← Notes

Lessons from Keith Rabois on various topics

Jul 22, 2023 Reading Time: 158-220 minutes

• work
• books

Identifying and solving ambitious problems

• Aim to solve important, ambitious, and specific problems with high impact.
  • Starting a company just for the sake of being a founder is not a good idea.
  • A lot of founders make mistakes of starting companies because they think it’s prestigious or cool versus they want to change the world and really fix problems.
  • It is important to have a specific startup idea that sparks passion.
  • As a general matter, I like people who have a very specific idea. That they want to pursue and they can’t stop thinking about it, the proverbial “I can’t sleep at night, I can’t stop proselytizing.”
  • Reid had this idea of a professional network in his mind every day at PayPal and I had a burning ambition for OpenDoor.
  • Conventional advice to follow your passion can be refuted easily. YC’s advice to find a problem that you’ve experienced is pretty good but it might be too constraining. I think if you have some of the raw ingredients and a unique advantage like skills or insight, it can be a good idea.
  • Always aim for something important and ambitious. Because the fixed cost of the pain is pretty substantial if you’re going to start something from scratch.
• Understand opportunity, avoid trapdoors, and find the path to treasure using idea maze.
  • I like the idea maze. You really want to understand the market and opportunity well enough that you can walk anybody through the trapdoors, the history, what looks alluring, and what isn’t? What’s the real path to the prize? And once you master something so well, then I think you’re ready to do it.
  • Great founders can walk you through the intellectual maze from start to success instead of failure and draw the treasure map.
  • I’m really looking for founders who has that intellectual maze in their brain, can communicate it with passion, and has the determination to overcome any obstacle to go from where they are to where they want to be.
  • High-caliber, potential founders can envision changing the world with an insightful vision of how to do it. This is sometimes referred to as the “intellectual maze” and so they can navigate you from the path from failure to treasure correctly, with the team built around addressing the key risks in that journey.
• Embrace naivety and ask “why” questions from experts to find why an idea might not work.
  • People who are experts tend to know what you can’t do very well. They’ve mastered the rules. They typically don’t ask enough “why” questions. Why not? Why can’t this be done this way? I’d like people who kind of don’t know what they’re tackling a bit. But they’re very fast learners.
  • People with domain expertise learn what you can’t do not what you could do. So you only need to ask consultants to explain why an idea can’t work.
  • The most important companies are usually founded by people who don’t know much about what they’re getting themselves into. And if they would, almost because starting a company is really a heroic exercise, it’s borderline or maybe completely irrational.
  • I tend to believe that people who are naive about markets do better than those who know about them. If you have a lot of industry experience, you tend to take things for granted. Square, Stripe, Forward Health, SpaceX, and Tesla, all had founders without domain expertise.
  • Naiveness matters, because when you go into a vertical too often, it’s very easy to get cynical and start believing the rules. Therefore, you miss some of the best opportunities.
  • Picking the right one or two people have expertise to complement your sort of naive optimism is a critical dimension and something actually venture capitalist can help with is help find a network of people where you can choose from wisely the right complement for you. But I don’t think you really want someone who has too much expertise
  • When I do diligence and call an expert, I never ask the expert, “What do you think of X?” Experts never like X. They’re not very innovative. But I ask the following version of the question: “Is there a reason why this absolutely cannot work?”
  • You can get the benefits by having just one or two doses of experience. Then you highly leverage them. You ask them a lot of questions. All the questions start with “Why?” “Why do we need to do it this way?” “Why?” “Why?” “Why?” “Are you sure?” “Is there a way around this?”
• Identify an incredibly fragmented industry with low NPS, integrate vertically and improve the experience and achieve a high NPS.
  • Identify an incredibly fragmented industry that is generally disliked by consumers, and disrupt it by vertically integrating, simplifying the process, and taking on the burden of achieving a high NPS score.
  • Find an industry that is very fragmented, where customers are very unhappy. This can be measured empirically by a low Net Promoter Score (NPS). Then, create a vertically integrated company that addresses the pain points, simplifies the value proposition, and therefore creates a more compelling experience.
  • Find a very fragmented industry that typically has extremely poor customer satisfaction and then figure out how to improve the experience by creating an end-to-end solution that’s roughly vertically integrated.
• Timing is never a good excuse for founders.
  • I think it’s the founder’s job to triangulate to what’s possible. When a founder says, “I was wrong about the timing,” or “I missed the timing,” it just means you can’t do your job. Like, you need to plan for what’s possible today and figure out hacks. A good entrepreneur triangulates. “How do I get to where I need to get with what’s possible to do today, with hacks and bridges? Not sitting back and whining.”
  • Every good founder has to have a great answer to why now. And typically, if the timing is going to work, the founder has a very compelling answer to what has changed in the world, in the ether. Without a why now answer, I typically am in pass mode.
  • Every time we invest in a new company, we ask a version of “why now” and it sometime becomes obvious over time.
• Every startup needs a secret that most people don’t understand or appreciate yet.
  • Every startup needs a secret that is some insight or conviction about the world that most people don’t understand or yet appreciate. Founders should have some insights into human behavior or human needs that the rest of the world didn’t really yet understand.
  • A secret is a belief that the rest of the world doesn’t appreciate. Almost all fundamentally interesting companies are predicated on at least one big secret. The secrets that propel the first few years might not work longer so startups need to come up with new secrets for the next generation of innovation.
  • Founders need to think about what they are doing differently and why? What are their secrets? Why are they likely to have unreasonable success?
  • You have to decide which side you want to be on with it and build around that. And you’re making it that there’s an aperture to a market that other people don’t understand. And that’s sort of the Peter Thiel secret that this market can be attacked in a way that other people don’t see. And that’s where your DNA better be very strong.
  • The bad version of that conversation is when they don’t even realize they’re violating the rules, or they don’t understand the reasons why they’re deviating. That’s usually a disastrous recipe for a mess because you don’t want to violate all the rules.
• Consumer products need to rearrange a lot of people’s life.
  • To succeed as a consumer startup, you need to rearrange a lot of people’s lives and get them to substitute from something they’ve been doing for years and substitute it into your new product. That’s pretty rare and very rarely works.
  • Building a consumer product is like tapping into popular culture. There are only 24 hours in a day and 168 hours in a week, so you have to substitute for something people do today. You can substitute for websites they consume, family activities, professional activities, or hobbies. If you’re not substituting for one of those things, you have no chance of being a mass-market website. Fundamentally, you have to understand what drives normal people to watch a TV show.
  • **90% of the time consumer Internet companies fail for one reason*: Inability to acquire and retain a substantial number of users. In isolation the founders can articulate a reasonable value proposition, but in the real world cutting through the clutter of the 3,000 advertisements per day that the average American is bombarded by is extraordinarily difficult.*
  • One of the biggest challenges to start a new consumer business is inverting inertia, reorienting people’s time, and replacing something else to adopt your new product.
  • The question that users will probably ask in the beginning is, “Why? Why should I do this?” And if you can come up with a single-player mode answer that seems compelling, then it can probably spread.
  • You definitely need to figure out how you’re going to get initial traction. There’s no substitute, particularly for consumer products. You have to start somewhere, and you have to get the flywheel going. And it’s often easier to do that with a narrow segment. The problem and the risk that I really hate with that approach, though, is if you’re wrong about where to start, you get a lot of friction and a lot of negative feedback.
  • For a consumer product, to some extent you just build and ship it and see what happens. And then look for things that are anomalously better than you expected. People like to do X more than you thought, and they don’t like to do Y. And then kind of edit and evolve from there.
  • 99% of consumer startups just are not going to succeed because they cannot interrupt normal people in the middle of their day and convince them to change their behavior or to put basically their new product on the home screen.

Assembling the founding team

• Find co-founders who compliment you and agree with you on first principles.
  • I feel like the co-founders we fund probably have roughly a 50% divorce rate. Startups by definition are going to go through, hopefully, very rapid change. And so predicting what this person or people are going to be like through periods of rapid evolution may or may not be possible.
  • Probably half of founders get into serious disputes, which shouldn’t be totally surprising because half of marriages end in failure too. You can test it by brainstorming together and making a list people and ask each other opinion about them.
  • I think the most important thing in co-founder selection, other than marrying somebody who can help you solve a core risk, is agreeing on first principles. You cannot be debating first principles all the time in a startup like using open vs. closed systems or disagreeing on the value of various people in company.
  • Every founder has great strengths, especially that list of all world-class founders, and some of them in multiple dimensions at the same time but everyone needs a compliment. One of the things I’ve been able to do is pair with people and compliment them.
• Creating a cult makes your team believe that they’re better than everybody else in the world.
  • Peter talks a little bit about this, that every start-up, every good start-up is a cult. It’s really hard to create a cult if you’re sharing space with people. Because a cult means that you think that you’re better than everybody else in the world, that you have a special way of doing things that’s different than everybody else in the world.
  • Each successful startup is kind of like a cult. It has a certain set of beliefs and ways of acting, and that becomes self-perpetuating. You have to craft a culture that’s based upon your vision, the market opportunity, and your talent. your strategy needs to be completely tied to the talent you have, which has to reflect back into the culture you build. And it’s all like one circle.
  • Patrick Collison at Stripe has a great way of thinking about this: “Take your first 10 employees and assume each one can replicate themselves 10 times. So basically, your first 10 employees become your first 100 employees. So if you really want someone who can replicate themselves 10 times, hire them. If not, don’t hire them in your first 10 employees.”
• List 2-3 main risks or challenges of your startup, find a directly responsible individual (DRI) for solving and delivering each challenge.
  • The key thing is to figure out, “Okay, we are here and we want to go there. What are the two to five most likely problems that we’re going to encounter? How do we address them or validate them as fast as possible? And do we have the the directly responsible individual, that’s just responsible for delivering that? And if not, I got to go find that.”
  • Decompose the problem to the core risk (usually 2-3 main things) and hire people with the DNA that gives you an unfair advantage against those risk. Revisit in a year as prioritization and problems may shift and make changes in the composition of the team if needed.
  • Plot the key risks in order of degree of difficulty. Every company has 2,3, or 4, hopefully no more than five core things to conquer. Decompose each of key risks and put a name against each of them. That person better have conviction to solve that specific problem and if you don’t have the right person, you better go find one.
  • I use a sort of paradigm of potential or risk reduction. If you’re trying to solve a problem that’s never been solved before, you need someone who has high potential in that area. If you’re trying to avoid a catastrophic mistake, or a fatal flaw, you want someone who has experience.
  • The first thing I think through is what’s the market opportunity, and what are the most difficult challenges and the biggest risks. And for each major challenge and major risk, you want someone who has world-class ability to solve that problem.
  • Affirm’s first risk was underwriting people who were mispriced by FICO scores better than FICO. The second risk is fraud risk when someone is intentionally abusing with like a fraudulent identity. The core team had both the underwriting and fraud experience. And it would have been disastrous to do the company without both.
• Think of building a startup as creating a movie: start with a narrative (vision), cast (recruit) the team, produce (raise money), release trailer (value prop), sell tickets (market).
  • *Building a startup is like creating a movie. You start with the narrative envision, you cast the team, you produce it, meaning you actually raise money, then you market it, and you sell tickets, and then you constantly iterate on the marketing strategy to sell the tickets. Selling tickets is a function of creating a trailer, which is like a value proposition succinctly and powerfully described and marketed.*
  • My general belief about startups is that you start with a vision of what you want to accomplish. And then you figure out what kind of characters you need to write the script.
  • Building a product is just like a movie. Nobody who produces a movie goes and interviews 10 people on the street and says, “What movie do you want to see this weekend?”
  • There’s no pre-existing movie that people are waiting for, and you’re not unlocking it. You have to find a script, cast the right actors and talent, find the right director, stitch it all together, finance it, create a trailer, market it, and sell tickets. I think this is the job of an entrepreneur.
  • *I don’t believe in finding product market fit, I believe in forging it like creating a movie. You write a script, cast characters, then produce it which means finance it. Then create a trailer which means basically market it.*
  • You forge a market, or create a market. You imagine a better future, and then you go create it, and then you sell tickets.
  • You need an incredible range of people to produce an awesome movie. From the people behind the scenes to the people in front of the camera, all of that has to come together to create one of these companies. If there’s too much fragmentation, it actually leads to a suboptimal number of successful companies
• Define your startup mission and attract people who are passionate about it.
  • You need to have a mission and being to able to sell it so you can hire the 20th engineer.
  • Selling a mission that is incredibly differentiated and it will transform the world will get people attracted. Palantir did it back in the day and had a higher close rate with counteroffers to Google and Facebook.
  • My general belief about startups is that you start with a vision of what you want to accomplish. And then you figure out what kind of characters you need to write the script.
  • Peter Thiel has a question that I asked entrepreneurs before finding them, which is explain to me how you’re going to recruit your 20th employee because you can recruit your first eight or ten through just raw brute force, but at some point, you have to actually be able to go into the market and have a differentiated value proposition and be able to sell people that chase this dream as opposed to their own dream.

Raising capital

• How to Raise money before launch?
• https://medium.com%2F@medium.com/@zebulgar/how-to-raise-money-before-launch-a3544ef4dba6
• Raising too much money makes you to spend against that amount.
  • I am shocked at how often we counsel people to raise less money, not more. If you raise too much money, you actually start spending against that amount, and that’s not always a good thing.
  • One of the mistakes we made at Slide was we raised a $50 million round in 2008 from Fidelity and Tiger Global. It made us a little sloppy in several ways and we thought we had infinite resources and infinite time, and it didn’t force us to solve our fundamental issues right away. That’s the problem with Soft Bank money.
• Scarcity is a good thing and money is not a predictor of success for startups.
  • Scarcity is a good thing. Desperation breeds innovation. And you need constraints to actually execute well and innovate. If someone gives you a pile of money, I think it creates a lot of excuses and soft thinking.
  • The mentality of throwing money at companies and making them successful just doesn’t work. The whole history of Silicon Valley is its upstarts, with very limited resources and a bunch of misfits, have rearranged every single industry.
  • I think companies that were raised in the last generation where oxygen for as a proxy for money was cheap or free have built a high burn rate with a lot of extraneous features in some cultural disadvantages that are hard to change. I think there’s some bad things that come with inheriting a lot of money.
• Raise based on key milestones and calibrate financial strategy against hitting them, not against time.
  • Identify key milestones that are inflection moments for the company and calibrate your financial strategy against when those are likely to happen, not against time. The worst piece of advice is to figure out your capital needs based on your runway rather than your milestones.
  • From an entrepreneur’s perspective, if you can raise $4 million, you can validate certain things. You can raise the next $30 million, $10 million, or $20 million at a very high price and then the cost of capital, the dilution to the company, is significantly changed.
• Define criteria for an investor. Don’t choose cheapest money and highest valuation, instead choose investors who can help, teach, and advise the most.
  • Founders should raise money from investors who can help, teach, and advise them the most.
  • Sometimes you should only pitch to few VCs, because if someone hasn’t funded somebody in the space before, there’s too many complexities to what you’re doing.
  • One of the more important questions we ask entrepreneurs is, “What’s your criteria for an investor?” And depending upon the quality the answer, it actually affects our willingness and interest in investing. And a really good question back to us would be, “How do you help me build an unfair advantage?”
  • Don’t believe in choosing your investors based on the cheapest evaluation. I never did it as an entrepreneur, never did it as an executive. I think of investor selections just like hiring. So I wouldn’t hire the cheapest engineer. I want investors who are the kind of people that I can’t hire. I would love to hire them, but I can’t. And so that’s the criteria I use when I’m raising money from investors.
  • You’re going to run into some investors that are going to be immediately allergic, because what they’re going to do is call some lawyer friend of theirs up and they’re going to say, “Here’s all the seven things that can go wrong.” You need to isolate VC’s brain down to one that is going to really happen.
• Do not waste time managing relationships with VCs before fundraising. It’s not in your interest. Ignore them.
• Ignore them. Do not waste time “managing relationships.” It is in their interest, not yours. Improve your product, market your product, recruit your team. Don’t have coffee with VCs until you are interested in capital. Premature exposure to a company without the correct frame will actually damage your prospects, not improve them.
• Strategic investors are not good lead investors because they’re slow and have misaligned incentives.
  • We generally, almost across the board, counsel entrepreneurs against having a strategic investor as a lead investor. The one biggest exception to that is where there are very big potential customers with a lot of capital and real synergies.
  • Strategic investor has his or her own set of incentives that may not map at all to yours. They are not investing to make money. Whereas a financial investor, like me, is very aligned with my entrepreneurs and is roughly compensated based upon the equity value, as is the CEO, as is the founding team, as are the individual employees. Also, strategic investors tend to be slower. They tend to do more due diligence, actually, and over a prolonged period of time. Lastly, they’re not comfortable with risk.
• What options does a startup have in raising capital if it is currently being sued?
• 1. Settle– Financing is already difficult enough without additional things to explain 2. Opinion Letter: Procure a highly qualified attorney to opine that the risk of your opponent prevailing is “remote” (This will be expensive and must use this term in the letter). 3. Defer financing (if feasible). 4. File a motion to dismiss as a matter of law, if possible, which can terminate the litigation for $20-50k. 5. Offer your current investors (if any) a very generous deal to re-invest as they have asymmetric info about your business and the level of actual exposure you confront 6. Find an investor who already dislikes the company/executive suing you.

