Deprogramming corporatism

There’s a culture to big corporations that is unnatural and detrimental to founders who have spent too much time in them. Some experienced founders have a really hard time coping with starting a new company, and are very frustrated and surprised when things don’t work even when they're working really hard at it. And even when founders overcome that, often they’ll try to grow the team by hiring experienced directors and managers from corporations that are well known and successful. Many of them fail pretty quickly, and it’s always a surprise to everyone, especially the experienced hire. 

These are well-known startup tropes for a reason. There are specific aspects to that culture that cause problems. If you know what they are, then you can at least recognize it and try to counter them.

Doing things without results

People become corporate do-nothings because it’s easy to become disconnected from the act of creating when you’re at a big company. Even at the best big companies, employees can just do things that look like work that aren’t, and you wouldn’t be able to tell. Getting customers is easier (sometimes trivial) with a large installed base, sales force, or huge brand name. There are large protected revenue streams that cover up failure on the quarterly financials. 

Founders from corporate backgrounds aren't stupid. They're just used to doing things and having something happen— they have the wind at their backs at a big company, and there are a lots of things that you can do at a big co that would never work on your own. It's bewildering to work really freaking hard at something and have no results at all come back. But it happens all the time. 

There’s no air cover for startups. You don’t have backup troops. It’s just you versus the world. So naturally, if your product or service sucks, then you die. You can’t just look like you’re doing stuff. You actually have to make it, and almost totally on your own. 

Cover your ass culture

If doing things that aren’t effective don’t get you fired, then what does? Usually making mistakes that make your boss look bad. Big organizations are just groups of people, and people sure like to talk shit. The one thing you can’t do is look like a bozo. It’s fine to work really hard to no effect (hey, you worked hard!), but if you become a social liability, you’re donezo.

What’s worse than just covering your ass is actually taking credit for what other people do. This seems correlated with people who climb high in organizations. Obviously this works poorly in a small startup environment because there’s nowhere to hide. Someone's got to do the work.

In some sense this dynamic is unavoidable, since we are all social animals after all. Startups can sometimes develop a cover-your-ass culture too, but that’s the job of the founders and CEO to keep people focused on things that actually matter. It helps that startups are just smaller, so this toxic effect of group dynamic is blunted. 

Buzzword thinking and trend-following

How do you avoid looking like a bozo? Well, for one thing, if everyone in the world out there is saying it, then nobody can fault you for it. So getting the right corporate whitepapers, or latching yourself to the right buzzword du-jour (e.g. big data, Internet of Things, NoSQL, etc.) is necessary to blend into the pack. Oh, that big data initiative failed? Everyone else was doing it, so our ass is covered and we won’t get fired. 

Founders get this confused all the time and then wonder why they fail. We said all the right secret words! Why am I failing? It was never about those words to begin with.

Startups can’t survive blindly following buzzwords or whatever trend is hot because you actually have to know what’s coming in the future and be right. That’s all there is. If you chose the wrong market, or you’re wrong about what people want, then you’re toast. I’m not saying all things with buzzword labels will fail. I’m saying that startups for big data, for instance, actually have to make life better for specific customers such that people are willing to pay for it. It has to make sense. It’s not enough to be attached to that name. 

This was a tough lesson for me to learn personally. At 23, I turned down the shot to be first engineer at Palantir (now rumored to be worth $20 billion!) even though Peter Thiel personally took me out to dinner to recruit me. I thought the buzzwords were signal, and absolutely zero of the mainstream press or tech blogs were abuzz about the latest hot government enterprise software startup in 2004. It turns out you have to work on things that a) you know are right, and b) most people don’t know yet. This is why Peter likes to ask: What super valuable company is nobody building yet?


Experienced founders who have grown up in these environments are not doomed to failure. Quite the contrary, those who succeed have avoided, overcome, or escaped the problems described above. 

The recurring theme seems to be simply results. We spend a lot of time trying to get founders to focus on action and results — build product, talk to customers, that’s it. Think in terms of concrete numbers, whether it is user growth, savings to customer, or revenue. There are lots of places in the world where you can survive without results of your own, but startups are not one of them. 

Just as corporate culture is a culture that is learned, not innate— founder culture is learned as well. I think one of the reason why YC works for founders is that it takes a village. It takes a bunch of people who all believe a thing, and practice it daily. It takes fundamentally changing your surroundings and the people you’re around. It takes avoiding the coworking space [0], and working harder than you ever have in your own space. 

