June 25, 2007

The Pmarca Guide to Startups, part 4: The only thing that matters

This post is all about the only thing that matters for a new startup.

But first, some theory:

If you look at a broad cross-section of startups -- say, 30 or 40 or more; enough to screen out the pure flukes and look for patterns -- two facts will jump out at you.

First fact: there is an incredibly wide divergence of success -- some of those startups are insanely successful, some highly successful, many somewhat successful, and quite a few of course outright fail.

Second fact: there is an incredibly wide divergence of caliber and quality for the three core elements of any startup -- team, product, and market.

In other words, one startup will be staffed by a killer team, create a so-so product, and be operating in a poor or nonexistent market. Next door, another startup will have an incredibly weak team, a terrible product, and be operating in a fantastic market that is growing by leaps and bounds. A third startup, staffed by outstanding engineers and weak businesspeople, might have an OK team, a great product, and an OK market.

And so you start to wonder -- what correlates the most to success? Or, more bluntly, what causes success? And, for those of us who are students of startup failure -- what's most dangerous: a bad team, a weak product, or a poor market?

Let's start by defining terms.

The caliber of a startup team can be defined as the suitability of the CEO, senior staff, engineers, and other people in the company relative to the opportunity in front of them -- you look at a startup and ask, will this team be able to optimally execute against their opportunity? I focus on effectiveness as opposed to experience, since the history of the tech industry is full of highly successful startups that were staffed primarily by people who had never "done it before".

The quality of a startup's product can be defined as how impressive the product is to someone who actually uses it. How easy is it to use? How feature rich is it? How fast is it? How extensible is it? How polished is it? How many (or rather, how few) bugs does it have?

The size of a startup's market is the number and growth rate of potential paying customers -- directly or indirectly. (I say indirectly because consumer Internet startups, for example, often have two customer bases -- nonpaying users, and paying advertisers -- and both count when thinking about market.) A sharply related factor is the ease, and therefore cost, of sale -- a huge market is not much good if you have to spend so much to make the sale (e.g. marketing or direct sales expense) that you can never turn a profit.

If you ask entrepreneurs or VCs which of team, product, or market is most important, many will say team. This is the obvious answer, in part because in the beginning of a startup, you know a lot more about the team than you do the product, which hasn't been built yet, or the market, which hasn't been explored yet. Plus, we've all been raised on slogans like "people are our most important asset" -- at least in the US, pro-people sentiments permeate our culture, ranging from high school self-esteem programs to the Declaration of Independence's inalienable rights to life, liberty, and the pursuit of happiness -- so the answer that team is the most important feels right. And who wants to take the position that people don't matter?

On the other hand, if you ask engineers, many will say product. This is a product business, startups invent products, customers buy and use the products. Apple and Google are the best companies in the industry today because they build the best products. Without the product there is no company. Just try having a great team and no product, or a great market and no product. What's wrong with you? Now let me get back to work on the product.

Personally, I'll take the third position -- I'll assert that market is the most important factor in a startup's success or failure.

Why?

In a great market -- a market with lots of potential customers and/or a highly growing set of potential customers -- the market pulls product out of the startup. The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along. The product doesn't need to be great; it just has to basically work. The market doesn't care how good the team is, as long as the team can produce that viable product. In short, customers are knocking down your door to get the product; the main goal is to actually answer the phone and respond to all the emails from people who want to buy. This is the story of search keyword advertising, and Internet auctions, and TCP/IP routers.

Conversely, in a terrible market, you can have the best product in the world and an absolutely killer team, and it doesn't matter -- you're going to fail. You'll break your pick for years trying to find customers who don't exist for your marvelous product, and your wonderful team will eventually get demoralized and quit, and your startup will die. This is the story of videoconferencing, and workflow software, and micropayments.

In honor of Andy Rachleff, formerly of Benchmark Capital, who crystallized this formulation for me, let me present Rachleff's Law of Startup Success:

The #1 company-killer is lack of market.

Let's look at some scenarios -- I have examples to back up every one of these but I'm not going to use them in public because I don't want to call anyone's baby ugly:

Monster market, weak product, terrible team -- startup will probably be a huge success, as long as the team can do the basics of getting the weak product out and fulfilling the customer orders. The market pulls the product and the team. Of course, the team will probably get upgraded along the way.

Great team, great product, poor market -- death, per above.

Great team, good product, good market -- the startup will be reasonably successful but won't hit it out of the park, no matter how great the team is.

Stellar product, poor team (i.e. the engineers are great but the rest of the team is weak), poor market -- death.

Stellar product, poor team, great market -- home run.

Mediocre team, weak product, good market -- the startup may still be reasonably successful although this is probably pushing it.

In short, the more time you spend with more startups, the more you realize -- I believe -- that market matters most. You can obviously screw up a great market -- and that has been done, and not infrequently -- but assuming the team is baseline competent and the product is fundamentally acceptable, a great market will tend to equal success and a poor market will tend to equal failure.

And neither a stellar team nor a fantastic product will redeem a bad market.

OK, so what?

Well, first question: Since team is the thing you have the most control over at the start, and everyone wants to have a great team, what does a great team actually get you?

Hopefully a great team gets you at least an OK product, and ideally a great product.

You'd certainly rather have a great product than an OK product, if you have a choice. The worse the market, the better the product needs to be to avoid failing -- because if the market is only so-so, the product better be great or you won't get any word of mouth. Hopefully your great team can get you that product and therefore that word of mouth.

However, I can name you a bunch of examples of great teams that totally screwed up their products, usually through laziness and arrogance. Great products are really, really hard to build.

Hopefully a great team also gets you a great market -- but I can also name you lots of examples of great teams that executed brilliantly against terrible markets and failed. Markets that don't exist don't care how smart you are, or how successful your last company was.

In my experience, the most frequent case of great team paired with bad product and/or terrible market is the second- or third-time entrepreneur whose first company was a huge success. People get cocky, and slip up. There is one high-profile, highly successful software entrepreneur right now who is burning through something like $80 million in venture funding in his latest startup and has practically nothing to show for it except for some great press clippings and a couple of beta customers -- because there is virtually no market for what he is building.

Conversely, I can name you any number of weak teams whose startups were highly successful due to red-hot markets for what they were doing.

Second question: Can't great products sometimes create huge new markets?

Absolutely. This is a best case scenario, though.

VMWare is the most recent company to have done it -- VMWare's product was so good out of the gate that it catalyzed a whole new movement toward operating system virtualization, which turns out to be a monster market.

And of course, in this scenario, it also doesn't really matter how good your team is, as long as the team is good enough to develop the product and get it fundamentally to market.

Understand I'm not saying that you should shoot low in terms of quality of team, or that VMWare's team was not incredibly strong -- it was (and is). I'm saying, bring a product as great and transformative as VMWare's to market and you're going to succeed, full stop.

Short of that, I wouldn't count on your product creating a new market from scratch.

Third question: as a startup founder, what should I do about all this?

Let's introduce Rachleff's Corollary of Startup Success:

The only thing that matters is getting to product/market fit.

Product/market fit means being in a good market with a product that can satisfy that market.

You can always feel when product/market fit isn't happening. The customers aren't quite getting value out of the product, word of mouth isn't spreading, usage isn't growing that fast, press reviews are kind of "blah", the sales cycle takes too long, and lots of deals never close.

And you can always feel when it's happening. The customers are buying the product just as fast as you can make it -- or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can. Reporters are calling because they've heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck's. And so on.

Lots of startups fail before product/market fit ever happens.

In fact, I believe that the life of any startup can be divided into two parts: before product/market fit (call this "BPMF") and after product/market fit ("APMF").

When you are BPMF, focus obsessively on getting to product/market fit.

Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don't want to, telling customers yes when you don't want to, raising that fourth round of highly dilutive venture capital -- whatever is required.

When you get right down to it, you can ignore almost everything else.

(I'm not suggesting that you do ignore everything else -- just that judging from what I've seen in successful startups, you can.)

Whenever you see a successful startup, you see one that has reached product/market fit -- and usually along the way screwed up all kinds of other things, from channel model to pipeline development strategy to marketing plan to press relations to compensation policies to the CEO sleeping with the venture capitalist. And the startup is still successful.

Conversely, you see a surprising number of really well-run startups that have all aspects of operations completely buttoned down, HR policies in place, great sales model, thoroughly thought-through marketing plan, great interview processes, outstanding catered food, 30" monitors for all the programmers, top tier VCs on the board -- heading straight off a cliff due to not ever finding product/market fit.

Ironically, once a startup is successful, and you ask the founders what made it successful, they will usually cite all kinds of things that had nothing to do with it. People are terrible at understanding causation. But in almost every case, the cause was actually product/market fit.

Because, really, what else could it possibly be?

The Pmarca Guide to Startups, part 3: "But I don't know any VCs!"

In my last post in this series, When the VCs say "no", I discussed what to do once you have been turned down for venture funding for the first time.

However, this presupposes you've been able to pitch VCs in the first place. What if you have a startup for which you'd like to raise venture funding, but you don't know any VCs?

I can certainly sympathize with this problem -- when I was in college working on Mosaic at the University of Illinois, the term "venture capital" might as well have been "klaatu barada nikto" for all I knew. I had never met a venture capitalist, no venture capitalist had ever talked to me, and I wouldn't have recognized one if I'd stumbled over his checkbook on the sidewalk. Without Jim Clark, I'm not at all certain I would have been able to raise money to start a company like Netscape, had it even occured to me to start a company in the first place.

The starting point for raising money from VCs when you don't know any VCs is to realize that VCs work mostly through referrals -- they hear about a promising startup or entrepreneur from someone they have worked with before, like another entrepreneur, an executive or engineer at one of the startups they have funded, or an angel investor with whom they have previously co-invested.

The reason for this is simply the math: any individual VC can only fund a few companies per year, and for every one she funds, she probably meets with 15 or 20, and there are hundreds more that would like to meet with her that she doesn't possibly have time to meet with. She has to rely on her network to help her screen the hundreds down to 15 or 20, so she can spend her time finding the right one out of the 15 or 20.

Therefore, submitting a business plan "over the transom", or unsolicited, to a venture firm is likely to amount to just as much as submitting a screenplay "over the transom" to a Hollywood talent agency -- that is, precisely nothing.

So the primary trick becomes getting yourself into a position where you're one of the 15 or 20 a particular venture capitalist is meeting with based on referrals from her network, not one of the hundreds of people who don't come recommended by anyone and whom she has no intention of meeting.

But before you think about doing that, the first order of business is to (paraphrasing for a family audience) "have your stuff together" -- create and develop your plan, your presentation, and your supporting materials so that when you do meet with a VC, you impress her right out of the gate as bringing her a fundable startup founded by someone who knows what he -- that's you -- is doing.

My recommendation is to read up on all the things you should do to put together a really effective business plan and presentation, and then pretend you have already been turned down once -- then go back to my last post and go through all the different things you should anticipate and fix before you actually do walk through the door.

One of the reason VCs only meet with startups through their networks is because too many of the hundreds of other startups that they could meet with come across as amateurish and uninformed, and therefore not fundable, when they do take meetings with them. So you have a big opportunity to cut through the noise by making a great first impression -- which requires really thinking things through ahead of time and doing all the hard work up front to really make your pitch and plan a masterpiece.

Working backwards from that, the best thing you can walk in with is a working product. Or, if you can't get to a working product without raising venture funding, then at least a beta or prototype of some form -- a web site that works but hasn't launched, or a software mockup with partial functionality, or something. And of course it's even better if you walk in with existing "traction" of some form -- customers, beta customers, some evidence of adoption by Internet users, whatever is appropriate for your particular startup.

With a working product that could be the foundation of a fundable startup, you have a much better chance of getting funded once you do get in the door. Back to my rule of thumb from the last post: when in doubt, work on the product.

Failing a working product and ideally customers or users, be sure to have as fleshed out a presentation as you possibly can -- including mockups, screenshots, market analyses, customer research such as interviews with real prospects, and the like.

Don't bother with a long detailed written business plan. Most VCs will either fund a startup based on a fleshed out Powerpoint presentation of about 20 slides, or they won't fund it at all. Corollary: any VC who requires a long detailed written business plan is probably not the right VC to be working with.

Next: qualify, qualify, qualify. Do extensive research on venture capitalists and find the ones who focus on the sector relevant to your startup. It is completely counterproductive to everyone involved for you to pitch a health care VC on a consumer Internet startup, or vice versa. Individual VCs are usually quite focused in the kinds of companies they are looking for, and identifying those VCs and screening out all the others is absolutely key.

Now, on to developing contacts:

The best way to develop contacts with VCs, in my opinion, is to work at a venture-backed startup, kick butt, get promoted, and network the whole way.

If you can't get hired by a venture-backed startup right now, work at a well-regarded large tech company that employs a lot of people like Google or Apple, gain experience, and then go to work at a venture-backed startup, kick butt, get promoted, and network the whole way.

And if you can't get hired by a well-regarded large tech company, go get a bachelor's or master's degree at a major research university from which well-regarded large tech companies regularly recruit, then work at a well-regarded large tech company that employs a lot of people like Google or Apple, gain experience, and then go to work at a venture-backed startup, kick butt, get promoted, and network the whole way.

I sound like I'm joking, but I'm completely serious -- this is the path taken by many venture-backed entrepreneurs I know.

Some alternate techniques that don't take quite as long:

If you're still in school, immediately transfer to, or plan on going to graduate school at, a large research university with well-known connections to the venture capital community, like Stanford or MIT.

Graduate students at Stanford are directly responsible for such companies as Sun, Cisco, Yahoo, and Google, so needless to say, Silicon Valley VCs are continually on the prowl on the Stanford engineering campus for the next Jerry Yang or Larry Page.

(In contrast, the University of Illinois, where I went to school, is mostly prowled by mutant cold-weather cows.)

Alternately, jump all over Y Combinator. This program, created by entrepreneur Paul Graham and his partners, funds early-stage startups in an organized program in Silicon Valley and Boston and then makes sure the good ones get in front of venture capitalists for follow-on funding. It's a great idea and a huge opportunity for the people who participate in it.

Read VC blogs -- read them all, and read them very very carefully. VCs who blog are doing entrepreneurs a huge service both in conveying highly useful information as well as frequently putting themselves out there to be contacted by entrepreneurs in various ways including email, comments, and even uploaded podcasts. Each VC is different in terms of how she wants to engage with people online, but by all means read as many VC blogs as you can and interact with as many of them as you can in appropriate ways.

See the list of VC bloggers on my home page, as well as on the home pages of various of those bloggers.

At the very least you will start to get a really good sense of which VCs who blog are interested in which kinds of companies.

At best, a VC blogger may encourage her readers to communicate with her in various ways, including soliciting email pitches in certain startup categories of interest to her.

Fred Wilson of Union Square Ventures has even gone so far as to encourage entrepreneurs to record and upload audio pitches for new ventures so he can listen to them on his IPod. I don't know if he's still doing that, but it's worth reading his blog and finding out.

Along those lines, some VCs are aggressive early adopters of new forms of communication and interaction -- current examples being Facebook and Twitter. Observationally, when a VC is exploring a new communiation medium like Facebook or Twitter, she can be more interested in interacting with various people over that new medium than she might otherwise be. So, when such a new thing comes out -- like, hint hint, Facebook or Twitter -- jump all over it, see which VCs are using it, and interact with them that way -- sensibly, of course.

More generally, it's a good idea for entrepreneurs who are looking for funding to blog -- about their startup, about interesting things going on, about their point of view. This puts an entrepreneur in the flow of conversation, which can lead to interaction with VCs through the normal medium of blogging. And, when a VC does decide to take a look at you and your company, she can read your blog to get a sense of who you are and how you think. It's another great opportunity to put forward a fantastic first impression.

Finally, if you are a programmer, I highly encourage you, if you have time, to create or contribute to a meaningful open source project. The open source movement is an amazing opportunity for programmers all over the world to not only build useful software that lots of people can use, but also build their own reputations completely apart from whatever day jobs they happen to have. Being able to email a VC and say, "I'm the creator of open source program X which has 50,000 users worldwide, and I want to tell you about my new startup" is a lot more effective than your normal pitch.

If you engage in a set of these techniques over time, you should be able to interact with at least a few VCs in ways that they find useful and that might lead to further conversations about funding, or even introductions to other VCs.

I'm personally hoping that the next Google comes out of a VC being sent an email pitch after the entrepreneur read that VC's blog. Then every VC on the planet will suddenly start blogging, overnight.

If none of those ideas work for you:

Your alternatives in reverse (declining) order of preference for funding are, in my view: angel funding, bootstrapping via consulting contracts or early customers, keeping your day job and working on your startup in your spare time, and credit card debt.

Angel funding -- funding from individuals who like to invest small amounts of money in early-stage startups, often before VCs come in -- can be a great way to go since good angels know good VCs and will be eager to introduce you to them so that your company goes on to be successful for the angel as well as for you.

This of course begs the question of how to raise angel money, which is another topic altogether!

I am not encouraging the other three alternatives -- bootstrapping, working on it part time, or credit card debt. Each has serious problems. But, it is easy to name highly successful entrepreneurs who have followed each of those paths, so they are worth noting.

Closing link:

Finally, be sure to read this page on Sequoia Capital's web site.

Sequoia is one of the very best venture firms in the world, and has funded many companies that you have heard of including Oracle, Apple, Yahoo, and Google.

On that page, Sequoia does entrepreneurs everywhere a huge service by first listing the criteria that they look for in a startup, then the recommended structure for your pitch presentation, and then finally actually asks for pitches "over the transom".

I have not done a thorough review of other VC web sites to see who else is being this open, but for Sequoia to be offering this to the world at large is a huge opportunity for the right startup. Don't let it pass by.

[Editorial note: This will be the last VC-related post in this series for a while. From now on I plan to focus much more on how to make a startup successful.]

June 24, 2007

Film of the week: Startup.com

One astonishing documentary came out of the dot com boom and bust: Startup.com.

The story of a startup called Govworks.com founded by a former banker, Kaleil Isaza Tuzman, and a programmer, Tom Herman, it won't be giving away the story to say that Startup.com chronicles the full rise and crash of a high-profile, venture-backed Internet startup from May 1999 to December 2000.

Simultaneously poignant, funny, disturbing, and edifying, the film is now a key part of the historical record of what actually happened during that time, and required viewing for anyone who is starting a company, wants to start a company, or is even thinking that starting a company might be a fun thing to do.

Key moments to watch for: the venture capital pitch scenes in which the documentary filmmakers were not allowed to participate -- filmed hilariously from outside the VC offices; what you got when you hired a roomful of super-expensive web design consultants in that era; the filmmaker's clever demarcation of events by highlight "number of employees" at appropriate points in time; and the amazingly fast pace at which it is possible to burn through $60 million in funding (c.f. that roomful of super-expensive web design consultants) to put up a web site with which people can pay parking tickets in a few towns and cities.

Disclaimer: I met Kaleil during that time and found him to be a really nice, hard-working guy. He has since gone on to run a consulting firm that specializes in restructuring failing startups (true!).

Book of the week: The DV Rebel's Guide + Rebel Without a Crew

I'm endlessly fascinated by the film and television industries in part because the risk and uncertainty they deal with on every project makes my own industry seem sane, rational, and well-ordered.

So from time to time I'll be recommending books on film and television with the idea that if you are interested in technology and startups, you can gain a lot from thinking about how an even more extreme "wild west" business environment works.

To start, let me recommend two books and two films.

First, a brand-new book, The DV Rebel's Guide: An All-Digital Approach to Making Killer Action Movies on the Cheap. Written by an Industrial Light & Magic veteran and software developer named Stu Maschwitz, The DV Rebel's Guide is an extraordinary and extremely practical guide to literally making your own action movie with a handheld camera and a PC.

Featuring section titles such as "On Asking Permission", "Detail, Schmetail!", "Found Cranes", "God Is Your Gaffer", "Cleveland for Paris", "Digital Ordnance", "Light Fuse and Get Away", "Squib That Which Is Squibbable", "Avoid Killing Your Friends", and "What Professionals?", The DV Rebel's Guide simultaneously makes it crystal clear why a few thousand dollars and a lot of chutzpah is enough to actually shoot an interesting film, and how -- to paraphrase Marx -- the means of production are being put into the hands of everyone at an astonishing pace.

That book is blurbed by Robert Rodriguez, the now legendary director of the "Spy Kids" series, "Sin City", and half of "Grindhouse". Before he became a big-time director and hooked up with Rose McGowan, Rodriguez became famous in the film industry for shooting his own, very real action movie, El Mariachi, in 1992 for $7,000 that he raised by donating blood (true story). He wrote my second recommended book, Rebel without a Crew: Or How a 23-Year-Old Filmmaker With $7,000 Became a Hollywood Player, about that experience, and it's an exhilirating story of creation and entrepreneurship -- and really funny.

The link I've provided for El Mariachi is actually to a new edition of not only that film but also its Hollywood remake/sequel, also by Rodriguez, called Desperado. Watching the two films back to back is not only a lot of fun but shows the difference between film budgets of $7,000 and $7 million.

Films that get made for tiny amounts of money and yet get picked up by studios for distribution are rare, but they do happen. Another more recent example that is also an applied study of creativity over money is Primer, also made for $7,000 but a decade after El Mariachi, so after correcting for inflation you realize that Primer was made for even less.

June 23, 2007

Bono

From Andrew Rice's column entitled The Complicated Business of Caring About Africa in the New York Observer, June 12 2007:

I’d been living in Africa for all of five days when I had my first run-in with a celebrity. It was a good sighting: Bono himself. At the time, I was still living in a hotel, out of a suitcase filled with precautionary measures: pills for the malaria, iodine tablets for the water, tubes of bug repellent for the outdoors, a mosquito net for the indoors, a bottle of Cipro for God knows what other pathogens I might encounter in Uganda. But already, I had an inkling that maybe I’d over-prepared.

On that fifth night, I found myself sitting at the breezy, flower-bedecked outdoor bar of the hilltop Kampala Sheraton, watching the wraparound-shaded rock star share (as I recall it) bowls of chicken curry with the comedian Chris Tucker. The evening was breezy and almost impossibly comfortable, and I thought to myself: Really, this is not how Africa was advertised.

I thought about that night again recently, when I saw Bono’s face staring out at me from the cover of the latest Vanity Fair. The magazine is devoting this month’s issue to the continent of Africa, a subject it deemed best illustrated by a series of Annie Leibovitz cover portraits. There are 20 in all, depicting a wide range of famous people, three of whom are actually African. But Bono, as “guest editor,” is the issue’s undoubted star.