Building the team

• The team you build is the company you build.
  • The team you build is the company you build.
  • My biggest lesson from Vinod Khosla that distills everything into one simple sentence is “The team you build is the company you build.”
  • The art of company building is finding complements and things that either you’re not very good at, don’t enjoy doing, and find someone who’s world-class and happens to even enjoy the stuff you don’t want to do.
  • “The team you build is the company you build.” Ultimately, you can get a lot of credit for the success of your company, but it really comes down to the people. If you have the right people, it is amazingly easy to succeed. If you have the wrong people, it’s almost impossible.
  • You need an incredible range of people to produce an awesome movie. From the people behind the scenes to the people in front of the camera, all of that has to come together to create one of these companies. If there’s too much fragmentation, it actually leads to a suboptimal number of successful companies
  • You need to be able to assess talent correctly, assemble them, marshal them together, and mentor them. And none of the steps are easy do!
  • The most important thing is marshaling the right talent against the biggest possible problems, and solving them in the order that’s most fatal to you.
  • It’s fundamental that you recruit and retain the best possible people on the planet.
• Select and edit the DNA of core team based on market, risks, and product.
  • One of the biggest mistakes people make is not selecting the DNA of their core team to be appropriate for the market and product they need to build.
  • Team-building and ensuring that the foundation of the team is as strong as possible is like making concrete. When it’s liquid you can shape it and once it solidifies you have to take a jackhammer which is vey noisy and expensive.
  • I really fundamentally believe that if you have the right people doing the right things, everything else will take care of it. So fundamentally, a lot of my time and effort is around: Do we have the right people doing the right things? A little bit like being a general manager of a baseball team.
  • And you’re used to doing this constantly, every day, often every week, asking yourself, “Okay, what are the key challenges in front of us between here and success?” And then, “How does my current team? What talents does my current team have? Who has the right or appropriate skill set to go tackle that problem?” And if I don’t have it, “Where to go get it?
  • There are businesses with just really good people doing a really good job can thrive, and there are some businesses you just need amazing people. So that’s why we tend to look for people who have incredible ambition but also rare skills as the founding core DNA, and that they can hopefully amplify that core DNA and bring people who have similar desires and skills together and keep them together and preserve that for five to ten years.
  • If you have a team gap on the dimension you’re competing on, it’s really hard to keep that open. You’ve got to fix that right away, because it’s corrosive.
• Find barrels and design a team around them to maximize their output.
  • Basically, a barrel is someone who’s already in the organization who has the ability to take a concept from inception to fulfillment: shipping live and successful, motivating people around the idea, galvanizing support, energizing people around shipping, and going through those tough valleys when things aren’t going well.
  • Barrels are people who are not only talented, but they’re also self-directed and can take an idea from conception to life. They can pull people with them, charge up the hill, motivate people, and edit themselves.
  • I believe that even in a team construct, there’s a disproportionate number of people doing heroic work and are really at the vanguard. And then people come in with them, they rallying people with them, they’re the ones who are like taking the hill, and everybody’s charging with them. Either they have conviction or confidence around the person, or the person is able to motivate people, or they can communicate the vision behind the hill. Those are the “barrels.”
  • You can only perform the same number of unique functions as your barrels. A good ratio of barrels to ammunition can lead to more output and a bad one is just more expense and less output.
    • You expect, and you expected as you add people, your throughput, your horsepower, or your velocity of shipping things is going to increase. It turns out it doesn’t work that way. The reason why is that most people, most great people even, are actually ammunition. But what you need in your company are barrels, and you can only shoot through the number of unique barrels you have. So that’s how the velocity of your company improves is by adding barrels, and then you stock them with ammunition, and then you can do a lot.
  • It’s really important to find the right ratio of barrels to ammunition. Now, different disciplines have different ratios. A good leader will also be able to identify the ammunitions who have the potential to become barrels. These are the people who are eager to learn, take on new challenges, and help others. Once you’ve identified these people, you can start to give them more responsibility and opportunities to grow.
    • If you have a bunch of leaders, but nobody just does stuff, the team tends not to get things done. And then if you have a bunch of ammunition, but no one’s really calling the shots, galvanizing the team, or figuring out which hills to attack, again, the team doesn’t tend to get things done very well.
  • It’s surprisingly rare to find a barrel. The number of parallel projects a CEO, executive, or founder can embrace is predicated, dictated by, or limited by the number of barrels in the organization. You should always ask “Do I have the right ratio of barrels to ammunition?” And anytime you can add a barrel, I would pull the trigger.
  • The key ingredients in a skeleton company is the ratio between barrels and ammunition. Most people in most companies are ammunition, they will do what they’re told and they will try to do it to the best of their abilities. They won’t actually drive from inception and conception and take an entire organization with them. It turned out that any organization can only really do as many projects as it has barrels.
• Find radical ideas with huge upside by gathering, filtering, and prioritizing ideas from a diverse set of people (bottom up).
  • I think a healthy company does a mix of throwing passes downfield and running the ball. To be an iconic company, you need to throw some passes downfield and take some risks.
  • Great CEO find and embrace one or two random free radical ideas and people in your organization and use social capital and credibility to make those radical and innovative ideas happen.
  • More and more the ideas are originated from a diverse set of people, and then their ideas are filtered, prioritized, synthesized together into a coherent whole by a VP or the CEO.
  • Cash App was launched internally in January 2013 using a technology that was created in 2010. It tooks a while to get true product-market fit and there was a wide belief in market that Venmo was more important, even though they were completely incompetent.
• Construct a board of directors as early as possible.
  • Construct a formal board of directors as early as possible in a company’s trajectory to avoid making unnecessary mistakes.
  • One of the best ways to fill the board of directors is to find the people that you wish you could hire, but who are in positions in their lives where it’s not really feasible.
  • Great startups have the advantage of having multiple value-ad VCs on their board.
  • The preparation for board meetings is a great process for discovering and focusing on what’s actually going on underneath the hood of a company. I’d say monthly board meetings in the early stages of a company is really instructive.
  • I would start by reading this blog post: For a consumer Internet start-up, I mostly agree with him. http://www.bothsidesofthetable.com/2009/10/12/should-your-startup-have-an-advisory-board/
• Working remote prevents your young talent to be trained through osmosis and is not good for early stage.
  • Reorienting the world (the proverbial two kids in the garage) needs to be done only in-person.
  • Young undiscovered talent need to be trained through osmosis, which is very hard in remote setting. So you need to either hire experienced talent, build centers of excellence, or have multiple offices.
  • A lot of company building is sort of brainstorming and serendipitous conversations that lead to questions like, “What if we mix this product over here with this product over there and change this?” That’s a lot harder to do remotely.
  • Zoom is effective for information sharing, but it is not effective for complex debates. And it makes me a little passive. That’s why I have separate meetings with founders before or after team meetings.
  • Smaller companies need to be co-located and work together to fuse new ideas from scratch through in-person dialogue and spontaneous conversations.
  • I would typically like to see early-stage and mid-stage innovative companies more co-located.
• To succeed, you need to assemble a critical density of talent and sustain it for a long period.
  • To create a one-of-a-kind company, you need to assemble a critical density of talent. You need to sustain that, keep people together across different genres and disciplines, from design to engineering to business to marketing, to legal.
  • To build a real company, you need a critical density of talent that’s sustained and works together for a sustained period of time.
  • Ultimately, the right team is going to edit the idea, change the idea, modify the idea, and come up with a really interesting idea. So if you have the right people, and you have a critical density of the right people, you wind up going to the right places.
  • In early stages of a company, you start with a more tight nucleus that’s probably people with similar backgrounds. Then, you extend over time and try to go more mainstream. At PayPal we just hired through our networks and that worked really.
  • *To be successful in Silicon Valley is to be able to recruit talent, especially in a hot market, which we’ve seen for the last five years. The only way you’re successful is by being a magnet for talent. So identifying talent, recruiting talent, working with talent, enabling talent, and powering talent.*
• Paths to Density of Talent
  • There are different paths to create a monopoly of talent. You can assemble a core team that is known to be pretty talented. Second, is becoming a high-growth company and that becomes somewhat self-fulfilling or it’s very clear what you’re doing is resonating with some set of users, consumers, businesses, and so it has escape velocity and people want to join. Findally, network-based hiring, if you have above a certain number of nodes of interesting people everyone else has worked with.
  • Drafting players out of high school is really difficult to do well but if you can find that you can assess people that are not like central casting, you can get a critical density of talent.
  • Hitting escape velocity and become one of about five companies that people will gravitate to is another way to hire in a competitive market.
  • Make your company founder-friendly. So if you make an environment that’s very process-driven, you’re going to alienate founder types. On the other hand, if you have an innovation-driven, permissionless innovation culture, and you have managers and executives who know how to thrive in that environment, it can be very attractive.
    • Jack and I realized pretty early that when we were getting to declines and offers, it was people who were going to found their own company. We put together a mentoring program where we said, “If you spend two years with us, we will teach you a whole bunch of stuff that will actually be useful when you start your own company.”
    • “It’s perfectly fine if you want to stay at Square for two years. We’re not going to fight it. If you’re going to start your own company, great, you’re welcome. But it’s my job—and what I would actually say to the candidates—it’s my job to make this place so interesting, and the growth so high, that people hope you stay. And if you want to leave, it’s because I’ll feel that my job is you failed in yours.”
  • You can go deep and build your own network. This takes a lot of time and effort, and it’s really hard to do for a first-time entrepreneur.
    • PayPal crowd was a bunch of misfits. Peter Thiel and Max Levchin went around recruiting the smartest, most ambitious, and highest work ethic people they knew from school, mostly friends of theirs.
    • One way of hacking the system is to recruit people that you have a preexisting relationship with, because you have an asymmetric ability to assess them. There’s a skill and discipline in managing people that you know well and yoy have to be pretty clear-eyed about their strengths and weaknesses.
  • I would only go to conferences where I could recruit talent, if the audience wasn’t going to have people that I wanted to recruit who wouldn’t be worth my time. Most conferences don’t have new, interesting people starting companies, at least as a huge fraction of the audience.

Managing time

• People systematically undervalue their time. Find high leverage activities, solve hardest problems, increase efficiency, and use incremental units of time wisely.
• Focus on high leverage activities
  • The definition of a high leverage activity is something with a small injection of your time, energy, or resources can massively impact lots of people. That’s one of the reasons I like full company meetings every week.
  • If you’ve read High Output Management, it’s a combination of high-output management and allocation of time. And so the most important lesson is to be consciously aware of what time you’re consuming and how to get the most possible leverage, or benefit, or output out of that time.
  • Our calendars don’t really help, even though they’re software. They may actually be making people dumber. Basically, people use software as a calendar, and they fill in slots, as opposed to optimizing and leveraging time.
• Solve hardest problems
  • You have a checklist of things to accomplish. Most people have an A+ problem, but they don’t know the solution. So they procrastinate on that solution. And then they go down the checklist to the second or third initiative, where they know the answer and they’ll go solve those problems and cross them off.
  • You have to ascribe a significant value to every increment of time, whether it’s a minute, an hour, you can divide it however you like. But fundamentally, ask yourself, “Is this worth it? Is this the best thing I can be doing with my time?”
  • I hired a personal assistant with the goal of eliminating from my schedule every day anything that wasn’t like a high-leverage activity. I was basically spending from maybe 50% or 60% of my time in a week allocated to things I cared about to being 85%.
• Increase efficiency
  • I do look for efficiency within time. So when I’m going to, let’s say, invest in training or working out, I do think about what’s the most effective use of incremental time. So what’s the most I can achieve in one hour? And then look for solutions for that.
  • I would always try to trade money for time, and then allocate the time to the most interesting, most provocative, highest upside, highest challenge thing you can do with that time, and constantly cycle yourself through “How do I do more and more and more of that?”
• Use incremental units of time
  • Sometimes the best thing to do with an incremental unit of time might be to sleep, actually. But other times, the best allocation might be to double down on something else you’re already doing. And the people who have a good feel for that tend to thrive.
  • It’s important to understand when there’s something good enough that the marginal benefit of your time and attention to it isn’t really worth it. If you’re a perfectionist about everything, you may not be able to achieve some really great things because you do have to sort of take your eye off the ball on some things that are just more commoditized.
• High leverage activities for an investor
  • As a VC, to manage your time, you need to frame the conversation around what could be accomplished collectively by agreeing upon with a founder the best destination based on company, founder, team, metrics, etc. and probabilities of getting there. And, secondly, what you can I do to help founder to get there.
  • One of the biggest challenges I’ve faced is figuring out how to create leverage on my time. In companies, you build a team around you, and that creates leverage but in venture where there’s more art than science, finding a way to create leverage for yourself has defied everybody.
• Define your priorities, allocate time accordingly, and review priorities everyday.
  • The single most common characteristic that the people who really succeed have is their ability to constantly prioritize time. It’s almost innate.
• Define priorities
  • You have to make a decision on what is the most important priority for you in this decade.
  • You have to have a pre-existing view about what’s important to you. Like, is it professional success, family, health, fitness, whatever, but you have to come up with your top two or three priorities first. And then it’s like, “How do I systematically ensure that I’m allocating my time to meet my priorities?”
  • The only scarce resource you have in your life is time. Measure your progress for satisfaction in shorter doses and look for leverage of what you can say no to and not do, or what you can delegate or pay other people to do for you so that you can do the things that are most important, most valuable, and most productive for you.
  • Define your priorities and allocate your time against priorities. I think most people do not map their priorities in time.
• Allocate time accordingly
  • Allocating time for thinking is important.
  • Managing time starts by determining what time you need to go to bed to get 8 hours of sleep. Then scheduling my dialing workouts and meals. And then build blocks of times for board meetings and other goals I have.
  • I reverse engineer my day to be in bed by 10 and wake up without any alarm around 6:30 in morning.
  • Try to managing and scheduling yourself and reflect on priorities and make adjustments as needed. When you delegate your calendar to someone else, they may not have the same level of understanding or fidelity to your priorities as you do.
  • I force myself to prioritize strictly and then allocate time according to my priorities. And everyday I’m triaging time against against my priorities.
• Review priorities everyday
  • I rewrite my list of priorities every morning when I wake up by hand to stay focus.
  • We all have a natural human tendency to achieve psychological satisfaction by crossing some things off the list every day. And those things tend to be the easier things to cross off the list, because you know how to do them, and if you allocate sufficient time, they can be accomplished.
  • I’m constantly systematically asking myself of all the things I can be doing what do I really want to be doing? What’s the highest leverage thing for my family or highest leverage for my happiness.
• Audit your calendar every quarter and find disconnect between priorities and time.
  • People systematically undervalue their time. And the implications for a CEO is to ask for every decisions whether it’s the single best allocation of this moment.
  • CEO should audit their calendar and see whether they’re allocating proper amount of time on high-leverage activities.
  • Every quarter, CEOs should do a calendar audit and map their time against their top 3 priorities.
  • Many CEOs profess publicly and privately that the most important thing we do is recruit and team building and then you look at their calendar and they’re allocating 10% of their time to recruiting.
  • The first thing I do is ask the CEO to go to a whiteboard and write down their top two to four priorities. Once they’ve done that, I ask them to pull out their laptop and log into Google Calendar. We then look at their calendar for the past week and month and calculate what percentage of their time they spent on each of their priorities. Inevitably, there’s a disconnect.
  • Founders should audit their calendars by writing down their top 3 priorities and then go to Google calendar and compare the actual allocation of time against those priorities.
  • For calendar audit, write down your top three priorities and then pull out the calendar for the last month or quarter and see how well your time mapped to those priorities. If they sync, then within each bucket of time are there high leverage activities?
• Sleep is a secret to productivity and high performance.
  • My secret to productivity and performance is sleep.
  • If you’re going to change anything in your life to live longer, think smarter, act smarter, and have a better personality, focus on your sleep.
  • It’s somewhat counterintuitive but I think one of the most important things anybody can do to achieve both health and fitness and sustained happiness is sleep eight hours a day. So I start every day with how do I allocate eight hours to sleep, and then reverse engineer the rest of the day from there.
  • There’s a book I highly recommend people read called Why We Sleep by Matthew Walker. Once you read the book, you will change all your behaviors in your life to focus on sleep. I reverse engineered eight-hour sleep and I go to bed whenever it’s necessary to get eight hours of sleep so that I can wake up refreshed and focused.
  • Consistency on when to go to bed, Sleep Recovery Pro, Rozerem, Magnesium, and cranberry supplements, EightSleep mattress, not drinking caffeine after 2-3 PM, not eating or working out 2-3 hours before sleep help me to build healthy sleep habits.
  • Ask your doctor to prescribe Rozerem. It is amazing, with none of the side effects of other sleep drugs. If you don’t want to take a prescription drug or cannot afford it, the best natural supplements are Valerian and Cranberry.

Finding undiscovered talent

• To compete against big tech, you need to find undiscovered talent.
  • What Peter pointed out that we’re building a company from scratch, you really can’t compete for the people who’ve already done everything before because large companies back then like Yahoo and today like Facebook, Google, Apple, Amazon, are just going to pay them so much money that it’s very difficult to compete with that.
  • Fundamentally, to build a company, you have to be able to find people that other people can’t find. Because when you’re starting a company, the reality is you’re not going to be able to recruit tons of people who have done X, Y, and Z before.
  • The only way to build a company is to be able to find at scale undiscovered talent, because you can’t compete for the people who’ve already done something before. If you’re startup, you can’t compete for the people who’ve already done something before because everybody else wants the same people.
  • If you’re going to succeed as a start-up or succeed as a leader, you need to be able to find people that were undiscovered, that the rest of the world didn’t know about. The hardest one, of course, is the 10x value creators, and that’s where all the art is, and that’s the magic of startups.
  • After the age of 30, there’s enough data points on anybody’s resume and these days LinkedIn profile, that all companies can roughly assess you equally. So you can’t build a comparative advantage by assessing people who’ve been in the business world for a while. You have to go really young, when there’s less data. Less proven evidence. And the larger companies don’t know how to process that.
  • Unless you’re creating a lot of leverage per employee, you can’t justify paying employees too much.
  • Generally, I’m a fan of natural athlete. I think it does matter by vertical. On the consumer side, it’s almost surely the right answer more often than not. On enterprise, there are benefits of experience, and maybe mix the team together.
  • Almost all the best people I’ve hired went to fairly random universities, with no technical backgrounds, that had never worked in the startup world before. A little bit like drafting athletes, though you’re going to be wrong a fair amount of time. It’s not zero defects.
  • You need to find people who are undiscovered yet and be able to do that at scale if you’re going to build a company from scratch. Once you get enough momentum and you’re one of the top 10 companies in the valley, you can recruit people with established credentials.
• PayPal
  • At PayPal Peter hired from a pool of people he knew from Stanford, and Max Levchin hired engineers he knew from high school and the University of Illinois.
  • Peter recruited business people and marketing people, mostly from his Stanford network and Max Levchin recruited all the engineering talent from his network growing up in Chicago and University of Illinois and we married the two together, the best possible networks for Silicon Valley
• Meet a lot of people and look for exceptional talent, anomalies, and data points that large companies miss.
  • The philosophy of hiring undiscovered talent was easy to understand but took me years to get good at.
  • Identifying anomalies among people is finding incredible individuals with exceptional abilities or talents.
  • It’s like drafting in sports. We draft athletes out of high school and college, and we project what their potential is as a professional athlete. That’s different than free agent signings of people who have been playing in the major leagues in professional leagues for several years. So it’s a different skill, and you have to develop that skill.
  • Assessing talent is like underwriting credit for consumers. If you can find people that are mispriced perfectly all day long and hire them, that would be great. But there’s not an infinite supply of that.
  • Look for exceptional talent that big tech companies don’t want to hire because of less data points or the disruptive nature of the candidate.
  • There’s definitely times where someone with a very different perspective adds a hell of a lot of value but still share first principles that involve strategy and culture.
  • I think it’s actually not that difficult to find talented people. The hard part is narrowing the number of people and identifying, you know, the top, whatever, 1% of them. That’s actually a pretty challenging task, and somewhat time-consuming as well.
  • If you can find people who don’t have the data points that large companies are looking for, you can find people with incredible talent who are off the beaten path.
  • When you’re in the building, it’s a lot easier to look around the building and figure out who’s really good at something that people don’t always notice, and then recruit them to your team and then make the team look really good.
• Meet A lot of People
  • Obviously, you have to meet a lot of people, and you’ve got to triangulate into their strengths and weaknesses. And then you’re looking really for the potential. But it takes a long time for the potential to manifest itself and to see the rate of growth and be sure you’re confident you’re right. So part of it is assessing. And then secondly, it’s mentoring.
  • Once you meet them in person, I think it’s a lot easier once you develop a little bit of taste. Is there a spark? And what kind of spark you’re looking for? For what kind of role? Like if the person wants a job as you know, a job within a company, it’s sort of a different spark you might be looking for.
• Don’t aim for zero defect hiring.
  • The problem with trying to avoid any mistakes in hiring is that it’s very easy to identify the flaws and weaknesses of candidates. And it’s not as easy to see the 10x and 100x upside.
    • I think if you’re looking for upside people with potential, you’re going to make some mistakes by definition because you’re otherwise too conservative because some of the people, some of the most interesting people that create the most innovation or have a screw loosened way or the other, and if you overreact to that sort of screw loose, you’re going to miss some of the most important, most talented people sort of on the planet.
  • Some part of hiring is trial and error, truthfully. Like almost anything in life, you have to try things, you’re going to make some mistakes, and there’s some luck involved. I compare it to sports, to me it’s like drafting first-round draft picks. Probably closer to baseball or football, not basketball, which is very predictable. And what are you looking for? What kind of attributes are you identifying? And figure out how to test for those attributes.
  • Don’t aim for zero defects hiring. Same is true about finding founders too.
  • Building judgment in hiring is like building muscle. You need repetition to learn what worked and what didn’t.
  • Assessing skills and capabilities of founder or a new hiring is quite similar but for a founder you’re optimizing that they’ll be the top 1% of the distribution curve. It’s not possible to do the same for 1000 people you’re hiring.
• Hire value protectors for risk reduction role and value creators for upside. Value creators tend to have a spike and screw loose in other places. The selling point is the opportunity.
• Take Risk on Value Creators
  • When you start a company, the number one most important thing you can do is to find people that can 10X, 100X, or even 1,000x the value. These people typically have a non-perfectly distributed skill set. They tend to spike in some dimensions and be awesome at some things. And they tend to have a screw loose in other places.
  • If you need innovative breakthroughs, you want to hire someone with a skill set that tends to lead to solutions of innovation. If you need to optimize and predictably achieve something, you want to hire someone with a skill set that leads to execution excellence.
  • The best thing to do is actually double down on your stars. And if you believe that you have people who have 10x value creation, improving their abilities has magnificent effects versus trying to fix people that aren’t going to ever create 10x value. Your job is really to create impact, impact for your organization measured in terms of whatever KPIs the organization settles on.
• Value Protectors
  • Generally, I believe in the people with aptitude, not experience. When you’re in the risk reduction sort of phase or the risk reduction role, like a General Counsel or CFO, sometimes you’re looking for someone with experience.
  • For external hiring, take risks if the role is for value creation but be risk averse when hiring in a value protection role.
• Selling Point
  • The way you can encourage and excite people to work on those high-risk, high-reward projects is you have to be able to assess them, not based upon whether it actually gets to the zero, but about the creativity and thoughtfulness that went into the initiative.
  • The selling point is the opportunity - opportunity to grow, the opportunity and challenge to run something yourself, the missionary zeal of the organization, the degree of flexibility. The number of people that can kind of tell you know usually is pretty small in a start-up versus in a large organization.
• When starting a web startup would you rather have a brilliant or a hard working team?
  • As posed in the question (read carefully), the right answer is to select the candidate with 95% percentile IQ and 99% work ethic (vs. 99% intelligence and average work ethos). But, as a general framework for decisions that involve this tradeoff:
  • Work ethic and effort is clearly subject to the law of diminishing marginal returns as you move up the 85-99 % percentiles. Brilliance or raw intelligence may not be subject to the diminishing marginal returns at all in a startup–i.e one fantastic idea may lead to a 10x creation of value or one major solution proposed can save a business. (We had 5 or so of these at PayPal).
  • Work ethic (or lack thereof) is contagious and may even be subject to the reduction to the least common denominator problem. Intelligence may be spread partially via osmosis and lack of intelligence probably is relatively contagious (i.e. every one starts operating at below par). As a result, one bad hire on the work effort scale can infect the entire company and ruin it; one great or bad hire on the intelligence score will probably not dictate (or affect as dramatically) the IQ level of the remainder of the team.
  • But, the most, important principle is that in any early stage venture aiming for greatness you should probably avoid extending an offer to any candidate who raises the slightest doubt on either dimension. Don’t compromise.

