Ver 1.10 the venture capital ecosystem feb 2015

Venture
Capital
Variables in
an Art &
Science of
extreme
complexity
Ideas provocateur: Andrew J. Waitman, CEO www.AssentCompliance.com
01 02 03 04 05 06 07 08 09 10
2015 – Insights
to Action
CONFIDENTIAL 2015 ©

My Past Attention…
SW Engineer
5 Years
I-Banking/
Analyst
4 Years
Managing
Partner
12 Years
CEO
6 Years

My Current Attention…
2nd Largest
Investor
Co-Founder
Board Member
FIDUS
Systems
Largest
Investor
CEO
Board
Member
ASSENT
COMPLIANCE
Largest Investor
Co-Founder
Board Member
Nectar Flowers
2nd Largest
Investor
Board Member
Andrew
Waitman

5
http://www.nectarflowers.com/

6
http://www.nectarflowers.com/

Reading Ideas
© 2013 Andrew Waitman
8

Reading Ideas
9

Complexity
Complexity in business can best be explained by analogy. The game of Chess
has 64 squares, 16 Pieces and a relatively simple set of rules that a child can
understand. Yet it is a game that remains interesting to Chess Masters
following a thousand years of playing. Even now, following man’s defeat to
IBM's computer Big Blue, Chess remains a popular game. Why? Because
there are branches of exploration in end-game Chess that have yet to be fully
explored by Master Chess players. In fact there are approximately 10 to the
exponent 43 possible number of Chess positions after the first move, according
to Wikipedia. The game of Chess illustrates the combinatorial explosion that
can occur even with a relatively tightly constrained system of Chess Pieces and
Chess Rules. Business on the other hand has an infinite number of squares/
moves, a constantly evolving set of rules and far more than two players in a
competitive dance for success, profits and dominance. Business success is
truly a frighteningly unconstrained complex game in a chaotic cauldron--
called a global economy--in which a myriad of micro-decisions, random
events and macro-economic forces co-mingle into a devilishly difficult
decision mosaic. As a result, applying the wisdom of the recorded past does
not assure success in a future mosaic. Complexity complicates causality.
11

Historic insights are helpful but insufficient
CONTEXT MATTERS
12

1. Hyper CONNECTED
What does this mean?
•  Knowledge spreads rapidly
•  “Network Effects” everywhere
•  Easy to find people, skills, knowledge
•  Digitial Distribution simple
•  Your one click, call, email, IM, Tweet,
Facebook wall away from several billion
people
What does this mean to you?
•  Plethora of new businesses opportunities
•  Web 2.0 has barely begun
•  Social networking is a powerful force
• Market size measured in billions
• Cost of customer acquisition both higher and
lower

•  The narcissistic generation
•  Everything is public
•  Social “Proof” Matters
•  Facebook - Personal
•  LinkedIn - Professional
•  Everyone is Blogging, Tweeting
•  Everyone is rating everyone
•  Everyone knows everything
•  REPUTATION MATTERS
•  Be careful about your own brand
•  Business opportunities in personal brand management
•  Brand “cleaning” businesses
•  On-line fame & notoriety : Susan Boyle
•  Social Profile Matters
2. Hyper SOCIAL

• “All” information available to Everyone-nearly
•  Competitors are 1 click from your ‘recipe’
•  Great ideas spread rapidly
•  Everyone knows what everyone else is
doing, saying,
•  Everyone is consumer and competition
•  Commoditization of ideas
•  Google/Facebook/Apple have insights
•  Opportunities in search ecosystem (SEO, SEM, etc)
•  This search arms race will continue indefinitely as speed to relevance is highly
valuable
•  Researching, “surveying” for any business opportunity is cost effective
•  Distribution “awareness” building can be cost effective
•  Finding information is easy, using/apply requires context understanding
3. Hyper SEARCHED

•  Mobile Devices always on
•  Email, Twitter, Facebook, Pinterest, Youtube
•  Difficult to gain/keep people’s attention
•  Messages need to be short
•  Digital noise. Fractured audiences.
•  Everyone is not paying attention to you…
particularly your target audience!
•  Cost of Customer/Client acquisition going up
•  Harder to find new attention space from segments
•  The dominant mediums become the critical channels to customers
•  Counter digital noise strategies may work for business
4. Hyper DISTRACTED

•  Winner take all due to network effects
•  Scale matters
•  Strategy more critical than ever
•  Rapid competitive responses
•  Unregulated (consumer) markets
more open
•  Fast cloning/followers is very common
•  Do not underestimate resources/scale to succeed
•  Cost of customer acquisition is increasing
•  Focus on new market spaces created by technology
opportunity
•  Stay below radar as long as possible
5. Hyper COMPETITIVE