Africa is advertised differently now, and for that we can credit the Irish band leader’s ample conscience. Not so long ago, Americans considered the continent—when they considered it at all—one massive, undifferentiated, machete-waving war zone: a perpetual, insoluble crisis. Thanks to Bono, the new message is that people of the privileged world can, in fact, solve Africa’s problems, if only we choose to care.

It’s not that easy, of course, and the reality is that the recent surge in popular interest in Africa has coincided with a bitter debate inside the field of international development. Put simply, it is over the limits of caring. One faction, popularly associated with the Columbia University economist Jeffrey Sachs, argues that the developed world needs to provide tens of billions of dollars of additional financial aid to the world’s most impoverished nations. The other faction, led by N.Y.U.’s William Easterly, says that much of the aid we currently provide has deleterious effects, fueling corruption and undermining democracy.

It’s a difficult and morally ambiguous conflict, one that was brought up during Bono’s 2002 trip to Uganda by one of his travel companions, then–Treasury Secretary Paul O’Neill. Visiting a rural well, Mr. O’Neill asked why it’d been impossible to bring safe drinking water to all of the countryside, considering that doing so would cost a small fraction of the $300 million the World Bank had lent Uganda the year before. “Where did the money go?” he asked.

You won’t see that question addressed in Bono’s issue of Vanity Fair. There is an admiring profile of Mr. Sachs, which concludes that “if the history of international development is a history of failure, it is because too many of the people in the field are complacent, or incompetent, or not accountable.” There are many prominent mentions of Bono’s personal projects, such as the ONE Campaign, which urges nations to spend 1 percent of their budgets on poverty-eradication programs, and (Product) Red, which brands cell phones and iPods as philanthropic gestures. The editorial content bleeds unapologetically into the advertising: The red backgrounds of Ms. Leibovitz’s cover portraits echo the opening spread for the Gap’s line of red T-shirts, as well as inside ads for the (Product) Red campaign itself. “MEANING IS THE NEW LUXURY,” says one full-page ad, in stark black letters. “BE A GOOD-LOOKING SAMARITAN,” exhorts another.

In his opening essay, Bono writes that in just nine months, (Product) Red has raised around $25 million for its beneficiary, the Geneva-based Global Fund to Fight AIDS, Tuberculosis and Malaria. What he doesn’t mention is that throughout its brief existence, the Global Fund—a Sachs brainchild—has been wracked by corruption scandals. Last week, the news in Uganda was dominated by the arrests of four onetime government officials, including the powerful (and immensely wealthy) former health minister, on charges of skimming huge sums off the millions in Global Fund grants Uganda has received. And, lest we think corruption is purely an African problem, an internal audit revealed earlier this year that the British executive director of the fund, Sir Richard Feachem, was using his expense account to rent limousines and to throw expensive dinner parties. New luxury, indeed.

On a recent return visit to Uganda, where I’d lived for two years, one of the first changes I noticed was that a multistory residential building had been erected across the dirt road from the little pub I frequented. My friends told me the owner of the property worked for the health ministry. They’d nicknamed the place the “Global Fund Apartments.” We all laughed at the joke: Ugandans know that there are worse sins in this world than corruption. They’ve learned, through rough experience, to see Africa for what it is: a continent of people, not vessels for our pity. Their Africa is a vibrant, funny, human place. I wish we could separate it from this business of being inspi(red).

Quote of the week: TV ratings dropping fast

From a May 2007 Associated Press article on TV ratings:

Maybe they're outside in the garden. They could be playing softball. Or perhaps they're just plain bored.

In TV's worst spring in recent memory, a startling number of Americans drifted away from television the past two months: More than 2.5 million fewer people were watching ABC, CBS, NBC and Fox than at the same time last year, statistics show.

Everyone has a theory to explain the plummeting ratings: early Daylight Savings Time, more reruns, bad shows, more shows being recorded or downloaded or streamed.

Scariest of all for the networks, however, is the idea that many people are now making their own television schedules.

June 21, 2007

So you think you want to invest in a private equity fund

Disclaimer: this post is specific to buyout funds -- private equity funds that buy existing businesses, including public companies and divisions of existing companies, usually with leverage -- and not venture capital funds.

Introduction for the uninitiated: A private equity/buyout fund raises hundreds of millions or billions of dollars from institutional and individual investors (collectively called "Limited Partners"), to be invested by a team of investment professionals (collectively called "General Partners"), in the form of ownership stakes in existing operating businesses -- typically public companies and divisions of existing companies. Private equity funds typically use a large amount of debt in order to buy much larger companies than they could normally afford. Returns are realized only one way: by subsequently selling those same businesses -- either to the public via an IPO, or to another company via a sale. The General Partners typically take 20-30% of the investment profit plus 2-3% management fees annually, plus often additional fees, perhaps levied against their companies. After those fees, the Limited Partners still expect to generate returns well in excess of the S&P; 500 index, even though their money is locked up for as long as 10 years in the process. Lately, the amount of money flowing into private equity firms has been exploding, and certain large private equity firms have announced or are considering going public themselves.

15 questions to ask when you are thinking of investing in a private equity fund:

Your fund will use a significant amount of debt when purchasing operating businesses. Interest rates are currently quite low -- in fact, not that far off of 40 year lows, making that debt quite cheap. What happens to your model and projected investment returns if interest rates rise?

The interest rate spread between Treasury bonds and so-called "high yield" bonds is currently near all time lows. The debt that you will be using will fall into the category of "high yield". What happens to your model and projected investment returns if this spread widens?

Price/earnings multiples in the public markets for large and mid cap companies are low relative to 20-year historical norms, making them relatively cheap to buy. What happens to your model and projected investment returns if public P/E multiples expand -- from, say, the current ~16 to not unreasonable levels like 20 or 24?

What part of the excess return over the S&P; 500 index that you are expecting to generate is due to your use of leverage (debt)? Does this indicate that the public companies that you plan to buy are underleveraged? The finance theory of leverage is that a company should take on debt until its cost of that debt is greater than the returns it can generate from that debt -- what happens to your model and projected investment returns if public company shareholders and CEOs figure this out and add more debt before you are able to buy them? Further, if what you are really doing is leverage arbitrage versus the S&P; 500, why can't I just buy an S&P; 500 index position myself and leverage it up by purchasing call options and get the same result for a fraction of the fees?

What part of the excess return over the S&P; 500 index that you are expecting to generate is due to your assumption of higher levels of risk and volatility than the index? What are your internal estimates of the true risk and volatility of your investment portfolios? Will you share those internal estimates with me? If not, why not? And again, why can't I replicate a riskier S&P; 500 index myself via index funds and call options for a fraction of the fees?

What part of the excess return over the S&P; 500 index that you are expecting to generate is due to the fact that you are buying so-called "value" companies and avoiding so-called "growth" companies, thereby taking advantage of the theoretical return premium many finance professionals believe is associated with value companies? Why can't I replicate that effect myself simply by buying a value index for a fraction of the fees?

What part of the return premium that you are expecting to generate is due to the fact that you plan to lock up my money for up to 10 years, thereby extending my investment horizon to 10 years and removing from me the ordinary temptation to sell in a panic when stocks drop? Why can't I replicate that illiquidity premium by simply buying the index, or a leveraged/riskier version of the index, and not selling myself for 10 years? And if there is no illiquidity premium, why am I agreeing to have my money locked up for 10 years?

What part of the return premium that you are expecting to generate is due to the operational improvements that you are implementing in the businesses that you buy? When one of your management consultants or operating partners walks into the tire company you just bought, wearing his $3,000 Zegna suit, $400 Turnbull & Asser shirt, $80 Pantherella cashmere socks, $900 A Testoni alligator loafers, $5,000 Omega watch, $500 Gucci cufflinks, and $150 Hermes tie, what exactly is he telling the general manager of that tire company about running that business that the general manager didn't already know?

You cite high returns generated by your previous funds. Do you still have the same investment team as your previous funds? Are they still as motivated notwithstanding the fact that their net worth is probably at least several hundred million dollars apiece?

Are you still investing in the same sectors as your previous funds?

Are you still buying the same size companies as your previous funds?

There is a much larger amount of capital at work in the private equity world today than there was when you raised and ran your previous funds, and therefore significantly more competition for each deal. What impact do you think this huge influx of money and corresponding greater competition will have on your ability to generate comparable investment returns with your new fund?

Your industry is gearing up mightily to fight the proposed reclassification of so-called "carried interest" -- the 20-30% of investment profits that your General Partners get to keep -- as ordinary income rather than capital gains. The underlying logic of this fight has to be that your General Partners would not be as motivated if they were getting taxed at ordinary income rates, versus their current taxation at capital gains rates. If this proposed reclassification passes Congress and the President signs it into law, are your General Partners going to pick up their marbles and go home in protest?

Given that most of the returns in private equity historically flow to the top 10% -- or even top 10 -- firms, what basis do you have for believing that your fund will be in that top 10% -- or top 10?

Finally, given the extraordinarily high level of demand from really smart institutional and individual investors to invest in high-quality -- top 10% or top 10 -- private equity funds, why exactly am I being given the opportunity to invest in yours?

June 20, 2007

The Pmarca Guide to Big Companies, part 1: Turnaround!

So you've been hired/promoted/brought out of retirement to become CEO of and turn around your NASDAQ/NYSE/LSE-listed 5,000+ employee software/semiconductor/media company that's recently been getting trounced by competitors, brutalized by the press, and savaged in the stock market.

Here's your turnaround plan in 9 easy steps.

Step 1: Go dark and execute.

Your predecessor in the CEO job inevitably spent way too much time explaining to reporters, investors, analysts, and anyone else who would listen (that cute new Wall Street videoblogger?) why your company was actually doing just fine and how brighter times were just around the corner as your competitive position deteriorated and your financial results fell apart, and nobody believed it anyway.

Money talks, hype walks -- when you're hitting your numbers, everyone thinks you're a genius and believes everything you say, no matter how silly. When you're not hitting your numbers, everyone thinks you're a moron and won't believe anything you say, no matter how true.

So go dark, focus on the business, and don't talk publicly for at least six months.

Mark "Who?" Hurd sets the gold standard here.

Step 2: But first, throw your predecessor completely under the bus.

Can't forget this one! Tell Wall Street that your predecessor was such an incredibly dim bulb that in retrospect you can't even understand how he got past security and into the building, much less was picked to be CEO. He completely fouled the financials and sabotaged the business and as a result, earnings for the next several quarters are going to come in way below expectations.

The fun part about this one is that your stock won't even drop because everyone has already figured that out.

Step 3: Identify the 3-5 things that are working surprisingly well in your business, and double down on those.

Any big company, no matter how moribund and poorly run, has a number of products and projects that are going better than expected -- and usually come as a complete surprise.

Drawing on Peter Drucker's classic admonition to "focus on opportunities, not problems", figure out what these surprise successes are and double down on them.

Promote their general managers, elevate their business units in the organization, give them more funding, and get out of the way.

Step 4: Identify the 3-5 things that are consuming a lot of money and time and yet going nowhere, and kill those.

A good starting point is your predecessor's pet projects -- line 'em up and shoot 'em.

Frankly, they don't even have to be consuming that much money. They're almost certainly consuming time and management bandwidth, and they need to go.

You can also consider this a warmup exercise for Step 5.

Step 5: Lay off a third of the workforce.

Here's why:

History shows that you're going to have to ultimately do it anyway, either via death of a thousand cuts (or six to eight distinct rounds of layoffs), or all at once.

So do it all at once.

A company that requires a turnaround has, in all likelihood, hired too many people for the size of the business opportunity it actually has. This impairs profitability, driving away investors and submerging the stock price at precisely the time the company needs a healthy acquisition currency; this demotivates your great people by surrounding them by too many mediocre people and too much bureaucracy; and this slows everything in your company to a crawl because there are simply too many people running around who have to talk about everything before anything gets done.

Grit your teeth, offer the most generous severance and assistance packages you possibly can, and get it done.

Your ability to continue to employ the other two-thirds of your people is at stake.

Step 6: Reduce layers, then promote up and comers and put them clearly in charge.

A company that requires a turnaround has, in all likelihood, too many layers of management. Nuke as many of them as you can.

Then develop a list of your top 20 or 30 up and comers -- strong, sharp, aggressive, ambitious director- or VP-level managers who want to succeed and want your company to succeed. And promote them, and put them in sole charge of clearly identified teams and missions. (And give them big ol' fresh option packages.)

As CEO, you should only have at most one executive between you and these 20 or 30 up and comers once you are done promoting them and putting them in charge of their teams and missions.

If you don't know who those top 20 or 30 up and comers are, if you don't promote them, if you don't put them clearly in charge of the things that matter, or if you have more than one layer of management between you and them when you're done, you're probably doomed.

Step 7: Figure out the single most important thing your company has to win at, and put your single best person in charge of winning at it.

'Nuff said.

Step 8: Look at the market, figure out 3-5 new areas in which your company is not currently playing or winning, but are clearly going to grow a lot -- and acquire the best company in each of those areas.

Here you're looking for growth -- for products, trends, perhaps phenomena outside but adjacent to your current products and markets, that are going to grow a lot in the next few years.

You have to acquire, because if you're in a turnaround situation, you aren't going to have the time or bandwidth to build them in-house -- unless you're the very rare exception.

When you do acquire, you're going to have to pay up, because new things that are growing really fast in growth markets are always expensive -- whether private or public -- especially compared to the PE multiple of a big company in turnaround.

So here's hoping you did a great job at Step 5.

Step 9: In six months, relaunch the company with a single, crisp, coherent message and strategy.

Then go dark again and go right back to work.

Of course, there's more to being the CEO of a turnaround than these 9 steps. There are a thousand other things you're going to have to do. But these are the 9 most important.

To quote the great Tommy Lasorda: "This fucking job ain't that fucking easy."

Appendix for media companies only:

Step 10: For God's sake, stop suing your customers.

The Pmarca Guide to Startups, part 2: When the VCs say "no"

This post is about what to do between when the VCs say "no" to funding your startup, and when you either change their minds or find some other path.

I'm going to assume that you've done all the basics: developed a plan and a pitch, decided that venture financing is right for you and you are right for venture financing, lined up meetings with properly qualified VCs, and made your pitch.

And the answer has come back and it's "no".

One "no" doesn't mean anything -- the VC could just be having a bad day, or she had a bad experience with another company in your category, or she had a bad experience with another company with a similar name, or she had a bad experience with another founder who kind of looks like you, or her Mercedes SLR McLaren's engine could have blown up on the freeway that morning -- it could be anything. Go meet with more VCs.

If you meet with three VCs and they all say "no", it could just be a big coincidence. Go meet with more VCs.

If you meet with five, or six, or eight VCs and they all say no, it's not a coincidence.

There is something wrong with your plan.

Or, even if there isn't, there might as well be, because you're still not getting funded.

Meeting with more VCs after a bunch have said no is probably a waste of time. Instead, retool your plan -- which is what this post is about.

But first, lay the groundwork to go back in later.

It's an old -- and true -- cliche that VCs rarely actually say "no" -- more often they say "maybe", or "not right now", or "my partners aren't sure", or "that's interesting, let me think about it".

They do that because they don't want to invest in your company given the current facts, but they want to keep the door open in case the facts change.

And that's exactly what you want -- you want to be able to go back to them with a new set of facts, and change their minds, and get to "yes".

So be sure to take "no" gracefully -- politely ask them for feedback (which they probably won't give you, at least not completely honestly -- nobody likes calling someone else's baby ugly -- believe me, I've done it), thank them for their time, and ask if you can call them again if things change.

Trust me -- they'd much rather be saying "yes" than "no" -- they need all the good investments they can get.

Second, consider the environment.

Being told "no" by VCs in 1999 is a lot different than being told "no" in 2002.

If you were told "no" in 1999, I'm sure you're a wonderful person and you have huge potential and your mother loves you very much, but your plan really was seriously flawed.

If you were told "no" in 2002, you probably actually were the next Google, but most of the VCs were hiding under their desks and they just missed it.

In my opinion, we're now in a much more rational environment than either of those extremes -- a lot of good plans are being funded, along with some bad ones, but not all the bad ones.

I'll proceed under the assumption that we're in normal times. But if things get truly euphoric or truly funereal again, the rest of this post will probably not be very helpful -- in either case.

Third, retool your plan.

This is the hard part -- changing the facts of your plan and what you are trying to do, to make your company more fundable.

To describe the dimensions that you should consider as you contemplate retooling your plan, let me introduce the onion theory of risk.

If you're an investor, you look at the risk around an investment as if it's an onion. Just like you peel an onion and remove each layer in turn, risk in a startup investment comes in layers that get peeled away -- reduced -- one by one.

Your challenge as an entrepreneur trying to raise venture capital is to keep peeling layers of risk off of your particular onion until the VCs say "yes" -- until the risk in your startup is reduced to the point where investing in your startup doesn't look terrifying and merely looks risky.

What are the layers of risk for a high-tech startup?

It depends on the startup, but here are some of the common ones:

Founder risk -- does the startup have the right founding team? A common founding team might include a great technologist, plus someone who can run the company, at least to start. Is the technologist really all that? Is the business person capable of running the company? Is the business person missing from the team altogether? Is it a business person or business people with no technologist, and therefore virtually unfundable?

Market risk -- is there a market for the product (using the term product and service interchangeably)? Will anyone want it? Will they pay for it? How much will they pay? How do we know?

Competition risk -- are there too many other startups already doing this? Is this startup sufficiently differentiated from the other startups, and also differentiated from any large incumbents?

Timing risk -- is it too early? Is it too late?

Financing risk -- after we invest in this round, how many additional rounds of financing will be required for the company to become profitable, and what will the dollar total be? How certain are we about these estimates? How do we know?

Marketing risk -- will this startup be able to cut through the noise? How much will marketing cost? Do the economics of customer acquisition -- the cost to acquire a customer, and the revenue that customer will generate -- work?

Distribution risk -- does this startup need certain distribution partners to succeed? Will it be able to get them? How? (For example, this is a common problem with mobile startups that need deals with major mobile carriers to succeed.)

Technology risk -- can the product be built? Does it involve rocket science -- or an equivalent, like artificial intelligence or natural language processing? Are there fundamental breakthroughs that need to happen? If so, how certain are we that they will happen, or that this team will be able to make them?

Product risk -- even assuming the product can in theory be built, can this team build it?

Hiring risk -- what positions does the startup need to hire for in order to execute its plan? E.g. a startup planning to build a high-scale web service will need a VP of Operations -- will the founding team be able to hire a good one?

Location risk -- where is the startup located? Can it hire the right talent in that location? And will I as the VC need to drive more than 20 minutes in my Mercedes SLR McLaren to get there?

You know, when you stack up all these layers and look at the full onion, you realize it's amazing that any venture investments ever get made.

What you need to do is take a hard-headed look at each of these risks -- and any others that are specific to your startup and its category -- and put yourself in the VC's shoes: what could this startup do to minimize or eliminate enough of these risks to make the company fundable?

Then do those things.

This isn't very much fun, since it will probably involve making significant changes to your plan, but look on the bright side: it's excellent practice for when your company ultimately goes public and has to file an S1 registration statement with the SEC, in which you have to itemize in huge detail every conceivable risk and bad thing that could ever possibly happen to you, up to and including global warming.

Some ideas on reducing risk:

Founder risk -- the tough one. If you're the technologist on a founding team with a business person, you have to consider the possibility that the VCs don't think the business person is strong enough to be the founding CEO. Or vice versa, maybe they think the technologist isn't strong enough to build the product. You may have to swap out one or more founders, and/or add one or more founders.

I put this one right up front because it can be a huge issue and the odds of someone being honest with you about it in the specific are not that high.

Market risk -- you probably need to validate the market, at a practical level. Sometimes more detailed and analytical market research will solve the problem, but more often you actually need to go get some customers to demonstrate that the market exists. Preferably, paying customers. Or at least credible prospects who will talk to VCs to validate the market hypothesis.

Competition risk -- is your differentiation really sharp enough? Rethink this one from the ground up. Lots of startups do not have strong enough differentiation out of the gate, even after they get funded. If you don't have a really solid idea as to how you're dramatically different from or advantaged over known and unknown competitors, you might not want to start a company in the first place.

Two additional points on competition risk that founders routinely screw up in VC pitches:

Never, ever say that you have no competitors. That signals naivete. Great markets draw competitors, and so if you really have no competition, you must not be in a great market. Even if you really believe you have no competitors, create a competitive landscape slide with adjacent companies in related market segments and be ready to talk crisply about how you are like and unlike those adjacent companies.

And never, ever say your market projections indicate you're going to be hugely successful if you get only 2% of your (extremely large) market. That also signals naivete. If you're going after 2% of a large market, that means the presumably larger companies that are going to take the other 98% are going to kill you. You have to have a theory for how you're going to get a significantly higher market share than 2%. (I pick 2% because that's the cliche, but if you're a VC, you've probably heard someone use it.)

Timing risk -- the only thing to do here is to make more progress, and demonstrate that you're not too early or too late. Getting customers in the bag is the most valuable thing you can do on this one.

Financing risk -- rethink very carefully how much money you will need to raise after this round of financing, and try to change the plan in plausible ways to require less money. For example, only serve Cristal at your launch party, and not Remy Martin "Black Pearl" Louis XIII cognac.

Marketing risk -- first, make sure your differentiation is super-sharp, because without that, you probably won't be able to stand out from the noise.

Then, model out your customer acquisition economics in detail and make sure that you can show how you'll get more revenue from a customer than it will cost in sales and marketing expense to acquire that customer. This is a common problem for startups pursuing the small business market, for example.

If it turns out you need a lot of money in absolute terms for marketing, look for alternate approaches -- perhaps guerilla marketing, or some form of virality.

Distribution risk -- this is a very tough one -- if your plan has distribution risk, which is to say you need a key distribution partner to make it work, personally I'd recommend shelving the plan and doing something else. Otherwise, you may need to go get the distribution deal before you can raise money, which is almost impossible.

Technology risk -- there's only one way around this, which is to build the product, or at least get it to beta, and then raise money.

Product risk -- same answer -- build it.

Hiring risk -- the best way to address this is to figure out which position/positions the VCs are worried about, and add it/them to the founding team. This will mean additional dilution for you, but it's probably the only way to solve the problem.

Location risk -- this is the one you're really not going to like. If you're not in a major center of entrepreneurialism and you're having trouble raising money, you probably need to move. There's a reason why most films get made in Los Angeles, and there's a reason most venture-backed US tech startups happen in Silicon Valley and handful of other places -- that's where the money is. You can start a company wherever you want, but you may not be able to get it funded there.