This is also a big reason why they say YC is a concentrated form of Silicon Valley. For decades, Silicon Valley has been the place where people can escape their corporate cultures and create something new. Now you can do it with a lot more like-minded people by your side. 


InboxSDK launches — The Biggest, Most Unexploited API Frontier in 2015 is now open

The Facebook API. iOS. I remember when their API docs hit the scene, and what a greenfield opportunity it was. Today, the opportunity for Gmail apps is much bigger than when those greenfield APIs were released. There are over 1 billion daily active uniques on Gmail now, and it’s a fundamental pillar of how people communicate today. But until today, it was cumbersome and nearly impossible to consistently write an app that had a good user experience that worked as well as being a part of Gmail itself. 

InboxSDK, released today by YC-backed startup Streak CRM, is that solution. It provides the missing things that would be extremely cumbersome to do with Gmail’s backend APIs alone. Lots of companies like Dropbox, Stripe, Screenleap, and Streak CRM themselves actually use InboxSDK right now in production. 

An incredible amount of work was put in to make InboxSDK possible. A Gmail API is a monumental task — just look at all the possible interactions, with multiple inboxes, chat, preview panes, conversations, different Gmail Labs features, and many kinds of email compose windows. 

As with any brand new opportunity, we don't know all the amazing things people will build yet. But this is a rare opportunity for hackers and founders to think about ways to make awesome stuff that works on top of email. A billion users are going to be in for a treat this year.  

Share buybacks: Big cos say "We don't know what to do with the cash anyway!" and why it's good for startups.

Stock buybacks are the biggest force influencing equities since 2009 — over $2 trillion have been done.

Some are probably good, but many aren't. In 2011, Warren Buffet wrote about how you can tell: (via Seeking Alpha blogger Chuck Carnevale)

Charlie and I favor repurchases when two conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second, its stock is selling at a material discount to the company's intrinsic business value, conservatively calculated.

Clearly a lot of buybacks fail the 2nd criteria — but there are so many boards and management teams that are compensated by EPS that the share buybacks keep happening even when the price is not a discount. A natural result when incentive structures meet personal self-interest. One blogger points out, it's actually a form of managers looting their companies. 
By using large stock buybacks to manage the short-term objectives that trigger higher compensation for themselves. By using those stock buybacks to manipulate the share price, which allows them to use inside information to time their own stock sales. By using buybacks to funnel most of the company’s profits back to shareholders (including themselves).  They use the stock market to loot their companies.
It's a claim echoed by the Atlantic in February of this year in an article called "Stock Buybacks Are Killing the American Economy." Rather than new jobs, new factories, new products, it's straight back into the financial system.

Since the companies themselves have no specific better ideas about how to use the capital to grow in real terms (e.g. real new products that drive real new revenue) all their professional managers can do is buy shares back regardless of price. In this world, buybacks are directly related to Thiel's ideas around indeterminate optimism of the markets, where companies are encouraged to be as profitable as possible.

Who cares if you're buying back at a ridiculous price? We don't know what to do with the cash anyway. 

This is interesting because a traditional criticism of whether we're in a bubble is whether P/E ratios are high or low. The E part is Earnings Per Share, and so if managers manipulate the denominator for both P/E and EPS, they can make it seem like things are fine (and get their quarterly bonus to boot!) when functionally there's little happening. 

On the bright side, the lack of innovation in traditional incumbent businesses means that startups have a chance in more arenas than ever. If big companies have management that won't take the risk of failure, and aren't hiring teams to attack new markets, then it's wide open for new players to get capital, hire people, and make these things happen. 

If buybacks are killing the economy, then startups will save it. Pretty sweet if you ask me. 

Chart via Factset
More reading here: ValueWalk 

Defending A16z: Noam Scheiber mistakes a VC portfolio for his 401K

Labor and workforce reporter for the NY Times Noam Scheiber takes on Andreessen Horowitz in this recent piece:

Rather than profiting like Mr. Ovitz and his fellow agents, the venture capitalists may be more like the Hollywood studios — chronically overpaying for projects whose costs they can rarely recoup. Mr. Andreessen and his partners have invested so much in so many start-ups that it would take a remarkable string of successes to make the approach pay off. For all their skill — the firm bought into the likes of Airbnb, Instagram and Pinterest relatively early — their track record suggests it’s unlikely. Already, they’ve suffered a few impressive flameouts, including Fab, on which they are likely to lose tens of millions of dollars.