• Keep checking references until to get at least one negative reference.
  • You should do reference checks. That’s canonical advice, both for hiring and for investing.
  • You shouldn’t stop reference checking until you get at least one negative reference check. That’s like an infallible rule. There’s always somebody who’s not going to be positive or supportive. And you’re going to stop as you get to the bottom of that.
  • Work ethic is mostly pretty predictable across a person’s career. It may degrade over time a bit, but fundamentally, you can usually see signs. Sometimes you can see signs from the time a person was 12 years old. There are just clear indications that the person doesn’t accept “no” as an answer. Reference checks are a classic way to identify this characteristic. Second, a candidate can usually speak to accomplishments and challenges that, by definition, required some kind of heroic effort.
• To get better at recruiting, practice and start recruiting underutilized people inside the company.
• Practice
  • Building judgment in hiring is like building muscle. You need repetition to learn what worked and what didn’t.
  • The philosophy of hiring undiscovered talent was easy to understand but took me years to get good at.
  • The challenge of external hiring is scarcity of reliable datapoints and requires intuition. Everyone misevaluates strangers. It’s an art and took me years and lots of trial and error to figure it out.
• Recruit Internally
  • You can recruit internally by finding free radicals who have brilliant ideas and get blocked by their managers. But you need to be amenable as a manager.
  • When you’re in the building, it’s a lot easier to look around the building and figure out who’s really good at something that people don’t always notice, and then recruit them to your team and then make the team look really good.
  • Initially I find it challenging to hire out of my network so I stopped hiring externally and started recruiting internally. I found undiscovered talent within PayPal, people I thought were being underutilized. It took me another two to three years of practice to learn how to do that with people I met off the street.
• Track both false positive and negative in recruiting.
  • You need to track both the false positive and the false negatives. Interestingly enough, very few companies track the false negatives very well.
  • I think what you do is on every hire, you’re kind of getting data of how accurate are you, then look mostly at the anomalies, either the great hires or the mistakes, and figure out more the characteristics, the common denominators in those cases, and try to either edit those out or refine them in the future or find more of the stars. I think that’s an experiential process. It can take years to get better and better out because of how many people, the velocity of hiring.
  • I don’t hire slowly. I often hire very fast. If you’ve made a mistake, and it’s not the right fit for both the candidate and for the company, I think being decisive and coming to a conclusion, sooner or later, is better for everybody involved. People track their hiring decisions the wrong way. They only measure the mistakes, often and typically. But you also need to identify the people you passed on who turned out to be spectacular
• Best book on hiring for early-stage startups.
• *The Exceptional Individual: Achieving Business Success One Person at a Time* by Peter Engel is worth reading. He identifies the criteria you should employ and ways of gauging a candidate on these dimensions:a) Intelligence b) Energy c) Tact d) Persuasiveness d) Humor e) Courage f) Optimisim g) Creativiityhttp://www.amazon.com/Exceptional-Individual-Peter-Engel/dp/0312182384/ref=sr_1_6?ie=UTF8&s=books&qid=1269995065&sr=8-6

Forging product market fit

• Forge product market fit like creating a movie. Lean startup was like a poison and capital doesn’t necessarily sequence behind evidence of product market fit.
  • Product market fit is a jargon. Fundamentally, is there a lot of customers that really want what you’re selling? You should just sell it to them as fast as humanly possible and figure out what cracks emerge. The most important thing is scaling customer because you can solve almost any other problem if you have demand.
  • Lean Startup was like poison for Silicon Valley. Some of the best differentiated ideas that are more defensible and interesting over time tend to require capital. And capital doesn’t necessarily sequence behind evidence of product market fit.
  • *I don’t believe in finding product market fit, I believe in forging it like creating a movie. You write a script, cast characters, then produce it which means finance it. Then create a trailer which means basically market it.*
  • You forge a market, or create a market. You imagine a better future, and then you go create it, and then you sell tickets.
• LinkedIn
  • LinkedIn was basically email-driven and Reid encouraged VCs to adopt LinkedIn because they’re aspirational and entrepreneurs would hear about the product because they’d want to meet the VCs, and people who wanted jobs within those companies would see the product.
  • It was mostly about building a product that would actually spread, that people would send invites and upload their address books. LinkedIn was the only company that built an Outlook uploader, which is actually really messy as you may know.
• You should never ask users what they want because they mislead you. Nobody who produces a move goes and interview 10 people on the street.
  • You should never ask users what they want because they mislead you consciously or subconsciously. You can use statistics and look for anomalies and unexpected results that are not compatible with your conceptual framework and that’s what leads to epiphanies of what you can do better.
  • Talking with customers doesn’t work. Consumers actually will actively mislead you. Even if they’re trying to be helpful, they’re actually misleading you. Secondly, consumers can’t envision a different world
  • I have a sort of counter-argument to the YC advice. On consumer products, I don’t believe in ever talking to users and your job is to build a product for users, then market it to users and sell the product to users. On enterprise products, there are professional decision makers that are making a buying decision and they communicate accurately what are the criteria and then you can decide how to innovate to get to that criteria.
  • Building a product is just like a movie. Nobody who produces a movie goes and interviews 10 people on the street and says, “What movie do you want to see this weekend?”
• Craft a succinct, compelling, and differentiated value proposition.
  • You can change the world, in 140 characters. You can build the most important company in history in a simple to describe concept.
  • As Tony was explaining his idea, I thought, ‘Oh, this could be the ‘I’m Hungry’ button.’ The hard part would be whether they could pull it off: broad selection, affordable, consistent delivery. All those things were really hard. But then also the lights went off, and I was like, ‘Oh, this is a no-brainer investment as a seed round.
  • Ramp’s team was able to frame the value proposition in a differentiated way astutely and accurately while avoiding some of the superficial sort of what I call trapdoors.
  • I would basically reframe the problem back to a founder as how do you make the value proposition more compelling? If the value proposition is more compelling, you’re going to capture more value.
  • As your value proposition becomes more succinct and more powerful, sales velocity increases. Sales cycles that are too long almost always have a poor value proposition or do not have large customers
• The secret to product market fit comes from looking for anomalies in data and having an epiphany about the future.
  • Anomaly is an unexpected and different spark that leads you to uncover a paradigm shift or a better way to approach a problem. It’s easier to find anomaly as an investor and it’s way harder as a founder.
  • Anomalous data is the way you discover and have an epiphany about the future.
  • When things aren’t working, one of the first steps to take is to find the common denominator in 10 users that aren’t delighted by current experience and fix that problem. Another approach is to find 10 users who are having a delightful experience and find pool of users with 10X more of these users.
  • Anomalies are giving you hints of things you don’t understand and are opportunities to find a paradigm shift that allow you to get to 10X growth. Look at anomalies that don’t conform to your expectations and compel you to ask a series of why questions. At the end of those why questions, you sometimes have an epiphany. It’s the epiphany that creates the 10X growth.
  • You need to be internally paranoid about what’s not working and what’s off from projections. Then you need to identify what you should change, build, or rethink by being quick, compressing time, and shipping proposed solutions fast. Look for anomalies and unexpectancies in data to identify root causes and propose a fix in marketing, product, technology, pricing, etc.
  • B2B startups can brute force to certain level of traction by hand-holding a certain set of potential customers, adjusting to solving their problems, and hoping that you can extrapolate from that and make it irreproducible.
  • You should never ask users what they want because they mislead you consciously or subconsciously. You can use statistics and look for anomalies and unexpected results that are not compatible with your conceptual framework and that’s what leads to epiphanies of what you can do better.
• PayPal
  • At PayPal, we didn’t start out thinking that we were going to get eBay power sellers to be our core market. But we noticed that there were 54 of them who adopted the product, even though it wasn’t really well suited for them at first. I like anomalies. I’ve talked about this a lot. Find something you didn’t expect. Okay, now that we have 54, can we get 540 of them? Now that we have 540 of them, can we get 5,000 of them? Now that we have 5,000 of them, can we get 50,000? Then 500,000?
  • David Sacks noticed that there were 54 sellers on eBay who had hand-typed into their listings: “Please pay me through PayPal.” It was a very small number obviously, and the first reaction of the PayPal executive team was, “Oh my God. Why are these people using PayPal? We should get rid of it because that’s not what we’re supposed to be doing.” But then David came into the office the next day and said the opposite: “A-ha! I think I found our market.”
  • He said, “I think we found our market.” Sacks decided to build tools for Power Sellers to make it easier for them to use PayPal on eBay. He started by creating an HTML button that Power Sellers could insert into their listings. This was a success, so Sacks then decided to automatically insert the button for Power Sellers. This meant that Power Sellers only had to insert the button once, and it would then appear on every listing they created. This decision was a major success for PayPal.
• LinkedIn
  • I was at LinkedIn, and I saw this stat that made no sense to me. The UI for the site was a little bit different back then, but 25% of all clicks, maybe 30% of all clicks from the home page were people going to their own profile. Actually, it’s Max Levchin said something to me, and I was like, he’s like it’s vanity. And I’m like, people are looking at themselves in the mirror.
• Square
  • *Analyzing anomalous data at Square helped us to discover a basically real-world viral growth engine.*
  • I thought, “A-ha! Maybe this is a function of people seeing Squares in the real world, seeing the actual device, and some fraction of them that see it, sign up.”
  • “You know what? This might actually work.” He’s like, “What do you mean?” I walked him over to the monitor, showed him all the tweets. I said, “This never happens in financial services. Can you imagine any bank getting a reaction like this?”
• Inertia and time are two enemies of a startup and extraordinary founders create initial value and invert inertia.
  • In the beginning, time is your enemy. And every hour that goes by, with a scarce amount of energy and a scarce amount of capital, time is not your friend. And until you invert that, there is nothing to do except stress, and worry, and figure out what you could do better, and how to make things better, faster, cheaper. And then at some point, hopefully you’ve created a machine.
  • Startups need to finds ways to overcome skepticism, criticisms, and inertia. Time is also not your friend.
  • It’s the extraordinary people that really create the initial value because you have to invert inertia. Inertia in the startup is very bad, like no one uses your product. Nobody wants to use your product. Nobody thinks about your product. And you’ve got to alter that. And that usually requires some heroic effort.
• Should startups hire PR firms to help with their launch?
  • PR agencies are a solid quick lift and quick burst of activity solution. Over the long-term, running PR in-house is usually superior especially in a rapidly evolving market and with a highly iterative product. The more that the founder is familiar with the media (contacts, skill, reputation) the easier it is to immediately start PR internally.

Hiring executives

• To best way to hire for a role that you’re not an expert in is to meet the five best people doing that role.
  • The best way to hire for a role you’re not an expert in is to interview the best five people in that role. This process can be time-consuming, but it’s a great way to ensure that you’re hiring the best people for the job.
  • I think I learned from Brian Chesky, go meet the five best people at something. If you’re going to hire a CFO, for example, almost no new founder has met a CFO. Because then you can do a little pattern recognition, “OK, well, what’s in common? Why does everybody think these are the five best? What do I see in talking to them?” At least then when you’re interviewing people, you can kind of evaluate them against some benchmark.
  • A good VC board member have a network great CFOs, VP of engineering, or VP sales, and matchmake it with an early team with great idea and the missing pieces.
  • I’d rather have somebody who has upside potential and you’re taking a bet. Everybody says they want the classic VPE. There are two kinds of things that you want in a VPE. One is proven ability to manage and one is a lot of technical ability. A little bit strategy, strategic thinking — at least being competent in understanding it. I would take a bet that they don’t have one of those things. Then how do you complement that risk, or how do you measure the person’s progress against that risk?
• Create a benchmark for greatness by initially doing the task and meeting the best people doing the role.
  • One common misunderstanding is that founders don’t know how to benchmark great. They haven’t worked with people who are just world class. And so they don’t know whether they have world class talent or not in different dimensions.
  • If you set recruiting standards very high, you’re just kidding yourself. So you have to define what “great” is in a way that you can actually execute against. That means either you hire people who are a little less proven, but who have the potential to be great. Or you hire people who have been successful in other industries, but who you think can transfer their skills to your company. Or you hire people who other people won’t touch. The combination of all three is how you can construct a pretty high-quality team.
  • I think I learned from Brian Chesky, go meet the five best people at something. If you’re going to hire a CFO, for example, almost no new founder has met a CFO. Because then you can do a little pattern recognition, “OK, well, what’s in common? Why does everybody think these are the five best? What do I see in talking to them?” At least then when you’re interviewing people, you can kind of evaluate them against some benchmark.
  • I think that’s a relevant insight: you start by doing it yourself, you get a feel for what’s important, what’s not, how the puzzle pieces sort of fit together. And then you can more accurately both assess who you should hire, but also manage that person successfully.
• If you look at your calendar on Sunday night and half of it is already booked, you probably need a COO.
  • The first question is when and how and why to get a COO. I don’t think you should necessarily. Pierre Lamond told me “Technology companies should never have COOs.”
  • If you’re playing CEO and another role like VP of product, marketing, or sales, you probably do need a complement like COO sooner than normal to help.
  • If you look at your calendar on a Sunday night and you’re the CEO going into your week and more than half your calendar is already booked, you probably need another senior leader.
  • When Steve Jobs came back to Apple, one of the first things he did (and people forgot this) was in his first year back, he went out and recruited Tim Cook. He wanted his complement. One of the reasons why Apple didn’t reach its full potential during his first regime was that they were operationally incompetent.
  • You can see at SpaceX, Elon Musk has a great complement in Gwynne Shotwell. She’s the president of the company. And the company runs phenomenally well.
• Find a COO that compliments the founder and founding team and has the right DNA for the market opportunity and divide responsibilities with her/him.
  • To find the right COO, you should first identify the right DNA in your company, on your team, for the market you’re attacking and then. Second, subtract whatever the founder and the founding team has and then what distills is what you need. Recruit somebody who fills that big gap, whatever that gap is from your current team in the market you’re attacking.
  • The right COO varies a lot on two dimensions. One is the complexity of the business. Some businesses are much more complicated than others, like payments. Second, every CEO, every founder has a different skillset. Some are incredibly deep, and some are much wider. I think the role, especially in an early-stage company, is really to complement the CEO and founder.
  • You have to divide responsibilities with COO so that the team’s performance is maximized and which may mean he or she may get involved in product or doesn’t touch the product at all. Or it may mean having half the org reporting to COO and some COOs may have 20 percent. Some COOs may have a hundred percent of the org.
  • Usually the stuff CEOs really hate doing is a good thing to take off the CEO’s plate and allow them to spend more of their time doing what they like and what they think they’re great at. For every leader in the organization, you want to get the highest possible leverage at what they’re awesome at and remove the things that they’re not great at and give it to somebody who’s awesome at that.
  • Product reviews and strategy meetings to create consistency across the board, interviews to ensure high quality of talent, and instructional time to foster creativity should take most of time a COO.
  • As an operating executive you need to make decisions with 70% confidence versus as an investor the realm is typically 10-50%.
• CFOs are not needed until rev is at roughly $10M.
  • CFOs are not needed in most businesses until they’re like roughly $10M in revenue, unless businesses that use capital as a source of oxygen like OpenDoor or Affirm or have a very complicated capital structure.
  • When you’re in the risk reduction sort of phase or the risk reduction role, like a General Counsel or CFO, sometimes you’re looking for someone with experience.
  • I think I learned from Brian Chesky, go meet the five best people at something. If you’re going to hire a CFO, for example, almost no new founder has met a CFO. Because then you can do a little pattern recognition, “OK, well, what’s in common? Why does everybody think these are the five best? What do I see in talking to them?” At least then when you’re interviewing people, you can kind of evaluate them against some benchmark.
  • A good VC board member have a network great CFOs, VP of engineering, or VP sales, and matchmake it with an early team with great idea and the missing pieces.
• How does one hire really good product managers?
• This is the best essay on how to hire great PMs: http://www.kennethnorton.com/essays/productmanager.html
• General counsel is not needed for startups unless dealing with complex regulatory issues.
  • Hiring general counsel is not necessary for startups until much later unless company they’re aspiring to do involves complex regulatory issues, like Stripe.
  • When you’re in the risk reduction sort of phase or the risk reduction role, like a General Counsel or CFO, sometimes you’re looking for someone with experience.
  • One of the first 10 employees at Stripe was their general counsel, which is pretty rare. But they needed someone who was a world-class general counsel to streamline the product, navigate partner dependency and regulatory dependency.
• Close deals, replicate a buyer, geography, industry, and hire sales people who meet your sales goals. After getting to 2-5 sales people, hire a quarterback to organize them.
  • Once you start showing that you can close deals, you replicate a buyer, geography, industry, or some other dimension but you still don’t need an executive but rather someone who can get the attention of a decision maker.
  • A VP of Sales is a misnomer and you don’t need one. Instead find someone who meets your sales goals. For a complete self-service model you need someone who quarterbacks sales. And when you have 2-5 people running around you need someone to organize and manage them.
• What are the criteria for people in Sales, Business Development & Product Management?
• need to have:a) raw intelligence b) raw intelligence c) something to prove (i.e. tenacious/ relentlessly resourceful etc) d) ability to communicate precisely, concisely and persuade in writing and in person e) at least some consumer Internet experience professionally and consumer Internet addiction personally nice to have: a) technical background b) facile with metrics, statistics c) polished UI intuition d) creativity