You'll notice that a lot of what you may need to do is kick the ball further down the road -- make more progress against your plan before you raise venture capital.

This obviously raises the issue of how you're supposed to do that before you've raised money.

Try to raise angel money, or bootstrap off of initial customers or consulting contracts, or work on it after hours while keeping your current job, or quit your job and live off of credit cards for a while.

Lots of entrepreneurs have done these things and succeeded -- and of course, many have failed.

Nobody said this would be easy.

The most valuable thing you can do is actually build your product. When in doubt, focus on that.

The next most valuable thing you can do is get customers -- or, for a consumer Internet service, establish a pattern of page view growth.

The whole theory of venture capital is that VCs are investing in risk -- another term for venture capital is "risk capital" -- but the reality is that VCs will only take on so much risk, and the best thing you can do to optimize your chances of raising money is to take out risk.

Peel away at the onion.

Then, once you've done that, recraft the pitch around the new facts. Go do the pitches again. And repeat as necessary.

And to end on a happy note, remember that "yes" can turn into "no" at any point up until the cash hits your company's bank account.

So keep your options open all the way to the end.

June 19, 2007

Paper of the week: the inside story of the Soviet Union's collapse

Executive summary: it's the economy, stupid.

This one is truly extraordinary. Yegor Gaidar, Russian economist and market reformer, former acting Prime Minister of Russia, former Russian economic minister, and possible Putin poisoning victim, has written a book about the collapse of the Soviet economy in the 1980's that has been extracted into this astonishing paper.

Some choice extracts:

In a simplified way, the story of the collapse of the Soviet Union could be told as a story about grain and oil. As for the grain, the turning point that decided the fate of the Soviet Union began with the economic debate of 1928-29, when the discussion centered on what would later be called the "Chinese path" of development... At the time, the head of the Soviet government, Aleksei Rykov, and the chief ideologist of the Communist Party, Nikolai Bukharin, earnestly defended the idea of a path which included preserving private agriculture and the market, and ensuring financial stability -- but holding onto the party's political control.

The Soviet leadership ultimately chose another path. The solution preferred by Joseph Stalin was the expropriation of peasants' property, forced collectivization, and extraction of grain. Judging from the available documents, the essence of this decision was relatively simple. Bukharin and Rykov essentially told Stalin: "In a peasant country, it is impossible to extract grain by force. There will be civil war." Stalin answered, "I will do it nonetheless."

The result of the disastrous agriculture policy implemented between the late 1920s and the early 1950s was the sharpest fall of productivity experienced by a major country in the twentieth century. The key problem confronting the Soviet Union was well-expressed in the letter sent by Nikita Khrushchev to his colleagues in the leadership of the party. The letter fundamentally stated: "In the last fifteen years, we have not increased the collection of grain. Meanwhile, we are experiencing a radical increase of urban population. How can we resolve this problem?" ...

In 1963, Nikita Khrushchev sent a letter to the leaders of the Socialist bloc, informing them that the Soviet Union would no longer be able to supply them with grain. That year, the Soviet state bought 12 million tons of grain--and spent one third of the country's gold reserves to do so. Khrushchev commented: "Soviet power cannot tolerate any more the shame that we had to endure." ...

"[S]ocialist industrialization" had resulted in the Soviet industry being unable to sell any processed (value-added) products. Nikolai Ryzhkov, chairman of the USSR Council of Ministers, expressed the sentiment clearly at another meeting of the Soviet leadership: "No one will take our machinery production. That is why we are exporting mainly raw materials." ...

The Soviet economy thus hinged on its ability to produce and export raw commodities--namely, oil and gas. The Soviet leadership was extremely fortunate: at almost exactly the time when serious problems with the import of grain emerged, rich oil fields were discovered in the Tyumen region of Western Siberia. ...

The Soviet premier, Aleksey Kosygin, used to call the chief of the Tyumenneftegaz, Viktor Muravlenko, and explain the desperation of the situation: "Dai tri milliona ton sverkh plana. S khlebushkom sovsem plokho." [Please give three million tons above the planning level. The situation with the bread is awful.] ...

The shortest quotation about the intellectual capacity of the Soviet leadership came from the Politburo minutes: "Mr. Zasiadko has stopped binge drinking. Resolution: nominate Mr. Zasiadko as a minister to Ukraine." ...

[O]ne of the Soviet leadership's biggest blunders was to spend a significant amount of additional oil revenues to start the war in Afghanistan. The war radically changed the geopolitical situation in the Middle East. In 1974, Saudi Arabia decided to impose an embargo on oil supplies to the United States [dramatically raising the price of oil]. But in 1979 the Saudis became interested in American protection because they understood that the Soviet invasion of Afghanistan was a first step toward -- or at least an attempt to gain -- control over the Middle Eastern oil fields.

The timeline of the collapse of the Soviet Union can be traced to September 13, 1985. On this date, Sheikh Ahmed Zaki Yamani, the minister of oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically. The Saudis stopped protecting oil prices, and Saudi Arabia quickly regained its share in the world market. During the next six months, oil production in Saudi Arabia increased fourfold, while oil prices collapsed by approximately the same amount in real terms.

As a result, the Soviet Union lost approximately $20 billion per year, money without which the country simply could not survive. ...

In 1985 the idea that the Soviet Union would begin bargaining for money in exchange for political concessions would have sounded absolutely preposterous to the Soviet leadership. In 1989 it became a reality, and Gorbachev understood the need for at least $100 billion from the West to prop up the oil-dependent Soviet economy. ...

The only option left for the Soviet elites was to begin immediate negotiations about the conditions of surrender. Gorbachev did not have to inform President George H. W. Bush at the Malta Summit in 1989 that the threat of force to support the communist regimes in Eastern Europe would not be employed. This was already evident at the time. Six weeks after the talks, no communist regime in Eastern Europe remained.

Of course, the West was still careful about directly supporting independence movements inside the Soviet Union. When the Lithuanian authorities approached the American embassy in Moscow to ask whether the United States would lend support to the independence of Lithuania, the immediate response was negative. When the Soviet Union tried to use force to reestablish control in Baltic states in January 1991, however, the reaction from the West -- including from the United States -- was fairly straightforward: "Do as you wish, this is your country. You can choose any solution, but please forget about the $100 billion credit." ...

On August 22, 1991, the story of the Soviet Union came to an end... The document which effectively concluded the history of the Soviet Union was a letter from the Vneshekonombank in November 1991 to the Soviet leadership, informing them that the Soviet state had not a cent in its coffers.

Bono

From an October 2006 article in Bloomberg:

Bono, the rock star and campaigner against Third World debt, is asking the Irish government to contribute more to Africa. At the same time, he's reducing tax payments that could help fund that aid.

After Ireland said it would scrap a break that lets musicians and artists avoid paying taxes on royalties, Bono and his U2 bandmates earlier this year moved their music publishing company to the Netherlands. The Dublin group, which Forbes estimates earned $110 million in 2005, will pay about 5 percent tax on their royalties, less than half the Irish rate...

Lead guitarist David Evans, known as The Edge, earlier this month defended the publishing company's move as a sensible decision for a group that makes 90 percent of its money outside Ireland.

"Our business is a very complex business," Evans said Oct. 2 on Dublin radio station Newstalk, breaking the band's silence after weeks of public criticism. "Of course we're trying to be tax-efficient. Who doesn't want to be tax-efficient?"

Bono, 46, has toured Africa, established the pressure group Debt AIDS Trade Africa and become one of the most vocal supporters of the Make Poverty History campaign. In July 2005, he helped persuade world leaders to double aid for Africa to $50 billion a year by 2010 and erase the debt of the 18 poorest countries on the continent...

At a concert last year in Croke Park, Dublin's biggest stadium, Bono appealed to Prime Minister Bertie Ahern to raise overseas aid to 0.7 percent of gross national product by 2007 from 0.5 percent now. The crowd responded by booing Ahern.

The political catcalls have now turned on Bono, whose real name is Paul Hewson.

"It seems odd, in a situation where they enjoy an already favorable tax regime, they would move operations to the Netherlands to get an even more favorable rate," said Joan Burton, finance spokeswoman for the opposition Labour Party...

Wealthy individuals have put about $11.5 trillion in tax havens around the world, according to a 2005 paper by the London- based Tax Justice Network. Unpaid taxes on those assets could amount to $255 billion, the paper said.

"That's five times the amount needed to achieve the Millennium Development Goals, which Bono says he's really interested in," [Richard Murphy, a director at U.K.-based Tax Research Ltd.] said, referring to a United Nations plan to eradicate poverty and combat the spread of AIDS. "My answer is, put your money where your mouth is."

From an October 2006 column by Nick Cohen in the UK Observer:

What is surprising is that the rest of the world continues to take Bono seriously. I would have thought that after the revelation that U2 moved their music publishing company to the Netherlands to cut their tax bill in half, he wouldn't have dared stepped out of his mansion for fear of being laughed to scorn.

Here was a man who incited audiences to condemn Western politicians for not sending enough of their taxpayers' money to the wretched of the earth, avoiding tax himself. The Edge, U2's guitarist, sounded as edgy as a plump accountant in the 19th hole when he explained the move offshore by saying: "Our business is a very complex business. Of course we're trying to be tax-efficient. Who doesn't want to be tax-efficient?"

The practical consequences of being "tax-efficient" are many. If you say you care about Africa, why are you paying fees to international money movers who encourage Africa's "tax-efficient" kleptomaniacs to hide their loot in tax havens? You are also forcing fellow citizens, who didn't make U2's estimated $110m in 2005, to pick up the bill, not only for foreign aid, but for education, health, law and order and defence.

And all the time while others suffer on your behalf, you maintain that you are behaving reasonably.

June 18, 2007

The Pmarca Guide to Startups, part 1: Why not to do a startup

In this series of posts I will walk through some of my accumulated knowledge and experience in building high-tech startups.

My specific experience is from three companies I have co-founded: Netscape, sold to America Online in 1998 for $4.2 billion; Opsware (formerly Loudcloud), a public software company with an approximately $1 billion market cap; and now Ning, a new, private consumer Internet company.

But more generally, I've been fortunate enough to be involved in and exposed to a broad range of other startups -- maybe 40 or 50 in enough detail to know what I'm talking about -- since arriving in Silicon Valley in 1994: as a board member, as an angel investor, as an advisor, as a friend of various founders, and as a participant in various venture capital funds.

This series will focus on lessons learned from this entire cross-section of Silicon Valley startups -- so don't think that anything I am talking about is referring to one of my own companies: most likely when I talk about a scenario I have seen or something I have experienced, it is from some other startup that I am not naming but was involved with some other way than as a founder.

Finally, much of my perspective is based on Silicon Valley and the environment that we have here -- the culture, the people, the venture capital base, and so on. Some of it will travel well to other regions and countries, some probably will not. Caveat emptor.

With all that out of the way, let's start at the beginning: why not to do a startup.

Startups, even in the wake of the crash of 2000, have become imbued with a real mystique -- you read a lot about how great it is to do a startup, how much fun it is, what with the getting to invent the future, all the free meals, foosball tables, and all the rest.

Now, it is true that there are a lot of great things about doing a startup. They include, in my experience:

Most fundamentally, the opportunity to be in control of your own destiny -- you get to succeed or fail on your own, and you don't have some bozo telling you what to do. For a certain kind of personality, this alone is reason enough to do a startup.

The opportunity to create something new -- the proverbial blank sheet of paper. You have the ability -- actually, the obligation -- to imagine a product that does not yet exist and bring it into existence, without any of the constraints normally faced by larger companies.

The opportunity to have an impact on the world -- to give people a new way to communicate, a new way to share information, a new way to work together, or anything else you can think of that would make the world a better place. Think it should be easier for low-income people to borrow money? Start Prosper. Think television should be opened up to an infinite number of channels? Start Joost. Think that computers should be based on Unix and open standards and not proprietary technology? Start Sun.

The ability to create your ideal culture and work with a dream team of people you get to assemble yourself. Want your culture to be based on people who have fun every day and enjoy working together? Or, are hyper-competitive both in work and play? Or, are super-focused on creating innovative new rocket science technologies? Or, are global in perspective from day one? You get to choose, and to build your culture and team to suit.

And finally, money -- startups done right can of course be highly lucrative. This is not just an issue of personal greed -- when things go right, your team and employees will themselves do very well and will be able to support their families, send their kids to college, and realize their dreams, and that's really cool. And if you're really lucky, you as the entrepreneur can ultimately make profound philanthropic gifts that change society for the better.

However, there are many more reasons to not do a startup.

First, and most importantly, realize that a startup puts you on an emotional rollercoaster unlike anything you have ever experienced.

You will flip rapidly from a day in which you are euphorically convinced you are going to own the world, to a day in which doom seems only weeks away and you feel completely ruined, and back again.

Over and over and over.

And I'm talking about what happens to stable entrepreneurs.

There is so much uncertainty and so much risk around practically everything you are doing. Will the product ship on time? Will it be fast enough? Will it have too many bugs? Will it be easy to use? Will anyone use it? Will your competitor beat you to market? Will you get any press coverage? Will anyone invest in the company? Will that key new engineer join? Will your key user interface designer quit and go to Google? And on and on and on...

Some days things will go really well and some things will go really poorly. And the level of stress that you're under generally will magnify those transient data points into incredible highs and unbelievable lows at whiplash speed and huge magnitude.

Sound like fun?

Second, in a startup, absolutely nothing happens unless you make it happen.

This one throws both founders and employees new to startups.

In an established company -- no matter how poorly run or demoralized -- things happen. They just happen. People come in to work. Code gets written. User interfaces get designed. Servers get provisioned. Markets get analyzed. Pricing gets studied and determined. Sales calls get made. The wastebaskets get emptied. And so on.

A startup has none of the established systems, rhythms, infrastructure that any established company has.

In a startup it is very easy for the code to not get written, for the user interfaces to not get designed... for people to not come into work... and for the wastebaskets to not get emptied.

You as the founder have to put all of these systems and routines and habits in place and get everyone actually rowing -- forget even about rowing in the right direction: just rowing at all is hard enough at the start.

And until you do, absolutely nothing happens.

Unless, of course, you do it yourself.

Have fun emptying those wastebaskets.

Third, you get told no -- a lot.

Unless you've spent time in sales, you are probably not familiar with being told no a lot.

It's not so much fun.

Go watch Death of a Salesman and then Glengarry Glen Ross.

That's roughly what it's like.

You're going to get told no by potential employees, potential investors, potential customers, potential partners, reporters, analysts...

Over and over and over.

And when you do get a "yes", half the time you'll get a call two days later and it'll turn out the answer has morphed into "no".

Better start working on your fake smile.

Fourth, hiring is a huge pain in the ass.

You will be amazed how many windowshoppers you'll deal with.

A lot of people think they want to be part of a startup, but when the time comes to leave their cushy job at HP or Apple, they flinch -- and stay.

Going through the recruiting process and being seduced by a startup is heady stuff for your typical engineer or midlevel manager at a big company -- you get to participate vicariously in the thrill of a startup without actually having to join or do any of the hard work.

As a founder of a startup trying to hire your team, you'll run into this again and again.

When Jim Clark decided to start a new company in 1994, I was one of about a dozen people at various Silicon Valley companies he was talking to about joining him in what became Netscape.

I was the only one who went all the way to saying "yes" (largely because I was 22 and had no reason not to do it).

The rest flinched and didn't do it.

And this was Jim Clark, a legend in the industry who was coming off of the most successful company in Silicon Valley in 1994 -- Silicon Graphics Inc.

How easy do you think it's going to be for you?

Then, once you do get through the windowshoppers and actually hire some people, your success rate on hiring is probably not going to be higher than 50%, and that's if you're good at it.

By that I mean that half or more of the people you hire aren't going to work out. They're going to be too lazy, too slow, easily rattled, political, bipolar, or psychotic.

And then you have to either live with them, or fire them.

Which ones of those sounds like fun?

Fifth, God help you, at some point you're going to have to hire executives.

You think hiring employees is hard and risky -- wait until you start hiring for VP Engineering, VP Marketing, VP Sales, VP HR, General Counsel, and CFO.

Sixth, the hours.

There's been a lot of talk in Silicon Valley lately about work/life balance -- about how you should be able to do a startup and simultaneously live a full and fulfilling outside life.

Now, personally, I have a lot of sympathy for that point of view.

And I try hard in my companies (well, at least my last two companies) to do whatever I can to help make sure that people aren't ground down to little tiny spots on the floor by the workload and the hours.

But, it's really difficult.

The fact is that startups are incredibly intense experiences and take a lot out of people in the best of circumstances.

And just because you want people to have work/life balance, it's not so easy when you're close to running out of cash, your product hasn't shipped yet, your VC is mad at you, and your Kleiner Perkins-backed competitor in Menlo Park -- you know, the one whose employees' average age seems to be about 19 -- is kicking your butt.

Which is what it's going to be like most of the time.

And even if you can help your employees have proper work/life balance, as a founder you certainly won't.

(In case you were wondering, by the way, the hours do compound the stress.)

Seventh, it's really easy for the culture of a startup to go sideways.

This combines the first and second items above.

This is the emotional rollercoaster wreaking havoc on not just you but your whole company.

It takes time for the culture of any company to become "set" -- for the team of people who have come together for the first time to decide collectively what they're all about, what they value -- and how they look at challenge and adversity.

In the best case, you get an amazing dynamic of people really pulling together, supporting one another, and working their collective tails off in pursuit of a dream.

In the worst case, you end up with widespread, self-reinforcing bitterness, disillusionment, cynicism, bad morale, contempt for management, and depression.

And you as the founder have much less influence over this than you'll think you do.

Guess which way it usually goes.

Eighth, there are lots of X factors that can come along and whup you right upside the head, and there's absolutely nothing you can do about them.

Stock market crashes.

Terrorist attacks.

Natural disasters.

A better funded startup with a more experienced team that's been hard at work longer than you have, in stealth mode, that unexpectedly releases a product that swiftly comes to dominate your market, completely closing off your opportunity, and you had no idea they were even working on it.

At best, any given X factor might slam shut the fundraising window, cause customers to delay or cancel purchases -- or, at worst, shut down your whole company.

Russian mobsters laundering millions of dollars of dirty money through your service, resulting in the credit card companies closing you down.

You think I'm joking about that one?

OK, now here's the best part:

I haven't even talked about figuring out what product to build, building it, taking it to market, and standing out from the crowd.

All the risks in the core activities of what your company actually does are yet to come, and to be discussed in future posts in this series.

Closing metaphor:


Quote of the week: Steve Ballmer

Microsoft CEO Steve Ballmer, interviewed by Walt Mossberg, at the D Conference, May 31 2007:

Ballmer: “Don’t think the early days of Microsoft, when I joined, were so great. We didn’t have great agility.”

Mossberg: “What, it was small but ossified?”

Ballmer: “The people we had weren’t as good — they just weren’t pushing as much.”

Mossberg: “Like Paul Allen?”

Ballmer: “Paul was good. Bill was good. Four out of 30 were good — and believe me, the rest are gone.”



Music of the week: Re-Foc by Rodrigo y Gabriela

This is one of those albums that you'll listen to over and over again, and it'll always put you in a good mood: Re-Foc by a Mexican guitar duo named Rodrigo y Gabriela.

The music is instrumental acoustic guitar, but it's suffused with energy and drive -- it will definitely wake you up. It's heavy on rhythm and percussion -- sometimes it sounds like an army of guitarists coming at you through the speakers. Blending Latin harmonies and rhythms, rock and metal, flamenco, and world influences, you've never heard anything quite like it but you'll want more of it once you do.

Once you listen to Re-Foc, get their two other albums: Rodrigo y Gabriela, their self-titled and most recent release, and Live: Manchester and Dublin, which isn't easy to get in the US but is also great.

Here's the duo shredding on Letterman from last year:

As you watch that, bear in mind that these two were Dublin street musicians (!) from 1999 to 2003.

June 17, 2007

Film of the week: Infernal Affairs

As you are probably aware, The Departed is one of the giddiest fun films of the decade -- a hard-boiled joyride through Boston gangsters, cops, moles, deception, double-crossing, and betrayal -- and well deserving of its Best Picture Oscar.

What you may not be aware of is that The Departed is an almost scene-for-scene remake of an astonishing 2002 Hong Kong film: Infernal Affairs.

Why watch Infernal Affairs if you've already seen The Departed? Well, Infernal Affairs has a rhythm and energy that immerses you in the underworld of the Hong Kong triads that if anything makes it more of a sensual thrill ride than its US remake. If you're already familiar with Hong Kong films then you'll know what I mean -- if not, just take my word for it, you'll love it.

It's also amazing to watch the Hong Kong actors do such an outstanding job in the roles that have subsequently come to be identified with Jack Nicholson, Leo DiCaprio, Matt Damon, et al four years later.

Now, some of you who don't normally watch foreign films will be thinking, first, I don't like subtitles, and second, it must be a substandard production compared to the American version simply based on budget if nothing else. To which I respond: you get used to the subtitles in about two minutes -- and as with the best of Hong Kong cinema, the production values are just fine -- the film is hypermodern in appearance and feel, almost Blade Runner-ish in atmosphere.

Finally, if you really like this kind of thing, go ahead and spring for The Infernal Affairs Trilogy boxed set -- they made two sequels/prequels to the original and they both continue the same themes and characters.

How to effortlessly inject your content into Facebook, using Ning

In a previous post I discussed Facebook's new platform approach, and described it as a turbocharged way to inject new content and features into Facebook from external services.

And I described at length some of the complexities involved in doing so, including scaling.

Tonight, my own company, Ning, released a new service that makes it trivially easy to inject your content -- videos, photos, and music -- into Facebook in such a way that:

  • Facebook users can add your content to their profile pages with one click.
  • Your content can then spread virally throughout the Facebook user base, and beyond.
  • Your content is branded with your name and/or logo, and that branding persists no matter where your content goes, on or off Facebook. Users who click on your name/logo go to the home of your content, not some other service.
  • You barely have to do anything -- everything happens automatically, and everything is run from our servers, so you don't need to worry about performance or scaling even when lots of people are looking at your content.

Enough with the bullet points -- here's a screencast:

Missing screencast here!

In a nutshell, it works like this:

  • Create a social network for the topic of your choice on Ning -- it's fast, easy, and free, and other people have already done it more than 65,000 times. This gives you a space in which you can upload your content -- videos, photos, and music.
  • Upload away.
  • Activate our automatic Facebook support as shown in the screencast -- here's a full-screen version of that same screencast to make it really easy to follow along. (Once you have a social network on Ning, activation of this feature happens from the Facebook Promotion link from your Manage tab.)

