Monthly Archives: October 2015

Takeaways from eShares’ values and execution strategy

I recently read eShares CEO Henry Ward‘s Medium post about eShares’ values and execution strategy. eShares provides cap table management software for seed through late stage private companies.

The post links to a slide deck which Henry uses as part of a presentation that he gives to eShares employees once a month. The post covers many of the key points in the slide deck in greater detail, but I’d also recommend going through the slides. Although you may not agree with each of Henry’s recommendations, there’s likely to be at least a few that you can apply at your startup.

After reading the post and reviewing the presentation, here were my 3 key takeaways:

  1. Manage your company like a sports team: This includes showing up on time each day, practicing to get better, and focusing on positions rather than titles.
  2. Create leverage: Leverage is maximizing impact for a given effort. Don’t confuse it with efficiency which is minimizing effort for a given impact. Your binding constraint is how much effort (resources like time and money) you can put in, not how much impact you can produce, so think in terms of creating leverage.
  3. Don’t pay top of market salaries: The best people also value other forms of financial compensation (bonuses, shares, options) and non-financial compensation (learning, being challenged, their colleagues, …). If you offer top of market salaries, you’re likely to attract the mercenaries that optimize for short-term financial outcomes rather than the missionaries that optimize for long-term financial and non-financial outcomes. eShares seeks to pay each of its employees the 75th percentile of market salaries for that person.

Challenging but achievable

Goktug Gedik, a colleague at Tazedirekt, recently wrote a post asking how a tech startup from Turkey could produce as many impactful people as PayPal did in the US. PayPal produced the likes of Elon Musk, Peter Thiel, Reid Hoffman, Keith Rabois, Max Levchin, Roelof Botha, Dave McClure, and David Sacks.

Here was my answer:

“The PayPal mafia is unique. Even in the US, I haven’t seen such a diverse group of impactful people originating from any other single company.

In Turkey, a fund with multiple startup investments rather than a single startup may be necessary to produce enough people with a similar impact.”

A while after writing this, I came across Peter Thiel’s view on why the PayPal mafia has been so impactful. Here’s Peter’s view:

“The big lesson people had coming out of PayPal was that ‘You can build a great business and it was neither easy, nor impossible’. That’s a very good mindset to have. To think it’s hard, but doable. The lesson people mostly learned in the 90’s (and still learn in Silicon Valley today) is that it’s easy. So if you’re at a fantastically successful company like Microsoft or Google, you will infer that starting a new business is easier than it is. You’ll learn a lot of wrong things. If, on the other hand, you’re at a company that fails, you tend to learn the lesson that it’s impossible. At PayPal we were sort of intermediate. We weren’t as successful as some of the great successes of Silicon Valley, but people calibrated it and learned the best lesson – that it’s hard, but doable.”

I think that Peter touches on an important point. You achieve the right balance between the confidence and the work ethic required to succeed when what you’re doing is challenging but achievable.

For the members of any organization (startup or fund) to produce a similar impact in Turkey as the PayPal mafia did in the US, the work of the organization needs to strike a similar balance between being both very challenging and achievable.

I think that that’s a better answer to Goktug’s question.



How you treat service industry professionals

I recently had lunch with an entrepreneur and I was surprised at how he treated the waiter at our restaurant. The waiter made a mistake with our order, but rather than simply request that he correct the mistake, the entrepreneur started yelling at the waiter and criticizing him and the restaurant.

One incident doesn’t make a trend. The entrepreneur may have simply been having a very bad day.

However, I think that a person’s repeated reactions in such situations is likely a good predictor of how successful they’ll be at a startup. There are two reasons for this.

The first is that a lot goes wrong at startups. If an entrepreneur has such a reaction when there’s a mistake with their order, they’ll likely have much greater reactions when more important things go wrong at their startup. If this happens once or twice, it could help get things done by motivating employees. But if it becomes a repeated occurrence, no one will want to work for the entrepreneur.