Operating a startup

• Money is like oxygen for startups. Without money startups die and jogging in 90 degrees (hot market) would be a very expensive run.
  • Money is like oxygen. If suddenly, the shift of the cost of oxygen changes on you in a fairly meaningful way. Strategies that used to make sense and techniques that used to work are no longer appropriate.
  • If you had to breathe oxygen and pay for it, you’d have to live your life differently than if oxygen is free. That affects what you should be investing in different time horizons and the payback associated with different time horizons.
  • I use the oxygen metaphor for capital because without it you’re going to die. Also jogging in 90 degrees would be a very expensive run vs. when oxygen is free.
• Solve A+ problems and risks first to increase confidence and probability of success.
  • I’m going to argue that you really need to spend a lot of time focusing people. A plus problems are high-impact problems for your company, but they’re difficult. You don’t wake up in the morning with a solution, so you tend to procrastinate them. So, you have a company that’s always solving B plus things, which does mean you grow and does mean you add value. But you never really create that breakthrough idea because no one is spending 100% of their time banging their head against the wall every day until they solve it.
  • Certainly something that Vinod always taught me and reminded me of: you want to solve your biggest risks first. The most important thing you can do, both in terms of your valuation and your self-confidence, is to take the three most risky things and conquer them. Your conviction level about whether this is something you should do with your life will increase. Your ability to convey that to other people and persuade them to join your crusade will also increase.
  • Our philosophy, both at Khosla Ventures and Founders Fund, is to take on the most important challenges first, get comfortable that you have a solution to those, and you can eventually solve the easier ones just by execution.
  • Tackle the hardest problems and highest risks first. Reduce risks and increase probability of success and valuation of the company.
  • A+ problems are really hard, so you can’t just snap your fingers and solve them. The B+ problems, usually if you’re really good, you can come up with an answer pretty quickly. And hence, the company doesn’t solve the A-level problem. You solve all the B problems, which creates, you know, a decent company but not a spectacular company.
• Mess and chaos is the nature of startups and by definition too many processes are bad.
  • Mess is the nature of startups
  • Entrepreneurs need to understand and actually learn to thrive in somewhat chaotic environments
  • All the companies I’ve worked at have been very close to the line between success and failure. I guess the takeaway point is that the line is really thin.
  • Everything at startup is chaotic, what are you going to embrace? And how? And why? You have to find the right person to manage it. Kind of put concrete down, leave it at its table, and go on to the next. Then just constantly sort of fix things.
  • A startup, by definition, is somewhat chaotic and shouldn’t have too many processes because processes tend to freeze in place lots of things. So when things are working perfectly, you want lots of processes. And in fact, you want to probably filter for people who can thrive in a somewhat chaotic, less predictable environment.
  • You don’t really have a formula for what you’re trying to build and why, but you’re used to seeing a lot of hand labor by humans to hold it all together. And then as you understand how you want it to work and how it should work, you start replacing the specific heroic exercises with more of a commodity playbook that anybody can follow. It reduces to a formula at some point but that’s usually done piecemeal. You’re not going to be able to transform the startup into a well-performing, high-caliber, highly calibrated machine overnight.
• Initially throw humans at problems and gradually build an engine, systems, and processes that can be run by idiots.
  • When you have product market fit, you want to take advantage of that and really capture the value as much in stocks as you can. The art is how you create the sustainability behind the growth. The key is to fill behind that as fast as possible but you don’t have to suppress the growth.
  • At Square we went from 21 employees to 254 in a year and at LinkedIn from 22 to 65 in two and a half years. We would have lost opportunities had we not grown really fast and scaled the engineering team at Square.
• Creating an Engine
  • So basically, what you’re doing when you build a company is you’re building an engine. And at first, you have a drawing, literally on a whiteboard, and you’re architecting it, and it looks very conceptually clean and beautiful and pretty. Eventually, you want to construct a high-performance machine. A machine that almost nobody really has to worry about every hour, every minute.
  • High Output Management has a 1-2 chapters that are the masterpiece on how to array your resources, how to align the organization, whether you have a functional organization or non-functional organization when you get to 100-1000 person.
  • A startup, by definition, is somewhat chaotic and shouldn’t have too many processes because processes tend to freeze in place lots of things. So when things are working perfectly, you want lots of processes.
  • As you scale, you see crack on the human side because humans are irrational. So at various processes, humans needs to be divided into teams and you need goals, objectives, transparency and access to information, and techniques to providing feedback, auditing performance, mentoring, and replacing humans.
  • You don’t really have a formula for what you’re trying to build and why, but you’re used to seeing a lot of hand labor by humans to hold it all together. And then as you understand how you want it to work and how it should work, you start replacing the specific heroic exercises with more of a commodity playbook that anybody can follow. It reduces to a formula at some point but that’s usually done piecemeal. You’re not going to be able to transform the startup into a well-performing, high-caliber, highly calibrated machine overnight.
  • Early on, you’re growing fast in terms of onboarding, you have a magnet for onboarding new users, but you don’t actually have the ability to deliver a delightful experience that you promised users. That would be very painful and it could be also catastrophic.
  • Early on, you don’t have time to build tools and software so you throw humans at problems. Eventually, those humans don’t scale where you run out of humans or they become so expensive.
  • Customer support is important, especially in low-margin businesses because you can’t really spend a lot of money responding to customers and still be profitable. Corner cases can add up, and you need to be prepared to respond to them. You can automate customer support to save money, but you need to make sure it’s still effective.
• Changing learning and reporting methods
  • In the beginning, osmosis will work and I highly recommend that everybody be working in the same room and should understand what the prioritization of the company is, what the business equation is, how everything links together, what why things are the risks, and what we’re doing to try to solve them in what order.
  • There’s a ratio between the new employees (numerators) and the current employment base (denominators) in a company. The ratio, as it gets too high or too low, makes immersion and learning by osmosis basically impossible.
  • Subdividing into accountability is important, and then rolling those sub-teams up together to achieve the macro goals is pretty important. Like small, vertically integrated teams that have accountability for specific sets of metrics and a lot to focus on, so they have an ownership mentality. Every organizational design decision has some trade-offs. There are trade-offs in skill, in learning, in people’s political standing, but ultimately getting a healthy organization allows you to accomplish a lot very fast.
• There is a crisis every day and CEOs need to triage and determine whether its fatal or just a cold.
  • Jeff Jordan had this rule of thumb when he was managing people that about 1% of your employees have a crisis every day. And that can be a personal crisis, a professional crisis, a medical crisis, a family crisis. But when you’re the boss, all those crises are yours.
  • I can think of a CEO’s job as kind of like a hospital room triage. There’s always something broken in a startup. Things are chaotic. Things are masked. There are things that look like they’re cold, but they actually could be fatal if you don’t sort of address them and fix them.
  • Every problem is a leadership problem. The earlier you identify that you have potential issues, the menu of options and levers you have under your control and at your disposal are substantially greater than any last-minute development. So I think a lot of solution-solving is being two steps ahead of the curve.
  • As an entrepreneur, there is always something more you could for company. There’s always some personal or professional crisis.
  • Triaging: At first, when you start a company, everything’s going to feel like a mess. And it really should. If you have too much process and too much predictability, you’re probably not innovating fast enough or creatively enough. Some things will look like a problem, but they’re actually just colds. They’re going to go away on their own. And some things are going to present themselves as colds, but just like in the emergency room, if they’re not diagnosed properly, they can actually become fatal.
• CEOs and executives should think of their job as an editor. Editing is about asking the right questions and synthesizing inconsistent voices through multiple teams.
  • Your job as an executive is actually to edit, not to write. Every time you do something, you should think in your brain: “Am I writing or am I editing?” You should immediately be able to tell the difference.
  • You generally know when someone asks you to do something, whether you are more writing or more editing. So, an editor is the best metaphor for your job.
  • CEO should almost always be editor. CEO playing two roles of CEO and VP of product has worked well in many companies.
  • Editors usually redline a lot and red lines are mostly clarify asking some clarifying questions, but also eliminating words. So simplification means eliminating saying no. Second thing is editor tends to add consistency. So consistency of voice across different chapters, a different contributors and an accompany different parts of the team.
  • When you present a paper to somebody, they will usually ask you to clarify questions. They will find some ambiguity somewhere and ask, “Did you really mean this?”, “Do you mean that?”, or “Do you have an example of this?”. That’s your job as a leader. The real thing you do is ask a lot of questions. Now, this is hard. It’s something you have to practice. But when you’re good at it, every step you eliminate can improve performance by 30-50%, according to Andy Grove.
  • Editing is around asking the right questions and synthesizing inconsistent voices through multiple teams and assigning and allocating resources like “We’re going to do this feature, this product, this app, not that one.”
  • The editor might ask clarifying questions, simplify and extract things, edit, delete, organize, require follow-up, or maybe change the layout. But fundamentally, that’s the real role. And writers appreciate that.
  • The other thing that’s very important, and actually isn’t as intuitive to a lot of people, is that the job of an editor is to ensure consistent voice. That’s extremely difficult to do, and at first you’re going to be tempted to do that yourself, which is okay for a founder to do initially. Over time, you do not want to be doing all of the consistent voice editing by yourself. You need to train people so that they can recognize the differences in voice.
  • One way of measuring how well you’re doing in communicating to your colleagues about what’s important and what’s not is by how much red ink you’re pulling out every day.
• CEOs and executives should clarify and simplify both internally and externally. The more they simplify the better people will perform.
  • Your job is to clarify and simplify for everybody on your team. The more you simplify, the better people will perform. People cannot understand and keep track of a complicated set of initiatives.
  • The biggest lesson at Square really came down to simplify, the value of simplification, simplifying internally, simplifying externally via the product and creating differentiation in a market that people thought was more commoditized.
  • I think simplification is indispensable to controlling the entire experience and delivering a high NPS. And then you want to have an accumulating advantage. That basically means the business gets better every day.
• CEOs and executives should keep the organization focused on the main thing.
  • Shockingly, the difficult thing to do startups is focus. And it’s surprisingly easy to get distracted by everything except the main thing. There’s usually one or two things that actually really matter, and every single bit of energy, almost every single bit of energy, needs to get focused on solving those one or two things. Jim Barksdale used to have this great quote about the hardest thing in a company, the most important thing in a company is to make sure the main thing stays the main thing.
  • It’s almost unnatural for people to focus. Peter Thiel back in PayPal insisted every single employee was allowed to do exactly one thing, like one thing and not two, not three. And he wouldn’t talk to you about anything else if it wasn’t your number one thing. The first part of your annual review was, “What’s the single most important thing you accomplished this year?” That was just like 80% of your graduation.
  • It’s pretty crazy for too many organizations of a hundred people to be doing multiple initiatives, but you see it happen all the time because there’s this kind of myth of option value. And option value is a really dangerous concept. More often than not, life is path dependent, not option value dependent.
  • One of the easiest ways to train people how to leverage their time is to say no. It’s a classic Apple lesson of like saying no to many things, so you can be awesome at a few. And very few people apply this.
  • Peter had this somewhat absurd, but classically Peter way of insisting on focus, which is that he would only allow every employee to work on one thing, and every executive to speak about one thing at a time. He distributed this focus throughout the entire organization.
  • I think that’s an extreme version, but it helped avoid the distraction of multiple initiatives. Instead of saying, “I’m going to solve a second-tier problem because I know how to do it,” people would focus on the important ones that are really critical for the organization.
• Build a transparent organization.
  • If you don’t give people enough information, there’s two things that go wrong. One is they’re not going to make the right decisions. Second thing that also goes wrong is you breed a little bit of distrust. “Here’s a lot of confidential information. I’m trusting you with it. It’s really important that we don’t share this,” tends not to get shared. But if you hide it and then people discover it, they tend to leak it. It’s trust plus decision-making quality or the two most important reasons that I believe in transparency.
  • The reason why the decisions are inaccurate or unsatisfying is because most of the rest of the company doesn’t have the same level of visibility into what’s going on and what the prioritization should be. The way you correct for that is to give everybody access to the exact same information you have.
  • People cannot make smart decisions if they don’t have context and information.Transmitting all of the data, from classic metrics to finance metrics to marginal economics, is the only way you can teach people to make smart decisions and scale.
  • Another reason to have a transparent culture is to avoid politics. When everyone has the same information, there’s less room for gossip and speculation.
  • To help your employees making the right decision, all of your employees should have the same exact information the CEO has.
  • You want people to learn. And the way you create an organization that’s a learning organization is by teaching. And the way you teach is by sharing: sharing information, sharing decisions, and meeting those things allow people to kind of grow up and win.
  • I think when your first instinct is, “Things are bad, I should hide it,” that’s the most important time to be transparent. You’ll naturally want to be transparent when everything’s awesome.
  • Share metrics with everyone, review board decks with the entire company, create notes for every meeting and share them with the entire company, use glass walls in conference rooms
• PayPal
  • At PayPal Peter was adamant about sharing all information. You really need to insist upon sharing everything, if you want people to make high-quality, high-fidelity decisions.
• Square
  • At Square, we had fairly radical transparency. For every meeting, we would send notes to the entire company about the topic and the discussion, we would have glass windows, and we would review the entire board deck with the company after the board meeting.
  • Square had a transparent culture, with everyone having access to information, weekly company meetings, notes from all meetings are shared with the entire company, and conference rooms have glass walls to prevent secret meetings.
• Build a dashboard reflecting key value value proposition, share it with employees, and track if employees use it.
  • Building a dashboard, should be drafted by a founder. You need to basically simplify the value proposition in the company’s metrics for success on a whiteboard. Like, what does business success look like to us and what are the key inputs to those, and then have someone create something that is very intuitive for every single person in the company, including customer support, to use. And then, the key metric of whether you’ve succeeded is what fraction of your employees use that dashboard every day.
  • One important concept is what are known as pairing indicators. This is the idea that if you measure one thing and only one thing, the company tends to optimize to that, and often at the expense of something else that’s important. So, you always want to create the opposite as an indication and measure both, and the people that are responsible for that team, need to be measured for both.
• CEOs should scrutinize the most mundane and tactical decisions to create a culture of perfection that eventually turns into winning.
  • Scrutinizing the most mundane and tactical decisions leads to a culture of perfection, quality, and caliber, and clarity of thinking that eventually turns into winning.
• The Score Takes Care of Itself
  • “The Score Takes Care of Itself” by Bill Walsh talks about the process of rebuilding a football team by not focusing on the score of a football game, which is winning. You focus on doing every little detail properly, and the byproduct of doing every little thing perfectly is eventually winning football games.
  • The genesis of the book and the operating philosophy behind Bill Walsh’s management philosophy is that by focusing on doing every step perfectly and precisely, eventually, the output will catch up with the quality of performance by every individual. Jeff Bezos and Steve Jobs did that too.
  • The Score Takes Care of Itself basically says if you do everything perfectly, immaculately, precisely, then eventually consumers and users and businesses would notice. And they would feel the difference, even if they couldn’t articulate the exact reason why.
  • The philosophy of “The Score Takes Care of Itself” is basically every single person in your organization should do everything precisely and accurately and perfectly all the time. And if everybody does that consistently, ultimately, you’re going to win games.
  • One of the first things Walsh did was to teach the receptionists how to answer the phone properly. He wrote a three-page memo about how to answer the phone in a professional and efficient manner. Walsh’s point was that if the organization as a whole does everything exactly the right way, then even the smallest details will matter. Walsh’s philosophy can be applied to any organization. By focusing on the details, you can create an organization that is efficient, productive, and successful
• Jack Dorsey & Square
  • Jack has a vision of what he wants to see in the world and how the world can be better. He coined this outage policy at Square that we were, for the most part, not allowed to A/B test products and services with users. because “Our users are not guinea pigs.”
  • Jack was very hands-on executive and had a really deep understanding and mastery of all parts of the business and to be deeply aware of what was going on.
  • Jack has a vision of what he wants to see in the world and how the world can be better. He coined this outage policy at Square that we were, for the most part, not allowed to A/B test products and services with users. because “Our users are not guinea pigs.”
• Steve Jobs & Apple
  • To convert a losing organization into a consistently winning organization, you need to focus on every minute detail, and the byproduct of doing that will yield winning. Steve Jobs famously would insist upon a high quality design of things like the circuit board and computers that couldn’t be opened by the user. So that sort of philosophy is the key to building a great company.
• Culture is a certain set of beliefs and ways of acting that becomes self-perpetuating. Craft a culture based on your vision, market opportunity, and talent.
  • Each successful startup is kind of like a cult. It has a certain set of beliefs and ways of acting, and that becomes self-perpetuating. You have to craft a culture that’s based upon your vision, the market opportunity, and your talent. your strategy needs to be completely tied to the talent you have, which has to reflect back into the culture you build. And it’s all like one circle.
  • I think the underlying philosophy of getting the details right is pretty important to install in the very, very, very beginning of a company because people will start acting that way and making decisions that way themselves. The key to culture is it’s a rule. It’s a framework for making decisions. And if you have a culture, people learn how to make decisions across that culture, and you’re never saying anything, except just yeah watch.
  • If you want to have a design-driven culture, then the details matter, including things like what desk you’re using, what tools you’re giving people, and what the feel and vibe of the office is. If you’re going to build an empirically driven company, then the only thing that matters, for the most part, are things that you can measure.
  • You have to be really good at cultural assimilation and have very strong principles and onboarding to try to preserve the parts of your culture that are unique. If you’re not directional about it, it’s definitely going to be worse. It’s not going to be the brew you want. Every culture of a successful company is a custom brew, so make sure that you’re guiding the parts, and keeping the parts, and preserving the parts.
• PayPal
  • At PayPal the best way to win any debate was just quantitative: pure math, pure statistics, pure calculus. The meeting when it was at Square, everything was predicated more like Apple, where the question was, “What’s the best possible design? What’s the simplest possible solution?”
  • At PayPal, we didn’t have a lot of meeting, we didn’t communicate a lot by email, it was confrontational culture where everybody had to argue vigorously. It was a very practical culture. Whereas, eBay was governed by PowerPoint.
  • PayPal was a wartime culture where a lot of the art of what I did was making sure that none of our two enemies ever talked to each other in a way that would align against us.
• Building a design-driven culture requires focusing on making decisions based on user experience and details like feel and vibe of the office.
  • Jack taught me how much details matter and taking the benefits of design-oriented thinking down to the detail level in every single dimension.
  • The most important thing I learned from Jack is how much details matter. Jack really believes in everything being precise, carefully thought through not being experimental not being undisciplined, and not being like, sort of a bit of a viable product. It should be delightful every time.
  • If you want to have a design-driven culture, then the details matter, including things like what desk you’re using, what tools you’re giving people, and what the feel and vibe of the office is. If you’re going to build an empirically driven company, then the only thing that matters, for the most part, are things that you can measure.
  • The biggest sea change in my management career philosophy was making decision based on design rather than numbers.
  • I was able to marry what might be called design thinking with empirical analysis in a quite interesting way.
  • Hire people for every role in the company who understand user experience, including engineering, legal, finance etc.
  • Read this interview with John Sculley on Apple and Steve Jobs (read it at least twice): http://www.cultofmac.com/john-sculley-on-steve-jobs-the-full-interview-transcript/63295 Nothing else explains it better.
• Iconic companies do a mix of throwing short passes and running the ball and throwing 2-3 passes downfield and take some big risks.
  • I think a healthy company does a mix of throwing passes downfield and running the ball. To be an iconic company, you need to throw some passes downfield and take some risks.
  • Cash App was launched internally in January 2013 using a technology that was created in 2010. It tooks a while to get true product-market fit and there was a wide belief in market that Venmo was more important, even though they were completely incompetent.
  • Great CEO find and embrace one or two random free radical ideas and people in your organization and use social capital and credibility to make those radical and innovative ideas happen.
  • More and more the ideas are originated from a diverse set of people, and then their ideas are filtered, prioritized, synthesized together into a coherent whole by a VP or the CEO.
• Spending money is not a solution to growth. Companies need to focus on payback.
  • Spending money is not a solution to growth. You measure efficiency typically by payback time. If you have a short payback you have product market fit and if takes too long to pay back, it means something’s off, the products is off, the pricing is off, the value proposition is not clear, not simply powerfully communicated, sales profiles off. And you have to fix that or spend money.
  • The money doesn’t cause the success, it’s the opposite. Unit economics and the discipline were impressive first, it wasn’t like go spend money to grow and then make unit economics work.
  • Hot run companies need to prove that the marginal economics work and that they accumulate advantages over time and get better as quickly as possible.
  • If unit economics are upside down, the company’s never going to work unless you transform it so that each incremental transaction sends some money back against your fixed cost. And stepping on the pedal is probably the worst thing you can do.
  • I think there was a general culture where people were dismissing the time it takes to pay back money. There’s a certain payback time that I’m just not interested in a company, no matter what they do or who’s running them.
  • Payback period is the acid test of a well run startup.
• Founders should find the office space and design it to reflect the culture.
  • One natural instinct is when you need an office is to have an office manager or someone on your team go out and find offices. They’ll go on tours with agents and they’ll come back with photos and ideas. You need to do that yourself. The office environment that people live and work in everyday dictates your culture and how people make decisions, it dictates how hard people work.
  • We used to be in this very compact office where everybody knew what everybody else was doing and how well they were doing it, through osmosis. Then we moved to a very nice office, but on three and a half floors, kind of circular, with the concrete, kind of the standard elevator set up in the middle. And it created a lot of division among teams.
  • If you want to have a design-driven culture, then the details matter, including things like what desk you’re using, what tools you’re giving people, and what the feel and vibe of the office is. If you’re going to build an empirically driven company, then the only thing that matters, for the most part, are things that you can measure.
• What are the appropriate uses of PowerPoint in an Internet startup?
  • Avoid PowerPoint. Read The Cognitive Style of Powerpoint by Edward Tufte: http://www.edwardtufte.com/tufte/powerpoint. (Unfortunately, a free version is not available online, but it is worth the money and time to read this essay. It will change your life.)
  • The only acceptable uses of powerpoint in a consumer Internet startup:a) Board presentations (perhaps company-wide meetings that review the Board materials too)b) Investor presentations to VCsc) Ad sales presentations
• Don’t create a list of pros and cons, define the most important priority and make the decision purely based on the first priority. If it’s a tie, go to second priority.
  • Don’t create like a checklist of pros and cons, like with a column on the left for pros and another column on the right for cons. Figure out your number one priority and then make a decision on which of the choices most accomplishes your number one priority. And then if they’re a tie, then go to your number two priority.
  • I think that’s a pretty good technique but kind of a ridiculous technique that I found it actually pretty helpful is to actually flip a coin. And if you’re emotionally disconnected from that decision, when the coin flip happens, it sort of overrules it and creates a nice forcing function, which can be really useful.