That's it -- your videos, photos, and music can now be introduced into Facebook by any user and spread throughout Facebook and beyond.

As far as we're aware, this is the first time anyone can create an application on Facebook without knowing any code or setting up an application on your own servers -- and really shows off the flexibility of the Ning platform.

Let's see it in action -- here's what a social network on Ning looks like, in this case a Smashing Pumpkins fans social network called Pumpkins Central. You'll see that this social network includes video that a user has uploaded.

Here's how a user adds that video to her Facebook page -- this should look familiar, this is just how users add any application on Facebook today:

And here's a user's Facebook page with that video embedded -- notice that the Pumpkins Central branding is maintained:

When the user -- Kyle in this case -- clicks on the Pumpkins Central logo in the video player, he will go to the origin page for the video on the Pumpkins Central social network -- not some other random place.

A live example: assuming you already have a Facebook account, go here to add a photo slideshow from Kyle Ford, a product manager at Ning.

Check it out, and if you have any questions or issues, please join us at the Ning Network Creators social network or visit Ning Help.

Other links on this topic:

June 16, 2007

Bono

From an interview in Der Spiegel, the German news magazine, in 2005:

The Kenyan economics expert James Shikwati, 35, says that aid to Africa does more harm than good. The avid proponent of globalization spoke with SPIEGEL about the disastrous effects of Western development policy in Africa, corrupt rulers, and the tendency to overstate the AIDS problem.

SPIEGEL: Mr. Shikwati, the G8 summit at Gleneagles is about to beef up the development aid for Africa...

Shikwati: ... for God's sake, please just stop.

SPIEGEL: Stop? The industrialized nations of the West want to eliminate hunger and poverty.

Shikwati: Such intentions have been damaging our continent for the past 40 years. If the industrial nations really want to help the Africans, they should finally terminate this awful aid. The countries that have collected the most development aid are also the ones that are in the worst shape. Despite the billions that have poured in to Africa, the continent remains poor.

SPIEGEL: Do you have an explanation for this paradox?

Shikwati: Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, Africans are taught to be beggars and not to be independent. In addition, development aid weakens the local markets everywhere and dampens the spirit of entrepreneurship that we so desperately need. As absurd as it may sound: Development aid is one of the reasons for Africa's problems. If the West were to cancel these payments, normal Africans wouldn't even notice. Only the functionaries would be hard hit. Which is why they maintain that the world would stop turning without this development aid.

SPIEGEL: Even in a country like Kenya, people are starving to death each year. Someone has got to help them.

Shikwati: But it has to be the Kenyans themselves who help these people. When there's a drought in a region of Kenya, our corrupt politicians reflexively cry out for more help. This call then reaches the United Nations World Food Program -- which is a massive agency of apparatchiks who are in the absurd situation of, on the one hand, being dedicated to the fight against hunger while, on the other hand, being faced with unemployment were hunger actually eliminated. It's only natural that they willingly accept the plea for more help. And it's not uncommon that they demand a little more money than the respective African government originally requested. They then forward that request to their headquarters, and before long, several thousands tons of corn are shipped to Africa ...

SPIEGEL: ... corn that predominantly comes from highly-subsidized European and American farmers ...

Shikwati: ... and at some point, this corn ends up in the harbor of Mombasa. A portion of the corn often goes directly into the hands of unsrupulous politicians who then pass it on to their own tribe to boost their next election campaign. Another portion of the shipment ends up on the black market where the corn is dumped at extremely low prices. Local farmers may as well put down their hoes right away; no one can compete with the UN's World Food Program. And because the farmers go under in the face of this pressure, Kenya would have no reserves to draw on if there actually were a famine next year. It's a simple but fatal cycle.

SPIEGEL: If the World Food Program didn't do anything, the people would starve.

Shikwati: I don't think so. In such a case, the Kenyans, for a change, would be forced to initiate trade relations with Uganda or Tanzania, and buy their food there. This type of trade is vital for Africa. It would force us to improve our own infrastructure, while making national borders -- drawn by the Europeans by the way -- more permeable. It would also force us to establish laws favoring market economy.

SPIEGEL: Would Africa actually be able to solve these problems on its own?

Shikwati: Of course. Hunger should not be a problem in most of the countries south of the Sahara. In addition, there are vast natural resources: oil, gold, diamonds. Africa is always only portrayed as a continent of suffering, but most figures are vastly exaggerated. In the industrial nations, there's a sense that Africa would go under without development aid. But believe me, Africa existed before you Europeans came along. And we didn't do all that poorly either.

SPIEGEL: But AIDS didn't exist at that time.

Shikwati: If one were to believe all the horrorifying reports, then all Kenyans should actually be dead by now. But now, tests are being carried out everywhere, and it turns out that the figures were vastly exaggerated. It's not three million Kenyans that are infected. All of the sudden, it's only about one million. Malaria is just as much of a problem, but people rarely talk about that.

SPIEGEL: And why's that?

Shikwati: AIDS is big business, maybe Africa's biggest business. There's nothing else that can generate as much aid money as shocking figures on AIDS. AIDS is a political disease here, and we should be very skeptical.

SPIEGEL: The Americans and Europeans have frozen funds previously pledged to Kenya. The country is too corrupt, they say.

Shikwati: I am afraid, though, that the money will still be transfered before long. After all, it has to go somewhere. Unfortunately, the Europeans' devastating urge to do good can no longer be countered with reason. It makes no sense whatsoever that directly after the new Kenyan government was elected -- a leadership change that ended the dictatorship of Daniel arap Mois -- the faucets were suddenly opened and streams of money poured into the country.

SPIEGEL: Such aid is usually earmarked for a specific objective, though.

Shikwati: That doesn't change anything. Millions of dollars earmarked for the fight against AIDS are still stashed away in Kenyan bank accounts and have not been spent. Our politicians were overwhelmed with money, and they try to siphon off as much as possible. The late tyrant of the Central African Republic, Jean Bedel Bokassa, cynically summed it up by saying: "The French government pays for everything in our country. We ask the French for money. We get it, and then we waste it."

SPIEGEL: In the West, there are many compassionate citizens wanting to help Africa. Each year, they donate money and pack their old clothes into collection bags ...

Shikwati: ... and they flood our markets with that stuff. We can buy these donated clothes cheaply at our so-called Mitumba markets. There are Germans who spend a few dollars to get used Bayern Munich or Werder Bremen jerseys, in other words, clothes that that some German kids sent to Africa for a good cause. After buying these jerseys, they auction them off at Ebay and send them back to Germany -- for three times the price. That's insanity ...

SPIEGEL: ... and hopefully an exception.

Shikwati: Why do we get these mountains of clothes? No one is freezing here. Instead, our tailors lose their livlihoods. They're in the same position as our farmers. No one in the low-wage world of Africa can be cost-efficient enough to keep pace with donated products. In 1997, 137,000 workers were employed in Nigeria's textile industry. By 2003, the figure had dropped to 57,000. The results are the same in all other areas where overwhelming helpfulness and fragile African markets collide.

SPIEGEL: Following World War II, Germany only managed to get back on its feet because the Americans poured money into the country through the Marshall Plan. Wouldn't that qualify as successful development aid?

Shikwati: In Germany's case, only the destroyed infrastructure had to be repaired. Despite the economic crisis of the Weimar Republic, Germany was a highly- industrialized country before the war. The damages created by the tsunami in Thailand can also be fixed with a little money and some reconstruction aid. Africa, however, must take the first steps into modernity on its own. There must be a change in mentality. We have to stop perceiving ourselves as beggars. These days, Africans only perceive themselves as victims. On the other hand, no one can really picture an African as a businessman. In order to change the current situation, it would be helpful if the aid organizations were to pull out.

SPIEGEL: If they did that, many jobs would be immediately lost ...

Shikwati: ... jobs that were created artificially in the first place and that distort reality. Jobs with foreign aid organizations are, of course, quite popular, and they can be very selective in choosing the best people. When an aid organization needs a driver, dozens apply for the job. And because it's unacceptable that the aid worker's chauffeur only speaks his own tribal language, an applicant is needed who also speaks English fluently -- and, ideally, one who is also well mannered. So you end up with some African biochemist driving an aid worker around, distributing European food, and forcing local farmers out of their jobs. That's just crazy!

SPIEGEL: The German government takes pride in precisely monitoring the recipients of its funds.

Shikwati: And what's the result? A disaster. The German government threw money right at Rwanda's president Paul Kagame. This is a man who has the deaths of a million people on his conscience -- people that his army killed in the neighboring country of Congo.

SPIEGEL: What are the Germans supposed to do?

Shikwati: If they really want to fight poverty, they should completely halt development aid and give Africa the opportunity to ensure its own survival. Currently, Africa is like a child that immediately cries for its babysitter when something goes wrong. Africa should stand on its own two feet.

June 15, 2007

Book of the week: Expert Political Judgment by Philip Tetlock

I'm going to recommend a lot of books here on blog.pmarca.com, but this is one of the most important you'll ever read: Philip Tetlock's Expert Political Judgment: How Good Is It? How Can We Know?.

A comprehensive quantitative survey of so-called experts in the political domain -- analysts, commentators, forecasters, commentators, pundits -- this book will permanently change how you think about what you read, and whether you should ever again listen to anyone who sounds like they know what they're talking about. In politics, and in every other complex domain -- including (and perhaps especially) business.

Quoting from a New Yorker review:

It is the somewhat gratifying lesson of Philip Tetlock’s new book that people who make prediction their business -- people who appear as experts on television, get quoted in newspaper articles, advise governments and businesses, and participate in punditry roundtables -- are no better than the rest of us. When they’re wrong, they’re rarely held accountable, and they rarely admit it, either. They insist that they were just off on timing, or blindsided by an improbable event, or almost right, or wrong for the right reasons. They have the same repertoire of self-justifications that everyone has, and are no more inclined than anyone else to revise their beliefs about the way the world works, or ought to work, just because they made a mistake. No one is paying you for your gratuitous opinions about other people, but the experts are being paid, and Tetlock claims that the better known and more frequently quoted they are, the less reliable their guesses about the future are likely to be. The accuracy of an expert’s predictions actually has an inverse relationship to his or her self-confidence, renown, and, beyond a certain point, depth of knowledge. People who follow current events by reading the papers and newsmagazines regularly can guess what is likely to happen about as accurately as the specialists whom the papers quote. Our system of expertise is completely inside out: it rewards bad judgments over good ones.

Expert Political Judgment is not a work of media criticism. Tetlock is a psychologist —- he teaches at Berkeley —- and his conclusions are based on a long-term study that he began twenty years ago. He picked two hundred and eighty-four people who made their living “commenting or offering advice on political and economic trends,” and he started asking them to assess the probability that various things would or would not come to pass, both in the areas of the world in which they specialized and in areas about which they were not expert. Would there be a nonviolent end to apartheid in South Africa? Would Gorbachev be ousted in a coup? Would the United States go to war in the Persian Gulf? Would Canada disintegrate? (Many experts believed that it would, on the ground that Quebec would succeed in seceding.) And so on. By the end of the study, in 2003, the experts had made 82,361 forecasts. Tetlock also asked questions designed to determine how they reached their judgments, how they reacted when their predictions proved to be wrong, how they evaluated new information that did not support their views, and how they assessed the probability that rival theories and predictions were accurate.

Tetlock got a statistical handle on his task by putting most of the forecasting questions into a “three possible futures” form. The respondents were asked to rate the probability of three alternative outcomes: the persistence of the status quo, more of something (political freedom, economic growth), or less of something (repression, recession). And he measured his experts on two dimensions: how good they were at guessing probabilities (did all the things they said had an x per cent chance of happening happen x per cent of the time?), and how accurate they were at predicting specific outcomes. The results were unimpressive. On the first scale, the experts performed worse than they would have if they had simply assigned an equal probability to all three outcomes—if they had given each possible future a thirty-three-per-cent chance of occurring. Human beings who spend their lives studying the state of the world, in other words, are poorer forecasters than dart-throwing monkeys, who would have distributed their picks evenly over the three choices.

Tetlock also found that specialists are not significantly more reliable than non-specialists in guessing what is going to happen in the region they study...

It goes on and on, as Tetlock remorselessly walks through the data and completely dismantles the whole edifice of expert forecasting and the idea that the future is predictable in any meaningful way at all.

Sometimes the idea of retreating to a mountain cabin in Montana with no electricity or running water doesn't seem like such a bad one.

(In fairness, I'm exaggerating to make the point. Tetlock also walks through the patterns of forecasting that do work better than chimps throwing darts at a dartboard, and makes a number of suggestions on how to improve the quality of predictions. I'm highly skeptical that any of his suggestions will be widely adopted, though. Which brings me back to that cabin idea...)

Top 10 science fiction novelists of the '00s -- so far

We are blessed so far this decade with an amazing crop of new science fiction novelists.

Writing in a variety of styles, this crew is arguably more insightful, more interesting, higher intensity, and bolder than many (but not all!) of their predecessors -- and in my view revitalizing the genre at a time when more new technologies that will radically reshape all our lives are incubating and percolating than ever before.

So, taking nothing away from authors like David Brin who have long been established and continue to produce top-notch work, here are my nominations for the top 10 new science fiction novelists of -- more or less -- the decade, plus one bonus.

And, they're not all British.

Charles Stross

Stross, in my opinion, is first among equals -- the single best emerging talent with several outstanding novels in various styles under his belt and hopefully many more to come.

"One of us" in the sense that his career includes a stint as -- not kidding -- Linux columnist for Computer Shopper magazine, Stross is equally adept at both near-future and radically-extrapolated timeframes, and both hyper-serious and humorous moods.

Glasshouse is Stross's latest book and perhaps the best introduction to his work. A paranoid journey into a world of intergalactic teleportation and arbitrary physical body reshaping will have you thinking twice about who you are, and how you know who you are.

Singularity Sky and Iron Sunrise are top-notch post-Singularity space opera featuring perhaps the most inventive alien opponent ever created for science fiction -- "the Festival". You'll never look at telephones that drop out of the sky the same way again.

Accelerando is the best envisioning of the Singularity committed to paper so far. This book is really cool, both in the sense of how the kids mean it, and also in tone -- the plot, which spans about 100 years, is emotionally cold but amazingly inventive and highly likely to keep you up nights thinking hard about where we're all headed in the long run.

The Atrocity Archives and The Jennifer Morgue, in contrast, are highly entertaining shaggy dog stories about an IT guy named Bob who gets drafted into mankind's fight against forces of evil from another dimension -- James Bond meets Call of Cthulhu meets The Office.

Finally, Stross is also an active blogger with, let's say, strong points of view.

Richard Morgan

Morgan writes outstanding, page-turning, highly inventive military- and detective-flavored hard science fiction set in turbulent worlds where hard men are faced with hard challenges.

Altered Carbon is definitely the place to start, Morgan's first and perhaps most inventive novel, Robert Heinlein meets Raymond Chandler -- and first of a trio.

Broken Angels is a strong followup that tilts more towards military fiction while still occupying the same universe.

Woken Furies completes the trilogy with more hard-boiled action featuring a protagonist who has to fight a younger, and really mean, version of himself, which he does not enjoy.

Thirteen is undoubtedly Morgan's best-written novel so far -- this is an author whose skills are growing rapidly, and this book shows it. Not officially released in the US yet (I just read the British version, Black Man, renamed for US consumption), Thirteen is a near-future story of genetic engineering gone badly wrong -- a future version of all those classic paranoid political thrillers of the 70's but with a much harder edge. Highly recommended. Also very helpful re advising on things to think about before booking your next trip back from Mars.

Alastair Reynolds

Reynolds is the real deal -- doctorate in astrophysics and former staff scientist at the European Space Agency -- and writes as if Robert Heinlein knew a thousand times more about science and completely lost his ability to write for warm characters. While Reynolds' work is cold and dark -- almost sterile -- in human terms, he operates on a scale and scope seldom seen, and everything he writes is grounded in real advanced theoretical physics. Highly recommended for anyone who likes large-scale space opera and big ideas.

Revelation Space, Redemption Ark, and Absolution Gap -- together, Reynolds' flagship trilogy -- are three of the darkest, largest-scale, and most scientifically complex hard science fiction novels ever written. Highly recommended to anyone who thinks that sounds like a good idea (I did!).

Century Rain is Reynolds' most approachable novel so far -- a trippy far-future expedition to an apparently inexplicable complete clone of Earth and all its inhabitants from our year 1959. Like Morgan's work, strong overtones here of Raymond Chandler -- in a good way (in a great way).

Chasm City has more overshades of Richard Morgan -- lots of combat, science, and intrigue. Are you sure you know who you are?

The Prefect is just out and I haven't read it yet, but it's next on the stack.

Ken MacLeod

MacLeod is incredibly creative -- his imagination is second to none -- and he's a superb writer. Many of his books have political overtones that may or may not interfere with your ability to enjoy them. Sometimes MacLeod seems to think that socialism is going to work a lot better in the future than it did in the past. But if you can get through that, his novels certainly qualify as dizzyingly inventive and frequently rewarding.

The Star Fraction, The Stone Canal, The Cassini Division, and The Sky Road form the Fall Revolution sequence, MacLeod's first major body of work. Cyberpunk, political revolution, high-tech combat, love-slave androids, cloning, wormholes, artificial intelligence, and nuclear deterrence for hire -- oh my! Join the Felix Dzerzhinsky Workers' Defense Collective today.

The Execution Channel, MacLeod's latest, takes a left turn into a paranoid post-9/11 near future featuring war with Iran, flu pandemics, nuclear terrorist attacks, government conspiracies, and the Execution Channel, broadcasting actual footage of murders and executions around the clock. Haven't read it yet, but sounds like fun.

Peter Hamilton

Hamilton is the clear heir to Heinlein in my view. Large-scale space opera told through a shifting and interlinked cast of people from various walks of life, and amazing storytelling -- or, as (accurately) blurbed by Richard Morgan, "flat-out huge widescreen all-engines-at-full I-dare-you-not-to-believe-it space opera".

It's taken Hamilton a little while to find his talent, but he's definitely found it. His two latest novels are superb: Pandora's Star and its sequel Judas Unchained. Plain on staying up late, you'll roll straight from the first into the second -- and they are not short (in the best way!).

John Scalzi

Another post-cyberpunk Heinlein heir, Scalzi writes strong, highly characterized, inventive novels that have been racking up tremendous review after tremendous review for the past few years.

Start with Old Man's War (don't worry, they put the old dude in a young body, so you don't need to find out what it's like to fight aliens after hip replacement surgery). Progress directly to sequel The Ghost Brigades (Sci Fi Essential Books) and triquel The Last Colony.

Scalzi is also an active blogger, turns out!

Neal Asher

This way lie dragons... literally, and not like you've ever met before. Asher is an incredidly strong author of science fiction with a distinctive horror overlay. Not for the squeamish, but highly inventive.

Asher's primary work is the Polity series -- Gridlinked, The Line of Polity, Brass Man, and Polity Agent. The extended story of an enigmatic agent for the all-powerful artificial intelligences who rule the whole of human space, the Polity, these novels blend Ian Fleming with large-scale military combat, advanced theoretical xenobiology, nanotechnology gone badly wrong, and war drones with bad attitudes. Most definitely entertaining.

Follow those up with The Skinner and The Voyage of the Sable Keech, and then the delectable standalone novella Prador Moon. One of the most distinctively imagined "bad bug" alien races, one of the most creative and lethal new worlds, and a historical scandal of horrific proportions combine in a whirlwind of violence and battle.

Asher is blogging as well!

Chris Moriarty

Gibson meets Heinlein (can you tell I was a Heinlein fan growing up?) in a melange of science fiction themes, most particularly artificial intelligence, filtered through a distinctly female point of view. A rapidly developing talent worth reading, and watching for future advances.

Read Spin State and then read Spin Control.

Peter Watts

Watts' fifth novel, Blindsight, has put him on the map -- a new tale of alien contact, as conducted by a team of entitites from a future Earth that will send a chill down your spine without even getting to the alien part.

David Marusek

My last and final entry of the top 10 is the one I am least certain about. Marusek is off the charts in terms of creativity and inventiveness -- in his debut novel, Counting Heads, he extrapolates with incredible verve and detail an Earth circa 2134 that is a near-utopia. I frankly need to read it again. I think it may be a failure as a novel, but if so, it's an amazing failure. Well worth keeping an eye on at the very least -- has to win the award for highest potential.

Bonus: Vernor Vinge

Vinge, a retired San Diego State Univeristy professor of mathematics and computer science, is one of the most important science fiction authors ever -- with Arthur C. Clarke one of the best forecasters in the world.

First, if you haven't had the pleasure, be sure to read True Names, Vinge's 1981 novella that forecast the modern Internet with shocking clarity. (Ignore the essays, just read the story.) Fans of Gibson and Stephenson will be amazed to see how much more accurately Vinge called it, and before Neuromancer's first page cleared Gibson's manual typewriter. Quoting a reviewer on Amazon:

When I was starting out as a PhD student in Artificial Intelligence at Carnegie Mellon, it was made known to us first-year students that an unofficial but necessary part of our education was to locate and read a copy of an obscure science-fiction novella called True Names. Since you couldn't find it in bookstores, older grad students and professors would directly mail order sets of ten and set up informal lending libraries -- you would go, for example, to Hans Moravec's office, and sign one out from a little cardboard box over in the corner of his office. This was 1983 -- the Internet was a toy reserved for American academics, "virtual reality" was not a popular topic, and the term "cyberpunk" had not been coined. One by one, we all tracked down copies, and all had the tops of our heads blown off by Vinge's incredible book.

True Names remains to this day one of the four or five most seminal science-fiction novels ever written, just in terms of the ideas it presents, and the world it paints. It laid out the ideas that have been subsequently worked over so successfully by William Gibson and Neal Stephenson. And it's well written. And it's fun.

So what? Well, he's done it again. Vinge's new novel, Rainbows End (yes, the apostrophe is deliberately absent), is the clearest and most plausible extrapolation of modern technology trends forward to the year 2025 that you can imagine.

Stop reading this blog right now. Go get it. Read it, and then come back.

I'll wait.

It's that good.

We'll see how things turn out, but I would not be the least bit surprised if we look back from 2025 and say, "I'll be damned, Vinge called it", just like we look back today on 1981's True Names and say the same thing.

He better write a sequel.

June 13, 2007

Paper of the week: history's view of the dot com boom

History's view of the dot com boom of the late 90's may be substantially different than ours.

According to David Kirsch and Brent Goldfarb's 2006 paper:

The Icarian arcs of a handful of high-flying internet companies occupied the bulk of public attention both on the way up and on the way down. In the public eye, these stories came to represent the totality of internet entrepreneurship in the 1990s, even as thousands of successful, if less spectacular, internet companies followed a more traditional growth trajectory, survived and even thrived...

