Category Archives: VC

Integrity, intelligence, personal energy, collective energy, adaptability, salesmanship, and ambition

In an earlier post, I wrote that the attributes of a great founder are integrity, intelligence, personal energy, collective energy, and salesmanship.

I recently gave a presentation on what makes a great founder, and in preparing for the presentation, realized that I was missing two attributes.

The first attribute is adaptability. Since a startup is essentially a series of experiments designed to solve different problems at different stages of the company, adaptability is a key part of being a great founder. Specifically, knowing what you need to do (intelligence) and doing it yourself (personal energy) or by attracting and motivating others (collective energy) isn’t enough. You also need to be able to change what you’re doing altogether when it isn’t working, or to change how you go about what you’re doing based on where your startup is in its life journey. This requires adaptability.

The second attribute is ambition. Startup outcomes are governed by power laws, whereby a portfolio’s best performing startup’s return can be exponentially greater than that of the second best performing one, the second best performing startup’s return can be exponentially greater than that of the third best performing one, and so on. As a result, each of the founders that an investor backs needs to have the potential to deliver that best performing startup outcome that will drive the investor’s fund level returns. And this requires being a very ambitious founder.

So the attributes through which I now define a great founder are integrity, intelligence, personal energy, collective energy, adaptability, salesmanship, and ambition.

Abilities as repeated experiences

Sometimes you have the benefit of having the time to prepare for something in advance. When this is the case, if you put in the time, you can greatly increase your chances of reaching a positive outcome.

At other times, you don’t have time to prepare. Something happens to which you need to react on the spot.

When this is the case, if you have been faced with a similar situation before where your natural reaction was already tested to produce a positive or a negative outcome, this increases the chance that you engage in a current response that produces a positive outcome. This is the value of experience.

If you haven’t been faced with a similar situation before, that is if you don’t have contextual experience, the best you can do is to think about what’s happening as calmly as you can in whatever time is available. This is hard to do because, when faced with uncharted territory for which we haven’t had time to prepare, our natural reaction is to let our emotions guide our actions.

However, if you can remind yourself that what is now uncharted territory will soon become charted, that is, if you can see the new situation as an opportunity to gain experience rather than a reflection of your abilities, you can greatly improve your chance of reacting in a way that creates a positive outcome.

Most abilities are just repeated experiences.

Parting on good terms

Startups have high turnover. The reasons are both due to the nature of startups and the nature of the people they tend to attract. Specifically, startups are bumpy rides where the bumps can throw many people off the ride, and they tend to attract people who are too restless to stand still in one place for an extended period of time.

As a result of this high turnover, when you work with a startup, you eventually develop a wide network of people who go on to roles outside of the startup. And many of these roles are once again in the startup community. You eventually reach a position where you know more people outside the startup than in it. In other words, you know more people who have left the startup than people who continue to work there.

If you hope to retain the option to continue to work with the people who have left, it’s important to part on good terms. This isn’t always possible, because it requires that both parties leave on terms where they believe that they were treated fairly, or that a party who believes that they were treated unfairly chooses to part on good terms despite this.

Not everyone is prepared to do this. However, it’s worth doing for the part that’s in your control.

From the perspective of the employer, this means things like agreeing to serve as a reference for the employee in the future, or at least not speaking poorly of them unless there’s a very strong reason to do so, and not nickel and diming the employee’s exit terms.

From the perspective of the employee, this means things like continuing to work hard until the day you leave, transferring your workload to the organization or another employee who will take over your responsibilities, and not speaking poorly about the organization following your departure.

I’ve seen both good and bad departures. The former sometimes produce new opportunities which carry more value than what the original appeared to hold at the time. The latter don’t.

Machine learning course

Four months ago, I wrote about the importance of learning the fundamentals of a subject through educational courses as a first step to creating or supporting the creation of applications of that subject.

In that post, I shared that, in order to better understand and potentially support the creation of cryptocurrency applications, I recently completed a Coursera course offered by Princeton University on Bitcoin and Cryptocurrency Technologies. The course gave me a better understanding of cryptocurrencies than I’ve been able to gather through spending much more time reading secondary accounts of the subject across the internet.

After completing the course on cryptocurrencies, I began a course offered by Stanford University on Machine Learning. I’ve only completed the first week of the course so far. However, I feel like I’m learning even more than in the cryptocurrency course. This is perhaps because I enjoy the material more, perhaps because I more clearly see its applications, perhaps because the course content is better structured, or, most likely, it’s due to a combination of these factors.

I strongly recommend this approach to learning about a new subject in general, and the specific courses offered on Coursera in particular.

Your passion finds you

The more passionate you are about something, the more likely you are to do very well at it. However, how does passion emerge?

I used to think that we choose our passions. In other words, we think about what we want to do, and since we want to do it, the passion to do it emerges.