Managing people

• Constantly expand the scope of responsibilities to find employees’ true capacity.
  • The reality is people achieve up to the expectations you set for them. And if you set high expectations, they will exceed what you believed you and they were capable of. All of the great managers in the world set what are perceived to be unreasonable expectations.
  • The management philosophy I was taught, originally from David Sachs, actually back to PayPal was what you want to do with every employee is push consistently and constantly the parameters of their ability until they show you that they can’t handle the level of complexity, complication, and sophistication required.
  • David taught me this philosophy of constantly expanding the scope of individuals responsibilities, until you see them breaking. And then you’ll realize the full potential of everybody.
  • Start will all your employees with mundane tasks and for people who thrive increase complexity and sophistication of task over time. This way you can find people who build your company.
• Delegate and give talents degrees of freedom to prove what they’re awesome at.
  • You are not going to do most of the work. You shouldn’t be doing most of the work. And the way you get out of doing most of the work is you actually delegate. Now, the problem with delegating is that actually, you’re responsible for everything, especially when things go wrong.
  • You need to give talents degrees of freedom to do both what they can do very well and to make mistakes. If you try to constrain very talented people, you’re only going to create a mirror of yourself.
  • You need to give talent enough rope to prove what they’re awesome at and get close enough to failing that they feel the consequences, but with enough of a safety valve that if there’s serious potential for a company, you have enough time and attention to intercept that.
  • One of the ways to tell someone’s ability and test their ability is to let them make decisions and see if those decisions are successful.
• Delegate a task based on consequence of failure and familiarity with the task (task-relevant maturity.)
  • There’s a fine line between delegating and micromanaging. As a CEO and founder, you’re responsible for everything. It’s very difficult to scale an organization if you’re making every single decision.
  • As a manager, judgment involves the ability to calibrate one’s depth and water wisely, and proactively seek assistance when necessary to avoid accidental drowning.
  • The case of micromanaging is two fold. How important is something? And do they know what they don’t know? There are people who just know what they don’t know, and people who don’t. Until someone shows the propensity to distinguish between those things, you can’t let them run amok.
  • Depending on how repetitive a task is, sometimes finding the right person, assessing them, closing them, managing them, and bringing them up to speed take more time than doing it yourself.
  • High Output Management has a great framework for CEOs, founders, and executives to think about delegation and when you delegate and when you not delegate and how to think through the problem.
  • There is a concept in high output management called task-relevant maturity. It’s a fancy phrase for “has this person ever done this before?” The more they’ve done the exact same task before, the more rope you can give them. The less they’ve done it, the more you need to instruct them and consistently monitor their progress. Your management style should be dictated by your employee. With one person, you may be a micromanager because they’re quite low on this scale. With another person, you may be delegating a lot because they’re actually quite mature on this scale.
  • Create a matrix of how confident you are in your decision versus the consequences. There are low-consequence decisions, and very high-consequence decisions. In the category where you have high conviction and high consequence, a CEO needs to make that decision. When you low confidence in your ability to make this decision, and it has moderately low consequences for the organization, you should absolutely be delegating every time.
  • You basically sort your own level of conviction about a decision on a grid, you know, extremely high, extremely low. There are times when you know something’s a mistake, and there are times where you wouldn’t do it that way, but you have no real idea whether it’s the right or wrong answer. And then there’s a consequence dimension. You need to allow people to experiment in non fatal dimension.
  • One-on-one meetings are very valuable. Junior people set the agenda, and you help solve their problems. Frequency is dictated by Task Revelant Maturiy which Andy Grove talks about in High Output Management.
  • I think managing people is an exercise like sort of like playing with a target. You have to kind of do it to learn. You can’t just read a book and say, “Oh, I’m going to be a great manager.”
• To foster innovation, measure people by input not output.
  • You need to manage people by inputs, not outputs. The basic rationale is that if you judge people by outputs, nobody on your team is going to take on the higher-beta, more difficult tasks, because they’re worried about their professional progression and your assessment of them.
  • I learned this from listening to Jeff Bezos speak once about the criteria at Amazon, which is to always thoughtfully measure the inputs: the thoughtfulness, the decisiveness, the comprehensiveness of the inputs, and not look at the outputs.
  • The only way you get through a breakthrough is by taking your best people and forcing them to work on the projects that have 100% execution upside, but only 1% probability.
• Upgrade the team as you grow by comparing individual’s growth to company’s growth and aim for promoting half of the company and hiring the rest.
  • It’s a good problem to have in the sense of customers are buying your product and the emotional problem as a manager, executive, senior leader, board member is that a huge fraction of the people are really going to have challenges keeping up and you’re going to have to hire people above them to support them and replace them.
  • In the beginning days of a startup, you’re kind of trailblazing and forging your way through the forest. You’re trying to find the path. Once you know you have a path, and you want to like bulldoze it, you want to go down the road, and the kind of machines that put down a road is different than the trailblazing experience. So you are looking for different things. So it is partially stage-driven or employee-at-what-market-driven.
  • One way to think about it, kind of a metaphor from sports, is most managers in baseball usually make the mistake of leaving their starting pitcher in a little too long versus calling for the relief pitcher. That’s kind of how you have to think about it. The starter got you so far, but you needed a different skill set to go forward. The hardest part is being proactive. So the best leaders are actually thinking two or three steps ahead and can see when this team, this person is going to start struggling and are already recruiting, sourcing, interviewing, and assessing people.
  • One of the reasons why upgrading your team is hard to actually execute that strategy and a lot of founders and executives hesitate and procrastinate is because people form their own individual social relationships within a company, which is a healthy thing. And so if you replace somebody who’s well connected, it’s going to distract a fair number of people. And that’s one of the reasons I think doing a 10% layoff is always a disaster.
• Startup’s Growth vs. Individual’s Growth
  • There’s a graph about the velocity of growth of a startup and the individual growth of an individual. And if the slope of the company line is greater than the slope of the individual line, you have to make a change and add someone to the team.
  • When the individual’s propensity to grow falls below the company’s growth rate, I think you need to make a change. So you need to know two lines: you need to know the company’s trajectory, as well as the individual leaders. And then that’s the key driver.
  • If a function is doing what they should have done six months ago or a year ago, then you have a problem. If they’re doing what they’re doing kind of like just in time, that’s okay. But when you really have someone who knows what they’re doing and is really good, you want them to be six months to a year ahead of where you think you’re supposed to be.
• Promoting vs. Hiring Ratio
  • I had a plan of maybe recruiting 30% of leaders from outside the company and promoting 70% from within, and Vinod Khosla gave me feedback that that’s completely impossible at the rate of growth that we’re growing. He said, “If you did your job amazingly, 50/50 would be your heroic achievement.”
  • If you do your job well, and you really demonstrate a high rate of learning, half of you are going to get promoted. If you’re growing this fast, even if you don’t promote somebody, the job they used to do is going to be very different and more challenging than it was last month. At the end of the day, people stay in jobs that are a challenge.
• Promote functional experts instead of hiring general managers.
  • Matching the right team with the right leader for the right problem is the key. I think when you don’t have substantive skills in a discipline, your team really can’t learn much from you. You can’t really solve their problems.
  • If you think about what’s easier to coach, truthfully, it’s easier to teach people to lead teams than it is to teach them substantive skills. So I think that all things being equal, you’re much better off promoting people who are awesome at the discipline and at the craft, and putting them in charge of other people who aspire to be as good, which is motivating and challenging.
  • Peter didn’t believe in managers and believed that whoever was best at a particular discipline should run that discipline. It means that you have a meritocracy, and junior people don’t get frustrated because they know that the person leading them is actually better at their job than they are.
  • The best engineer would become VP of Engineering, the best designer would head the Design team, the best product person would lead the Product team, the best finance person would be CFO, and that led to a building of craft and gave a meritocratic feel.
• Timing of feedback matters. Understand what she/he wants to get to, your needs, and help recast feedback into a constructive line.
  • I think the frequency of feedback matters, and the timing of it matters. People tend to procrastinate and tend to defer it, mostly like writing an essay in college because it takes a lot of work to do well, and the news isn’t always pleasant. The best way to do it, though, is tied to whatever the object of the feedback is most relevant. Understanding where this person wants to get to, what we need to, helps you recast the feedback into a constructive line that they can draw for themselves.
  • One lesson from this is that the clarity with which you deliver feedback is critical. Only by articulating specifically the areas of improvement that he wanted to see would I have been permitted to attempt to model that and demonstrate it.
• Ask your direct reports to not let you make a mistake.
  • I teach all my colleagues who work closely with me to not let me make a mistake.
  • It’s always your obligation to convince whoever you report to that they’re wrong. Most of the people I’ve ever worked with take this instruction very seriously and are very good at pointing out to me when I’m about to make a mistake.
  • Your obligation to yourself, your partner, your friend, and your colleague is to figure out how to communicate correctly and powerfully. If I am trying to communicate an idea and you don’t understand it, it’s my fault, not yours.

Business strategy

• Prioritization means choosing 2 - 3 ideas that can add zeros on dashboard.
  • There’s always more ideas, and often more good ideas than can be executed. So someone has to sequence them or prioritize them. And the conditions in a startup, particularly the conditions you’re making decisions under, are fairly uncertain.
  • Prioritization is investing in 2-3 to 4-5 ideas on product development list that has meaningful potential to add zero to dashboards.
  • You need to say no to good ideas for the sake of great ideas. You can’t change the world with 10% improvement. If you allow people to ship 10% ideas, they’re not going to find the 10X ideas, and you have to ruthlessly say no, we need 10X, not 10%.
• To be strategic, define the business equation, its levers, and their trade-offs and understand the impact of moving a lever on other part of the equation.
  • Understanding the core equation of a business and how various levers impact each part of business is key to being strategic.
  • To be good at strategy, you need to understand the core business equation. Different knobs that contribute to success, the connection between these knobs, and how to optimize business without pushing them past their limits.
  • One of the massive ingredients of my success has been the ability to understand business equation and the connection between variables and being able to diagnose it to see when you’re hitting a barrier and potential solutions that other people miss.
  • People who have worked with me and gone on to incredible success on their own have one common characteristic, which other managers, direct reports, and board members have pointed out. They tend to be fairly strong systems thinkers. This means they can integrate a whole set of business problems into one equation and understand the trade-offs in that equation.
  • Every business, when it works, is a set of moves that add up to spitting out money. Great founders have a horizontal view and figure out different variables and their weight and impact to optimize the whole system rather a specific metric.
  • Start with simplifying the equation to three variables. What tends to happen in a company is that different parts of the company will optimize one of the variables. And that doesn’t necessarily lead to the optimal outcome. So, the important thing for an executive, and the more senior the more important, is to understand the trade-offs or the relationship between variables A, B, and C and when they hit resistance on tweak a different variable.
  • Let’s say one variable in equation is sales, one variable is marketing, one variable is product, and, just to simplify, add another layer: one variable might be pricing. Unless you’re actually competent at all four of those disciplines, you won’t know which one to tweak and how much you can tweak it. And you won’t know where the leverage is.
  • In the more complicated businesses where there’s a business equation and every variable needs to be aligned to yield success, sometimes you tend to break one of those variables to two to three variables that are pretty strong, but the third one starts breaking really fast and you don’t know what to do about it.
  • Understanding the connection between fixed costs and variable costs in your business and being able to adapt quickly if the world changes, either in cost structure or business is very important.
  • Sometimes cost of acquisition matters more than margin. If, you have a very secure business like LinkedIn where the cost of acquiring a customer approaches zero, then the concern about the margin also approaches zero. But if the cost of acquiring a customer is very expensive, you need to ask “How many dollars come back to the company for everything we do?”
• Companies should look for accumulating advantage that basically means “Why the business gets better and easier every year?”
  • Accumulating advantage means “Why the business gets better and easier every year?” and network effect is a narrow example of accumulating advantage that is very powerful.
  • Initially startups should focus on accumulating advantage and things should get incrementally easier over time versus always requiring the same energy and the same skill and talent and that over time becomes a strategic advantage.
  • We tend to look for companies that have what we call accumulating advantages. This basically means that every day, the business gets better, stronger, more defensible, has more leverage, in another words idiots can run the company, . Eventually, this translates into financial metrics like greater cash flow and bigger margins.
  • One of OpenDoor’s accumulating advantages is its brand.
  • The more homes we price, the better we get at pricing, which means the cheaper, or lower, fee that we have to charge people to make money. The lower fee we charge people, the more likely people will accept our offer. The more offers we accept, the better we are at pricing. And so our error rate just goes down and down, which means our fee goes down and down, which means we’re more than competitive.
• Vertical integration is a better strategy because it allows creating the best user experience by controlling the whole experience and creating and capturing more value.
  • Customers don’t care whose fault it is when something doesn’t work perfectly. Customers care about the overall experience. And unless you control and dictate the overall experience, you can’t optimize it. The only way to create an awesome product is to dictate all the specs, and all the component pieces
  • Fundamentally, when you’re vertically integrated, you typically capture more value. And that tent, the math of that when you’re really good at it tends to trump the math of a small fee from a lot of people.
  • When your success is derivative from other components, constituents, or partners, you don’t control your own destiny. So when you’re vertically integrated, it’s just a question of how good you are and how good your team is.
  • Components businesses don’t own their destiny because of adoption risks, long sales cycles, economic issues, and lack of direct interaction with customers.
  • It is factually true that vertically integrated companies may start with lower margins. The key is understanding intellectually, in a framework sense, what will change over time. You don’t want to fund a permanently low margin business but what you may want to do is understand when do new dynamics like economies of scale and network effects kick in that creates a lot greater margins.
  • At Square, we basically built from the bottom up from the hardware to the software to the decision-making to the risk engine to the underwriting engine, was built from the ground up to have complete control of who got approved.
  • I generally think that one would be better off emulating Apple, Amazon, or Tesla than trying to replicate Google or Facebook. And I think that most founders err on the wrong side of that equation.
  • I was always a fan of like, “Well, why is Apple successful?” Let’s decompose that, and then replicate it and understand it. So I would always try to pursue an Apple-esque strategy. And we did that at Square.
  • What makes Apple unique is their decision making approach and vertical integration.
• Companies should build leverage from their asymmetric advantage.
  • It’s fundamental for founders, executives, and investors to be very specific about what strategy they’re following and where the strategic leverage is coming from.
  • “Seven Powers” helps you to understand that is truly strategic and what is not.
  • You should take advantage of asymmetric ability to perform a function and use it to own the entire stack and build a vertically integrated business to improve user experience and capture more value.
  • If you have an asymmetric ability, you want to ensure that that asymmetric ability has the maximum possibility of success. And that’s typically by not outsourcing your destiny. The benefit of doing that is also that you can customize the entire experience.
  • Companies that need a lot of debt need to have some asymmetric ability to price the debt and also some distribution advantage. A firm that has both from the beginning would be very attractive to me.
• Not everything is always up to right and founders need to build a business that can be successful in an average market.
  • You need to realize not everything is always up to right, and you need to have control of the levers in your company and control of your destiny. So when the world does change, you’re not caught blindsided.
  • Sometimes when everything’s going really well, you forget how fragile the ecosystem is. I think having gone through different cycles, up and down, leaves you with more - you’d wind up spending more attention devising control of your destiny.
  • You need to build businesses that can be successful in an average market (around 10X multiple) or ideally in a bad market environment.
  • In a tough market (high interest rate), founders need to think about ways to (A) normalize economics of their business (margin and payback period) against macro environment and (B) show impact and progress to investors in shorter time horizons so they can raise capital.
  • In a crisis control your destiny by (a) getting close to break-even by a combination of lowering cost and increasing revenue and (b) securing enough resource so you don’t need to raise money under pressure for a long period.
• What are examples of markets where the second (or other later entrant) won?
• 1. Per Chris Dixon’s count, Google was the 11th Search Engine. 2. If you consider Facebook a social “network,” it trumped both Friendster and MySpace. 3. LinkedIn has displaced or is displacing Monster, CareerBuilder, HotJobs. In fact, I believe LinkedIn’s valuation now exceeds that of Monster.com’s. LinkedIn also displaced Plaxo, at least in part. 4. YouTube launched significantly after Google Video. 5. Yelp has surpassed CitySearch in traffic and reviews, and should supplant CitySearch in revenues sooner, rather than later.

Assessing founders

• The idea of starting a company from scratch and taking over the world is so crazy. Great founders are anomalies and off central casting.
  • The idea of starting a company from scratch like the proverbial two kids in a garage, taking over the world, transforming industries that have been around for hundreds of years with large incumbents in the Fortune 500 is somewhat irrational, and certainly heroic exercise. There has to be something anomalous because you don’t take over the world from scratch with following a standard playbook.
  • Over the last 30 years, at least half of the top 20 players didn’t play college basketball. So I think that’s true in startups, too. At least half of the best founders drop out of college, and the other half may have graduate degrees.
  • Most scientists in history that you remember were incredibly controversial in their own times.
  • If the founders are self-aware about negative feedback in their previous jobs, why that happened, and what led to it, and are not defensive at all, that’s a good sign. Partially if you have a very strong personality that might not work well in someone else’s company. But when people join your company, they’re wanting to join that crusade, and they know sort of what they’re getting into. So, some people who actually walked out of a large company for a variety of reasons, actually are extraordinarily good founders.
  • Similar to Major League Baseball where talent is limited, there are finite number of entrepreneurs, therefore you can’t create an infinite number of companies.
  • You’ve got to find people that are under the radar, off central casting, to start your company, most likely. And that doesn’t mean that they’re not talented. They may, in fact, be more talented, but less proven. There are two different dimensions. One dimension is how proven they are how much evidence is there that this person is amazing? The other dimension is just how talented they are
  • Filtering founders using typical criteria and based on resume doesn’t work. The most interesting companies, outliers, are built by founders with unconventional qualities.
  • Only disruptive people create disruptive companies. To change the world you need to have a different perspective. Every successful founder is a little eccentric.
  • Life experience predict many characteristics successful founders. A really high fraction have been at least founded or co-founded by immigrants. Not accepting excuses that other people normally would accept is a sign of great founders.
  • Peter taught me to find people that were too odd, too weird, too immature for large companies to digest. As an investors, I constantly ask what will other people miss? And can I find people that are actually quite talented, but that other people are going to overlook? The sports metaphor that you talked about would be like the canonical example: drafting Tom Brady in the sixth round.
  • I like to find the outrageously ambitious people. Borderline a little crazy. I’ve certainly worked with and worked for a lot of people that fit that DNA, so it doesn’t bother me.
  • When you meet a Founder, it’s very hard to project beyond what this person is capable of today — instead you want to project what is this person going to be like in 10 years? And that’s really a growth question, so you’re looking for a sustained rate of growth.
  • My job is to find the top ten founders on the planet and I don’t care about their historical background or demography.
  • My core expertise is, once in a while, being correct about meeting someone who’s 25 years old, or an immigrant that’s never done anything, has no traditional credentials, and saying, “You know what, this person actually may be able to do that.” And I’m going to lend them my time, my money, and my credibility and see if they can pull it off.
• Relentlessly resourceful, thorough understanding of idea maze, raw IQ, ability to assess and recruit talent, and being ambitious are traits of extraordinary founders.
• Relentlessly Resourceful
  • The single best blog post on recruiting for a people-first startup is “Relentlessly Resourceful” by Paul Graham.
  • Successful entrepreneurs are very original first-principles thinkers who don’t take excuses. They’re just going to walk through the wall, over the wall, under the wall, around the wall, make friends with the wall. You can see their tenacity and grill early when you meet these people.
  • Great talents can convey something pretty damn complicated in a succinct, compelling, and persuasive way. They are relentlessly resourceful. They are contrarian. They are some sort of energy part that’s hard to explain, but it’s kind of like someone who’s going to just run through walls, and if they can’t run through the wall they’re going to go up over the wall, under the wall, somehow become friends with the wall.
• Idea Maze
  • Great founders can walk you through the intellectual maze from start to success instead of failure and draw the treasure map.
  • I’m really looking for founders who has that intellectual maze in their brain, can communicate it with passion, and has the determination to overcome any obstacle to go from where they are to where they want to be.
  • Being relentlessly resourceful, raw IQ, a thorough understanding of the idea maze, and rate of improvement are the combination of things I look for in an entrepreneur.
• Raw IQ
  • Traits I look for in others are being relentlessly resources, which Paul Graham has a great essay on it, intelligence and IQ, and third being able to scale yourself and become a magnet for talent.
  • I usually invest if someone has raw intellect, is pretty tenacious, relentlessly resourceful, a little bit contrary, and is looking for someone with similar qualities.
• Recruiting
  • Ability to recruit the necessary talent is perhaps the most important criteria in assessing a founder and you should reach out to their previous colleagues and ask if they would join the new company.
  • (a) Being relentlessly resourceful, tenacity, or grit, (b) pure IQ, and (c) ability to assess and recruit talent are the most important of a great entrepreneur.
• Ambitious
  • I’m usually more the “The world should be different, and I’m gonna will it into existence” kind of top-down founder. Like, “I just don’t like X? Yeah, I’m gonna fix it.”
  • There are a variety of things that make a great entrepreneur. Ambition is a key element and you need have to have adrenaline and drive. Ambition is a necessary but not sufficient condition for success. You need to have a different model to gauge an entrepreneur that you’re not competing with everybody else.
• To evaluate a founder answer if they can rearrange the world around their will and what are the specific traits and skills leading you to that conclusion.
  • There are plenty of ways to tease out motivations and values. And if you do that across a pool of investments, you end up with a positive skew of the right motivations. I ask people, “So why are you doing this?” That is a great way to start.
  • To evaluate a founder you need to answer two questions. First, is there a change this person can rearrange the world to his/her will? Most people can’t! And if you feel the could, the second question is what are the specific traits and skills that are leading you to that conclusion?
  • The question I usually ask founders is “What do you want to do with your life?”
• Great founders have spark and are in top 1% in one of multiple dimensions.
  • There is a nonzero probability that a founder can rearrange the world around his or her will. And that usually means there’s a spark in the founder that you say “Holy Cow! I’ve never seen someone who’s tenacious, intelligent, got that much reality distortion ability, got the ability to assess other people”
  • If you think about how heroic it is to create a business in a proverbial garage with a co-founder and say I’m going to reinvent the world society, and the industry, that’s like borderline irrational.
  • I think the most important filter is a spark of unusual potential. The people who change the world are usually quite exceptional, at least in one or two dimensions. And you can often see a spark of irrational potential. It doesn’t mean it’s fully developed. And it may not be consistently developed. In fact, you may see very undeveloped parts of a person’s personality and skills. But you want to see that spark, because it takes an unreasonable person to transform society.
  • There’s a technical element, a product-market fit element, a business acumen element, and then there’s a kind of work ethic, relentlessly resourceful character sort of element. And I think there are different questions and different ways to gauge each of those. But those are the key categories. Generally, for me, I’m looking for a spark. Because that’s what offsets the risk of lack of experience: the potential for a 10x upside.
  • There’s usually a spark. At the end of the day, the best feeling I’ve had hiring is when I’ve known it instantly that there’s a chance that they were world-class.
  • I only invest in founders that have a spark like omg I have never seen anybody like this before. And it could be like this is the greatest sales person I’ve ever met, this is the greatest storyteller I’ve ever met, this is the most tenacious person I’ve ever met, this is the smartest person I’ve ever met.
  • All breakthrough artists have a pretty fundamental grounding sort of in the Steve Jobs sense of taking some random idea from a different field and mixing it together with some traditional grounding. And so the more grounded you are in the principles, the better when you have your original spark. So it’s the original spark plus the grounding.
  • Every great founder is top 1% on some dimension of all people I’ve ever met. Because there are so much inertia and you need to possess a unique superpower to change the world around you.
  • Most people who succeed at changing the world have extreme talent in at least one or two dimensions, and then have a screw loose in at least one or two dimensions. And the ones that thrive are self-aware enough to know where their screws are probably loose.
  • What makes the exceptional Founder, the real outlier, can be one of two things. They are either outrageously good at one dimension — extremely world-class. Like, “I have never seen someone like this in X-dimension.” Or they have a compounding rate of learning that’s absurd.
  • Well-known founders (like Max and Jack) are first rate in couple dimensions like engineering and business or engineering and design.

