I’ve decided to take more time to help tell the stories of people who I admire, both within the Initialized community and the world of startups at large. This is my first stab at it. I shot and edited everything myself and know there are a thousand more things I need to get right next time.
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“The sole purpose of human existence is to kindle a light in the darkness of mere being.” —Carl Jung
My one professional resolution for the year is to actually write more. The written word is the one way we can leave something behind - it’s a signpost for others, in distilled form. Edited. Reduced. Great writing lets you skip ahead, to absorb that which others had to learn the hard way.
Two things kept me from writing more in the past years, and I figured the best way to unblock the blockers is to name them directly in my first post of the year.
Vulnerability
Writing is about writing the truth, or at least the truth as you see it. These days it’s clear sharing that truth makes you incredibly vulnerable.
“I, myself, have found that if I examine something, it’s less scary. We always had this theory that theory that if you kept a snake in your eye-line, the snake wasn’t going to bite you. That’s kind of the way I feel about confronting pain. I want to know where it is.” —Joan Didion
Vulnerability is about saying the things left unsaid. The loss. The mistakes. The tragedies. The unheralded wins. Let’s talk about the snake, because if we don’t, how are we ever going to keep people from being bitten? Let’s keep it in our eye line.
Novelty
One counterintuitive truth I’ve found is that you sometimes find yourself writing the obvious. What is obvious to you, and your direct community, is often not what is obvious to the people out there. One thing I know I need to do is acknowledge that I am in a community of incredibly smart people, but I cannot begin to hope to write things that are that novel. I think it’s easy to fall into a trap where you think you have to be the Velvet Underground: the new vanguard.
There is more to write than just that which will be impressive to the insiders. In fact, properly accessible writing may well involve a good amount of review for those insiders, and help place that which might be novel in the right context.
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I’m looking forward to this year. Bring it on 2019. I will try to write my truth, and I welcome your advice, feedback, and hearty discussion in the months to come.
I invite you to read my writing by following me on Twitter or clicking the Subscribe link below to join my Posthaven email list.
I've been spending some time trying to think through where the proverbial hockey puck will be going in cryptocurrency, and here's one idea I think might work.
Right now, if you put $100 in a savings account, you'd be lucky to get even $2 per year. But with this shift in cryptocurrencies to Proof of Stake, the right pick could net you $50 to $80 per year for that initial $100 investment.
Moving from Proof of Work to Proof of Stake is one big experiment happening now
The dominant cryptocurrencies like Bitcoin and Ethereum operate on proof of work. Miners have to do fairly complicated math problems to figure out what the next step in the blockchain will be. In return, they get a mining reward, which is the primary form of inflation for most currencies.
Proof of stake is different. Instead of expensive GPU-based or ASIC-based mining rigs, you just run a normal, non-computationally-intensive piece of software on any kind of computer, and attach your "stake" — some amount of the cryptocurrency that you are putting up as proof that you are running the right software and won't try to cheat the system. If you are caught cheating, you lose the amount you put up for stake. This is important in that now normal people who just hold the currency can actually get an interest rate on holding it.
Generating yield is a big deal
This turns crypto from a negative carry asset (like gold, or putting money in your mattress) into one that actually generates yield.
The world's capital is desperate for yield these days, which is why the stock market is so overheated, why negative or near zero interest rate lending now exists, and why people are so worried about asset price bubbles broadly. People want to grow their capital and it has never been harder to find consistent ways to get it.
For instance, look at the eye-popping 11% rate of return you would get on CD's back in 1984!
The days of risk-less return were our parents' generation, and not ours. But cryptocurrencies that use proof of stake for consensus have the promise of a consistent 3% to 8% annual yield, because rather than give that to miners to run the network, they can just share them with holders who are willing to stake.
One strategy with asymmetric upside: A basket of low market cap Proof-of-Stake coins
Proof of Stake hasn't been proven to work at the kind of scale that Bitcoin or Ethereum have had yet. Crypto experts have pretty divergent opinions on whether it will work at scale over time, which is a risk that is preventing adoption now.
But as with anything new, it has to start somewhere, and that's where coins like Decred and Navcoin are leading the way in the attempt. Navcoin (at the time of writing) is around $100M market cap, and Decred is around $220M. If either of them can get to top 10 cryptocurrencies, that's a 10X in value from here. Obviously these things are always an absurdly big if, but I like it as a bet with highly asymmetric upside.
Navcoin yields about 5% per year, but Decred yields up to 31% compounded per year. That's pretty amazing. But if the coin itself can 10X in value, you're looking at 50% to 80% annual yield on the initial fiat you might use to buy in. I like a one-time 50% increase in value, but what's even better than that is a a 50% to 310% yield every year into the future. Those yields stack as you increase your holdings in each cryptocurrency as well, which is another nice compounding effect similar to automatically re-investing dividends into a stock.