Even when they pick well, they often bid so much for stars that the return is relatively modest. It’s easier to triple or quadruple your money when you’ve invested $10 million in a $100 million company than when you’ve invested nearly $100 million in a $1 billion company, as they did with the daily deal site Zulily. There are only so many companies that are acquired for billions of dollars or reach that kind of price through an initial public offering. Fewer retain such valuations — Zulily’s stock price has fallen sharply since last year.

Noam doesn't make a data-based argument. He uses an anecdote. Because data would ruin a really good story in this case. He compares Silicon Valley juggernaut Andreessen Horowitz to the excesses of Hollywood and CAA.

There's a big difference here. Let's take Avatar, for instance. It's a film that was made in 2009 for $237 million. It grossed over $2.7 billion worldwide — a roughly 11X return on capital. That's the highest grossing film ever made, and a good proxy for how profitable Hollywood can be at best. 

Let's take another example from Silicon Valley— Facebook. Peter Thiel invested $500,000 in the fledgling company in its first seed round in 2006, and from public records held 22.4 million shares of the stock at IPO. Those shares, if he hadn't sold them, would be worth $1.9B today (at about $74 per share). That's a 3,800X return on capital. 1 

Multi-billion dollar companies happen when non-obvious ideas and huge market needs meet perfect execution. We've seen it before our eyes — Uber, Airbnb, Dropbox, Stripe, Instacart — and when you have the potential for 100X to 4000X returns, it's not about avoiding loss or minimizing downside. A proper venture portfolio is not like your 401K. The only way startup investors truly lose is if they miss the Uber. 

And that, in a nutshell, is why using anecdotes (e.g. Zulily in Sheiber's piece above) as evidence against Andreessen Horowitz makes no sense at all. An individual investment may fail but it's just one in a portfolio. The returns that are possible in early stage technology investing far outweigh anything Hollywood has ever seen or ever will see. Software is eating the world, and the numbers bear it out. 

1 David Hammer suggested a better comparison would be Accel, their Series A partner. Their 10% stake at IPO is now worth $14.8B, so their $12M investment yielded roughly 1100X return.

Spotify as a simple case study in making something people want

A passage in the New Yorker long form piece this week on Spotify really illuminates the key parts of what we spend a lot of time trying to help founders create: Something people want. 

Problem: Piracy was how people did it at the time. 

“It came back to me constantly that Napster was such an amazing consumer experience, and I wanted to see if it could be a viable business,” Ek went on. “We said, ‘The problem with the music industry is piracy. Great consumer product, not a great business model. But you can’t beat technology. Technology always wins. But what if you can make a better product than piracy?’ ” Ek continued, “Piracy was kind of hard. It took a few minutes to download a song, it was kind of cumbersome, you had to worry about viruses. It’s not like people want to be pirates. They just want a great experience. So we started sketching what that would look like.”

They started with a simple problem statement. All of the great era-defining startups seem to start that way. What was broken? They knew exactly what was broken. 

Solution: 200 milliseconds

Their “product vision,” in tech parlance, was that the service had to give the impression that the music was already on your hard drive. “What would it feellike?” Ek asked. “That was the emotion we were trying to invoke.” The key was to build something that worked instantly. Streaming, whether audio or video, tends to have built-in delays while you wait for the file, which is stored on a server in the cloud. But if the music starts in two hundred milliseconds or less—about half the time it takes, on average, to blink—people don’t seem to perceive a delay. That became Ek’s design standard. He told his lead engineer, Ludvig Strigeus, a brilliant programmer he had worked with before, “I don’t accept anything that isn’t below two hundred milliseconds.”

What would solve that very direct problem? Well, a great streaming service that was superior in a specific way. They knew how to measure success. Clearly if you could make a streaming service act as if it were on your local hard drive, you could win. 

Hard-to-build proprietary technology — the first time it was done, just enough of an advantage

Strigeus responded, “It can’t be done. The Internet isn’t built like that.”

“You have to figure it out,” Ek insisted.

The solution involved designing a streaming protocol that worked faster than the standard one, as well as building their own peer-to-peer network, a decentralized architecture in which all the computers on it can communicate with one another. In four months, they had a working prototype.

“And I knew when we had it that it was going to be very special,” Ek said.