Succeed in early stage investing

• Early stage investing is more of an art than science, because there is no sort of value.
  • Investing in seed or series A companies is an art because there are barely a company and there is no sort of value.
  • When you’re investing in venture capital, as opposed to growth capital, you’re working with very raw ideas, very raw companies, very raw founders, and trying to project the future. And it’s just a really hard challenge to project from the proverbial two kids in a garage, what’s going to take over the world.
  • The industry, at least at the early stage investing, which has traditionally been dominated by venture capital, is much more art and science. Therefore, the people who practice it are much more artisans than scientists. And their scaling is not easy.
  • A lot of people will invest in late-stage companies just to get a logo on their website, which we don’t do. The Series A is pretty hard to do that.
• TAM is a misleading concept because it’s highly correlated with value proposition and quality of the product.
  • I think the real issue with TAM is that you don’t create something that creates enough economic transformation, so you don’t capture enough value. It’s not that there’s not enough people or enough customers, it’s that you capture such a small amount because what you do is so marginally valuable, that it’s hard to add up to be a massive company.
  • I’m not sure I’ve ever in 15 years thought about TAM. I do have intuitions of whether markets are large or small. Partially because you have a first derivative problem, which is like, what’s the rate of growth? Because you’re aiming five to 15 years in the future.
  • TAM is highly correlated with the value proposition and the quality of the product. So if the product is amazing, suddenly the TAM is very explosive. And if the product is just good, it’s an OK TAM. So what I ask is kind of a different question, which is value creation. So what I care about is how much value are you creating for somebody? And what’s the magnitude of the value you’re creating?
• A startup targeting consumption markets need an order of magnitude better idea or product to deal with incumbents. In non-consumption markets, you just need to be directionally right.
  • There two different types of markets in the world. Non-consumption markets are markets where the product or service being offered is new and has never been used before. Consumption markets are markets where the product or service being offered is already known and used by people. Consumption markets require an order of magnitude better idea, because you’re dealing with incumbents, you’re dealing with a lot of pre-existing inertia. In non-consumption markets, you just have to be directionally right.
  • The question I ask founders is like, who are you creating value for, and why? And if that feels large, and it feels like a reasonable number of people in the world that might have this problem, I can easily invest.
  • The hard part and the difficulty and the challenge to be a world-class investor is to imagine what can go right and see that clearly, crisply, and succinctly before other people.
  • I knew almost every time 30 seconds to 4 minutes in the meeting that this was a spectacular opportunity and if the things worked, this was a $50B - $100B company.
  • As an investor, you need to know exactly that the upside is. Use public comps but public comps could be misleading in a hot market.
• Price in valuation doesn’t matter in series A and B investment. Valuation is always a trap.
  • Price in valuation doesn’t matter in series A and B investment. Valuation is always a trap.
  • You can escape public comps by investing in seeds and series A and non-comp companies.
• The earlier you invest, you need to be right only about the founder and everything will take care of itself.
  • The art of being an early-stage investor is taking enough risk and chasing ambitious enough things and that means fail a certain amount. I’m very happy with a 40% batting average.
  • You look in startups that I invested in very early, I tried to be the first investor everywhere I could. The number one criteria was always people. So, it’s very similar to hiring in that sense as I was helping train my brain of finding and identifying extraordinary people because it’s the extraordinary people that really propel startups forward.
  • Fundamentally, the earlier you invest, if you’re right about the founder, that’s the only thing you need to be right about, and everything else will take care of itself. So I try to isolate as much as I can to what’s the quality and skills of the founder and founding team.
  • I’d like to make those decisions based on whether there really is a successful entrepreneur, a great value proposition, or an interesting take on a product.
  • To succeed at seed stage, you either need to have a unique formula in assessing founders or understanding certain technology breakthroughs better than others.
• Pick smart talented founders as they navigate you to successful interesting opportunities. You can embrace the idea later.
  • Pick smart talented people so they want to take you with them as they navigate to successful interesting opportunities.
  • The caliber and characteristics of the founder has always been the most predictive variable of success in early stage investing, and mapped maybe against what they’re trying to accomplish.
  • Fundamentally we just want to find the right founder tackling the right problem not try to you know sort of predict the future.
  • Sometimes you don’t have to really like the idea and understand the idea but the people are still worth talking to. And then that gives the opportunity to embrace the idea later.
• Focus on team and don’t get distracted by idea, market, technology, or product.
  • You can easily get distracted with technology, products, fancy intellectual analysis of markets but at the end of the day the team you build is the company you build. Put together the right team for the problem you’re seeking to solve.
  • You can get distracted and in love with this awesome product, or this great design, or this breakthrough technology, but if you don’t have the people that can take advantage of that and leverage that, particularly for 5 to 15 years, you’re not going to build an iconic company. As an investor and as a board member, and now as a VC fund, we obsess on what is the core team and what is the core team for this specific type of project.
  • The team you build is the company you build. A lot of people get distracted in Silicon Valley, they focus on the technology, on the product, on the users, and everything except the people. And it turns out that the most important thing, by far, is the people, and that 100% of your problems get solved with the right people, and about none of them get solved with the wrong people.
  • There are businesses that with the wrong team are just not going to work. And there’s businesses that are in a tough market, but with the right team can actually pull off success.
  • Startups are very path dependent. If you take the best people in the world and you chase a problem, a very difficult problem, the chance to surmount that problem is very high. If you take just really good people and tackle the same problem, it may be a ten percent chance. If you take mediocre people, it’s like zero. If your first 20 people are just okay, it gets very difficult. And it usually gets worse.
  • Ultimately, the right team is going to edit the idea, change the idea, modify the idea, and come up with a really interesting idea. So if you have the right people, and you have a critical density of the right people, you wind up going to the right places.
  • I focus on the people and a lot less on the market, a lot less on the product, and a hell of a lot less on the technology. So therefore, if you believe those sort of first principles, the natural conclusion to build the most important companies is how do you aggregate all the talented people and put them in one place.
  • The caliber and characteristics of the founder has always been the most predictive variable of success in early stage investing, and mapped maybe against what they’re trying to accomplish.
  • The first thing look for are signals that this team is special. That the founder can create a narrative and is chasing a problem worth solving, and that they’re excellent at communicating that. And you can look at the first 10 employees, not just the two founders, but the actual core DNA of the company is special.
• Criteria for investment: being anomalous, having a secret, huge upside, accumulating advantage, ability to recruit a density of talent, and overlap with investor’s competitive advantage.
• As I posted on Twitter, my questions are:
  1. What is anomalous?
  2. What “secret “ is the company predicated on?
  3. What could this be? Could this be one of the most important companies on the planet?
  4. What is the accumulating advantage?
  5. Can the founder attract the talent requisite to achieve the vision?
  6. Why do I have a comparative advantage here?

• Early stage investors should always think about who’s going to write checks for the next rounds.
  • As a student investor, unless you’re working with a partner that is willing to back up a startup for many years in a contrarian mode, you need to constantly think who’s going to invest in the next rounds and move quickly from contrarian to consensus.
  • Downturn cycle mostly impact late stage investment but even as a seed, series A and B investor, you need to think about who’s going to fund the next rounds.
  • Angel, seed, and growth funds will have a very difficult time competing with vertically integrated multi-stage VCs.
• To build a judgment as an investor you need to experiment and invest.
  • Building judgment in angel investing is harder than VC because no one’s gonna give you infinite money.
  • The only way to learn if someone is going to be a good investor, and this is relevant to both angel investing and venture investing, is to actually have them invest.
  • I angel invested in about 80 companies over a decade from 2003 to 2013 and I actually enjoyed the process of meeting with very early-stage entrepreneurs and finding interesting companies before other people knew they existed.
• To assess your performance as an investor ask “Given the information that was available at the time, did I make a smart decision or not?”
  • The question you try to ask yourself is, “Given the information that was available at the time, did I make a smart decision or not?” And that’s very different than asking, “Was the investment successful or not?”
  • There is no framework to agree what’s a good investment decision but read investment memos, analysis, and inputs. And don’t forget the opportunity cost.
  • Early stage investing is like baseball, 30-40% success is quite good. There is going to be more failures than success but you still want to hit a reasonable percentage, the things that don’t go well.
  • Part of your job as a VC is to make mistake. You need to be right between 30 to 40% of time.
• Not Taking Meetings
  • Almost every bad decision that I’ve ever made was fundamentally a result of not taking the initial meeting.
  • My biggest regrets are around deciding who to take meetings with which is by far the most challenging part of any early stage investor. So it’s a filtering problem, versus a judgement at the actual meeting.
• What’s the etiquette for asking to invest in someone’s company?
  • The question as posed is difficult to answer precisely without some additional context regarding the state of the company you are interested in. At a minimum, it is crucial to understand what, if any, capital they have raised.
  • As a general matter, assuming that the company has not already completed a venture capital round of financing nor already demonstrated explosive traction, it is flattering to the entrepreneur to ask to invest, presuming you are an accredited investor with some consumer Internet or other technology expertise.(You might also exclude companies founded by already well-known founders from this principle.) In most cases, entrepreneurs find that raising capital is a painful process and they will react positively.
  • If, however, you ask to invest in an unsolicited manner you should be prepared to proceed without any major due diligence requests and to accept terms at the high-end of market reasonable without any laborious haggling. Once a company has received a term sheet from a well-regarded VC, the situation is inverted because your money is immaterial to the company and it may appear that you are just a derivative believer. Moreover, the capital invested in the company is often zero-sum–i.e. one more dollar from you is one less that the VC may invest.
  • As as result, it is highly unlikely that you will be able to invest unless you have the skills/talent/credentials that the start-up would basically want to recruit for an employee or would be so uniquely useful that they would offer to pay you (i.e. appoint you an advisor with a concomitant equity grant). Some VC’s, but not all, will allow well-regarded angels to participate to add some PR or signaling value, but only a limited number of people will qualify for that exception.
• What’s the line between an idea that’s crazy good and one that’s just crazy?
  1. Is the team assembled highly calibrated for the challenge presented?
  2. Can the risk be decomposed so that you can validate the approach to the problem within 2–3 years and with finite capital? Address the most important risk first, not last.

• Investors need to be contrarian and have independent judgment because VC is a power law business and outliers trump all others.
  • *Most things in life have a normal distribution to them but there are 10-20 companies that drive wealth creation every year. It’s heavily concentrated. It’s power law business and outliers trump all other things.*
  • You have to be both contrarian and right. If you’re contrarian and wrong, you obviously lose money. If you’re consensus-oriented and right, you actually don’t make any money, and you can’t build a startup in a space that other people are paying attention to if you’re doing what everybody else does.
  • The best entrepreneurs will not follow and fall into traps, nor will the best investors think there’s a herd mentality and invest right now.
  • Most investors are not very good at producing returns because they are more of herd than original thinkers and spending all your time with other investors clouds your thinking. Founders Fund chose its headquarters in Presidio to not spend time with other investors.
  • Don’t invest in the “hot” deal of the day. Find a different market, unusual entrepreneur and invest in companies before other investors decide a company is attractive. If you prove to be proficient at spotting companies and talented entrepreneurs, you are set.
  • As an investor you need have some degree of independent judgment and some degree of insulation from what the rest of the world is doing. So I make an investment decision 80% of the time without ever asking the question, “Who else is investing?”
  • At the time, both YouTube and AirBnB seemed pretty ridiculous. You want to find these things. The ones that are actually rewarding are the ones where nobody else wanted to invest at the time. You give them the first check, and then all of a sudden other people might be interested.
  • At Founders Fund, I could invest out of what I think is low price and if I’m right we can continue to power money in the company and not really care what anybody else in the world thinks about that for a very long time.
  • We’ve been successful in founding defense companies because we noticed Silicon Valley is intellectually blind and afraid of investing and founding defense tech companies.
• Contrarian Investment Test
  • I want half of my VC friends to laugh at the investment I make. The key to success is to be patient and in 2-3 years from now you go from being considered ridiculous and absurd to being appreciated by a lot of people.
  • My acid test for success as a VC is do half of my friends who are VCs laugh at my investments?
  • I tend to like things that are super ambitious, that almost are ridiculous. If half of my VC friends don’t laugh, that means I’m not taking enough risk. And that means the projects aren’t ambitious enough.
  • When I invest in a company, I want about half of my smart friends who are venture capitalists to laugh at me. I want them to think that the investment is ridiculous. It’s a test of how differentiated the company is, how innovative it is, and how disruptive it is.
• In an efficient and undifferentiated market like VC, having an asymmetric advantage and investing in early stage high impact founders is a formula to achieve extraordinary outcome.
  • There is surprisingly little innovation in venture capital industry and most VCs are not differentiated.
  • The market for VC is pretty efficient so we need to identify blind spots and will lead us to superior return. We ask ourselves what are other people going to miss about this company? What kind of blind spots are they going to have?
  • I don’t see difficulty raising capital for entrepreneurs with quality team, quality ideas, quality markets. The shortage is really among entrepreneurial talent.
  • If you look at venture assets as a whole, the returns are not particularly stellar. So unless you have some asymmetric ability or asymmetric advantage, there is a question of whether you should be investing in any particular company.
• Find Your Asymmetric Advantage
  • As a global statement I always believe that you should invest in things that you have an asymmetric advantage in. And the earlier in your life you figure out what your asymmetry is, the easier it is for you to magnify and amplify on that.
  • So one of the things I always try to ask myself is: why do I have an unusual advantage here?
  • There are lots of interesting deals and companies but not something that makes me passionate and I have a competitive advantage about. Very rarely will I invest in something just because I think it’s going to be a successful investment.
• High Impact Investing
  • What I’ve been doing is what I call “high-impact investing.” I try to be as bold as possible, as early as possible, and as impactful as possible. My skill is finding things that are brand new, that are under the radar, that haven’t even launched in many cases, and investing before other people appreciate either the founders or the idea.
  • My unique skill is finding young people that other people don’t know about, that haven’t had success yet, and be able to project the rate of their growth and their future potential, and help them along the way.
  • I try to only invest in N of 1 entrepreneurs and that are capable of changing world which is very unusual and heroic.
  • I prefer to invest when things are not commoditized and nobody else is on the cap table. It’s a team and a keynote deck and nothing else, no business metrics, and even sometimes no product.
  • Halfway through 2015, I decided that the primary investments I wanted to make would be $1 to $3 million seed investments. I’m a founder-driven investor, and I’m actually fairly proficient at it. I should be investing before there’s any data because once there’s data, other people can look at data, review data, analyze data, at least as well as I can.
  • As an investor, you need to have asymmetric advantage. Assessing the team when there is no metric, helping founders to avoid unnecessary mistakes that could kill the company, and understanding legal and regulatory risks are my asymmetric advantages.
• Regulated Markets
  • As an investor, I prefer to invest in areas that have a dose of legal or regulatory risk because I have a competitive advantage. It’s not accidental that a lot my career success has actually come from investing in a heavily regulated area like financial services.
  • I love regulated markets, especially those with legal risk, because I have either a competitive or comparative advantage in assessing legal risk than all the other VCs. so, not accidentally, financial services and healthcare areas are areas I’d love to invest in.
• The ultimate measure of success for an investor are impact and propelling undiscovered talent achieving extraordinary outcome.
  • The secret to working hard without burning out, in my opinion, is impact. I believe that most people who connect the dots between their activities and output are very happy and satisfied.
  • I measure myself mostly on two dimensions. First is the number of people I’ve been able to identify and propel forward. Second thing is, obviously, you want to help create iconic companies that propel the world forward. Silicon Valley, you know, has changed and transformed many industries across the entire planet.
  • Identifying people who have the potential, giving them enough guidance, feedback, mentoring, and opportunities, and watching them succeed, that’s been the most exciting thing over the last 18 years.
  • Impact doesn’t necessarily have to be measure empirically. Seeing founders and employees improving fast also shows impact.
  • To me success is the number of undiscovered talent people that I was able to help mentor and be a consigliere to, that turned out to be incredibly important to the world. Meaning, I was able to propel them, enable them, and give them fuel to create something that changed the world.
  • Believing in founders or ideas when no one is liking them and writing the first check gives meaning to investments and make them psychologically rewarding.
  • Companies are best tool to change the world, and being able to fund them, give them the oxygen to validate that they can do what they aspire to do, and then other people can give them capital later, once it’s sort of proven, is pretty important. I would like to be involved in an active way with the most IPOs.
• How did Keith angel invest in YouTube, AirBnB, and Yelp?
• AirBnB
  • One of the reasons I wanted to invest immediately in AirBnB was early on they built their payment system because they realized showing up with $200 dollar to your host is never going to be a mainstream product.
  • I remember meeting Airbnb when the three founders were living in an apartment in in San Francisco. Thirty seconds into the monologue, Brian Chesky, the founder and CEO, was explaining the concept to me. I just said, “Stop. This is the greatest thing since YouTube. I definitely need to invest.”
• YouTube
  • And I was like, “Is it codded in Flash?” And he said, “Yes.” And I said, “Well, does it have amateur videos or professional videos?” And he’s like, “No, it’s amateur, but it’s like me dancing around.” I asked him a third question about a little bit about distribution, which was a little bit technical. I was like, “Is it kind of an embedded thing that you could embed in places?” It’s sort of what we used to call this internally at PayPal, “X” And he exclaimed, “Yes!” I said, “I want to invest.”
  • “Roelof. check out YouTube.com.” And you know, I just did a classic succinct email. And he’s like, “Oh, that’s kind of interesting, but how do you think it’s a big business?” I explained it, and it’s like, “Oh, have him come in on Monday.”
  • The problem I screwed up actually is I forgot from law school that the music licensing scheme is a statutory scheme that governs music is actually different than standard IP law. So there’s this little problem with YouTube videos that there’s music playing in the background.
• Yelp
  • The original idea for Yelp was to blast out recommendations to all your friends by email. For example, if you were going out to dinner, you could send an email to all your friends and ask them for their recommendations. It didn’t work. The new product was totally different from the original idea. It was called Yelp, and it was a website where people could write reviews of businesses. The new product was a success, and it quickly grew in popularity.
• What is more important for a start-up: quality of team or size of market?
  • The best advocate for market is Andreessen and his cogent explanation: http://pmarca-archive.posterous.com/the-pmarca-guide-to-startups-part-4-the-only
  • Paul Graham and others argue team trumps market, a view that I tend to share. As expressed by Paul: “Some, like Ron Conway, say it’s the people—that the idea will change, but the people are the foundation of the company. Whereas Marc Andreessen says he’d back ok founders in a hot market over great founders in a bad one. These two positions are not so far apart as they seem, because good people find good markets. Bill Gates would probably have ended up pretty rich even if IBM hadn’t happened to drop the PC standard in his lap. I’ve thought a lot about the disagreement between the investors who prefer to bet on people and those who prefer to bet on markets. It’s kind of surprising that it even exists. You’d expect opinions to have converged more. But I think I’ve figured out what’s going on. The three most prominent people I know who favor markets are Marc, Jawed Karim, and Joe Kraus. And all three of them, in their own startups, basically flew into a thermal: they hit a market growing so fast that it was all they could do to keep up with it. That kind of experience is hard to ignore. Plus I think they underestimate themselves: they think back to how easy it felt to ride that huge thermal upward, and they think “anyone could have done it.” But that isn’t true; they are not ordinary people. So as an angel investor I think you want to go with Ron Conway and bet on people. Thermals happen, yes, but no one can predict them—not even the founders, and certainly not you as an investor. And only good people can ride the thermals if they hit them anyway.”