The second reason is that startups need to be, to the extent possible, meritocracies to succeed. They need to value ideas and hard work irrespective of titles. How an entrepreneur treats waiters (and other service industry professionals like taxi drivers) is likely a good indicator of how much they value ideas and hard work relative to titles. Criticizing a service industry professional simply because you can suggests that you value titles and this isn’t a good fit for startups.

Processes versus outcomes

I recently came across the following tweet on Twitter.

Although it’s written with financial traders in mind, I believe it’s valid for all of life, personal and professional.

Basically, it shows that outcomes are the factor of processes within your control and variables outside of your control. Just because the outcome is positive doesn’t mean that your process was right, and just because the outcome is negative doesn’t mean that your process was wrong. Rather than focus on the outcome, it’s better to evaluate your performance based on the process you followed.

Your goal should be to document the processes you apply to different types of problems you encounter, reflect on the results which emerge, and learn from what worked well and what didn’t among your processes. You should then revise your processes in order to make it more likely that you’ll reach a positive outcome by following them in the future.

It takes a lot of training and discipline to evaluate your performance based on the processes you follow rather than the outcomes you achieve. I know that it’s going to be a lifelong journey for me. But the more you do it, the more likely you are to accurately identify the dynamics which govern a particular problem. And once you’ve identified these dynamics, the problem becomes much easier to solve.

The training and discipline are well worth it.

Discussions as a platform for learning

I recently noticed an important evolution in my approach to discussions. The change didn’t happen at any single moment in time, but gradually over the course of the last few months.

I used to approach discussions with a predetermined viewpoint and a default assumption that my viewpoint was unlikely to change during the discussion. I saw most discussions as opportunities to convince others of my viewpoint. I saw discussions as a battlefield.

More recently, I’ve started to approach discussions with an open mindset. I still come armed with a viewpoint, but rather than see the discussion as an opportunity to convince others of that viewpoint, I first try to gather as much information as possible about others’ viewpoints. Sometimes others have important information that I don’t have about a specific issue, and sometimes they look at the same information from a different perspective that produces a different conclusion. I try to internalize any new information and test out the assumptions underlying different conclusions from mine to see which conclusion makes more sense. I see discussions as a platform for learning.

If there are still loose strings in my mind following the discussion, I rethink the issues after the discussion has ended. Sometimes this helps me see things from a perspective that I didn’t see during the heat of the discussion. In fact, on several occasions I’ve changed my mind after a discussion ended and shared this change of perspective with the discussion participants.

I think that the change in my approach is the result of two factors. First, I’m simply gaining more experience and maturity as I grow older. Second, I’m realizing that, in order to be effective in my role as an advisor to entrepreneurs, I need to influence them to take the right action. Even if I may believe I know what the right course of action is, this is meaningless if the entrepreneur who’s ultimately responsible for taking this action doesn’t feel the same way. Being open to, and reflecting a sincere appreciation for the perspectives of others is a great way to get others to also listen to your perspective.

Depending on your role and the specific context of what you’re talking about, the degree to which you should see discussions as a platform for learning rather than a battlefield will be different. However, based on where on this spectrum I was starting out and my specific role as an advisor to entrepreneurs, I’ve found that in my case approaching discussions as a platform for learning produces much better outcomes.

Car and taxi hailing market shares in different countries

The Information recently published a valuable report on the market shares of different car and taxi hailing services in different countries. It’s behind a paywall so you’ll need to subscribe to The Information to read it.

The report includes the monthly active users of each player as a percentage of the total number of panel participants in that country. The data is collected from a total of 2M Android phone users so it’s limited by the fact that it doesn’t include all smartphone users in each country (Uber may have a greater share among higher end iOS users), but it’s a good first approximation.

Basically, the report shows that Uber lags the market leader in each of Brazil, Colombia, Peru, Russia, Greece, Romania, India, China, Israel, Thailand, Singapore, Malaysia, and Vietnam. Although not featured in the report, the same is true in Turkey where Bitaksi leads Uber.