This is a signature piece of why Spotify was special early on. There are two parts to this. The first is could it be done? Until these early prototypes, it hadn't. The second part is can it be cloned? As with almost anything software related — yes. Novel tech is not an infinite defense, but it was enough of one for Spotify to get off the ground. You don't need a technological advantage that lasts forever (though of course that'd be preferable) — just one that will last enough such that your competitors can only copy your innovation from 6 months ago. It can take that long to fast follow, which is enough to keep your unoriginal would-be competitors at bay while you blaze ahead. 

The Schlep = The Moat

Ek’s original idea was to launch Spotify in the U.S. at the same time that he launched the service in Europe. Ken Parks, Spotify’s chief content officer, said, “Daniel thought he could just go down to the corner store in Stockholm and pick up a global license.” He didn’t realize that he would have to negotiate directly with all the different copyright holders, a herculean task. Not surprisingly, the labels weren’t interested. Ek was an outsider—a techie, and a Swedish one at that. Parks, an attorney who’d worked at E.M.I., recalled, “We needed to overcome the music-is-free mentality that Spotify represented.” Of the labels’ attitude, he went on, “If you have something you’ve invested a ton of money in, and you’ve been selling it for a lot, and you feel raped by piracy—to say to that person, ‘The only way to beat this is to co-opt the people who are stealing from you,’ that was a challenge.” Ek said, “If anyone had told me going into this that it would be three years of crashing my head against the wall, I wouldn’t have done it.”

This is a common refrain. If founders knew how much work these things would be, often they wouldn't do it. But they do, and that's protectable long term enterprise value. 

This analysis is of course with 20/20 hindsight. In the moment, Ek and the Spotify cofounders and investors had no idea they'd be right. But they figured they might be, so they built it. 

Why Flow, a new low cost super high precision controller, is important for designers and creatives

Flow is launching this morning. They're YC alums who have created a low cost, high precision wireless controller in the form of a dial. It's highly programmable and most designers and creatives will find this to be super valuable because that's where precision really matters.

When I'm in Photoshop making pixel-perfect mockups, or when I'm in Lightroom editing photos, I'm constantly making micro-adjustments on specific settings, whether it be brush size, exposure, etc. I have to acquire the target, then move my mouse, and then click-drag to the point where I'm happy. We're exercising one fundamental law of UX over and over again - Fitts' law. 

Fitts' Law states that the difficulty of an action is determined by the movement time needed to complete that action, which is in turn defined by the size of the target to be acquired. Sliders are by nature long and thin. If I had to guess, a good chunk of the cognitive load of doing creative work is just moving a mouse pointer to a tiny slider bar.

Not only is it a tiny target to acquire, but there are finite number of steps in those sliders that can make a mountain of difference. For instance, photographers are always looking for that absolutely perfect exposure or temperature. With a slider, you're limited to the number of pixels that slider has on screen - 200px? That's only 200 gradations, and in my experience that perfect level is always in between two of those notches. 

Enter Flow. There are over 3600 distinct values in one full 360 degree turn of the device. And since you can link them directly to specific values e.g. exposure or brush size, you don't have to acquire the target over and over and over again. 

That's why I bought one, and that's why Flow is an important programmable hardware device that creative people should keep an eye on. They're accepting preorders now and are on Product Hunt, and if you get one early it's an extra good deal. 

Silicon Valley's Congressional Hope: Time to sweep away a congressman "who mostly votes the right way"

Silicon Valley hasn't had a real voice in Congress before. We've got a shot at one now though. In about 20 days, voters will go to the polls in a race for a congressional seat for the 17th district, and democrat Ro Khanna has a fighting shot at toppling incumbent Mike Honda. The polls are running in a dead heat, so this is one you should care about. 

There's nothing wrong with Honda — he's an old-line Democrat. Except that's actually the problem. He hasn't done much in the way of defending the things we really care about: Immigration reform, free Internet rights, supporting entrepreneurship, and reforming education. If Silicon Valley can elect Ro, then we as citizens are making a statement that business as usual for the Democratic party just isn't going to fly. 

That's why the San Jose Mercury News has endorsed Ro Khanna as well, saying "Silicon Valley -- whose economy, like the 17th District, stretches into the East Bay -- needs more than a congressman who mostly votes the right way... Silicon Valley's other representatives, Congresswomen Anna Eshoo, D-Palo Alto, and Zoe Lofgren, D-San Jose, are older than 65, and both are invaluable voices in Washington -- respected leaders on valley issues as well as defenders of progressive values. When they meet with us, they are insightful; we always learn something. This is not the case with Honda."