•  Global Economic issues
•  Climate Change / Global Warming
•  Security Threats / ISIS
•  Global Markets
•  7x24 always-on global competition
•  Good ideas rapidly replicated
•  Competition from everywhere
•  Market opportunity is global
•  Focus matters
•  Risk taking is necessary
•  Regional implementations of great Silicon Valley business models
6. Hyper GLOBAL

•  The rest wants the “WEST” stuff
•  Consumerism growing world wide
•  Purchasing stuff is happiness/success
•  Confusing choices
•  China makes everything including
knock-offs
•  Simplification business opportunities
•  Find new trends, segments and shifting fashion/tastes
•  Market bi-furcating into High End & Low End
• Race to the bottom of price eg. Dollar store
• Race to the high end for luxury goods for the 1%
7. Hyper CONSUMERISM

•  Nothing works easily
•  Things break for no reason
•  Need a PhD to operate things
•  Contributes to anxiety
•  Can’t understand why things happen
•  Generational and cultural divide
between the tech saavy and the less so
•  Your kids are smarter than you
•  Continuous education is a business opportunity
•  Outsourcing complexity is growing trend
•  Grid or utility computing
•  Software as a Service
•  Service as a Service
8. Hyper COMPLEXITY

•  Low & medium cost regions provide labor
•  oDESK, Mechanical Turk
•  Labour highly commoditized
•  Automation & Manual engagement for
Efficiency
•  Lowest cost supplier
•  Low to no wage inflation
•  The loss of well paying middle class jobs
in the rich world
•  Constant learning, adapting
•  Learning and Training for new skills
•  To compete you must leverage
9. Hyper Labour Efficiency

9. Hyper Labour Efficiency
•  Amazon vs Walmart
•  Netflix vs Blockbuster
•  Instagram vs Kodak
•  Tesla vs GM
•  WhatsApp vs Nortel
•  Gravity vs Braveheart

•  Winner take all economic dynamics
•  1% get richer and richer
•  Capital dominates labour for returns
•  Battle of the Giants
•  Market Power Concentrated
•  Avoid them or Sell-out to them
•  What will they buy next?
•  They are your channel
•  Watch what they are and are not doing and why
10. Hyper WINNERS

Venture Investing is Both an Art and a Science
24
$

Venture Capital
•  Venture capital is an outlier business
•  Often called Black Swans
•  Paradox of Business
•  Paradox of Venture Capital
•  Its not an industry – Marc Andreessen
The "venture capital industry" does not exist, says serial entrepreneur Marc
Andreessen. Rather, the landscape is a loosely-affiliated network of over 600
investment organizations, with only about 30 firms performing well and
returning profit overall. In parallel, there is a rise in seed funding for new
ventures and a rise in latter-stage investing for established companies as well.
http://www.youtube.com/watch?v=8C8cw4MR3LY
•  Angels and Super Angels changing the Valley

United States Census Data 2011
SOURCE:
2011
County
Business
Pa7erns.

ENTERPRI
SE

EMPLOYM
ENT
SIZE
NUMBER
OF
FIRMS

NUMBER
OF

ESTABLISHMENTS
EMPLOYMENT
ANNUAL
PAYROLL
($1,000)

1:

Total
5,684,424
100%
7,354,043
113,425,965
5,164,897,905

2:

0-‐4
3,532,058
62.1%
3,540,155
5,857,662
230,422,086

3:

5-‐9
978,993
17.2%
993,101
6,431,931
218,085,669

4:

10-‐19
592,963
10.4%
626,981
7,961,281
284,251,614

5:

<20
5,104,014
89.8%
5,160,237
20,250,874
732,759,369

6:

20-‐99
481,496
8.5%
651,624
18,880,001
746,085,051

7:

100-‐499
81,243
1.4%
350,197
15,867,437
690,509,553

8:

<500
5,666,753
99.7%
6,162,058
54,998,312
2,169,353,973

9:

500+
17,671
0.311%
1,191,985
58,427,653
2,995,543,932

Headlines
•  Empirically The Majority Fails–- to achieve critical
mass or attention of the masses
27

