erasure protocol.

This accomplishes several things. First, it starts to tie all these loose threads together and the story becomes easier to understand. And also, you have a very successful application, the Numerai Tournament, running on Erasure. So developers can see what Erasure is good for and can start building other things on it.

I am excited for the Numerai team. And I quite like this example of how things get messy as you expand the opportunity but you can clean things up by bringing it all back together and would encourage founders and teams to look for opportunities to do that whenever possible.

Principles Over Profit

I was pleased to see NBA Commissioner Adam Silver say this with respect to the controversy over Houston Rockets’ General Manager Daryl Morey’s tweet in support of the protest movement in Hong Kong:

The NBA will not put itself in a position of regulating what players, employees and team owners say or will not say. We simply could not operate that way.

The NBA faces the potential of a backlash in China that could impact the league’s business interests there.

That could reduce the profits of the league and players and owners.

But the NBA is putting principles over profits here and that is a good thing.

We have faced this issue a number of times over the years at USV and we have tried to do the same.

We have also been on boards of companies that have faced this issue over the years and we have advocated for this approach.

It is not an easy choice. Companies have employees to pay, families to feed, and customers to serve. And principles are not always shared by everyone and the lines are not always clear

But one thing is for sure. The search for profits can lead a founder, a CEO, a team, a Board, and a Company to forget their principles and that is never a good thing.

That’s Not Fair

I saw some news this morning and immediately thought “that is not fair.”

And then I reminded myself that life is not fair.

Of course we all wish that life would be fair. It should be fair.

But it just isn’t and if you go through life wanting it to be fair, you are just setting yourself up for a lot of disappointment.

All of that said, I have found life to be more fair over the long run. Things tend to even out over longer time frames.

But in the short run, we have to be prepared to get the short end of the stick and then figure out how to make that a winning hand anyway.