Exploiting a unique database of Dot Com Era business planning documents, we have estimated the scale of entrepreneurial activity during the period. Approximately 50,000 startups were founded in the United States between 1998 and 2002 to exploit the commercialization of the Internet. The survival rate of Dot Com ventures founded during the height of the bubble in late 1998, 1999, and 2000 was a surprisingly high 48%, in line with if not higher than that observed in prior instances of industry emergence...

Technology entrepreneurship in the Dot Com Era was more successful than people imagine today, and there was more of it than originally reported...

Many Dot Com entrepreneurs can share the sentiment expressed in Mark Twain’s famous quip, “the report of my death was an exaggeration."

Quote of the week: Damon Dash

From John Heilemann's interview with hip hop impresario Damon Dash, June 13 2007:

Dash's new Web venture is BlockSavvy, a site aimed at what he dubs the "urban-lifestyle demographic." When I ask what motivated this endeavor, Dash answers bluntly, "Money." When I ask him to elaborate, he turns to [partner Kareem "Biggs"] Burke, who explains, "After MySpace sold for $580 million, we said, damn, we gotta get us some of that."

June 12, 2007

Analyzing the Facebook Platform, three weeks in

On May 24, Facebook launched the newest version of the Facebook Platform, a set of application programming interfaces (APIs) and services that allow outside developers to inject new features and content into the Facebook user experience.

In this post, I provide an overview and analysis of the Facebook Plaform and what we have learned about it in the three weeks since it launched.

To start, my personal opinion is that the new Facebook Platform is a dramatic leap forward for the Internet industry.

Here's why:

Veterans of the software industry have, hardcoded into their DNA, the assumption that in any fight between a platform and an application, the platform will always win.

Definitionally, a "platform" is a system that can be reprogrammed and therefore customized by outside developers -- users -- and in that way, adapted to countless needs and niches that the platform's original developers could not have possibly contemplated, much less had time to accommodate.

In contrast, an "application" is a system that cannot be reprogrammed by outside developers. It is a closed environment that does whatever its original developers intended it to do, and nothing more.

The classic example of an application being vanquished by a platform was the Wang word processor versus Microsoft DOS-based personal computers.

Wang word processors -- the application, in this case -- were highly evolved, fantastically successful dedicated word processing systems that owned their market, until the general-purpose PC came along. While the PC at first was inferior at word processing, within a few years of its launch the fact that outside developers had built thousands of applications for it -- like spreadsheets -- that closed Wang word processors could not match, coupled with steadily improving PC-based word processing software like Wordstar, had all but killed the Wang word processor. Wang -- one of the most succcessful technology companies of the 1970's -- went bankrupt not long after.

This is a story whose moral has historically not been embraced by the web industry to nearly the extent one would have thought.

The web, after all, vanquished proprietary online services like America Online, Prodigy, and Compuserve -- the so-called "walled gardens" -- in large part because the web is a platform and the walled gardens were not. No single closed service, no matter how good, and no matter how big, could compete with the diversity of thousands and then millions of web sites that were customized to every conceivable user interest and need.

Yet most major web busineses have not themselves sought to become platforms.

Sure, some have released APIs -- some have even released very sophisticated APIs -- but such APIs have mostly been for interacting with a web system from the outside. Those APIs have been a far cry from the programmability and customizability enabled by a true platform in the sense that the software industry has come to understand it.

Instead, most major web businesses have sailed along without the added lift from platform-style programmability that they could have had at any point.

Until now.

In a nutshell, the Facebook API enables outside web developers to inject new features and content into the Facebook environment.

After signing up for a developer account on Facebook, the developer writes a web application (in the simplest case, a piece of web content; in the most advanced case, a full fledge web application with deep functionality) and hosts it on her own servers. The developer then registers her application with Facebook, and then users can add that application to their Facebook user experience in several different ways, including within their Facebook profile pages.

Viewed simply, this is a variant on the "embedding" phenomenon that swept MySpace over the last two years, and which Facebook prohibited.

However, what Facebook is now doing is a lot more sophisticated than simply MySpace-style embedding: Facebook is providing a full suite of APIs -- including a network protocol, a database query language, and a text markup language -- that allow third party applications to integrate tightly with the Facebook user experience and database of user and activity information.

And then, on top of that, Facebook is providing a highly viral distribution engine for applications that plug into its platform. As a user, you get notified when your friends start using an application; you can then start using that same application with one click. At which point, all of your friends become aware that you have started using that application, and the cycle continues. The result is that a successful application on Facebook can grow to a million users or more within a couple of weeks of creation.

Finally, Facebook is promising economic freedom -- third-party applications can run ads and sell goods and services to their hearts' content.

Metaphorically, Facebook is providing the ease and user attraction of MySpace-style embedding, coupled with the kind of integration you see with Firefox extensions, plus the added rocket fuel of automated viral distribution to a huge number of potential users, and the prospect of keeping 100% of any revenue your application can generate.

The leadership that the Facebook team is showing here rivals anything that the large and established software and web companies have done in this decade.

You may also notice the irony of Facebook leapfrogging MySpace on embedding at the same time that MySpace seems to be getting substantially more restrictive, in some cases even shutting down third-party widgets.

Let's look at some of the key aspects of the Facebook Platform in more detail.

First, perhaps the most architecturally interesting aspect of the Facebook platform is the fact that everything routes through Facebook's servers.

This is known as a "proxy" model -- you interact with a third-party Facebook application by interacting with Facebook's servers which turn interact with the application's servers.

There are very sharp pros and cons to this approach, contrasted with the MySpace model where third-party content is pulled directly from third-party servers.

Pros:

Facebook retains much tighter control of the overall user experience. Applications must conform to Facebook guidelines for appearance and content or they are disallowed.

Facebook can provide third-party pages with integral access to Facebook user and activity information -- the application can easily be aware of who your Facebook friends are, for example. This allows the applications to be considerably more powerful in the context of a social network than a simple piece of embedded content.

Facebook can cache static content such as images and videos and thereby serve them up faster, improving the overall user experience.

Cons:

Facebook retains much tighter control of the overall user experience. Applications must conform to Facebook guidelines for appearance and content or they are disallowed. Yes, this is also listed above under "Pros".

Performance will generall be slower than a non-proxy model. There are additional network hops for each access of a third-party application, which causes additional latency. Plus, Facebook's servers do a lot of processing of the third-party content that they are passing back and forth: they essentially rewrite every page on the fly to implement the added features (e.g. FBML) and restrictions (e.g. no Javascript; div's are rewritten) that they provide. This processing inevitably takes time.

On balance, of course, this is a fine set of tradeoffs that accommodate Facebook's dual goals of opening up their environment but in carefully controlled ways, and may well serve as a powerful precedent for how other web businesses will open themselves in the future.

Second, Facebook has really thought through the API suite it provides to developers.

You get a REST web services API that lets your application programmatically interact with Facebook's systems and data in very interesting ways. Developers who understand web services can pick it up in about five minutes.

You get a database query language called FQL -- a variant of SQL -- that lets you interact with Facebook's databases directly. Developers who are experienced with relational databases and SQL will be right at home.

And, you get a text markup language called FBML -- a variant of HTML. FBML strips out some features of HTML, such as Javascript, and adds a new set of features that enable a third-party application page to access Facebook features, data, and look and feel elements in a variety of interesting ways. Anyone who knows HTML can take advantage of it immediately.

This is a very sophisticated yet easy to adopt suite of APIs for a brand new platform, and demonstrates real seriousness of purpose.

Third, there are three very powerful potential aspects of being a platform in the web era that Facebook does not embrace.

The first is that Facebook itself is not reprogrammable -- Facebook's own code and functionality remains closed and proprietary. You can layer new code and functionality on top of what Facebook's own programmers have built, but you cannot change the Facebook system itself at any level.

The second is that all third-party code that uses the Facebook APIs has to run on third-party servers -- servers that you, as the developer provide. On the one hand, this is obviously fair and reasonable, given the value that Facebook developers are getting. On the other hand, this is a much higher hurdle for development than if code could be uploaded and run directly within the Facebook environment -- on the Facebook servers.

The third is that you cannot create your own world -- your own social network -- using the Facebook platform. You cannot build another Facebook with it.

I won't dwell on these three factors too much right now. Those of you familiar with Ning may, however, expect me to revisit them in the future, and I will :-).

These factors are, however, very reflective of the fact that while the Facebook Platform gives developers a lot of capabilities that they never had before, and access to a huge base of enthusiastic users, as a Facebook developer you're very much living in Facebook's world -- you're not creating your own world. And you have to be serious enough about living in that world that you are willing to hit the fairly high barrier of being willing to run your own servers and infrastructure for any applications you build.

Which takes us to...

Fourth, and perhaps most significantly, when your application takes off on Facebook, you are very happy because you have lots of users, and you are very sad because your servers blow up.

Let me explain.

I already described Facebook's viral distribution mechanism by which users became instantly aware of which applications their friends are using, can with one click start using those applications, and automatically spread them to their friends.

This is happening in an environment with 24 million active users -- active users defined as users active on the site in the last 30 days. 50% of active users return to the site daily. 100,000 new users join per day. 45 billion page views per month and growing. 50 million users, and a lot more page views, predicted by the end of 2007.

An application that takes off on Facebook is very quickly adopted by hundreds of thousands, and then millions -- in days! -- and then ultimately tens of millions of users.

Unless you're already operating your own systems at Facebook levels of scale, your servers will promptly explode from all the traffic and you will shortly be sending out an email like this.

ILike was the first third-party application to get serious lift-off on Facebook. Quoting from ILike's blog shortly after their launch:

In our first 20 hours of opening doors we had 50,000 users sign up, and it is only accelerating. (10,000 users joined in the first 12 hrs. 10,000 more users in the next 3 hrs. 30,000 more users in the next 5 hrs!!)

We started the system not knowing what to expect, with only 2 servers, but ready with backup. Facebook's rabid userbase chewed up our 2 servers almost instantly. We doubled our capacity to catch up. And then we doubled it again. And again. And again. Oh crap - we ran out of servers!! Although iLike.com has a very healthy level of Web traffic, and even though about half of all the servers in our datacenter were sitting unused, idle, as backup capacity, we are now completely maxed out.

We just emailed everybody we know across over a dozen Bay Area startups, corporations, and venture firms in a desperate plea to find spare servers so we can triple our capacity for the continued onslaught. Tomorrow we are picking up over 100 servers from different companies to have them installed just to handle the weekend's traffic. (For those who responded to our late night pleas, thank you!)

Yesterday, about two weeks later, ILike announced that they have passed 3 million users on Facebook and are still growing -- at a rate of 300,000 users per day.

They didn't say how many servers they're running, but if you do the math, it has to be in the hundreds and heading into the thousands.

Translation: unless you already have, or are prepared to quickly procure, a 100-500+ server infrastructure and everything associated with it -- networking gear, storage gear, ISP interconnetions, monitoring systems, firewalls, load balancers, provisioning systems, etc. -- and a killer operations team, launching a successful Facebook application may well be a self-defeating proposition.

This is a "success kills" scenario -- the good news is you're successful, the bad news is you're flat on your back from what amounts to a self-inflicted denial of service attack, unless you have the money and time and knowledge to tackle the resulting scale challenges.

Will every Facebook application go through this?

No, of course not. The ones that nobody uses will not have this problem.

But the successful ones all will.

The implication is, in my view, quite clear -- the Facebook Platform is primarily for use by either big companies, or venture-backed startups with the funding and capability to handle the slightly insane scale requirements. Individual developers are going to have a very hard time taking advantage of it in useful ways.

Fifth, there's the fascinating issue of the Facebook application directory -- the page from which users can pick which applications they want to use.

When you develop a new Facebook application, you submit it to the directory and someone at Facebook Inc. approves it -- or not.

If your application is not approved for any reason -- or if it's just taking too long -- you apparently have the option of letting your application go out "underground".

This means that you need to start your application's proliferation some other way than listing it in the directory -- by promoting it somewhere else on the web, or getting your friends to use it.

But then it can apparently proliferate virally across Facebook just like an approved application.

There is already long list of underground apps that you can use -- and proliferate.

It will be fascinating to see how Facebook deals with this -- will they embrace underground apps, or move to shut them down?

The answer will go a long way towards understanding the true level of freedom that developers have on the Facebook Platform.

In closing:

Congratulations to the Facebook team -- big time! -- for an amazing leap forward in what the Internet can do for real users and for opening up whole new vistas of opportunities for third-party developers.

This is an amazing achievement -- one of the most significant milestones in the technology industry in this decade.

Clarifications and expansions:

In conversations with the folks at Facebook, there are a few clarifications and expansions I'd like to note:

First, my statement that "applications must conform to Facebook guidelines for appearance and content or they are disallowed" is partially but not entirely true. Boxes that contain content from an application on a user's Facebook profile page must be rendered via FBML and have tight controls over what can be included, particularly the no-Javascript limitation. On the other hand, so-called "canvas" pages -- the pages dedicated completely to a specific application, and accessible via the left-hand-side app navigation area, can be rendered either via FBML (which is restrictive), an iframe that can include arbitrary content, or a combination of the two. From an iframe you do pretty much whatever you want, but you don't get the FBML features.

Note that you are incented to use FBML because that's the easiest way to achieve integration between your application and Facebook -- e.g. to let your app have access to information about the user and her friends. FBML is clearly a good thing; it's just that when you're using it, you can't do certain other things that you're used to. And, as noted, you are required to use it for content that shows up on users' profile pages.

Second, my point that "success kills" -- that a successful, widely used application will require a large number of servers to run, at best, and will fall over and die, at worst -- is true, but the Facebook folks point out that as an app developer you have a lot of control over how fast your application grows. You don't have to light up all the viral spread features all at once, for example.

I would counter-argue that deliberately tamping down the growth rate doesn't do you any favors either -- then you don't get widely used, which for most apps is the whole reason to exist.

My larger point is that if your app succeeds on Facebook, expect to have to do a lot of heavy lifting on your back end and to spend a lot of money on hardware and bandwidth -- just like if you built a web app that succeeded outside Facebook, of course.

Some commenters have proposed that Amazon's EC2 service would be a way to easily scale a Facebook app (or a non-Facebook web app). I think EC2 is a great service and have no desire to say anything negative about it. So I will just say two things: it isn't as easy as that, and EC2 is not free either. Bonus points to commenters who want to go into more detail on these topics than I have here!

Appendix -- some interesting links:

June 10, 2007

The truth about venture capitalists, Part 3

Bonus chapter!

(This will be the last post on venture capital for a while, if I can help it.)

The current venture capital environment in the United States is characterized by a very large number of venture firms (866, according to the National Venture Capital Association), investing an extraordinarily large amount of capital (over $7 billion in the first quarter of 2007 alone, according to Price Waterhouse).

Traditionally the venture capital industry was said to experience a "seven fat years, seven lean years" model -- seven years of boom, followed by seven years of bust.

Following that pattern, the late 60's/early 70's were great (the "-tronics" boom -- this is when Intel was funded by Arthur Rock), the mid-70's were terrible, 1978-1985 was great (the PC!), '86-92 was terrible, '93-99 was fantastic, and '00-06 was not so good.

As you'd expect, inflows of capital to venture firms during the lean years typically shrank dramatically -- venture capital returns are terrible during the lean years, and who in their right mind wants to put more money into an investment vehicle with terrible returns?

This capital inflow shrinkage would then lead to a significant percentage of venture firms closing their doors (technically, not raising new funds -- the venture capital firm equivalent of going under) -- especially the newer, less proven ones.

Ultimately, capital inflows would shrink to the point where the remaining venture firms were managing a much smaller base of cash, which primed the pump for dramatic investment returns over the next seven fat years: less capital + a new wave of high-growth startups = explosive investment returns.

That is the cycle that has played out every time -- except this time.

Let's examine that $7 billion invested by venture firms in the first quarter of 2007.

Annualized, that is an annual investment rate of about $28 billion per year.

Pulling the data on venture capital investing by year over the last 10 years, we see that this is, as you might expect, substantially lower than 1999's $54 billion and 2000's $105 billion (what a year!)...

...but, higher than 1997's $15 billion and 1998's $21 billion.

And that rate of investment has been broadly consistent for the last several years -- in fact, it's been trending up.

Even when you adjust for inflation, venture capital funding is flowing into venture firms and out to startups at a higher rate in 2007 than in 1997 and 1998.

Those of you remember 1997 and 1998 will remember that those were true boom times for venture capital. The returns on funds from '93-95 were extraordinary -- some of the best ever -- and limited partners were shoveling money into venture firms, leading VCs to fund new companies as fast as they possibly could.

Yet, despite disastrous venture returns on average from 2000-2006, the cash spigot from investors in venture capital firms continues to be wide open to a level where VCs can be more active in 2007 than they were in 1998.

While some older, stale venture firms have recently shut down -- Sevin Rosen and Yankee come to mind -- the rate of venture firm death has not been anywhere close to what you'd expect, and in fact many new funds have been formed and raised money in the last few years.

And the cash just keeps on coming.

Somehow we've ended up in a paradox: venture capital returns, on average, have been terrible, but contrary to historical precedent, the money keeps flooding in, venture firms keep going, and you have more money chasing deals than you did in the middle of the dot com boom.

How can we explain this?

In a nutshell:

Institutional investors who invest in venture funds -- large university endowments, philanthropic foundations, and pension funds -- began radically shifting their investment strategies in the early to mid 1990's, and that shift has led to private equity generally, and venture capital specifically, becoming a permanent "asset class" for those investors.

I call this the "asset-classization" of venture capital.

Here's how it works:

A large institutional investor like a university endowment runs its investment strategy with a top-down approach that says, we'll put x% in stocks, y% in bonds, and so on -- this is called asset allocation.

The actual details of which stocks, which bonds, etc. are less important -- the big decision is what percentage of the total capital to put in which asset classes, because when you run a huge pool of capital, that's what mathematically drives your returns. (You can't put enough money into any single investment to really move the needle, at least not without being irresponsible, so you have to think in broad strokes -- in terms of asset classes.)

Traditionally, such large institutional investors were quite conservative. An asset allocation that was perhaps 60% US equities, 30% US bonds, and 10% cash would not have been unreasonable.

Really daring institutional investors might have allocated some percentage to non-US equities, or (gasp) high-yield "junk" bonds.

This all started to change in the late 80's and early 90's when a group of advanced thinkers, such as David Swensen, then and now head of the Yale University endowment, crunched the numbers and realized that if they had a long-term time horizon (which they did -- Yale and its peers are expected to be around for some time), they could generate higher returns by allocating more of their capital to so-called "alternative asset classes" -- basically, anything other than public stocks, bonds, and cash.

This meant hedge funds, real estate partnerships, commodities, timber, leveraged buyout firms -- and venture capital.

To read about this new strategy -- and it is a fascinating strategy -- pick up a copy of David Swensen's excellent book Pioneering Portfolio Management, which describes his approach in detail. (Be sure to also pick up a copy of his book for individual investors -- Unconventional Success -- which explains why you can't pursue this strategy without getting your clock cleaned.)

The institutions such as Yale and its peers that adopted a Swensen-style strategy did fantastically well in the 1990's, and outperformed (technically, "kicked the ass of") any institution that had an older, more conservative investment policy.

This predictably led a significant number of institutions to shift massively into alternative investments and venture capital in the late 90's, just in time to get hammered by the crash of 2000-2002.

Here's the interesting part: that hammering -- by people who, say, only started investing in venture funds in 1999 -- has not resulted in a significant pullback on the part of institutional investors from venture capital.

Instead, venture capital has become an apparently permanent asset class of many large institutional investors -- and increasingly, smaller institutional investors.

Those institutional investors are managing so much money -- literally trillions of dollars -- that even a very small asset allocation to venture capital represents an enormous amount of cash -- tens of billions of dollars per year.

An organization called NACUBO (don't ask) tracks asset allocation behavior of university endowments, and tells us that the average large ($1+ billion) university endowment had a 3.5% asset allocation to venture capital in 2006.

3.5% of a ginormous amount of money is a lot of money.

But it's a small percentage of the total base, so apparently what's been happening is that although returns on venture capital have been poor (technically, "sucking") for the last several years, institutions that invest in venture capital are not taking that much actual pain on their overall asset bases, and they don't see that many better alternatives, and so they're sticking with their overall asset allocations and therefore sticking with venture capital.

You can argue that this is smart -- that such institutions are very well set up for the next venture capital boom, and that they will do very well over the next 10-20 years with this strategy -- versus the old approach of pulling out just before the sector was set to boom again.

You can also argue that this is not smart -- that this is leading to more venture dollars chasing few good deals and long-run terrible returns for everyone. Particularly since historically, most of the positive returns for venture capital have gone to the top 10% of venture firms -- or maybe even the top 10 venture firms -- and most of the money going into venture capital as an asset class by definition is going into the other 90% of venture firms.

But regardless, it does seem to be the case.

And that's why, from where I sit in Silicon Valley, there are probably 200 venture capital firms within 20 miles with likely over $20 billion of capital at their disposal chasing a very small number of good potential investments, despite terrible average returns for the asset class over the last seven years.

I love this country.

June 09, 2007

Essential HTML, CSS, Javascript, PHP, and miscellaneous cheatsheets

There are a ton of free cheatsheets, quick references, and downloadable resources for programming languages and related technologies online -- in this post I've tried to organize and list some of the best for web development.

I've focused on HTML, CSS, Javascript, and PHP, since those are the languages we use most commonly at Ning, but many of these sites point to resources for other languages as well.

As far as I can tell, all of the material assembled here is freely available. I've tried to avoid anything that points to pirated or illegal content. Please let me know if you see anything that isn't supposed to be free and I'll remove it from the list.

Please post suggested additions to this list as comments!

Meta-reference sites -- organized lists of references and cheatsheets:

http://www.gotapi.com/
A wonderful online API reference covering many programming languages.

http://www.digilife.be/quickreferences/quickrefs.htm
An organized list of quick references and cheatsheets.

http://techcheatsheets.com/
A great site with links to cheatsheets on lots of programming languages.

http://refcards.com/
Another great site organizing various cheatsheets.

http://whatis.techtarget.com/definition/0,289893,sid9_gci826135,00.html
A very long and thorough set of links to cheatsheets all over the web.