Venture capital

• To succeed as a VC, identify 2 - 3 main risks, assess the founding team, and allocate capital based on profile of the risk.
  • As a VC your challenge is to identify the 2 or 3 challenges that need to get solved for an idea to reinvent an industry. And identifying traits, characteristics, or unfair advantages that needs to solve those challenges and assessing the founding team against them.
  • Typically, the way I think about founders is through a different prism: what are the three core risks to your company? What I’d like to see is somebody who’s excellent, like a world-class expert, at each of the risks on the founding team.
  • The way we look at our job is that our job is to match capital invested against risk. So we might be willing to write a $4 million check, given what’s proven and what’s not proven. We wouldn’t be willing to write a million-dollar check. So we think of that as our job is allocating capital against risk.
  • Different rounds have different risk quotients, and that people who were making the smartest risk-reward decision, over time will perform really well. VC is a risk assessment, and calibrating, “How severe is the risk?” And “Can this set of people solve this risk, or these set of risks?
  • The core team at Fair had the experience and skills to underwrite merchants, design products, and manage logistics. This allowed them to create a company that helps local businesses manage their inventory and reduce risk.
  • “Well, what would I have to prove to you that would change your mind?” Very thoughtful question. So I looked up and I asked myself “What was underlying my religiously negative reaction?” “1, 2, 3. Like, show me this, this, and this.” About a month goes by, and then he emails me “Okay, I’ve proven those things. Can we get together?” I’m like, “Sure.” So he shows up in a very coherent, incredibly thoughtful deck, walking me through the evidence of all these three things. Like, “Okay, here’s your money. I promise you, if you can prove…”
• To be good at late stage investment, you only have 2-3 windows and need to know the market to be successful in the rounds in between.
  • If you’re going to play the game of high price valuation entry you also need to be good at exiting trades.
  • In late stages, “buying low, selling high” is the greater fool’s theory.
  • To be contrarian in growth funds, you need to have some insights that the upside is higher than what others think.
  • In growth round, you only have 2-3 years window and you need to know the market to be successful in the rounds in between.
  • The later the stage of a startup, the higher the impact by public market valuation.
  • Late stage companies should have a super smooth growth curve but if you some temporary volatility in some segments of time and then you’re back on a sort of predictable growth rate, there should be some serious interest to invest.
• VCs can increase odds of success by filling the missing DNA of the team.
  • You can raise the odds of success in any startup from the very early days from something like the proverbial 1-10% that people talk about to probably 30-40% just by changing the team composition. That’s why matchmaking founders with other founders that have the missing DNA works.
  • I think the hit rate one should aspire for is about 35 to 37, maybe 40%. And I think if you construct a team properly, and seek the right counsel, your odds of success are somewhere in that zone.
  • One of the things that good investors can do is help identify the gaps between the core team and the key DNA that’s required for success and help bridge that gap in networks and help make people find people.
  • I help founders recognize where the missing gaps are in their DNA versus their vision. Just like the movies, when you’re packaging talent, what they’re doing is basically increasing the odds of the movie being a blockbuster by putting the right writers, directors, and cast together. I actually think if you put together the right founding team, it’s more like a 35 to 40 percent chance of success.
  • Most companies that we fund, especially if you’re a series A investor, are by definition incomplete teams. Even series B is usually an incomplete team. That’s better than a mediocre team.
  • A lot of founders have networks that are very similar to themselves, particularly early in their career and one of the things that a good venture investor can do is actually bridge that gap, partially through pattern recognition of identifying what’s missing.
• What you need to succeed as a venture capitalist?
  • If you’re intellectually curious or becoming a venture capitalist is a very natural fit.
  • VC is a great job for people who are intellectually curious and enjoy working out with the most talented, intelligent, creative, and ambitious people on the planet.
  • For intellectually curious people being a VC is probably the perfect job in the world. And you get to work with people who have incredible talent, ambition, drive, tenacity, and all those characteristics.
  • I would not generally recommend jumping into venture early with the goal of becoming really good at it. As a VC, you need to have a clear “why me, why us” answer.
  • VC is a little bit more like baseball. As you get your individual stats, basically, you’re part of a team, but there’s an accountability to baseball, where you have your stats.
  • As an angle, you only need to believe in vision, purpose, and team, whereas as VC joining board of directors, you need to dedicate an amount of your time for almost a decade.
  • Investing is mostly a solo exercise like baseball and every batter has their own accountability and metrics and it’s good for people who are curious and like to study and learn new things. Operating is more like football where everyone has to be in sync running the same play and master things, get deep, and solve problems in ways that others have never solved before.
  • *Venture capital is like running an enterprise business and you have shareholders, just like you would in any business, and you compete in a hyper-competitive world. Whereas angel investing is a lot less zero-sum. In venture capital, you have time horizons of what you are trying to accomplish and you have to create a competitive advantage over time that’s durable*.
• Replacing the CEO is not a good idea and doesn’t usually work.
  • In my career replacing the CEO has either been due management team losing confidence with the CEO and lobbies the investor to get rid of the CEO or two founders getting a massive dispute and someone needs to mediate.
  • If we write a check, we really care if there’s one person who’s the CEO that we’re backing. We don’t vote to fire CEOs and we can talk about that at length.
  • I basically, as an investor, only invest in founders that I think are going to be the CEO forever.
  • It’s not VC’s job to fix a company if the founder is not listening the advice.
  • Great VCs do not want to replace a founder as CEO. Period. See the Andreessen Horowitz blog post
• Investors should inspire and give founders a sense of possibility.
  • The most important act to create more ambition is inspiring people that it’s possible. Second, is giving people access to the raw materials of success, like sometimes Silicon Valley can involve money, mentors, or advice.
  • Entrepreneurship is a very lonely journey and it’s like a roller coaster ride. Eventually, you learn to get excited by that and the challenges become positive challenges versus terrifying.
  • The sense of possibility is what we try to communicate to people we meet, which is “Yes, this is possible. Yes, these people started just like you started, with very little connections.”
• To increase odds of success, great board of directors and advisors should determine milestones and targets needed to secure next rounds of investment.
  • I tend to think in terms of taxes and do this a lot in my diligence. I will basically give founders a tax credit. So if you’re on 1,000 users, I believe you can get to 10,000. But I don’t believe you can get to 100,000. So basically, I write checks in advance for about a 10x growth. So show me 50. Great. Okay, now how are we going to get 500? Great, okay, let’s get 5,000. And then keep doing that. That works pretty well.
  • As a board member to increase odds of success, I typically spend 6 weeks per company editing the deck to make sure the story is as polished as possible and help isolate which investors on the planet are most likely with this story.
  • One of the best things a great investor can do is accurately forecast for you what you need to look like well into the future. The way I typically do that is I give them a target. It’s like, “This is going to be a no-brainer if you can achieve X, Y, and Z.” And then here’s the minimum viable financing target.
  • Understanding the milestones where there’s perceived inflection, how to sequence it, and how to frame the value proposition of the company to investors is something that a really good venture capitalist should be effective at. I give a founder 12 to 18 months advanced warning of, “Here’s where you really need to get to, and here’s why,” that allows them to move to pull levers and get things set up for success.
• Long feedback cycle, having a unique “why me” or “why us”, forging a competitive advantage in an efficient market, wasting tie on bad investments make VC hard.
  1. Feedback cycle: You receive very limited quantitative feedback in compressed periods of time, and virtually none of high fidelity on a monthly or even quarterly basis. Yet you still need to continue to make decisions. If you were raised in empirically driven companies, this can be confusing and you may feel lost without a GPS system to use.
  2. Answering the “why me” or “why us” question: Most founders have multiple options, particularly post seed round companies with traction. You need to develop a compelling answer on why they should select you or confront serious adverse selection.
  3. Forging a competitive advantage in an efficient market is quite difficult and rare: How are you going to be better at identifying the best investments than everyone else who is a VC? Some thrive by evaluating entrepreneurs better than others, some by digesting technology waves better, some by domain expertise and others by quantitative insights, but you need to find a comparative advantage ASAP.
  4. Bad investments consume a disparate amount of time, as these companies require massive help to raise subsequent rounds of capital, find a suitable trajectory or be acquired. Imagine if your bottom 20% of employees consumed 50-75% of available time.

• As a board of director, you need to identify your role on the board and be a good psychologist to founder, magnify strengths and weakness of what they’re working on, and give candid feedback.
  • Identify what the right relationship is for you on this specific board, you can be the cheerleader, you can be the critic, or you can be a consigliere for the CEO is an art.
  • A good investor is more like a psychologist than anything else. Each entrepreneur and each company I get involved in requires a lot of interaction. Time is scarce. But nobody, as far as I can tell, has scaled the “series A investor, active board member, consigliere to the founder” model.
    • We, VCs, definitely are psychologists at the end of the day, like it’s a consulting personal services business.
    • As an investor, I mostly play a psychologist and provide feedback on potential avenues and highlight less obvious trade-offs.
    • As a board member, I like to be a cartoonish mirror and play back what a founder is articulating about his or her business. And I think that’s what a good board member does. They play back for the founder, for the CEO, for the executive team, what they hear and what they see in the metrics, and ask probing questions, “Is this what you mean? Is this what you’re trying to build? Is this where you’re trying to achieve?”
  • You can only help high caliber founders if you have suffered through similar mistakes
    • As a board member, I try to do is basically ask myself, “If this is my company, and I was the CEO, what would I want to know?” And then just ask those questions. Once in a while, a conversation about one of those topics can lead to an epiphany for the CEO. And you can see their eyes illuminate when you say something that resonates. And so that’s sort of what I live for.
  • Working with entrepreneurs like this is like learning to play basketball by playing with the NBA All Star Team. When they walk in with this piece of paper and this checklist of questions they want to talk about, these are like the hardest.
    • I tend to meet with CEOs I work with every 2 weeks, or once a month, or once a quarter and use that as a problem-solving opportunity, to figure out how active I can be involved an where I can be helpful.
  • My role as a coach is to magnify the strengths and weaknesses of what they’re working on so that they can see the stark contrast and make sure that their decisions are conscious. That’s the benefit of exaggerating the strengths and weaknesses.
    • I asked Jeremy “Okay, well, if you’re building a social product, what’s the key metric that’ll tell you whether you’re right or wrong?” And he looked up and down the table and said, “It’s the number of unique, one-on-one personal messages from one member to another.”
  • My job is to give candid and honest feedback and if I’m shy in expressing my opinions, I can’t do my job.
    • Our style as investors is to be honest and direct, and not just go along with what everyone else is saying to be polite. Because that doesn’t do anybody any good. Clear thinking is better than hypocritical politeness.
• What are the challenges and opportunities of investing in crypto?
  • I think that nobody has really figured out what are the applications of blockchain. People are building for it and investors are searching for it. Depending on what value proposition you want to create, it would be very obvious what protocol to build.
  • I don’t know if anybody knows what crypto is. Anybody who tells you they absolutely know crypto is either lying or naive.
  • Self-expression is incredibly important for humans since Shakespeare, and NFTs could create unique ways to express human’s emotion.
  • Bitcoin could be a hedge for countries without rule of law and also a mean for speculation in countries with rule of law.
  • Speculation is endemic to everybody. So the thesis that you could drive speculation through a universal platform where everybody’s connected, and then someone insightful builds an application on top of the platform that’s already connected, is something I can easily see happening.
  • Crypto startups need to reconcile their valuation with Coinbase
• What are interesting areas to build generational companies?
• Healthcare
  • Healthcare is 22% of the US economy and people have a poor experience. We’re looking for startups like Guardant Health that leverage technology to reduce cost, increase convenience, and improve the outcome.
  • The next trillion dollar companies will be created in data, hardcore technical, math, and science breakthroughs.
  • In a couple of areas in healthcare, the use of data to improve outcomes is really starting to happen, where math actually does a very good job correcting for the errors and mistakes humans make.
• Science
  • At Khosla Ventues, we look for massive market opportunities with a major impact on the world, predicated on a technical breakthrough.
  • One area that I’m very interested in is extending life by 5 - 15 years using science and technology.
  • We like to fund things that other people don’t want to invest in that are predicated on fundamental changes in science.
  • When people realize that they’ll be able to put a dedicated launch into orbit for less than $5 million, and they can bank on the predictability of putting that into orbit and replacing it, there’s going to be a lot of innovation that can be done in space. I think we’re gonna see a wave of that innovation. Communications and data are incredibly important to everybody, from military applications to civilian applications.
• Data
  • Startups need data for success. Algorithms won’t save a startup without it. Access to massive-scale data is the most crucial step for founders, startups, and investors.
  • I believe there’s a lot of AI innovation that’s already happened and still accelerating. The end goal is that the customer doesn’t even know that technology is powered by AI. There’s no reason you couldn’t replace a lot of what lawyers do with AI. So I actually want to fund some people doing that.
• Why can’t venture capital survive without IPOs?
• No, I don’t believe so. As Peter Thiel first pointed out to me, lucrative M&A exits are actually highly correlated with IPO activity. As a quick illustration, when the Internet IPOs stopped after 2000, there were also few acquisitions. Even if you define $150-250 M as a substantial VC exit, those deals often happen because the target has a realistic or credible threat to go public in the next 12-36 months. Without that threat, there is no forcing function to alter the inertia nor price pressure. (There may be a few exits for a truly strategic asset desired by multiple bidders, but that is extraordinarily rare).
• Why being friendly is not a competitive advantage for VCs?
• No, talented entrepreneurs should value competence over personality traits. All of the best coaches I have ever played for were not “friendly” nor were at least half of my best teachers and almost none of my best role models. As Shervin articulated, “tough love” is what a good BoD member provides, probing instead of cheerleading. All of the VCs I know who actually add value to an enterprise provide brutal feedback when warranted. Chris, it can only be a “competitive advantage” if it is an asset rare to find among VCs and not replicated easily. If you are now only defining “friendly” to mean avoids unethical behavior, acts with integrity and allows the entrepreneur to run the business, I can’t see how that is a unique attribute for one VC to distinguish himself from another; it probably only disqualifies the people that would not be exceptional as investors anyway.

Contrarian thinking

• Develop a contrarian mindset by thinking from first principles and reading books.
  • Being a contrarian is easy. The challenge is being a contrarian and being right.
  • Being contrarian is thinking from first principles, for myself, and being a non-derivative thinker. It’s not always possible because everybody lives concentric circles that influences. you. Reading books helps with contrarian thinking.
  • To draw new ideas, you need to read original sources and consume content that is different and divergent from what other people do and go to drawing board.
  • The key common trait of PayPal mafia is that they do think for themselves and have their own views on the world
  • Growing up in a liberal family and being surrounded by liberal professors at Stanford made me contrarian.
  • I change my mind all the time. Sometimes in a big way.
  • Personally speaking, I am an anti-FOMO person. I prefer JOMO — I run my life around the joy of missing out. The more things I’ve missed, the happier I am.
  • There’s so much noise and stupidity that if you do nothing else except just ignore it altogether, it’s really easy to get to the right answer.
  • Things move quickly from contrarian to consensus and reading original books can help you to catch contrarian ideas early on.
  • Only after you’ve mastered the rules do you get to violate them. Best practices just lead you to the replication of something else. You can borrow best practices, but you need to know where you’re intentionally not following “best practices” or you’ll just be in the middle of the Bell Curve, which is not the goal.
  • Peter certainly convinced me that the world was on this ridiculous crusade of globalization is the greatest thing ever.
• Life works out with couple fundamental principles and going back to first principles makes it a lot easier to get to the right answer.
  • Life works out with couple fundamental principles and you need to understand them works makes sense.
  • You just go back to first principles and it’s a lot easier to get to the right answer. And if you strip away all the noise, first principles work pretty well.
  • There’s nothing that’s happening in Silicon Valley that you can’t find in Shakespeare because humans have always been humans.
  • Being contrarian is thinking from first principles, for myself, and being a non-derivative thinker. It’s not always possible because everybody lives concentric circles that influences. you. Reading books helps with contrarian thinking.

Building a career in tech

• To succeed in your career, find a good boss a rather than trying to pick the next big startup.
  • The idea that you, as an individual, without the professional expertise, and certainly not without the Hall of Fame ability, are going to cherry-pick so successfully that your first company is going to be successful makes no sense whatsoever. I always recommend select your boss. Someone you can learn from who’s excellent.
  • The most important thing for young generations is to find a good mentor and choose your boos and the person you work. Don’t try to choose your company because even we’re right 40% of the time.
  • Instead of trying to pick a rocketship, I think you should pick your boss. I mean someone you can learn from. Assume the equity value is zero and ask yourself, “Would I learn enough and enjoy this enough that I would do this job even if the net economic benefit to me was zero?”
• Empowering and working with visionary founders is a good career choice.
  • I think actually working with someone who has a vision of what they want to build is a great job, especially if you share the vision. Empowering someone to be successful and push the envelope in a way that actually works, is an awesome opportunity.
  • Elon has a vision of where he needs to go, how to validate different pieces of it, and how to fund it, that strategy really resonates with me. Secondly, is the amount of heroic effort that goes into building a startup. And one of the reasons Elon is so successful is even though he has already had many and massive prior successes, he’s still willing to roll the dice.
  • If you’re working with a bunch of colleagues that are successful, that have characteristics that predict future success, you would lean into that and stay as involved in their lives as possible.
  • The best career advice is to find amazing talented people, work with them, and learn through osmosis.
  • It’s fair to state that across 20 years, what I’ve been able to do very well is pair with very opinionated, strong-willed, visionary founders and be their complement. That’s a fairly difficult, or even a fairly rare, skill. Peter, Reed, Max, Jack, Vinod, and Peter—are all very different, with very different strengths and needs.
• Working in a growth startup is a great career decision because it allows taking new opportunities and getting assigned on new challenges.
  • I highly recommend spending two years joining a high-growth company to learn as much as possible and apply them to your company. I believe there are diminishing marginal returns on learning after about two years.
  • On one side, when the company is growing 10 times a year and the organization is reinventing itself, employee growth in a high-growth startup could be very challenging. On the flip side, because everything is moving so fast, there are opportunities for people to embrace and they can ask for assignment of new challenges.
  • High growth companies can retain best talent because the best people are looking for challenging growth opportunities, like more and more complicated and important things to do, where they have sort of an ownership mentality over the results.
  • I said to some of my colleagues, “You don’t know how lucky you are.” “You might never do this again in 20 years, get to go through this kind of rocket ride.” It’s very chaotic because you have to change all the rules very fast. A rough metric is the numerator and denominator on your hiring. Your denominator is the number of current employees and your numerator is the number of new employees you’re going to add in a month or a quarter.
• How did Silicon Valley become successful, and can it be sustained?
  • People do come to Silicon Valley with a mission, and that mission is to improve some element of society that’s probably broken or inaccessible. And I think that’s what’s powered the best companies in the history of Silicon Valley forever.
  • The key to Silicon Valley was actually a set investors with a very different risk appetite co-located in the valley.
  • Not in massive doses, but in micro doses, you can absolutely build a successful company almost anywhere. There are different skills you need to create a heroic or iconic company. And those skills may distill themselves to some locations, but the entire gamut of skills is unlikely to be found in too many places.
  • One of the hardest things to attract outside Silicon Valley are executives that are familiar with high-growth startups, and how to scale a team and how to scale when the company is growing more than 100% year-over-year, both in terms of employees and revenue and users.
• Can it Be Maintained
  • Talents are not concentrated in the Silicon Valley anymore.
  • Companies are being formed in a variety of different places and not only in the Bay Area.
  • Miami movement is based on “Power Law”. And to make Miami the next Silicon Valley, I’m going to build an ecosystem of angel investors and VCs and founders will move here eventually.
• Does getting an MBA make someone a better entrepreneur?
  • In the consumer Internet world, it is a major disadvantage because of the opportunity cost of 2 years during the prime of your career.
• Should a student finish college or go work for a startup if given the chance to work for a YC, TechStars alumni?
  • Paul Graham’s advice is sound (Students Guide to Startups): http://paulgraham.com/mit.html
  • Nevertheless, at PayPal we often urged students to drop-out and some of the best entrepreneurs I have met subsequently dropped out of school too. Indeed, Caterina Fake just published an outstanding post advocating that entrepreneurs drop out of college: Rob Kalin, Etsy’s founder, never finished college. Evan Williams, Biz Stone, Jack Dorsey – the founders of Twitter – are not college graduates. Mark Zuckerberg, Facebook founder, is another dropout. And of course Steve Jobs and Bill Gates. As an angel investor, I’ve invested in two college dropout founders this month.