Uber is a heavily operational business. It requires extensive field operations practices to attract drivers, localized features to appeal to passengers, and different regulatory approaches to succeed in each country. This is very different than cloud-based businesses like Facebook and Twitter that can grow in new countries without needing a local team on the ground. As a result, far from seeing them as failures, we need to applaud Uber’s second and third place positioning in so many different countries.

However, we also need to keep in mind that car and taxi hailing are marketplace businesses. As a result, they’re likely to demonstrate winner-take-most-if-not-all characteristics at the country level. And this means that Uber may not capture as much value in non-US markets as some people, and investors, seem to believe.

I don’t know Uber’s detailed current financials. If the company’s ever-increasing valuation (rumored to most recently be approaching the $60 to $70 billion range) can be justified by Uber substituting for car ownership in the US, it may be realistic. But if it’s based on Uber becoming the market leader in many non-US markets, I would be skeptical.

Now in a smaller garage

I thought I’d share a funny parody this Sunday. It’s a piece called “Computer company started in garage 30 years ago now in smaller garage” from The Onion.

The piece is a healthy reminder that most tech startups end up like the one in the parody. We just don’t hear about most of them.

It’s also a reminder of the value of laughing even when things go wrong. Losing your company is bad, but there’s much worse.

I hope you have a fun and grateful Sunday.


What to do when your competitor gets funded

Mark Suster of Upfront Ventures recently published an excellent post describing what to do when your competitor gets funded. It fully covers how to think about your competitor’s funding, what to do in response, and what not to do.

Each point that Mark makes is fully valid for non-marketplace businesses like on-demand self storage providers MakeSpace and which are the subject of the post. Marketplace businesses are different in that their intrinsic network effects are likely to produce single dominant winners. As a result, in a marketplace business, a very large fundraise by a competitor is a greater cause for concern as it enhances their ability to subsidize the services they offer their suppliers and consumers until they reach a size where it no longer makes sense for suppliers and consumers to join competing marketplaces.

For non-marketplace internet businesses, here’s what I think is the money quote from Mark’s post: “Our competitors are not really each other but the incumbent businesses that have 99.9% market share today”.

Leading by action

I recently wrote about how Jack Dorsey gave a significant amount of his equity in Square to the Start Small Foundation designed to support the small businesses that Square serves.

This morning, I woke up to this:

Now, Jack is giving 1/3 of his Twitter shares (1% of the company’s total shares) to Twitter employees. Basically, he’s doing something similar to what he did at Square by putting the company’s interests ahead of his personal interests. He’s just doing it at a smaller scale because he owns less Twitter shares than Square shares.

It’s another great example of leading by action.

Name dropping

I have a few signals I look for when evaluating tech entrepreneurs. One of them is how often they mention their relationships with high profile people. Sometimes these relationships exist, and sometimes they’re fabricated or greatly exaggerated. Whatever the case, I’ve discovered that frequent name dropping is a negative sign when evaluating tech entrepreneurs.

The reason is that tech companies succeed because of their product and distribution strategies. While relationships with high profile people may help you land a great deal in other sectors, they’re unlikely to get you any closer to building a great product or executing on a great distribution strategy in the tech sector. A tech company’s success depends on how engaged their users or customers are, and that’s a function of the company’s product and distribution. Users don’t use your product because of who you know.

This doesn’t mean that great tech entrepreneurs don’t recognize the value of relationships. They do. They often either have an existing supportive network or develop one during the course of their startup. However, they know that their company will win or lose because of its product and distribution strategy, and are naturally excited to innovate in these areas. This is reflected in what they prefer to talk about in conversations.

Counterintuitively, this very focus on product and distribution makes them more interesting to the people they speak with. This enthusiasm for what they’re doing is much more contagious than another entrepreneur’s enthusiasm for who they know. By focusing and talking about what they’re doing, they become more likely to build a supportive network than a persistent name dropper.