Other meta-reference sites:

http://mypage.bluewin.ch/yuppi/links/cheatsheets.html
http://www.petefreitag.com/item/455.cfm
http://www.smashingmagazine.com/2006/10/30/cheat-sheet-round-up-ajax-css-latex-ruby/
http://www.fuzzyfuture.com/programming/the-developer-cheat-sheet-compilation/
http://lorelle.wordpress.com/2005/10/10/html-css-php-and-more-cheat-sheets/
http://3spots.blogspot.com/2005/10/cheatsheets.html
http://webdeveloper.econsultant.com/cheat-sheets/

Key providers of cheatsheets:

http://www.visibone.com/
Visibone, the company that makes the best commercial cheatsheets for HTML, CSS, colors, etc. Site includes free resources and downloadable versions of several great cheatsheets.

http://www.ilovejackdaniels.com/cheat-sheets/
Original cheatsheets for HTML, CSS, PHP, and other technologies.

http://www.deepx.com/resources/quickref/
Original cheatsheets for CSS, XML, and related technologies.

HTML cheatsheets:

http://html-tags.info/
Free version of Visibone's HTML cheatsheet.

http://www.ucc.ie/doc/World-Wide_Web/htmlcard.html
HTML cheatsheet from Andrew Ford.

http://www.utoronto.ca/ian/books/extras/html-7nov2000.pdf
HTML cheatsheet from Ian Graham.

http://www.ilovejackdaniels.com/cheat-sheets/html-cheat-sheet/
HTML cheatsheet from ILoveJackDaniels.

http://gosquared.com/liquidicity/archives/51
HTML cheatsheet from Liquidcity.

http://www.htmlgoodies.com/beyond/reference/article.php/3472851
Maran Wilson's HTML cheatsheet.

http://www.cdburnerxp.se/htmlcheatsheet.pdf
Florian Schmitz's HTML cheatsheet.

http://www.arnspub.com/QuickRef/
An online reference to HTML organized by tag.

http://www.blooberry.com/indexdot/html/index.html
Brian Wilson's online HTML reference.

http://www.ilovejackdaniels.com/cheat-sheets/html-character-entities-cheat-sheet/
ILoveJackDaniels' HTML character entities cheatsheet.

CSS cheatsheets:

http://www.deepx.com/resources/quickref/CSS-1.0.pdf
CSS cheatsheet from DeepX.

http://www.utoronto.ca/ian/books/extras/css1-sheet-7nov2000.pdf
CSS cheatsheet from Ian Graham.

http://www.ilovejackdaniels.com/cheat-sheets/css-cheat-sheet/
CSS cheatsheet from ILoveJackDaniels. (And really, who doesn't?)

http://www.gosquared.com/liquidicity/archives/33
CSS cheatsheet from Liquidcity.

http://www.spectrum-research.com/V2/projects_css_reference.asp
CSS cheatsheet from Spectrum Research.

http://www.veign.com/downloads/guides/qrg0007.pdf
CSS cheatsheet from Veign.

http://home.tampabay.rr.com/bmerkey/cheatsheet.htm
CSS cheatsheet from Brett Merkey.

http://lesliefranke.com/files/reference/csscheatsheet.html
CSS cheatsheet from Leslie Franke.

http://www.lazycat.org/webdesign/cssref.php
CSS cheatsheet from Matt Robinson.

http://www.blooberry.com/indexdot/css/index.html
Online CSS reference from Brian Wilson.

http://meyerweb.com/eric/css/references/css1ref.html
http://meyerweb.com/eric/css/references/css2ref.html
CSS online references from Eric Meyer.

http://www.design215.com/toolbox/css_guide.php
A detailed overview of CSS from 2006 that covers features that work on most browsers.

Javascript cheatsheets:

http://wps.aw.com/wps/media/objects/2234/2287950/javascript_refererence.pdf
Addison-Wesley Javascript cheatsheet.

http://sage.math.washington.edu/home/agc/lit/javascript/javascriptcheatsheet.pdf
Javascript cheatsheet from Holmer Hemsen.

http://www.ilovejackdaniels.com/cheat-sheets/javascript-cheat-sheet/
Javascript cheatsheet from ILoveJackDaniels. (I really don't understand how he produces so many cheatsheets, drinking as much Jack as he must.)

http://www.mytechsupport.ca/tools/docs/JavaScript_Quick_Reference.pdf
Luke Terheyden's Javascript cheatsheet.

http://javascript-reference.info/
Visibone's free Javascript reference card.

http://www.visibone.com/regular-expressions/
Visibone's free Javascript regular expressions card, focused on Javascript.

http://www.quirksmode.org/js/contents.html
Extensive assortment of Javascript references on various topics.

Browser compatibility matrices:

http://www.quirksmode.org/dom/compatibility.html
http://www.quirksmode.org/css/contents.html
Comprehensive browser compatibility matrices for DOM, HTML, CSS, and event handling.

Colors:

http://www.visibone.com/colorlab/
Visibone's free interactive web color picker.

http://html-color-codes.com/
Visibone's free web color quick reference guide.

http://www.veign.com/downloads/guides/qrg0006.pdf
Veign's web color reference guide.

PHP cheatsheets:

http://www.ilovejackdaniels.com/cheat-sheets/php-cheat-sheet/
PHP cheatsheet from ILoveJackDaniels.

http://www.stevengould.org/portfolio/independent/php-refcard/PHPRefCard.pdf
PHP 4 reference card from Steven Gould.

BONUS -- Google cheatsheets:

http://www.google.com/help/cheatsheet.html
Official Google cheatsheet.

http://www.googleguide.com/advanced_operators_reference.html
Google advanced operators cheatsheet from Google Guide.

BONUS -- free downloadable programming books:

http://freecomputerbooks.com/
Outstanding site organizing links to many free programming books, tutorials, and lecture notes.

http://www.freetechbooks.com/
Another organized set of links to free programming books.

Other sites for free programming books:

http://www.techtoolblog.com/archives/195-free-online-programming-books
http://www.computer-books.us/
http://www.onlinecomputerbooks.com/

June 08, 2007

The truth about venture capitalists, Part 2

As promised:

Comparing venture firms, and comparing partners within firms:

When raising venture capital, remember that venture firms vary wildly in style and quality.

For example, some venture firms are very entrepreneur-friendly. Others are notoriously brutal.

Interestingly, financial success in the venture capital profession does not seem to be correlated to entrepreneur-friendliness.

Individuals (partners) within each venture firm vary wildly in style, personality, knowledge, experience, ability to be helpful, drive, and ethics.

Personally I'd recommend being more focused on picking the right partner than picking the right firm.

This is slightly counterintuitive advice -- and firm quality does matter -- but the partner is the person you're going to be working with. The other people at the firm you will see probably twice in the whole lifespan of your company.

Best of both worlds is to pick a strong partner at a strong firm, but be aware going in that even strong firms have weak partners.

Venture capital professionals arguably used to be a more homogeneous group: the founders and pioneers of the business, and their hand-picked proteges who had grown up as venture capitalists under close supervision and with rigorous training.

The explosion of venture capital in the late 90's has led to a much broader range of people becoming partners in venture capital firms.

Many partners today have little venture capital experience but come out of an operating background (an executive role at a big company, or experience as an entrepreneur with their own startup), or come out of some other background (corporate attorney or executive recruiter), or come straight out of business school with no meaningful experience whatsoever.

There are pros and cons to working with any of these kinds of partners.

For example, VCs with operating experience are great when it comes to sitting down and talking about how to run a business, but sometimes they have less perspective (because their career was probably focused on one or two companies, whereas a professional VC has probably invested in 30+ companies), and they may have trouble keeping their hands off the steering wheel.

A VC with an executive recruiting background can be incredibly helpful at recruiting -- one of the main areas in which a VC can add value (see below).

And a VC who used to be an attorney can be very helpful when you need to get a parking ticket fixed.

But there's probably still no substitute for the VC who has been a VC for 20 years and has seen more strange startup situations up close and personal than you can imagine.

A venture capitalist's ideal investment:

A venture capitalist's ideal investment is the one that would be a huge success without her.

How much help, and what kinds of help, you can expect from your VC:

Assuming your startup does not fall in the category of a VC's ideal investment, what kinds of help can you hope for from your VC?

First, it's important to really internalize that the founders of a startup are the ones who have to make a startup succeed.

Odds are, nothing your VC does, no matter how helpful or well-intentioned, is going to tip the balance between success and failure.

In addition, VCs are -- usually -- incredibly busy people. Sitting on as many as a dozen boards, sourcing new investments, tracking the fast-moving technology industry, raising money and managing their LPs, and pitching in on their partners' companies and their problems takes up a lot of time.

(Although every once in a while you will run into a VC who is lazy as sin -- but that's a topic for another post, when I've had more to drink.)

The best assumption to make is that your VC's primary value add is the cash they are investing.

Then you'll always be surprised on the upside.

Additional areas in which a VC can help include: recruiting, strategy, partner introductions, customer introductions, additional fundraising, and generally being a good sounding board and source of advice and industry knowledge.

Some firms run incredibly helpful programs such as forums in which new consumer Internet startups can interact with major advertisers, for example.

The only real way to find out how much help you can really expect from your new VC is to ask the founders of other companies funded by that same partner.

Finally, never expect the help to just happen unsolicited. If you want it, ask for it proactively.

You actually don't want a VC who provides too much help without being asked. I leave the why as an exercise for the reader.

How VCs spend an awful lot of their time, and why you should feel sorry for them:

My friends who are VCs seem to spend a surprising amount of their time working with their failing companies.

The reason goes right back to the definition of a VC's ideal investment: their winners are succeeding -- they don't need very much help.

Some of the best VCs in the industry spend most of their time on their successes, helping to boost them to higher and higher levels of success.

But generally, life in the VC trenches seems to consist of trying to jumpstart or otherwise fix fatally flawed startups.

Can you imagine how un-fun that would be?

Venture capitalists: soulless and rapacious capitalists, or surprisingly generous philanthropists? Or both?

Here's something surprising about venture capitalists: their primary job is often helping very worthwhile nonprofits build larger and larger endowments to be able to continually make the world a better place.

The largest investors in many top-tier venture capital firms are nonprofits -- particularly universities and large philanthropic foundations.

This is partially because such institutions are very patient investors and have very long time horizons. But this is also partially because many of the top venture capitalists feel a real sense of obligation and mission to help such vital organizations grow and flourish.

Traditionally this has been hard to see because venture capital firms have wrapped the identities of their investors (limited partners, in the lingo) in confidentiality agreements. But more recently, via certain SEC filings and disclosures by public universities, it has become possible to get a glimpse into the investor bases of some of the world's best venture capital firms.

For example, it has been previously well publicized that you can see who Sequoia's investors are by reading the SEC disclosure on the Google/Youtube acquisition.

You can see in that filing that Sequoia's major investors include such universities as Amherst, Brown, Colby, Columbia, and Dartmouth -- and that's just into the D's. Similarly, philanthropic foundations invested in Sequoia include the Ford Foundation, the Moore Foundation, the Irvine Foundation, the Rockefeller Foundation, and the Hewlett Foundation.

This is not unusual.

The best VCs get to improve society in two ways: by helping new companies take shape and contribute new technologies and medical cures into the world, and by helping universities and foundations execute their missions to educate and improve people's lives.

Why we should be thankful that we live in a world in which VCs exist, even if they yell at us during board meetings, assuming they'll fund our companies at all:

Imagine living in a world in which professional venture capital didn't exist.

There's no question that fewer new high-potential companies would be funded, fewer new technologies would be brought to market, and fewer medical cures would be invented.

We should not only be thankful that we live in a world in which VCs exist, we should hope that VCs succeed and flourish for decades and centuries to come, because the companies they fund can do so much good in the world -- and as we have seen, a lot of the financial gains that result flow into the coffers of nonprofit institutions that themselves do huge good in the world.

Remember, professional venture capital has only existed in its modern form for about the last 40 years. In that time the world has seen its most amazing flowering of technological and medical progress, ever. That is not a coincidence.

How to make a VC's head explode, in one easy step:

Point out to her that her compensation from carried interest should be taxed as ordinary income, not capital gains, since she's receiving a fee for service and it's not her capital at risk.

The truth about venture capitalists, Part 1

A lot of people have opinions about venture capital -- the pros and cons of VC, whether or not to take VC, which venture capitalists to take money from, how to get VCs to invest in your company, whether VCs are seasoned risk-taking professional investors or psychotic entrepreneur-hating sociopaths, etc.

Often these opinions are based on one individual's specific personal experience with venture capital, and often based on someone's negative experience -- as is often the case, people who have negative experiences are more motivated to tell others than people who have positive experiences.

With that in mind, I will try to provide my hopefully broad perspective on the topic.

I'll just say up front that I don't think my point of view on this is any more valid than that of any of my fellow entrepreneurs -- everyone's experience is different, and this is definitely a topic where reasonable people disagree.

My experience with venture capital includes: being the cofounder of two VC-backed startups that later went public (Kleiner Perkins-backed Netscape and Benchmark-backed Opsware); cofounder of a third startup that hasn't raised professional venture capital (Ning); participant as angel investor or board member or friend to dozens of entrepreneurs who have raised venture capital; and an investor (limited partner) in a significant number of venture funds, ranging from some of the best performing funds ever (1995 vintage) to some of the worst performing funds ever (1999). And all of this over a time period ranging from the recovery of the early 90's bust to the late 90's boom to the early 00's bust to the late 00's whatever you want to call it.

I'm starting to understand why I don't have any hair left.

The most important thing to understand about venture capitalists is that they are in business to do a very specific thing.

They raise a large amount of money -- often $100 million or more -- today, in order to invest in a series of high-risk startups over the next small number of years -- usually 3 to 4 years.

The legal lifespan of the fund is usually 10 years, so that's the absolute outer limit on their investment horizon.

They generally intend, and their investors generally expect, to have the returns from those startups flow back within the next 4 to 6 years -- that's their realistic investment horizon.

Within that structure, they generally operate according to the baseball model (quoting some guy):

"Out of ten swings at the bat, you get maybe seven strikeouts, two base hits, and if you are lucky, one home run. The base hits and the home runs pay for all the strikeouts."

They don't get seven strikeouts because they're stupid; they get seven strikeouts because most startups fail, most startups have always failed, and most startups will always fail.

So logically their investment selection strategy has to be, and is, to require a credible potential of a 10x gain within 4 to 6 years on any individual investment -- so that the winners will pay for the losers and in the timeframe that their investors expect.

From this, you can answer the question of which startups should raise venture capital and which ones shouldn't.

Startups that have a credible potential to be sold or go public for a 10x gain on invested capital within 4 to 6 years of the date of funding should consider raising venture capital.

Most other startups should not raise venture capital. This includes: startups where the founders want to stay private and independent for a long time; startups where there's no inherent leverage in the business model that could result in a 10x gain in 4 to 6 years; and startups working on projects with a longer fuse than 4 to 6 years.

Notably, there are many fine businesses in the world -- many of them highly profitable, and very satisfying to run -- that do not have leverage in their model that makes them suitable for venture capital investment.

By leverage in this context, I mean: the ability to make something once (a piece of software, a chip design, a web site) and sell it (directly or indirectly) to a lot of people (1,000 business customers or 10 million consumers) -- which leads to the classic "hockey stick" revenue projection.

Venture capitalists shouldn't, and can't, invest in companies that don't hit these criteria -- not because they're not good businesses but because their own investors wouldn't stand for it.

There are also many fine entrepreneurs in the world who want their companies to stay small, or who don't want to sell their companies or take them public. That is also well and good, and those entrepreneurs should not raise venture capital.

On the other hand, a business that is built for leverage that could be sold or go public in 4 to 6 years should strongly consider raising professional venture capital, for three reasons:

First, you get the cash to invest in the business and grow it at the speed required to realize its full potential.

It's satisfying to say you don't want to deal with VCs and you want to do it on your own, but if your business has the potential to get big, in my view you should take the cash to invest to make it as big as you can, and that usually requires more capital than you can raise from bootstrapping or from angels.

Second, you get that cash from a professional investor who invests in this kind of business as her full-time job and reason for existence in the world.

Most other possible investors in a high-growth startup will be much more difficult to deal with than a professional venture capitalist.

Third, in the best case, you will get help building your high-growth business from the venture capital partner you take money from (but see more on this in Part 2).

When a venture capitalist turns you down, it isn't personal and it isn't (usually) because she's stupid. Instead, it's often for one of these reasons:

One, she can't see the leverage -- she can't see you getting to a sale or IPO with a credible prospect of a 10x return within 4 to 6 years. If she can't see this, and 10 of her peers at other firms can't see it, then you may want to revisit your fundamental business model assumptions and try to understand what's missing.

Remember, it's in her best interest to see the full potential in your business -- she is looking for high-potential startups in which to invest.

Two, she thinks that what you're doing is too early or unproven.

This is the one that drives entrepreneurs nuts. Isn't the whole point of venture capital to make risky investments in unproven technologies and markets?

Unfortunately, that's life -- sometimes things are simply too early for venture capital. In that case, develop your idea further with bootstrap or angel funding and then take it back to the VCs later with more proof points.

Three, she isn't convinced that you've assembled the right team to go after the opportunity. This usually means she doesn't think your technical founder(s) are strong enough, or she doesn't think your founding CEO is strong enough. Again, it's in her best interest to see the potential in the team if it's there -- so if she and 10 of her peers pass on your startup because of concerns about the team, then you may want to rethink your team.

There are many other reasons in addition to these that a VC may pass on your investment that have nothing to do with you:

She loves it but she can't talk her partners into it -- which happens.

She's fully committed and doesn't have time to take on a new opportunity.

It would require travelling and she can't or won't do that.

You're in a market she doesn't know much about.

Or, she had a bad experience with a similar investment in the past.

The frustrating part is that she won't always tell you why she's passing -- in large part because she wants to keep the door open to investing at a later date if things change (i.e. if it becomes clearer that you have a home run on your hands).

For that reason, whenever a VC passes and explains why, no matter how mean or unfair they sound, the best response is to thank them for their honesty.

I'm trying to keep these posts from getting too long, so I'll stop here, but tantalize you with the topics to be covered in Part 2:

  • Comparing venture firms, and comparing partners within firms.
  • The VC's ideal investment.
  • How much help, and what kinds of help, you can expect from your VC.
  • How VC's spend an awful lot of their time, and why you should feel sorry for them.
  • VCs: soulless and rapacious capitalists, or surprisingly generous philanthropists? Or both?
  • Why we should be thankful that we live in a world in which VCs exist, even if they yell at us during board meetings, assuming they'll fund our companies at all.
  • And, how to make a VC's head explode.

Blogging by the numbers

Days blogging: 4.5

Total blog posts: 7

Number of bottles of Corona consumed while writing those blog posts: 3

Total page views: 48,562

Total comments: 181

Total banned comment trolls: 1

Total trackbacks: 34

Top 10 referrers: Typepad won't tell you

% of traffic from top 10 referrers: Typepad won't tell you

Total unique referrers: Typepad won't tell you

Time by which this post was delayed due to your blogger watching Fox News' live split-screen real-time view of a helicopter shot of Paris Hilton en route to court in an LAPD patrol car on the left and the arrival dock of the courthouse on the right: 36 minutes

Number of goofy widgets added to blog home page: 3

Percentage of those widgets provided by a company in which your blogger has a personal investment: 33.3%

Number of gratuitous yet entertaining Microsoft slams in first week of blog postings: 3

Number of pro-Windows Media Center posts being drafted in part to make sure you don't start to think your blogger is anti-Microsoft: 1

Number of job offers received by your blogger from major technology news sites to do paid blogging: 1

Number of people who have criticized your blogger's writing style: 3

Odds of your blogger changing his writing style: close to 0

Number of Robert Evans references: 1, so far

Number of predicted imminent stock market crashes based on inaccurate price/earnings data by commenters: 1

Number of man-eating saber-tooth tigers which haven't attacked: 9

Number of manhole covers dropped through a manhole lately: 0

Fun your blogger is having: infinite

Thanks for all the comments and feedback!

June 06, 2007

How to hire the best people you've ever worked with

There are many aspects to hiring great people, and various people smarter than me have written extensively on the topic.

So I'm not going to try to be comprehensive.

But I am going to relay some lessons learned through hard experience on how to hire the best people you've ever worked with -- particularly for a startup.

I'm going to cover two key areas in this post:

Criteria: what to value when evaluating candidates.

And process: how to actually run the hiring process, and if necessary the aftermath of making a mistake.

Criteria first.

Lots of people will tell you to hire for intelligence.

Especially in this industry.

You will read, hire the smartest people out there and your company's success is all but guaranteed.

I think intelligence, per se, is highly overrated.

Specifically, I am unaware of any actual data that shows a correlation between raw intelligence, as measured by any of the standard metrics (educational achievement, intelligence tests, or skill at solving logic puzzles) and company success.

Now, clearly you don't want to hire dumb people, and clearly you'd like to work with smart people.

But let's get specific.

Most of the lore in our industry about the role of intelligence in company success comes from two stratospherically successful companies -- Microsoft, and now Google -- that are famous for hiring for intelligence.

Microsoft's metric for intelligence was the ability to solve logic puzzles.

(I don't know if the new, MBA-heavy Microsoft still does this, but I do know this is how Microsoft in its heyday worked.)

For example, a classic Microsoft interview question was: "Why is a manhole cover round?"

The right answer, of course, is, "Who cares? Are we in the manhole business?"

(Followed by twisting in your chair to look all around, getting up, and leaving.)

Google, on the other hand, uses the metric of educational achievement.

Have a PhD? Front of the line. Masters? Next. Bachelor's? Go to the end.

In apparent direct contraction to decades of experience in the computer industry that PhD's are the hardest people to motivate to ship commercially viable products -- with rare exception. (Hi, Tim! Hi, Diego!)

Now, on the one hand, you can't question the level of success of either company.

Maybe they're right.

But maybe, just maybe, their success had a lot to do with other factors -- say, huge markets, extreme aggressiveness, right time/right place, key distribution deals, and at least in one case, great products.

Because here's the problem: I'm not aware of another Microsoft that's been built by hiring based on logic puzzles. And I'm not aware of another Google that's been built by hiring PhD's.

So maybe there are other hiring criteria that are equally, or more, important.

Here's what I think those criteria are.

First, drive.

I define drive as self-motivation -- people who will walk right through brick walls, on their own power, without having to be asked, to achieve whatever goal is in front of them.

People with drive push and push and push and push and push until they succeed.

Winston Churchill after the evacuation of Dunkirk:

"We shall not flag or fail. We shall go on to the end, we shall fight in France, we shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our Island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender."

That's what you want.

Some people have it and some people don't.

Of the people who have it, with some of them it comes from guilt, often created by family pressure.

With others, it comes from a burning desire to make it big.