I’ve come to realize that this isn’t the case. Specifically, I no longer think that we choose our passions, but that our passions find us.

In other words, our passions are largely outside of our control. They emerge as a result of the combination of our genetics and our experiences that together shape who we are.

No matter how much we might want to be passionate about something else, usually because of seeing someone else do it, this isn’t possible. We are not that person, so their passion is not our passion. Their passion is the result of their genetics and the experiences that they’ve had in their lives, which are very likely different than ours.

To the extent that their genetics and experiences are similar, we might indeed have a similar passion. And there is more than one combination of genetics and experiences that produces the same passion. So we might have the same passion even if we have different genetics and experiences. However, given the range of possible passions, having the same passion as someone else is unlikely.

So rather than try to choose our passions based on what we think we want, or should want, we should be open to experiencing the different environments where our passions might find us.

This time period prior to finding your passion in life is a luxury. Because if you do, once you do, you will spend a lot of your time on it. And this leaves less time to experience other things.

But the good thing is that you won’t want to. You’ll leave the luxury of experiencing different things for the luxury of pursuing your passion.

Your passion will have found you.

Peak Games and Zynga

Peak Games, one of the world’s leading mobile gaming companies, based in Turkey, recently announced that it has sold its mobile card gaming studio to Zynga for $100M. Peak Games will retain the rest of its games including the very successful Toy Blast and Toon Blast, and will continue operating as an independent company.

This transaction is a great example of how successful companies that compete globally primarily on the basis of their technology, rather than companies where technology enables a primarily offline operational experience that is more defensible against global competition (like e-commerce or marketplaces), can emerge from Turkey.

Congratulations to the Peak Games team, led by Sidar Sahin, as well as the company’s investors Hummingbird and Earlybird.

Market share, market size, and success

When pitching to investors, many founders point out that their market is so large that, even if they were able to capture just 1% (or a similarly small percentage like 0.1% or 0.5%) of it, they would become very large businesses.

In reality, the companies that develop into very large businesses do so by capturing at least a double digit percentage of their market. This figure is certainly more than 1%.

And the companies that fail capture much less, or none of their market.

By stating that even capturing 1% of their market would produce a very large business, founders are suggesting that they will succeed due to the size of their market rather than their competitive position and resulting market share within that market. The former belief demonstrates a misunderstanding of what it takes to succeed, so such companies rarely do.

E-commerce brands and consumer review sites

Differentiating yourself as an e-commerce company is very challenging. The founder of Bonobos, Andy Dunn, which sold to Wal Mart for $310M, wrote as much here.

In that post, Andy identified four ways in which e-commerce sites can potentially compete with the largest horizontal players like Amazon:

  1. Proprietary pricing
  2. Proprietary selection
  3. Proprietary experience
  4. Proprietary merchandise

Bonobos is an example of the fourth.

However, even creating your own direct to consumer e-commerce brand, enabled by proprietary merchandise, isn’t necessarily defensible from competition. The reason is that, in the absence of intellectual property protection along an important product dimension, which most product categories do not have, your product features and resulting quality are likely to be replicated by competitors who discover and begin to work with your supply chain.

When the product features offered by different e-commerce brands begin to commoditize, branding becomes the key differentiator. And consumer review sites, which were initially designed to assess product features, become the target of e-commerce brands’ branding efforts.

This is a fascinating story of how mattress e-commerce brands used consumer review sites for their branding activities.

Global IT companies, avoiding trends, and defensibility

In this recent interview, Peter Thiel of Founders Fund makes several important points that I agree with:

  1. Successful IT companies, which depend on talented people, capital, and the right governance structures, will increasingly emerge from global locations rather than primarily from Silicon Valley.
  2. Investing in specific companies, led by the entrepreneurs behind them, produces better returns than investing in trends.
  3. Companies that have the potential to be one of a kind, or in other words companies which are defensible, are better investments.

I couldn’t embed the video in this post, but you can watch it here.

Horizontal service marketplaces

As Josh Breinlinger explains in his marketplace framework, in service marketplaces with a high purchase frequency like food and car ordering, or large transaction values like real estate and car buying, it makes sense to have a vertical offering. The high repeat rates in the former and the large transaction values in the latter make the unit economics work.

However, in many service marketplaces, the transaction values are less than those of purchasing a home or a car and the purchase frequency is less than that of food and taxi ordering. In order to make the unit economics work, such marketplaces needs to augment the standalone value of the first transaction which likely won’t be repeated until several months later. This requires a horizontal approach where the marketplace offers many services that meet the demands of its target customer profile.

For example, a home services marketplace benefits from offering not only cleaning but also handyman, home improvement, and moving services.

Similarly, a car services marketplace benefits from offering not only car maintenance but also repair and roadside assistance services.