Ro is one of us. He's committed to reforming immigration so our talented friends who happened to be born elsewhere can still come here to create new businesses and jobs. Startups die every other day because of our antiquated and special-interest-ridden immigration policies. He's on our side when it comes to SOPA, PIPA, net neutrality and a maintaining a free and open Internet. 

If you're in the 17th District (Fremont to Sunnyvale), you have a chance to make history. Register to vote, and consider Ro Khanna for Congress. This race matters, and it's looking like a few hundred votes will swing this one way or another. 

Listen to the people for whom you're building: A low income housing development that chose bath tubs over hot water

I was watching an urban planning documentary called Urbanized on Netflix recently. It brought up a fascinating example of participatory design in the context of building homes. A housing development in Santiago, Chile called Elemental ran into a problem. The builders had to make a tough decision: should they build in hot water heaters, or should they build in bath tubs? The budget could only support one or the other at the outset.

A typical top-down approach would dictate that of course you'd want hot water. A first world view of the situation would say that you'd rather shower standing up with hot water than sit in a bathtub and have to heat water separately. 

Yet that's the exact opposite of what future residents of Elemental actually wanted. Architect Alejandro Aravena went out into communities and talked with residents and discovered what typical bureaucrats would never find - that people moving to the low income housing from slums would unanimously choose bathtubs instead. Hot water heaters and gas furnaces cost money, and are unfamiliar. Bathtubs, on the other hand, were very familiar (in fact what residents typically did in their existing living environments due to the extra privacy) and didn't generate additional energy cost. 

Further, hot water was one of the things that people typically added later, once they had acclimatized to the new living environment and improved their station in life. 

It seemed to me this was the sort of thing you could only tell by actually talking with the people who would use your creations. It is the ideal situation for us to create things for ourselves. But when you aren't doing that, you have to be extra careful about the assumptions and values you bring to the table. 

Always-on video recording will prevent tomorrow's Missouri police state — light is a disinfectant

The ongoing Missouri police fiasco has prompted a lot of discussion about the need for police transparency. My friend Jeff Lonsdale writes:

Active duty police officers need to be automatically recording everything they do. With recordings, incidents such as those happening in Ferguson can be quickly resolved one way or another. When tested in Rialto, California, recording reduced both complaints filed against police officers and the incidents where use of force was required. There will still be cases where police officers use excessive force in murky situations but by and large transparancy via recorded police and citizen interactions should protect the innocent parties, see more guilty parties punished and cause better behavior all around.

Smartphones, wearables, and always-on high bandwidth connectivity is converging in the next ten years to make this happen, not just for police officers, but for private citizens too. 

Always-on video is already shining light in Russia with the omnipresence of on-dash cameras. They say light is the best disinfectant, and that's exactly what video can be in the future. It's time to build. 

Software eats apparel — What MTailor means for how you'll buy clothing in the future

Miles and Rafi are two founders in the current YC batch who just launched their new startup, MTailor. It's a iPhone and iPad app that lets you get accurate measurements of your body so you can order made-to-measure dress shirts that fit you perfectly. You put the iPhone or iPad on the floor at an angle, and the app walks you through the 30 second process of turning around in place in front of the front-facing camera. The amazing thing is that the entire process is 20% more accurate than what a professional tailor would do in person. 

That's pretty damn cool. The founders are Stanford CS and math grads and devised and perfected the computer vision algorithms themselves. In the past similar founders would have tried to find some way to license the tech, but MTailor is building a new brand from scratch. It's an ambitious way for the company to fully create as much value as possible without middlemen and enterprise sales. 

Mass customization is finally hitting the mainstream, thanks to software. In the past it has always been difficult and time consuming for clothing to be made with specific measurements. It was a tedious process to begin with since it was hard for people to get accurate measurements, and even experienced tailors have trouble getting it right. Add a whole lot of waiting to the mix too — it'd take six weeks or more to wait for a shirt to be made. Those two problems taken together reduce demand. And as a result, the cost goes up, even further reducing demand. 

That's where a new software capability can come in, like MTailor's computer vision algorithms, and radically change the equation. Since it's easy to measure yourself, the major stumbling block is removed. And with a steady stream of orders, they can bring the price and wait down. That's exactly what the team has done, coming in at the $69 price point and a 2 week lead time. I was once a die-hard made-to-measure Indochino dress shirt fan, but I know where all my future purchases are coming from. 

That's the power of better, cheaper, faster, and how software eats the giant apparel business. Keep an eye on MTailor and try download their app. It's available right now.