The list of PoS coins is actually relatively long, and an exhaustive review of them is left as an exercise to the reader. An incomplete list of more popular ones in addition to the ones above include Peercoin (one of the first to do it), Lisk (largest by market cap), Nxt, and many others. I've also found browsing coin subreddits to be pretty valuable— these coins tend to live or die by developer and community interest, and you can get a great gauge on these things through their forums and subreddits.
Proof of Stake is not the only way you can get yield from these coins. NEO is another coin (dubbed the Ethereum of China) that gives NEO wallet holders another coin called GAS, which at current time yields about 4.8%.
The great thing is if you are an early holder of Ethereum, you'll already get this effect massively, if/when the Casper upgrade to Proof of Stake enters the picture next year.
Finally, I would recommend small amounts (perhaps with a dollar cost average strategy) that you wouldn't be upset about losing, and as a part of a portfolio such that if one Proof of Stake cryptocurrency doesn't work out (and be prepared for most to stagnate or fail) you have a decent shot at owning the eventual winner. The best thing about asymmetric upside is that you can at most lose 1X, but have the potential for a lot more on the flipside.
Early founders often ask whether the classifications of startups (consumer, SaaS, or Enterprise) matter a ton in terms of what kind of startup they should try to start. Is there a such thing as "founder market fit" when it comes to these stages? Unless you're an ex-Oracle sales manager founding a company, probably not.
It's backwards to rely on the consumer/SaaS/Enterprise distinction early on because that's tactics, only after you've picked a problem to solve. In a nutshell:
Start with what problem to solve, and then choose your tactical approach given what you know about that problem. That'll help you get to where you want to be, and let you optimize for solving a real thing that you actually want to do.
Finding good startup ideas is hard enough. You don't want to complicate it by setting constraints at the wrong level of a if you can help it.
A founder in China I met asked me what he should do with a business he started that has a few hundred users that are happy. He's not sure what to do next yet.
Here's what I wrote him:
The main thing is to a) figure out how you can make money, and then b) figure out how you can grow. How much you know a and b will determine whether or not you decide to raise money, or do it as a lifestyle business, or don't do it at all. It's important to figure that out as soon as you can, since those are really the only next steps from where you are. If you can grow and make a lot of money (high unit economics / margin) then you should raise money. If you can grow but can make some but not a lot, then you can probably be a good lifestyle business and you should just try to get to profitability. If you can't grow or you can't make money doing what you're doing, then don't do it.
I think the most remarkable thing about this trip to China is while the markets are radically different, the fundamental problems founders face are absolutely the same.
Brilliant inventor Charles Babbage designed the Difference Engine, a pioneering mechanical computer capable of storing and operating upon up to 1,000 numbers with a limit of 50 digits each. Remarkably, it wasn't until the modern era when researchers used 19th-century mechanical fabrication techniques to verify Charles Babbage's designs did work after all.
A lecture in 2008 at the Computer History Museum by Doron Swade shed light on what went wrong:
In fact, no one at that time had warned that these calculating machines could not be built. Many other machines - some of them useless - were in fact built using those same Victorian era mechanical parts and tools. Instead, there were a myriad other factors contributing to the failure to physically realize the Difference Engines. These included: an argument with his lead engineer over worker compensation, run-away costs, muddled financial arrangements, wrangling with a changing British government for funding, and a resulting discontinuity of negotiations over funding and construction.
Perhaps, Babbage's personality had more to do with the failure to complete the Difference Engines then the underlying technology of the time. Known by his first biographer as the "irascible genius" Babbage had lots of pride and hubris. He behaved as though being right entitled him to be rude. His quarrels with the British government and with chief engineer Joseph Clement might have doomed the project.
When Clement resigned in March 1833, the practical construction of Difference Engine No. 1 stopped - 11 years after it was conceived. Negotiations with the British government continued, but funding was finally axed in 1842. Difference Engine No. 2 was conceived and designed between 1846 and 1849 - long after the design of the (never completed) Analytical Engine.
Regrettably, none of these three machines were built in their entirety in Babbage's lifetime. Only years later did we recognize the potential and power of the underlying machine architectures, which were independently "discovered" by later day computer pioneers.
Dear friends-
I wanted to let you know I am stepping away from YC. I've been involved at YC since early 2011 and in that time it has been my privilege to work with over 600 startups and over a thousand founders. It would be impossible for me to have predicted the success the team has achieved since then. After nearly five years, I’m ready to take a break and plan for my next adventure.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?
Deprogramming
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.
[0] http://www.quora.com/Why-doesnt-YCombinator-have-a-physical-space-for-its-startups-to-work-out-of
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.
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)
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.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.
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.