Where Venture Capital Fits into Financing New Ventures
Financing
Round
Definition Typical Amts
(US)
Typical
Holding
Period (Yrs)
Annual
ROR%
Who Typically Plays
Seed Prove concept/qualify for
start-up capital
$25K – 0.5M More than 10 50-100%
Or more
Individual angels
Angel groups
Early-stage VCs
Start-up Complete product
development
and initial marketing
$0.5M – 3.0M Individual angels
Angel groups
Early-stage VCs
First Initiate full-scale
Manufacturing and sales
$1.5M – 5.0M 5-10 40-60% VC
Second Working capital for initial
business expansion
$3.0M – 10.0M 4-7 30-40% VC
Private Placement firms
Third /
Expansion
Expansion capital to
achieve break-even
$5.0M – 30.0M 3-5 20-30% VC
Bridge and
Mezzanine
Financing to allow
company to go public
in 6 – 12 months
$3.0M – 20.0M 1-3 Mezzanine Financing
firms
Investment Bankers
Other stages/rounds:
LBOs: Annual ROR: 30-50%, Typical holding period: 3-5 yrs
Turnarounds: Annual ROR: 50%+, Typical holding period: 3-5 yrs
Source for RORs: Valuation: Framework & Approaches, 2000 Entrepreneurial Finance, Smith and Kilholm Smith

The Venture Capital Process
■  Introduction
■  Business Plan
■  First Meeting
■  Second Meeting
■  Term Sheet
■  Due Diligence
■  Negotiations
■  Investment & Board engagement

How Do Partners Make “Go” or “No Go” Decisions?
31
It’s all about risk assessment -
Risk / Reward
Partner Judgment
Due Diligence
Investment Decision
Into Start-up
- team, experience, track
record, ability to adapt,
tenacity, integrity
- uniqueness, difficulty,
relevance
- capital efficiency, high
margin/volume, velocity
to a billion - $1M/year, /
quarter, /month, /week..
- understanding of food
chain, complexity,
competition, networks/
relationships
People
Technology
Business Model
Industry/Market

The UBER VC Story
33
http://techcrunch.com/gallery/a-brief-history-of-
uber/slide/16/

The UBER VC Story
34
http://techcrunch.com/gallery/a-brief-history-of-
uber/slide/16/

The UBER VC Story
38http://techcrunch.com/gallery/a-brief-history-of-uber/slide/16/

41
TURNED DOWN $3 Billion Offer

42
http://en.wikipedia.org/wiki/Snapchat

43
http://en.wikipedia.org/wiki/Snapchat

SNAPCHAT
1.  A clever idea is born in a dorm room by 20 something's.
2.  Friends with computing/coding backgrounds hack together App (Bobby
Murphy 25, Evan Spiegel 23). Version 1.0 needs refinement and iteration:
WEB App à Mobile App. Picaboo à SnapChat
3.  Find the Viral Seed: High school Kids. Experience geometric explosion:
Jan 20,000, April 100,000 …..
4.  Raise some Angel funding to handle infrastructure cost challenges
5.  Learn quickly how to handle the rocket. Raise more money from deep
pocketed Venture Capitalists.
6.  Refine what Company/Product is:
–  Intimate and Exclusive (the anti Facebook)
–  Young Cool and Hip
–  Ephemeral, Temporary and lacking ability to get you in future hot water
7.  Following success is ‘Obvious’ Copy cats come in droves. Including first
Buy out offer with threat to crush.
8.  More Venture Capitalists, Media and Fame. NO REVENUES!
9.  Outrageous acquisition offer accepted or turned down
10.  Manage Crazy Growth. Contemplate IPO 44

45
$1 Billion in under 2 years

46
http://en.wikipedia.org/wiki/Instagram

47
http://en.wikipedia.org/wiki/Instagram

51
http://en.wikipedia.org/wiki/WhatsApp

52
http://en.wikipedia.org/wiki/WhatsApp

Venture capitalists make money from three
types of outcomes:

Why Consumer markets matter?
It is noteworthy that the vast majority of outlier companies in the past
decade (see slide below) have been consumer and not enterprise
businesses. There are important insights even here. Consumer
businesses (Apple, Google, Amazon, Twitter, Facebook, PayPal,
Twitter, Pinterest) are less regulated by government and can bypass
corporate inertia, status quo laziness and risk aversion.
Remember Microsoft, DELL, Salesforce started off selling to
consumers (or small business) and then moved into the Enterprise.
Enterprise are laggard adopters due to business and decision inertia.
This point—business inertia-- has to do with risk aversion, regulation,
status-quo and laziness. Large segments of consumers are on the
other hand quick to adopt new technology and new and better ideas
and improved ways of doing things.
60

Blackswans
•  Google
•  Youtube
•  Facebook
•  Twitter
•  Netflix
•  Paypal
•  Amazon
•  Apple
•  Skype
61
•  Bitcoin
•  Instagram
•  Pinterest
•  Zynga
•  Hulu
•  Yammer
•  Dropbox
•  Yelp
•  Groupon
•  Linkedin

Then there are the outliers…

Most uninspired VC questions and
how to respond:
Q.  Why will ______ giant company not copy your idea and kill you?
A.  Did Google kill Youtube? Did Blockbuster kill Netflix? Did Ebay kill
Paypal? Did Kodak kill Instagram? Did Blackberry kill WhatsApp?
Did Microsoft kill Google?
Q.  Do you have the growth numbers and evidence of growth to
support your thesis?
A.  Dude (and please do reply ‘Dude’ to the VC) if I had that data, I
would not be sitting here responding to your uninspired inquiry.
Q. What is your financial forecast for the next five years?
A. Dude in the start-up world ‘pivot’ is not a dance move, it’s a way of
life…anything I project will be wrong in the next 10 minutes or major
business decision which ever comes first!