With others, it comes from being incredibly Type A.

Whatever... go with it.

Drive is independent of educational experience, grade point averages, and socioeconomic background.

(But Marc, isn't a 4.0 GPA a sure sign of drive? Well, it's a sign that the person is driven to succeed on predefined tests with clear criteria and a grader -- in an environment where the student's parents are often paying a lot of money for the privilege of having their child take the tests. That may or may not be the same thing as being driven to succeed in the real world.)

Drive is even independent of prior career success.

Driven people don't tend to stay long at places where they can't succeed, and just because they haven't succeeded in the wrong companies doesn't mean they won't succeed at your company -- if they're driven.

I think you can see drive in a candidate's eyes, and in a candidate's background.

For the background part, I like to see what someone has done.

Not been involved in, or been part of, or watched happen, or was hanging around when it happened.

I look for something you've done, either in a job or (often better yet) outside of a job.

The business you started and ran in high school.

The nonprofit you started and ran in college.

If you're a programmer: the open source project to which you've made major contributions.

Something.

If you can't find anything -- if a candidate has just followed the rules their whole lives, showed up for the right classes and the right tests and the right career opportunities without achieving something distinct and notable, relative to their starting point -- then they probably aren't driven.

And you're not going to change them.

Motivating people who are fundamentally unmotivated is not easy.

But motivating people who are self-motivated is wind at your back.

I like specifically looking for someone for which this job is their big chance to really succeed.

For this reason, I like hiring people who haven't done the specific job before, but are determined to ace it regardless.

I also like specifically looking for someone who comes from some kind of challenging background -- a difficult family situation, say, or someone who had to work his/her way through school -- who is nevertheless on par with his/her more fortunate peers in skills and knowledge.

Finally, beware in particular people who have been at highly successful companies.

People used to say, back when IBM owned the industry: never hire someone straight out of IBM. First, let them go somewhere else and fail. Then, once they've realized the real world is not like IBM, hire them and they'll be great.

And remember, an awful lot of people who have been at hugely successful companies were just along for the ride.

Career success is great to look for -- but it's critical to verify that the candidates out of hugely successful companies actually did what they claim in their roles at those companies. And that they really get it, that the real world is a lot tougher than being IBM in the 80's, or Microsoft in the 90's, or Google today.

Second criterion: curiosity.

Curiosity is a proxy for, do you love what you do?

Anyone who loves what they do is inherently intensely curious about their field, their profession, their craft.

They read about it, study it, talk to other people about it... immerse themselves in it, continuously.

And work like hell to stay current in it.

Not because they have to.

But because they love to.

Anyone who isn't curious doesn't love what they do.

And you should be hiring people who love what they do.

As an example, programmers.

Sit a programmer candidate for an Internet company down and ask them about the ten most interesting things happening in Internet software.

REST vs SOAP, the new Facebook API, whether Ruby on Rails is scalable, what do you think of Sun's new Java-based scripting language, Google's widgets API, Amazon S3, etc.

If the candidate loves their field, they'll have informed opinions on many of these topics.

That's what you want.

Now, you might say, Marc, that's great for a young kid who has a lot of spare time to stay current, but what about the guy who has a family and only has time for a day job and can't spend nights and weekends reading blogs and staying that current?

Well, when you run into a person like that who isn't current in their field, the other implication is that their day job isn't keeping them current.

If they've been in that job for a while, then ask yourself, is the kind of person you're looking for really going to have tolerated staying in a day job where their skills and knowledge get stale, for very long?

Really?

Remember -- because of the Internet, staying current in any field no longer costs any money.

In my experience, drive and curiosity seem to coincide pretty frequently.

The easiest way to be driven is to be in a field that you love, and you'll automatically be curious.

Third and final criterion: ethics.

Ethics are hard to test for.

But watch for any whiff of less than stellar ethics in any candidate's background or references.

And avoid, avoid, avoid.

Unethical people are unethical by nature, and the odds of a metaphorical jailhouse conversion are quite low.

Priests, rabbis, and ministers should give people a second chance on ethics -- not hiring managers at startups.

'Nuff said.

One way to test for an aspect of ethics -- honesty -- is to test for how someone reacts when they don't know something.

Pick a topic you know intimately and ask the candidate increasingly esoteric questions until they don't know the answer.

They'll either say they don't know, or they'll try to bullshit you.

Guess what. If they bullshit you during the hiring process, they'll bullshit you once they're onboard.

A candidate who is confident in his own capabilities and ethical -- the kind you want -- will say "I don't know" because they know that the rest of the interview will demonstrate their knowledge, and they know that you won't react well to being bullshitted -- because they wouldn't react well either.

Second topic: process -- how to run the hiring process.

First, have a written hiring process.

Whatever your hiring process is -- write it down, and make sure everyone has a copy of it, on paper.

It's continually shocking how many startups have a random hiring process, and as a result hire apparently randomly.

Second, do basic skills tests.

It's amazing how many people come in and interview for jobs where their resume says they're qualified, but ask them basic questions about how to do things in their domain, and they flail.

For example, test programmers on basic algorithms -- linked lists, binary searches.

Just in pseudocode -- it doesn't matter if they know the relevant Java library calls.

It does matter if they are unable to go up to the whiteboard and work their way through something that was covered in their first algorithms course.

A lot of people come in and interview for programming jobs who, at their core, can't program.

And it's such a breath of fresh air when you get someone who just goes, oh yeah, a linked list, sure, let me show you.

The same principle applies to other fields.

For a sales rep -- have them sell you on your product all the way to a closed deal.

For a marketing person -- have them whiteboard out a launch for your new product.

Third, plan out and write down interview questions ahead of time.

I'm assuming that you know the right interview questions for the role -- and frankly, if you don't, you probably shouldn't be the hiring manager for that position.

The problem I'm addressing is: most people don't know how to interview a candidate.

And even people who do know how, aren't necessarily good at coming up with questions on the fly.

So just make sure you have questions planned out and assigned to each interviewer ahead of time.

I do this myself -- always enter the room with a list of questions pre-planned -- because I don't want to count on coming up with them on the fly.

The best part is that you can then iteratively refine the questions with your team as you interview candidates for the position.

This is one of the best ways for an organization to become really good at hiring: by iterating the questions, you're refining what your criteria are -- and how you screen for those criteria.

Fourth, pay attention to the little things during the interview process.

You see little hints of things in the interview process that blow up to disasters of unimaginable proportions once the person is onboard.

Person never laughs? Probably hard to get along with.

Person constantly interrupts? Egomaniac, run for the hills.

Person claims to be good friends with someone you know but then doesn't know what the friend is currently doing? Bullshitter.

Person gives nonlinear answers to simple questions? Complete disorganized and undisciplined on the job.

Person drones on and on? Get ready for hell.

Fifth, pay attention to the little things during the reference calls.

(You are doing reference calls, right?)

Most people softball deficiencies in people they've worked with when they do reference calls.

"He's great, super-smart, blah blah blah, but..."

"Sometimes wasn't that motivated" -- the person is a slug, you're going to have to kick their rear every morning to get them to do anything.

"Could sometimes be a little hard to get along with" -- hugely unpleasant.

"Had an easier time working with men than women" -- raging sexist.

"Was sometimes a little moody" -- suffering from clinical depression, and unmedicated.

You get the picture.

Sixth, fix your mistakes fast... but not too fast.

If you are super-scrupulous about your hiring process, you'll still have maybe a 70% success rate of a new person really working out -- if you're lucky.

And that's for individual contributors.

If you're hiring executives, you'll probably only have a 50% success rate.

That's life.

Anyone who tells you otherwise is hiring poorly and doesn't realize it.

Most startups in my experience are undisciplined at fixing hiring mistakes -- i.e., firing people who aren't working out.

First, realize that while you're going to hate firing someone, you're going to feel way better after the fact than you can currently imagine.

Second, realize that the great people on your team will be happy that you've done it -- they knew the person wasn't working out, and they want to work with other great people, and so they'll be happy that you've done the right thing and kept the average high.

(The reason I say "not too fast" is because your great people are watching to see how you fire people, and if you do it too fast you'll be viewed as arbitrary and capricious -- but trust me, most startup managers do not have this problem, they have the opposite problem.)

Third, realize that you're usually doing the person you're firing a favor -- you're releasing them from a role where they aren't going to succeed or get promoted or be valued, and you're giving them the opportunity to find a better role in a different company where they very well might be an incredible star.

(And if they can't, were they really the kind of person you wanted to hire in the first place?)

One of the good things about our industry is that there are frequently lots of new jobs being created and so you're almost never pushing someone out onto the street -- so don't feel that you're dooming their families to the poorhouse, because you aren't.

You're not that important in their lives.

I can name a number of people I've fired or participated in firing who have gone on to be quite successful at other companies.

They won't necessarily talk to me anymore, though :-).

Finally, although this goes without saying: value the hell out of the great people you do have on your team. Given all of the above, they are incredibly special people.

June 05, 2007

Why there's no such thing as Web 2.0

Proposed: There's no such thing as Web 2.0.

Well, that's not actually true.

Let me back up.

Here's what I think happened.

In the beginning, Web 2.0 was a conference.

As conferences go, a good one -- with a great name.

The first Web 2.0 conference was held in the fall of 2004, and coincided with a large number of people in the tech industry (myself included) peeking our heads out from the fallout from the nuclear winter of 2001-2003 and realizing that the Web was not only not dead, it was thriving.

From there, it was easy to conclude that "Web 2.0" was a thing, a noun, something to which you could refer to explain a new generation of Web services and Web companies.

Many people have since pointed out that there is no clear definition of Web 2.0.

Tim O'Reilly, whose organization created the conference (and the term), attempted to define Web 2.0 as follows:

"Web 2.0 is the network as platform, spanning all connected devices; Web 2.0 applications are those that make the most of the intrinsic advantages of that platform: delivering software as a continually-updated service that gets better the more people use it, consuming and remixing data from multiple sources, including individual users, while providing their own data and services in a form that allows remixing by others, creating network effects through an "architecture of participation," and going beyond the page metaphor of Web 1.0 to deliver rich user experiences."

This is, believe it or not, the short definition.

The long one was much, much longer.

Tim's a wonderful guy, a friend, and a true pioneer, but if the creator of the term can't come up with a crisper definition than that, what hope do the rest of us have?

I believe the reality is this: what we have seen over the last several years is the Web itself coming into its own.

After an initial phase of the Web as a medium, in which lots of people attempted to make the Web look like a newspaper, or a magazine, or a TV channel, we as an industry have recently been collectively developing a much clearer idea of what the Web is really like as a medium in and of itself.

This has led to broad realization of a set of design patterns for how Web services and Web companies often get built and used.

Which is great.

And of course, many of those design patterns are described by the sub-bullets of Tim's and others' multifaceted definitions of Web 2.0.

And if it is useful for people to refer to those design patterns collectively with a term, then Web 2.0 maybe makes sense.

Personally, I side with those who say "it's just the Web" -- that's matter of semantics and reasonable people can disagree.

But here's the problem.

Web 2.0 has been picked up as a term by the entrepreneurial community and its corollaries in venture capital, the press, analysts, large media and Internet companies, and Wall Street to describe a theoretical new category of startup companies.

Or a "space", if you will.

As in, "Foobarxango.com is in the Web 2.0 space".

At its simplest level, this is just shorthand to indicate a new Web company.

The technology industry has a long history of creating and naming such "spaces" to use as shorthand.

Before the "Web 2.0 space", you had the "dot com space", the "intranet space", the "B2B space", the "B2C space", the "security space", the "mobile space" (still going strong!)... and before that, the "pen computing" space, the "CD-ROM multimedia space", the "artificial intelligence" space, the "mini-supercomputer space", and going way back, the "personal computer space". And many others.

But there is no such thing as a "space".

There is such a thing as a market -- that's a group of people who will directly or indirectly pay money for something.

There is such a thing as a product -- that's an offering of a new kind of good or service that is brought to a market.

There is such a thing as a company -- that's an organized business entity that brings a product to a market.

But there is no such thing as a "space".

And, as far as startups are concerned, there is no such thing as Web 2.0.

What happens when startups start getting referred to as "Web 2.0 startups" -- or for that matter, "B2B startups" or "mobile startups" or "pen computing startups" -- or as being in the Web 2.0/B2B/mobile/pen computing "space" -- is that trends are getting mistaken for markets and products.

You can't build a company based on a trend.

Trends are obvious, and there's no startup opportunity in the obvious.

You have to build a company based on a new kind of product (or service -- I am using the terms interchangeably) and you have to take that product to a market.

It frankly doesn't really matter which trends, or design patterns, you incorporate into your product.

If the product is compelling to the market, it will succeed.

If the product is not compelling to the market, it will fail.

It's not much more complicated than that.

The hard part is creating that new and compelling product. (This is left as an exercise to the reader.)

Spending too much time thinking about trends and "spaces" is a great way for an entrepreneurial team to go right off the rails and bring another derivative product to market, which the market then promptly ignores.

I can't tell you how many pitches I've seen for startups that are chasing the latest trend and have no chance.

And I can't tell you how few pitches I've seen for new and compelling products.

As a result of the widespread adoption of language like "Web 2.0 companies" and the "Web 2.0 space" -- and startups referring to themselves as such, most of which will fail -- you get a predictably cynical backlash from people who then dismiss the whole category as trendy marketing hype full of me-too wannabes and in the process throw out the baby with the bathwater and dismiss all the legitimately new and exciting products and companies that are being created all around us.

As an entrepeneur, I am frankly torn as to whether or not to even post this piece.

It may be in my best interest to have more of my fellow entrepreneurs off chasing trends and pitching their "Web 2.0 startups" to the latest enterprise software VC who is now "doing Web 2.0 deals" instead of building real products that might compete with one of my companies.

But I think there are so many cool new products and companies being created these days -- many of which have little to do with any conventional wisdom around buzzwords -- and I'm so excited about them, and so proud of them on behalf of my industry, that I can't help myself :-).

June 04, 2007

The Pmarca Guide to Personal Productivity

One of my all-time favorite guilty pleasures is indulging in productivity porn.

Productivity porn (or, for those really in the know, "productivity pr0n") consists of techniques, tactics, and tricks for maximizing personal productivity -- or, as they say, "getting things done".

Having enjoyed such fine purveyors of prodporn as Merlin Mann, Danny O'Brien, Gina Trapani, David Allen, and Tim Ferriss, I'd like to return the favor with the following: the Pmarca Guide to Personal Productivity.

The techniques that follow work together as an integrated set for me, but they probably won't for you. Maybe you'll get one or two ideas -- probably out of the ideas I stole from other people. If so, I have succeeded.

And here we go:

  • Let's start with a bang: don't keep a schedule.

    He's crazy, you say!

    I'm totally serious. If you pull it off -- and in many structured jobs, you simply can't -- this simple tip alone can make a huge difference in productivity.

    By not keeping a schedule, I mean: refuse to commit to meetings, appointments, or activities at any set time in any future day.

    As a result, you can always work on whatever is most important or most interesting, at any time.

    Want to spend all day writing a research report? Do it!

    Want to spend all day coding? Do it!

    Want to spend all day at the cafe down the street reading a book on personal productivity? Do it!

    When someone emails or calls to say, "Let's meet on Tuesday at 3", the appropriate response is: "I'm not keeping a schedule for 2007, so I can't commit to that, but give me a call on Tuesday at 2:45 and if I'm available, I'll meet with you."

    Or, if it's important, say, "You know what, let's meet right now."

    Clearly this only works if you can get away with it. If you have a structured job, a structured job environment, or you're a CEO, it will be hard to pull off.

    But if you can do it, it's really liberating, and will lead to far higher productivity than almost any other tactic you can try.

    This idea comes from a wonderful book called A Perfect Mess, which explains how not keeping a schedule has been key to Arnold Schwarzenegger's success as a movie star, politician, and businessman over the last 20 years.

    Want to meet with Arnold? Sure, drop on by. He'll see you if he can. But you might want to call first. Sorry, he doesn't schedule appointments in advance.

    As a result, for 20 years he has been free to work on whatever is most important in his life at any time.

    Those of you in California may recall how, once Arnold decided to run for Governor, he went into a blaze of action and activity that resulted in a landslide victory. The book attributes this in part to the fact that his schedule was completely clear and he could spend all day, every day on his new political career, without having to worry about distractions or commitments.

    If you have at any point in your life lived a relatively structured existence -- probably due to some kind of job with regular office hours, meetings, and the like -- you will know that there is nothing more liberating than looking at your calendar and seeing nothing but free time for weeks ahead to work on the most important things in whatever order you want.

    This also gives you the best odds of maximizing flow, which is a whole 'nother topic but highly related.

    I've been trying this tactic as an experiment in 2007, as those of you who have emailed me to suggest we get together or that I go to a conference or to a meeting will attest. And I am so much happier, I can't even tell you. I get so much more time to focus on the things that really matter -- in my case, my two companies, my nonprofit boards, and my lovely wife.

    The other great thing about this tactic is that it doesn't have to be all or nothing -- there are quite a few things that still sneak onto my calendar that I really can't get out of. But one is still able to draw the line between "must do" and "sounds interesting but I'm not keeping a schedule".

  • Keep three and only three lists: a Todo List, a Watch List, and a Later List.

    The more into lists you are, the more important this is.

    Into the Todo List goes all the stuff you "must" do -- commitments, obligations, things that have to be done. A single list, possibly subcategorized by timeframe (today, this week, next week, next month).

    Into the Watch List goes all the stuff going on in your life that you have to follow up on, wait for someone else to get back to you on, remind yourself of in the future, or otherwise remember.

    Into the Later List goes everything else -- everything you might want to do or will do when you have time or wish you could do.

    If it doesn't go on one of those three lists, it goes away.

  • Each night before you go to bed, prepare a 3x5 index card with a short list of 3 to 5 things that you will do the next day.

    And then, the next day, do those things.

    I sit down at my desk before I go to sleep, pull up my Todo List (which I keep in Microsoft Word's outline mode, due to long habit), and pick out the 3 to 5 things I am going to get done tomorrow. I write those things on a fresh 3x5 card, lay the card out with my card keys, and go to bed. Then, the next day, I try like hell to get just those things done. If I do, it was a successful day.

    People who have tried lots of productivity porn techniques will tell you that this is one of the most successful techniques they have ever tried.

    Once you get into the habit, you start to realize how many days you used to have when you wouldn't get 3 to 5 important/significant/meaningful things done during a day.

  • Then, throughout the rest of the day, use the back of the 3x5 card as your Anti-Todo List.

    This isn't a real list. And the name is tongue firmly in cheek.

    What you do is this: every time you do something -- anything -- useful during the day, write it down in your Anti-Todo List on the card.

    Each time you do something, you get to write it down and you get that little rush of endorphins that the mouse gets every time he presses the button in his cage and gets a food pellet.

    And then at the end of the day, before you prepare tomorrow's 3x5 card, take a look at today's card and its Anti-Todo list and marvel at all the things you actually got done that day.

    Then tear it up and throw it away.

    Another day well spent, and productive.

    I love this technique -- being able to put more notches on my accomplishment belt, so to speak, by writing down things on my Anti-Todo list as I accomplish them throughout the day makes me feel marvelously productive and efficient. Far more so than if I just did those things and didn't write them down.

    Plus, you know those days when you're running around all day and doing stuff and talking to people and making calls and responding to emails and filling out paperwork and you get home and you're completely exhausted and you say to yourself, "What the hell did I actually get done today?"

    Your Anti-Todo list has the answer.

    By the way, in order to do this, you have to carry a pen with you everywhere you go. I recommend the Fisher Space Pen. It's short and bullet-shaped so it won't poke you in the thigh when it's in your pocket, it's wonderfully retro, it helped save the Apollo 11 mission, and it writes upside down. What's not to like?

  • Structured Procrastination.

    This is a great one.

    This one is lifted straight from the genius mind of John Perry, a philosophy professor at Stanford.

    Read his original description, by all means. You even get to see a photo of him practicing jumping rope with seaweed on a beach while work awaits. Outstanding.

    The gist of Structured Procrastination is that you should never fight the tendency to procrastinate -- instead, you should use it to your advantage in order to get other things done.

    Generally in the course of a day, there is something you have to do that you are not doing because you are procrastinating.

    While you're procrastinating, just do lots of other stuff instead.

    As John says, "The list of tasks one has in mind will be ordered by importance. Tasks that seem most urgent and important are on top. But there are also worthwhile tasks to perform lower down on the list. Doing these tasks becomes a way of not doing the things higher up on the list. With this sort of appropriate task structure, the procrastinator becomes a useful citizen. Indeed, the procrastinator can even acquire, as I have, a reputation for getting a lot done."

    Reading John's essay was one of the single most profound moments of my entire life.

    For example, I hate making phone calls. Hate it. Love sending emails, enjoy seeing people face to face (sometimes), but I hate making phone calls.

    I can get so much done while I am avoiding making a phone call that I need to make, I can barely believe it.

    In fact, that's what's happening right now.

  • The other key two-word tactic: Strategic Incompetence.

    The best way to to make sure that you are never asked to do something again is to royally screw it up the first time you are asked to do it.

    Or, better yet, just say you know you will royally screw it up -- maintain a strong voice and a clear gaze, and you'll probably get off the hook.

    Of course, this assumes that there are other things that are more important at which you are competent.

    Which, hopefully, there are.

    Organizing the company picnic, sending faxes or Fedexes, negotiating with insurance brokers, writing in plain English... the list of things at which one can be strategically incompetent is nearly endless.

  • Do email exactly twice a day -- say, once first thing in the morning, and once at the end of the workday.

    Allocated half an hour or whatever it takes, but otherwise, keep your email client shut and your email notifications turned off.

    Anyone who needs to reach you so urgently that it can't wait until later in the day or tomorrow morning can call you, or send a runner, or send up smoke signals, or something else.

    Or, more likely, find someone else who can do whatever it is that needs doing.

    (If you communicate with your spouse or key family members via email during the day, then just set up a separate email account just for them and leave that open all day, but keep your primary email closed. And never give out the family email address to anyone noncritical -- including your boss.)

    Only doing email twice a day will make you far more productive for the rest of the day.

    The problem with email is that getting an email triggers that same endorphin hit I mentioned above -- the one that a mouse gets when he bonks on the button in the cage and gets a food pellet.

    Responding to an email triggers that same hit.

    The pleasure chemical hits your neocortex and you go "ahhh" inside and feel like you've done something.

    So you sit and work with your mail client open and you interrupt your work every time an email comes in and you answer it and you send another email and you feel great in the moment.