Succeed in life

• Define your unique value and aim for being the only, not the best.
  • Pat Riley in “The Winner Within” quotes Jerry Garcia of the Grateful Dead, saying, “You don’t want to be the best at what you do, you want to be the only one who does what you do.” That definition of how to define yourself, how to construct your uniqueness, really resonated with me. I’ve always wanted to figure out how to define myself, not just being the best but being unique.
    • You don’t want to be the best at what you do, you want to be the only one who does what you do.
    • You don’t want to be the best at what you do, you want to be the only one who does what you do.
    • “You want to be the only one who does what you do.” You may have to define that very narrowly, to actually be accurate. But people who tend to succeed tend to have an answer to that question.
    • Develop a strong network of tight connections. These are people that you’ve worked intensely with, and you really trust. The second thing is to figure out what you can be extraordinary at as fast as possible. This means finding something that you’re really good at, and then becoming the best at it.
  • You want to find what you can be best at and exceptional at. It should be something that is rare, and you want to leverage it out as much as possible. If you want outrageous outcomes, the more you are commoditized, and the more you are competing on a commoditized dimension, you’re going to land in the middle of the bell curve or at least be subject to winds or luck. The more that you have a unique skill, the more you can articulate that skill and leverage it the most, as frequently as possible, the more you can offset random waves or luck.
  • There’s a great book called “Range,” which advocates the benefits of sampling. I think sampling early in life, different activities, different parties, makes tons of sense. But then, once you recognize what makes you happy psychologically, what you’re actually proficient at and the Venn Diagram of those two, then you should strictly write your priorities and then optimize your time, energies around achieving them.
  • Don’t define yourself as the best, define yourself uniquely. In a competitive industry, you want to sharpen your comparative advantage as much as possible and amplify and magnify it all day, every day. Like, on what dimensions do I want to compete with the rest of the world? And how do I frame everything I do to amplify or magnify that value proposition?
  • I think figuring out what you’re really strong at and doing more of that, versus trying to correct weaknesses, is the key to success. Tiger never practiced sand-wedges he spent all his time getting really proficient at not being in the sand.
  • The most important advice is to figure out as early as possible how you can be the most exceptional and extraordinary at what you want to be.I think if you can identify where your comparative advantage is versus other smart, hardworking people, that will allow you to thrive.
  • Finding where your skills lie, what your natural talents are, and where you have a competitive advantage is really critical.
• How to figure out what you’re best at
  • Figure out what you’re excellent at. You have to try different tasks and roles to figure it out but when you can articulate what you’re best at and clarify your value proposition, you can find opportunities that map your value proposition.
  • Asking people around you what your unique value proposition is will help you to find your competitive advantage.
  • To find your competitive advantage ask people around you to describe what they like about you and just write it down and find the common denominator.
• Life is path dependent and optimizing for option value won’t take you far.
  • In making life decisions, I’m a strong believer in “I want to do X.” Okay, there’s no second choice, there’s no hedge, there’s no option value. I am going to make this work. And then the question is, well, how do I make this work? What are the blockers? What are the things I need to solve? What are the limiting steps? And then decomposing those with tactics and initiatives designed to succeed.
  • It’s pretty crazy for too many organizations of a hundred people to be doing multiple initiatives, but you see it happen all the time because there’s this kind of myth of option value. And option value is a really dangerous concept. More often than not, life is path dependent, not option value dependent.
  • Achieving your goals efficiently by marshaling resources and allocating your time is something that realistically no app and no software product really guide you to. I think being able to say, “I want to live longer” or “I want to become a vice president engineering” or “I want to make more money” or “I want to be happier” or specify any goal you think, there should be software that helps you get there.
  • I think a lot of people go to law school for the option value. They’re smart, ambitious, and sometimes too credential-seeking.
• Achieving extraordinary results requires sacrifice. Excuses are for losers.
  • I think too many people are taught that you can get outcomes without sacrifice. And I think there’s always trade-offs. And there’s nothing wrong with deciding what the trade-offs you want to make are, as long as it’s helpful. But there are trade-offs. And so I think a lot of life is that way. It’s deciding what your priorities are, and then reverse engineering backwards from that how you allocate your time.
  • If you want to do unreasonable things, and most of these goals are unreasonable by any normal definition, there’s unreasonable commitments and sacrifices that come with that. To tell people that they can achieve without the sacrifice, it’s just misleading and borderline fraudulent.
  • But if they’re going to change the world through startup, they need to accept that there’s trade-offs, like all life comes with trade-offs. You just have to decide what your priorities are, what trade-offs you want to make.
  • Recognize your limits. I hear a lot of people superficially say, “Oh, I’d love to be like Elon.” Then, “Choose, choose a goal.” And, “Don’t mislead yourself or your family or your friends about what your goal actually is.”
  • Excuses are for losers.
  • If your goals are X, there isn’t a shortcut. There are many shortcuts in life. The way to go from point A to point B is well understood. It’s just that people get confused or get distracted by the fact that it’s painful. And I just think that’s insane.
  • “Winners never quit. Quitters never win.” “He who hesitates is lost.”
• Work ethic is key to success. If you allow people to outwork you, they’ll outperform you.
  • The number one trait common in my idols growing up was work ethic.
  • If you work hard, and you don’t accept excuses, you can do pretty well for yourself. And especially if you get lucky, and you can combine what you are good at with hard work in something you enjoy, then you can really achieve a lot.
  • If you allow people to outwork you, they’ll outperform you.
  • Work ethic develops at fairly early age and it tends to yield success and create positive feedback loop.
  • A shockingly contrarian view these days is working hard. You can find your advantages, but they’re mostly through sweat and attention to details that other people kind of know they should do but are too lazy to do.
  • The other point I need to make is that this is the idea that you can work smarter, not harder is totally false. Because that’s basically saying, I’m going to be smart and never work hard which is completely arrogant. The idea that you’re going to have 160 plus IQ, and everybody else is stuck at 140, and that’s going to be how you win is insane. First of all, it’s empirically unlikely to be true. And it just doesn’t work that way.
  • I’m driven by competition of being best in sport and sleep and professionally being founder’s first choice, preferred board member, and person to call.
• Deferred gratification is the secret to build successful habits.
  • I think like there is a formula for success but it entails trading off short-term and long-term gratification and compressing feedback loop.
  • Convert anything with somewhat a deferred gratification process and a subconscious habit instead of a conscious decision. I decided X years ago that I’m going to work out every single day. Period, no exceptions. It’s not a question of how do I feel today? How busy am I? How much energy do I have? What mood am I in? It’s just automagical that I’m going to do my workout.
• Building a personal brand by hitting the long tail of original unique content on social media and writing something worth reading can propel a career.
  • Benjamin Franklin wrote that the guide to a successful life is to do something worth writing about or write something worth reading. I think with the proliferation of things like Reddit, Quora, Twitter make it pretty easy to have a differentiated voice. And if you really have insights that other people will miss, there are things out there.
  • I’ve actually seen tweets by people I did not know, with no context. And I found them to be incredibly insightful. And so I sort of started talking about them, sharing their content, and maybe meeting them. So I think in any field, if you can develop a voice that’s unique, and consistently observe things that other people miss, you have a shot of getting people’s attention.
  • By definition, most content is homogenized and in the middle of the bell curve. But if you can on a consistent basis hit the long tail of original unique content, that that can propel a career.
  • Twitter is a great marketing platform for startups, technology, and VC and I have been using that at Square, OpenDoor, Khosla, and Founders Fund.
  • Fundamentally I mostly use Twitter professionally and personally to move forward the ideas that I believe the world needs to hear.
  • I actually think a lot of journalists are jealous of tech and the biggest issue is the removal of the gatekeeper role because of the proliferation of Twitter, Reddit, Facebook. Naval Ravikant was the first one to predict that the media would push back on the lack of gatekeeping that they’ve historically performed.
• Emulating greatness and asking “How and why someone or a company is successful?” is an effective learning path.
  • When you find something successful, you should ask “How are they successful? Why are they successful? What did they do?” And decompose it and try to emulate that. But because we’re surrounded in a world that has more failure within success, it’s easy to get caught up in the avoid the failure mentality.
  • If you want to be a successful company, copy the traits of successful companies, not failed companies. And if you want to succeed in life, you copy the traits of successful people.
  • You can’t learn how to be successful just by avoiding mistakes. I don’t think you can create a formula for success by just not making a mistake.
  • My sources of knowledge are Peter Thiel, a group of 3-4 friends I go to for any important decision in my life and ask them for feedback, then third, and maybe most differentiated, is actually the most junior people, the younger people I work with.
  • Most startups encounter similar problems. Understanding the lessons of history allows you to avoid making the same mistakes. Mostly to see what they can learn from the companies. What worked for them? How did they get their first 100 customers, or first 10 customers, or first 1000 customers? How did they organize the company? When did they switch from a functional organization to a non-functional organization?
  • There’s a reason why they are the most valuable technology company today. Apple breaks the rule by being a close platform, secretive, and not using metrics to measure themselves.
  • I don’t think you want to replicate someone else’s strategy or unique insights. You have to figure out which pieces of their success formula apply to your comparative advantages, and which ones you can leverage, and which ones you can maybe even do better than that.
• Train your brain muscles, jump the learning curve, and build contrarian judgment by reading books and not Twitter.
  • Your brain is like a muscle and you want to develop capacities and capabilities that you can leverage later when the opportunity presents itself. Reading serious printed material like books and not online content is a great exercise for your brain.
  • I think there are several ways to sort of jump the learning curve. One is reading. There are, in many fields, a reasonable number of books that can get you to a fairly sophisticated understanding fairly fast. Find people who have traditional expertise. Ask them a lot of questions, almost like a journalist would. And a lot of “why” questions.
  • For someone who doesn’t know the field or the topic, they have to read the whole substance to become an expert so the only things that stand out is the difference. It’s the reservoir of knowledge that allows your brain to very quickly on a subconscious level move through the material. And the only thing that stands out is something that’s fresh and different. I learnt from watching vice president Quayle.
  • I read physical copies and take handwritten notes in the margin because studies suggest your attention is superior when reading a physical copy.
  • I actually am a strong fan of dropping all blogs and Twitter and just reading books. What you’re really trying to do is train your brain and push your brain to new challenges.
  • Books are better than Twitter. Books were written 400 years ago that people still find instructive are pretty good and grappling with longer form written content tends to force your brain to build new neurons in a way that short doses of content don’t. And you want to exercise it as frequently and as sort of vigilantly as you can.
  • I would like to read an hour a day. I think that kind of discipline really does yield results, where I can finish almost a book a week at that pace.
  • Relaxing and reading on an unscheduled Saturday can be incredibly recharging.
• Almost all the top tennis players in the world actually have a coach. Find a coach to help you grow.
  • I’ve been using the metaphor of tennis or golf: almost all the top tennis players in the world actually have a coach. So I think it’s a productive thing. Now, there’s a scarcity of extremely talented executive coaches. I’d recommend at least trying to find an executive coach at some point, and seeing if that person can help you be more successful.
  • I think the only model that’s really been validated in venture is an apprenticeship model, which requires learning by osmosis. This requires a lot of data points and a lot of time. So I think it takes at a minimum one to three years to train somebody well, which means this person is actually shadowing you around nonstop for one to three years.
  • On day one, most of the day is spent shadowing. That’s why it’s more of an osmosis process. And people who thrive tend to be able to learn by osmosis. But it’s a lot of trial and error. I tend to give people a lot of rope and watch what they’re doing. And if they’re doing well, I expand the complexity of the problems they’re assigned. But they’ll get very direct feedback on their performance.
  • I think most people would say that it’s probably two things, but the biggest one is identifying proven talent, and being able to put them through a sort of osmosis-like learning, sometimes called a “Rabois boot camp” of how to build a business, how to run a business, and how to operate it.
• Stress is good for you. And to find the steepest, most challenging slope, you need to push yourself to limit.
  • If you want to find the steepest, most challenging slope, you need to push yourself to the limit. You should strive to be nervous and occasionally have sleepless nights about your work, because that means you’re pushing yourself to the extreme, testing your abilities, and your body is reacting accordingly.
  • A mere attitude towards envisioning stress as a challenge, as opposed to something bad, literally changes the outcome. Whether it’s a job interview, whether it’s your health, any part of your life, just by embracing the idea that stress is a challenge and that humans are designed to be challenged.
  • The key lesson to manage stress is to convert stress into a challenge and embrace the challenge and this is an opportunity to challenge myself.
  • Challenges are what propelled me. Basically, stressing myself to challenge myself to do something new and different.
• Design your workout routine to improve 2 min hear rate recovery.
  • I optimize my workout to improve two-minute hear rate recovery.
  • My typical workout lasts 45 minutes with half devoted to cardio and half to resistance training.
  • There’s a stronger connection between your fitness level, heart rate, and your ability to think, be creative, and be decisive. I’ve always connected all of these things together in my life, tried to integrate them, and made them a priority.
  • I monitor increases in my resting heart rate as an early warning signal.
  • I measure three things associated with heart rate, resting heart rate, two minute recovery, and an HRV variability.
  • Resting heart rate provides incredible insight into your health. Telomere length is certainly correlated with living longer and two minute recovery time is probably a pretty good predictor for whether you’re improving your telomere length.
  • I love Barry’s Bootcamp because it’s a highly efficient routine for those who want to optimize their time and have a limited budget for exercise.
  • My friends sometimes joke that my whole life revolves around Barry’s Boot Camp and reading books. It’s like the two B’s.
  • To figure out what’s good to do for my health and body, I consider the upside and downside of a particular intervention.
  • I try to avoid foods like banana, pizza, and desserts that trigger insulin in my body.
• You become the average of the five people you spend the most time with. Choose friends who give you feedback, prioritize fitness and health, and are intellectually curious and ambitious.
  • People basically become the average of the five people they spend the most time with. So, if you want certain traits in your life - whether you want to reinforce old ones or develop new ones - things that are important to you, you definitely need to make sure that the people around you have similar characteristics. For me, intellectual curiosity, fitness and health, and professional ambition are important.
  • Choose friends that give you feedback.
  • I’m very judicious about who those five people around me because you develop habits based on the people you spend the most time with. People who have solid friends and partners in their lives live better, happier, and longer lives. I actually allocate a significant amount of time to my friends
• How to become influential?
• The alternative paths I have witnessed others successfully adopt: • Accomplish something extraordinary • Develop world-class expertise on an interesting topic • Express prescient insights • Become indispensable in helping others accomplish their ambitions • Succinctly distill complicated concepts into pithy expressions

Markets, IPOs, and SPACs

• Going public increases chances of existence, makes raising capital easier, allows acquiring other companies.
  • One of the worst pieces of advice that anybody in Silicon Valley has given in the last 15 years was waiting to go public. I believe strongly that companies should go public as almost as fast as possible and there is whole chapter in Elad Gill’s book called High-Growth Handbook on why to go public as fast as possible.
  • Going public increases your chances to exist. Snap wouldn’t have existed if they hadn’t gone public.
    • Companies should go public as fast as possible and reasons to delay are driven by excuses and fear.
    • Most companies that sell, sell out of fear.
  • Companies should eventually pay the cost of going public. IPO is a forcing function to audit and go through processes that are fundamentally investments but really shouldn’t be invested in probably a little bit earlier.
    • Going public means all of your metrics and all of your financials have been audited and vetted and it’s actually a safer place to do business and consumers react that way.
  • It doesn’t matter at what price you go public; what matters is what you’re actually executing, having a real product roadmap, an interesting market, true fundamental innovation and serious leadership.
    • I’ve had this long-standing view for over a decade that companies should go public as soon as they really are a sustainable business, and that’s probably as low as a $50M run rate and some predictability into the future about the growth potential.
    • Companies with around $30M in revenue and reasonable visibility in the next year or so are ready to go public.
  • To acquire other companies and technologies, you need a currency that people value, and a public company sort of puts a fair market price on your currency.
  • Public markets are relatively astute evaluators of a company’s prospects and not everything is worth a hundred billion dollars. With right leadership you can be more innovative as public company and the trend toward increasing transparency allows you to raise debt. Most companies should prepare mentally, physically, and emotionally to go public sooner rather than later.
    • I’ve always had this belief that public markets, contrary to a lot of popular wisdom, are not short-term focused at all.
    • Underlying asymmetry of technology companies is going to increase further in public markets. I think many of us thought that the market cap for some of these successful companies would be more like $4 billion to $10 billion. But it’s turned out to be more like $20 to $100 billion.
  • LinkedIn going public was incredibly successful as a marketing campaign for the company.
• SPAC is an accelerated path to IPO and particularly beneficial for deep tech companies that don’t have revenue now by expect to have in future.
  • SPACs is process for companies didn’t prepare for a traditional IPO and wanted to accelerate the process.
  • SPAC is a great option for companies to accelerate the time to going public in 6 to 8 weeks versus 2-6 months for traditional IPO.
  • SPACs eliminate the adverse selection of IPOs because the only people willing to pay ridiculous fees are people that need to.
  • The best feature of a SPAC is that legally, a hardcore technology company that’s really innovating on a deeply technological solution can guide numbers into the future about the revenue potential of the business. Whereas through an S-1 process or a traditional IPO process, it’s extremely legally precarious, virtually impossible to guide future years’ revenue.
  • The biggest difference between a SPAC and traditional S-1 is ability to project into the future the revenue potential one to three years out. If you have a deeply technology-based company where the cost of goods spread through, and then everything works magically, those may be very well suited for a SPAC because you can explain this to public market investors and you can talk about the revenue potential if you hit these technical milestones.
  • SPACs are basically a reverse merger and are attractive for because they might be a faster path to IPO and because they’re an acquisition you’re entitled to guide about 3 years of future earnings or revenue potential which can be beneficial for companies that don’t have revenue now but expect it in future.
• Large tech companies have different acquisition strategies and VCs don’t peg their valuations against an acquirer’s willingness to pay.
  • Large technology companies have different strategies for acquiring resources and innovating. Google is both acqui-hire and strategic, Facebook is more strategic, and Apple is focused on protecting culture.
  • Acquisition valuations are really not some objective metric. It’s a function of supply and demand. If the seller really doesn’t want to sell, you have to pay a very high premium so that the seller’s motivated.
  • Venture capitalists usually don’t peg their valuations against what an acquirer’s willing to pay. The reason is generally an acquirer, especially in an early-stage company, is not valuing the company on its business but rather its strategic benefit. In 2005, we raised series B for Yelp at $50M valuation, even though we had already rejected an acquisition offer from Yahoo for $100M.
  • Anytime you can buy a strategic asset for less than the fluctuations in your daily market cap, it’s obviously a wise thing to do. Ten percent of anybody’s market cap is a substantial bet. The one billion dollar bet wasn’t actually that big a bet, or the one point five billion dollar YouTube acquisition.
• How investors and founders should think about macro?
  • Market collapses in phases and recovery takes years.
  • Dot come crash was a function of 6 times interest rate hikes by Fed.
  • Printing money creates inflation because the amount goods people can buy is finite.
  • Young generation forgot that things can sometimes go off and go down.
  • In an inflationary cycle where value is not real, distributing an investment might be a better financial decision than IPO.
• Building a company during an economic recession is a good idea because putting together a density of talent is easier.
  • The best time to start new companies is during a recession
  • It’s actually easier to marshal critical density of talent in a downturn market because you’re not recruiting against every company being funded on the planet.
  • The good news about starting a company in bad economic environment is you have years of runway because there’s nobody else competing with you. Whereas in a hot space and time, there’s a lot of other people to worry about.
  • One of the reasons why we have these boom and bust cycles in the Valley is that in the times of bust it’s easy to assemble critical density of talent.
  • The Silicon Valley economic machine is amazing and has transformed the world. But when the market gets hot, it can be difficult to assemble and marshal the critical density of talent needed to succeed. In some sense, it is actually easier to be successful when the macro market cools down a bit.
• What are some of the main reasons that tech companies haven’t tended to IPO much over the last few years?
• [I served as an EVP of a publicly traded company, a litigator at the world’s leading securities law firm for nearly 5 years and have been an independent director for at least two companies that have been evaluating an IPO. Based upon that experience, I have concluded that all of the generally recited rationales are myths.
• a) Public scrutiny & accountability deter speed and innovation: Last I checked, Apple is nearly universally regarded as the most innovative company on the planet. Apple is also the second most valuable technology company in the world.
• B) Short-term market expectations etc: Google refuses to give guidance to the market and explicitly warned potential investors not to expect short-term management. Google is the no. 3 most valuable technology company in the world.
• C) Outside capital not required….: It is very complicated to proceed with M&A without a publicly traded equity. And all of these companies that are deferring IPOs, whether FB, LinkedIn, Zynga etc. are raising massive capital, just from an alternative source. (As an illustration, FB would have been able to buy Twitter at the $500 M price tag if FB were public).
• D) Low profile is a competitive advantage: Any company with $50-100 M in revenue is unlikely to be too far below anyone’s radar.
• E) SOX compliance: SOX raises the regulatory burden and “tax” associated with an IPO as initial cost and the on-going compliance costs raise the threshold of business success (revenues/profits) that are required to support the “maintenance” cost of a few million $ per year. But, this alone, is a fairly immaterial matter for companies with hundreds of millions in revenue.
• Indeed, companies like OpenTable that have recently defied the received “wisdom” and IPOd at the low end of acceptable metrics have been richly rewarded by the market and opened up serious strategic opportunities that were previously foreclosed. I also believe that increased transparency is a real benefit to the shareholders and employees of a company.
• The real reasons people are avoiding IPOs are: a) some incorrect assessments of the factors I discuss above b) fear of more active Board of Directors (private company Boards are extremely insular and group-minded). I have served on multiple BoDs over the past 7 years and don’t recall casting a single vote in a single company that was actually a true split vote; but the most important driver is: c) private company valuations have been detached from the realities of the public market and have been substantially inflated. As a result, a company needs to defer its exit for years until the business metrics can actually support. let alone exceed, the earlier “valuation” based upon public company multiples and comps. Finally, the PayPal IPO was an unusually searing experience due to the NASDAQ’s condition (something like 1400 which was much worse than today), regulatory snafus, unethical plaintiffs’ attorneys etc. As a result, I suspect some of my former colleagues (albeit not all) have cautioned against a IPO without reflecting whether our experience was aberrant. (FYI I also believe that there are some high profile companies that have key fundamental issues to resolve that are masked in the short-term by top-line metrics and that they defer IPOs because they need to.)](https://www.notion.so/77aee55e5aa44978af274343af2a9408?pvs=21)

Originally published on jaack.montaigne.io.