    But what you're really doing is fracturing your time, interrupting your flow, and killing your ability to focus on anything long enough to get real high-quality work done.

    This one is far easier to say than do. And it won't be feasible during projects where lots of updates during the day really are important -- raising money, for example, or closing a big deal.

    Me, I'm just trying to get down to checking email only a half dozen times per day.

  • When you do process email, do it like this:

    First, always finish each of your two daily email sessions with a completely empty inbox.

    I don't know about you, but when I know I have emails in my inbox that haven't been dealt with, I find it hard to concentrate on other things.

    The urge to go back to my email is nearly overpowering.

    (I am apparently seriously addicted to endorphins.)

    Second, when doing email, either answer or file every single message until you get to that empty inbox state of grace.

    Not keeping a schedule helps here, a lot, if you can pull it off -- you can reply to a lot of messages with "I'm sorry, I'm not keeping a schedule in 2007, I can't commit to that."

    Third, emails relating to topics that are current working projects or pressing issues go into temporary subfolders of a folder called Action.

    You should only have Action subfolders for the things that really matter, right now.

    Those subfolders then get used, and the messages in them processed, when you are working on their respective projects in the normal course of your day.

    Fourth, aside from those temporary Action subfolders, only keep three standing email folders: Pending, Review, and Vault.

    Emails that you know you're going to have to deal with again -- such as emails in which someone is committing something to you and you want to be reminded to follow up on it if the person doesn't deliver -- go in Pending.

    Emails with things you want to read in depth when you have more time, go into Review.

    Everything else goes into Vault.

    Every once in a while, sweep through your Action subfolders and dump any of them that you can into Vault.

    (And do the same thing for messages in your Pending folder -- most of the things in there you will never look at again. Actually, same is true for Review.)

    That's it.

    You can get away with this because modern email clients are so good at search (well, most of them -- and you can always move to GMail) that it's not worth the effort to try to file emails into lots of different folders.

    Obviously you may need some additional permanent folders for important things like contracts, or emails from your doctor, or the like, but these are exceptions and don't change your standard operating procedure.

  • Don't answer the phone.

    Let it go to voicemail, and then every few hours, screen your voicemails and batch the return calls.

    Say, twice a day.

    Cell phones and family plans are so cheap these days that I think the best thing to do is have two cell phones with different numbers -- one for key family members, your closest friends, and your boss and a few coworkers, and the other for everyone else.

    Answer the first one when it rings, but never answer the second one.

  • Hide in an IPod.

    One of the best and easiest ways to avoid distractions in the workplace is to be wearing those cute little IPod earbud headphones (or any other headphones of your choice).

    People, for some reason, feel much worse interrupting you if you are wearing headphones than if you're not.

    It's great -- a lot of the time, people will walk up to you, start to say something, notice the headphones, apologize (using exaggerated mouth motions), and walk away.

    This is great -- half the time they didn't actually need to talk to you, and the other half of the time they can send an email that you can process at the end of the day during the second of your two daily email sweeps.

    Here's the best part: you don't actually have to be listening to anything.

    Hell, you don't even have to have the headphones plugged into anything.

  • I'm not going to talk a lot about getting up early or going to bed late or anything else related to the course of a typical day, because everyone's different.

    Personally I go back and forth between being a night owl (99% of the time) and a morning person (1% -- I'm going to try to push it to 2%).

    But the thing that matters almost more than anything in determining whether I'll have a happy, satisfying day is this: no matter what time you get up, start the day with a real, sit-down breakfast.

    This serves two purposes.

    First, it fuels you up. Study after study have shown that breakfast is, yes, the most important meal of the day. It's critical to properly fuel the body for the day's activities and it's also critical to staying lean or losing weight. (People who don't have breakfast tend to eat more, and worse, at lunch.)

    Second, it gives you a chance to calmly, peacefully collect your thoughts and prepare mentally and emotionally for the day ahead.

    This works whether you do it with kids and/or a partner, or you're solo.

    Personally I think it's worth whatever effort is involved to go to bed early enough to wake up early enough to have a good solid 45 minutes or an hour for breakfast each morning, if you can pull it off.

  • Only agree to new commitments when both your head and your heart say yes.

    This one is from the great Robert Evans.

    (Hold out for the audiobook -- trust me.)

    It's really easy to get asked to do something -- a new project, a nonprofit activity, a social event -- and to have your head say yes and your heart say no, and then your mouth says yes.

    The next thing you know, you're piled up with all kinds of things on your schedule that sounded like a good idea at the time but you really don't want to do.

    And distract you from the things that really matter.

    And make you angry, and bitter, and sullen, and hostile.

    (Oh, wait, I'm projecting.)

    In my experience, it takes time to tell the difference between your head saying yes and your heart saying yes.

    I think the key is whether you're really excited about it.

    If you get that little adrenaline spike (in a good way) when you think about it, then your heart is saying yes.

    The corollary, of course, is that when your head says no and your heart says yes, your mouth should generally say yes as well :-).

    But not when your head says yes and your heart says no.

  • Do something you love.

    As you've probably concluded by now, most of the tactics described in this post involve keeping oneself as free as possible to pursue one's core interests, and dreams.

    If you're not doing something you love with the majority of your time, and you have any personal freedom and flexibility whatsoever, it's time for a change.

    And this doesn't mean something that you love doing in theory -- but rather, the core thing you love doing in practice.

And that's it.

Please feel free to nominate additions to the list! Next time my mobile wiki-based GTD Outlook synchronized hipster PDA reminds me, I'll check 'em out.

Notes based on reader feedback:

Turns out Robert Benchley wrote about structured procrastination back in 1949. Wonderful essay -- highly recommended.

The sharpest reaction has been to my theory of not keeping a schedule. I'll stick to my theory but make (or re-make) a couple of clarifying points.

First, it is certainly true that many people have jobs and responsibilities where they can't do that. Or maybe can only do it partially. And many people enjoy living a highly structured life and obviously this approach is not for them.

But if your reaction is, "boy, I wish I could do that", then it may well be worth rethinking your approach to your career.

I can tell you from personal experience that being stuck in a role where you have a lot of structure but feel like you never get anything done is not the optimal way to advance in one's profession, or maximize one's job satisfaction.

Second, I do not recommend pursuing this approach in one's personal life :-).

On another topic, the tactic of each night, write down the 3 to 5 things you need to do the next day has struck some people as too simplistic.

That may be the case for some people, but I can't tell you how many times I've arrived home at night and am at a loss as to what I actually got done that day, despite the fact that I worked all day.

And I also can't tell you how often I've had a huge, highly-structured todo list in front of me with 100 things on it and I stare at it and am paralyzed into inaction (or, more likely, structured procrastination).

So a day when I get 3 to 5 concrete, actionable things done in addition to all the other stuff one has to do to get through the day -- well, that's a good day.

A few people have said, why not just use GTD (David Allen's "Getting Things Done" approach).

While I find GTD to be highly inspiring, in practice I think it's awfully complex. At least if your job is based on project work (as opposed to having a highly structured role like CEO or head of sales).

For me, an organization system that requires significant time to deal with in and of itself is not optimal. Much better, for me at least, is to focus on stripping away nonessentials and freeing up as much time as possible to deal with whatever is most important.

Finally, I discovered after writing this post that Paul Graham talks a bit about the role of time and focus in personal productivity in his essay on "The Power of the Marginal".

Thanks for all the comments!

June 03, 2007

Bubbles on the brain

It has become commonplace in Silicon Valley and in the blogosphere to take the position that we are in another bubble -- a Web 2.0 bubble, or a dot com bubble redux.

I don't think this is true.

Let's examine the theory of a new bubble from a few different angles.

First, recall that economist Paul Samuelson once quipped, "Economists have successfully predicted nine of the last five recessions."

One might paraphrase this for our purposes as "Technology industry experts have successfully predicted nine of the last five bubbles"... or perhaps more like five of the last one bubbles.

The human psyche seems to have a powerful underlying need to predict doom and gloom.

I suspect this need was evolved into us way back when.

If there is a nonzero chance that a giant man-eating saber-tooth tiger is going to come over the nearest hill and chomp you, then it's in your evolutionary best interest to predict doom and gloom more frequently than it actually happens.

The cost of hiding from a nonexistent giant man-eating saber-tooth tiger is low, but the cost of not hiding from a real giant man-eating saber-tooth tiger is quite high.

So hiding more often than there are tigers makes a lot of sense, if you're a caveman.

But as with other habits ingrained into us by evolution, the habit of predicting doom and gloom when it isn't in fact right around the corner might no longer make sense.

On Wall Street, investors who have this habit are known as "perma-bears" and generally are predicting the imminent collapse of the stock market. This habit keeps them from being fully invested. Sure, they're well protected during the occasional crash of 1929 or 2000, but by and large they massively underperform their peers who take advantage of the fact that most years, the economy grows, and the market goes up. They have disappointing careers and die unhappy and bitter.

In reality it seems very difficult to predict either a bubble or a crash.

Lots of people predicted a stock market crash... in 1995, 1996, 1997, 1998, and 1999. They were correct in 2000. But as soon as the stock market recovered in 2003 and 2004, they were back at it, and there have been similar predictions from noted pundits ever since -- incorrectly.

Similarly, in the technology industry, there were people calling a bubble starting in 1995 and continuing through to 2000, with a short break for about two years, and then more bubble-calling ever since.

If you're going to listen to people who predict bubbles or crashes, you have to be ready to stay completely out of the market -- the stock market, and the technology industry -- almost every year of your life.

Second, historically, bubbles are very, very rare.

It's significant that in books and papers that talk about bubbles, there are simply not that many examples over the past 500 years of capitalism.

You've got the South Sea bubble, the Dutch tulip bulb bubble, the bubble in Japanese stocks in the 1980's, the dot com bubble, and a few others.

They just don't happen that often, at least in relatively developed economies.

And they don't tend to happen more than once in a generation.

(Perhaps because many of the people who go through one are so traumatized that all they can do is sit around and worry about another one.)

Interestingly, modern economic research is in the process of debunking a number of historical bubbles.

It looks increasingly plausible that had US monetary policy been better run in the early 1930's, our view of what happened in the 1920's would be far more benign.

It also turns out that the Dutch tulip bubble is largely a myth.

So generally speaking, if one is going to seriously call a bubble, one has to be aware that one is calling something that is extremely rare.

Third, in the technology industry, lots of startups being funded with some succeeding and many failing does not equal a bubble.

It equals status quo.

The whole structure of how the technology industry gets funded -- by venture capitalists, angel investors, and Wall Street -- is predicated on the baseball model.

Out of ten swings at the bat, you get maybe seven strikeouts, two base hits, and if you are lucky, one home run.

The base hits and the home runs pay for all the strikeouts.

If you're going to call a bubble on the basis of lots of bad startups getting funded and failing, then you have to conclude that the industry is in a perpetual bubble, and has been for 40 years.

Which may be fun, but isn't very useful.

Lots of people running around starting questionable companies, launching marginal products, pitching third-tier VC's, throwing launch parties, shmoozing at conferences, blogging enthusiastically, and otherwise acting bubbly does not a bubble make.

That's just life in this business.

Note also what you don't see in the theoretical Web 2.0 bubble of 2007.

IPO's.

Lots and lots and lots of IPO's.

For a theoretical bubble, that is just plain odd.

Fourth, getting more specific about Internet businesses -- things have changed a lot since the late 90's.

It is far cheaper to start an Internet business today than it was in the late 90's.

The market for Internet businesses today is much larger than it was in the late 90's.

And business models for Internet businesses today are much more solid than they were in the late 90's.

This is a logical consequence of time passing, technology getting more broadly adopted, and the Internet going mainstream as a consumer phenomenon.

People smarter than me have written about these factors at length elsewhere, so I won't dwell on them, unless there is specific interest.

But my back of the envelope calculation is that it is about 10x cheaper to start an Internet business today than it was in the late 90's -- due to commodity hardware, open source software, modern programming technologies, cheap bandwidth, the rise of third-party ad networks, and other infrastructure factors.

And the market size for a new Internet business today is about 10x bigger than it was in the late 90's -- there are about 10x more people online (really!), and they are far more used to doing things on the Internet today than they were in 1999.

(Want evidence of that last point? Clothing purchases are now bigger than computer hardware and software sales online. I can guarantee you that nobody who was involved in ecommerce in the mid-90's ever would have predicted that.)

The Internet is a fully mainstream medium now, people love it, people are willing to do all kinds of things on it, and it's getting really cheap to offer new services to those people.

Fifth, and finally, there's the simple fact that the Internet businesses that are succeeding in 2007 are for the most part incredibly valuable, compelling services that lots of people like and that are in general either making a lot of money or will be making a lot of money quite quickly.

People laughed when Fox bought MySpace for $580 million, but that's a business that will generate nearly $300 million in revenue in 2007, and more in 2008.

As an independent asset today, MySpace would probably be valued at between $3 billion and $5 billion today -- perhaps higher.

Call that the deal of the decade.

Similarly, Facebook is bringing in a lot more revenue than people think.

And then there's Google.

These companies aren't pulling in all that revenue via some kind of Ponzi scheme.

This is money coming from real advertisers and real users for real services with real value.

Which makes total sense, amid the enormous mass migration of consumer time and attention away from traditional media towards online media.

These same factors apply all the way down the foodchain.

A high-growth online startup that gets bought for $100 million or $200 million by a large Internet or media company isn't getting that kind of acquisition price just for the hell of it, but rather because the acquirer can plug that startup's service into its broader portfolio of services and make real money with it.

These are big numbers, but remember, there are more than a billion people online now. That is a very large market -- a lot of people, spending a lot of time, buying a lot of things, in totally new ways at the same time as they are abandoning older services like newspapers, magazines, television, movie theaters, and print catalogs.

So, my view is that to call a bubble, you have to find evidence of it outside of the mainstream of the kinds of Internet businesses that are being built, sold, and run in 2007.

In closing, I'd be the last person to say that I never roll my eyes at the next startup that's doing online wiki-based popularity-ranked video-podcast mobile social dating widgets for the dog and cat owner market.

But a bubble?

I doubt it.

Postscript: I didn't see this until after I wrote my post, but you have to love the opening line: "Grandpa lived through the Depression, and life thereafter was indelibly shaped by haunting memories of soup kitchens and hobos."

Killer Mac OS X apps for 2007

Suppose you're moving to the Mac from 13 years of agonyecstasy on Windows XP.

What are the best apps for you, circa 2007?

Comments are welcome.

OS X apps:

  • Email: Thunderbird. A lot of people seem to love OS X's built-in Mail.app but Thunderbird runs on both Windows and Mac and so switching is easy.
  • Browser: Toss-up between Camino and Firefox. Camino seems faster, but the UI is a little clunky (what's up with that "Find" interface?) and you miss out on Firefox's extensions. The right answer seems to be to run both.
  • Instant messaging: Adium, in a landslide.
  • IRC: Colloquy, in a somewhat less dramatic landslide.
  • Music player: ITunes, of course.
  • Internet radio: AOL Radio -- I know, I know, but little known fact: AOL Radio gives you a good selection of commercial-free XM satellite ratio stations with high quality sound, and you don't need an XM subscription. Including the essential XM channel 40, Deep Tracks. (Where else can you hear the Electric Prunes, Molly Hatchet, and Ultimate Spinach in the same night?)
  • Adobe Creative Suite 3: In a category of its own -- huge, sprawling, heavy-duty professional applications including Dreamweaver, Photoshop, Illustrator, Fireworks, and Flash. Covers a broad cross-section of web design and development -- and now all integrated and Intel native.
  • Text editor: Textmate seems to be the best regarded, with incredible programming language support. SKEdit also gets a lot of votes. I'll probably try both. Runners up include Smultron, TextWrangler, BBEdit, and jEdit.
  • Image editor: For lightweight image editing, I'm going with ImageWell. I'll try Pixelmator when it comes out. Lots of other choices, though, from various angles: Xee, iZoom, EasyCrop, Seashore, Picturesque (cool!), Pixen, Image Tricks, and Scope.
  • Blogging client: MarsEdit. I tried Adobe Contribute CS3 but it seems oddly clumsy compared to the rest of the Adobe apps and compared to MarsEdit. I may also try Ecto.
  • PHP IDE: Zend Studio -- for PHP programmers who want a full IDE, it's a great environment. Lots of built-in PHP knowledgey goodness. (Disclaimer: I'm on the Zend board.)
  • FTP client: A lot of people seem to swear by Transmit, but I'm giving Forklift a try. Lots of backup choices: Yummy, Cyberduck, Interarchy, Fetch, Fugu, and the most exotic choice, MacFuse with sshfs.
  • Windows remote desktop control: I tried using the Microsoft RDC client for OS X but it stopped working and frankly it's hard to work up the enthusiasm to figure out what's wrong. Instead, I'm using CoRD for now.
  • Backup: SuperDuper.
  • Cleaner: To wipe OS X's caches and other assorted squirrely repositories of informational nuts, Mac Cleanse.
  • Tweaking tool: Mac Pilot. Go crazy.
  • Window switcher: To recreate Windows XP's Alt-Tab window switcher, Witch works great. (Someone please explain to me why OS X normally expects you to Apple-Tab to an application and then Apple-` to a specific window within that application. Someone's been smoking something...)
  • System monitoring: Menu Meters -- for the entertainment value of watching the load on each of your two cores on your notebook computer's CPU. What a world we live in.
  • Terminal: iTerm. Tabs!
  • Open source package installer and manager: Fink, and its graphical front end Fink Commander.
  • Del.icio.us client: Toss-up between Cocoalicious and Delibar.
  • Flickr client: 1001.
  • Twitter client: Twitterific.
  • Universal video player: VLC.

Then there are the issues of virtualization, running Windows, and Windows apps. My choices:

  • Virtualization software: Parallels. Note however that it is a baaaaaad idea to have your virtual machines inside a FileVault filesystem. I may also try VMWare Fusion although I am enthralled by Parallels' promise to add pass-through 3D graphics hardware support in their next version.
  • Windows OS: Windows XP. (I am frankly still not sure why anyone would run Vista, at least outside of a Media Center system.)
  • Office suite: Microsoft Office 2003 -- because I'm used to it and I don't need any more features.

Then there's the issue of OS X software to avoid. My list, based on hard experience:

  • Office suite: Microsoft Office for the Mac -- oh my god, is it painful.
  • Email: Microsoft Entourage -- wow, it's bad.
  • Desktop manager: Virtue -- great promise but buggy and unfortunately abandoned.

Notes based on reader feedback:

Paul Thurrott makes a superb point -- "Switch to the Mac? Just switch to the Web".

As someone who's been forecasting the death of traditional software and the rise of Web applications since, approximately, 1995 :-), I totally agree with him.

It must be a sign of advancing age that I continue to focus on desktop apps.

The good news is that a lot of the desktop apps on this list are amazingly great.

June 02, 2007

At long last, switching back to Mac

After being spoiled in my college years (1989-1993) by a Silicon Graphics IRIS workstation, I was Mac-based (the legendary Mac Duo notebook) for about a year and then switched to Windows 3.1 in an effort to experience what most of the rest of the world was using.

Let's just pretend the next 13 years never happened.

Now I'm back on the Mac.

The most wonderful thing about the Mac in 2007 is that it has what Bill Joy refers to as the "it works" feature.

The second most wonderful thing about the Mac in 2007 is that it is all three of the major operating systems in one: you get the Mac user interface and applications; you get Unix underneath the covers...

...And by running Parallels or VMWare Fusion you also get Windows XP.

Virtualization is the biggest thing to hit the operating system world since protected memory.

Why?

Virtualization -- in the form of software like Parallels and VMWare Fusion -- lets you deal with an individual operating system as if it were an application.

You can install it, copy it, back it up, revert it, and (critically) delete it just like you can do those things to applications.

This is incredibly useful when dealing with normal operating systems like Linux.

This is invaluable when dealing with an operating system like Windows XP that can become easily corrupted or degraded over time.

It's hard to explain to someone who hasn't experienced it how much better life gets when you can create one virgin installation of Windows XP and then clone it into multiple instances -- for example, one for work, one for play, and one for experimentation -- and then toss them around like they were apps and revert or delete them any time they start acting funny, instead of having to reinstall the core OS on the computer itself.

Finally, the answer to Windows rot.

Heaven.

The third most wonderful thing about the Mac in 2007 is the amazing lineup of software -- free/open source, shareware, and commercial -- at one's fingertips.

The topic of my next post will be the results of my somewhat extensive recent research into an ideal Mac OS X application set for 2007.

The fourth most wonderful thing about the Mac in 2007 is the hardware.

Being able to ride the commoditized Intel/PC hardware price/performance curves due to Apple's wholesale shift over the last decade from totally proprietary hardware to industry standard hardware is producing some truly lovely machines -- such as my shiny new 15-inch Core 2 Duo Macbook Pro.

Heaven with cream cheese on top.

Welcome!

My name is Marc Andreessen. Welcome to my blog.

Topics that will be explored on this blog include:

  • Technology -- Internet, web, software, mobile, gadgets, and home AV (very very loud home AV)
  • Business -- the technology industry, entrepreneurship, startups, finance, venture capital
  • Media -- books, movies, music
  • My companies -- Ning, Opsware, and angel investments

Comment are welcome, and you can also reach me via email at pmarcablog (at) gmail (dot) com.  I can't promise to answer all emails depending on volume but I'll do my best.

Any revenue generated by this blog will be donated to a wonderful nonprofit organization called SV2: Silicon Valley Social Ventures, founded by my lovely wife Laura.

And we're off and away!

Send Me Stories!

  • Please send me true stories of nepotism gone wrong in a company -- startup or big company. Names are not important. Will be used with all identifying information stripped out in an upcoming post. Email to pmarcablog (AT) gmail (DOT) com. Thanks much!

Coming Soon

  • Top 10 books for high-tech entrepreneurs
  • Top 10 ways to do personal outsourcing
  • Software -- the velvet revolution and the multicore conundrum
  • How to trick out a Typepad blog in 2007
  • Killer Windows Media Center apps for 2007
  • The truth about reporters: a multi-part series
  • The Pmarca Guide to High-Tech Startups: a multi-part series
  • Why Internet advertising is about to get humongous

Enter your email address to subscribe to this blog:

Recent Comments

 Subscribe in an RSS or Atom reader

Add to Google Reader or Homepage

Add to netvibes

Subscribe in Bloglines

Ning Social Network Count

About This Blog

  • My name is Marc Andreessen. This is my blog.
  • You can send me email at pmarcablog (at) gmail (dot) com. Due to volume and other responsibilities I probably won't respond but I will try to at least read all messages.
  • Comments are welcome but will be edited as necessary to maintain relevance.