Smart Mobile
Cloud
Big Data
Social
Analytics
Internet of Things
Setting the Macro Context

1.  Social Currency : cool, smart,
remarkable, clever
2.  Triggers: Remind people to talk
about.
3.  Emotion: When we care, we
share.
4.  Public: Social Proof. What is
everyone saying/doing.
5.  Practical Value: People like to
help people.
6.  Stories: Message fits neatly into
narrative.
The Science to Viral: STEPPS

Strategy
Culture
Risk Taking
Execution
Adaptation
Metrics
SCREAM to DREAM
FABRIC

OF
SUCCESS

Venture Investments –
Follow (not lead) Winners
BUILD
WINNERS
…that
provide
liquidity.

Venture Investments –
Follow (not lead) Winners
BUILD
WINNERS
…that exit.

Sequoia Venture Investments –
Exits Matters

Think
Ottawa
(circa 1998-2002)
and
Silicon Valley
(circa 1970-2015)
…and the money, investors,
angels, VCs, entrepreneurs with
crazy ideas and no mortgages,
everyone with envy, many with
ambition, drive, risk taking,
initiative, people with good
ideas, those who can work for
free, lawyers, real estate, lots of
failures, and more winners,
bankers, accountants, advisors,
gov’t program wannabes,
advisor wannabes, tons of
customers, expertise, many
start-ups, fantastic
entrepreneurial culture……
will follow…

Recipe for a vibrant technology city…
(Scale of 1 to 10) Silicon Valley NY/ Boston Toronto Ottawa
1.  Money 10 8 7 2
2.  Talent 10 8 7 6
3.  Risk Appetite 10 7 6 4
4.  Distribution Proximity 10 9 8 2
5.  Culture/Encourage 10 8 6 5
6.  Volume/Probability 10 8 7 2
7.  Repeat Success 10 8 6 2
8.  Clusters/Networks 10 9 6 2
9.  Ambition 10 7 7 5
10.  Inspiration / Hero's 10 7 6 3
Venture Ecosystem Components

74
http://en.wikipedia.org/wiki/HootSuite
http://en.wikipedia.org/wiki/Shopify

Andrew Waitman Confidential 2015 ©
Fashion Cycles
•  1950s – Cathode Ray Tubes
•  1960s - Mainframes
•  1970s - Semi-conductors
•  1980s - Personal Computer
•  1990s - Networking/Internet
•  2000s - On-line / E-Commerce
•  2010s - Mobile / Social
•  2020s - BIG DATA/IOT/Wearables
IMPORTANCE
OF
DISRUPTIVE
MEGA TRENDS
“Playing in new spaces where innovation and
scale opportunities are growing rapidly”
“New blue oceans with no
whales, no sharks, few
predators or parasites”
75

Fashion Today
•  Mobile & Social E-Commerce Apps
•  Social eco-systems
–  Facebook / Instagram
–  Twitter
–  Google
–  LinkedIn
•  Cloud Computing
•  Internet of Things
•  Wearables
•  Flash Memory
•  Genomics / Proteomics
•  Big Data everywhere
•  Machine Learning (AI)
•  INTERNET OF
THINGS
•  BIG DATA
•  WEARABLES
•  VIRTUAL REALITY
76

Know Your Market Context
77
BlackSwan Fashion Grinder
Leadership Founder Any Any
Growth Perspective Long Game Short Long
Consumer/Enterprise Consumer Both Both
Execution IQ Any Opportunistic Critical

Know Your Market Context
78
BlackSwan Fashion Grinder
Market Size Large Any Any
Market Growth Rapid Rapid Modest
Cost of Customer
Acquisition
Low/Viral Medium High
Margins High Any Any
Barriers to Entry High Medium Low
Competition / Subst. Low High High

Blackswan Ideas
A robust highly valuable business concept once acted upon can
tolerate enormous business turbulence and human dysfunction.
Each story has a lead protagonist with an ambitious idea that starts
with a very modest beginning and underestimates the scale of its
outlier potential. However, once the business taps into the gold vein or
oil gusher [Choose your own metaphor] (A deeply rooted massively
valuable business idea/concept) the strategy/business/organization will
be able to sustain success in the face of people problems, misguided
strategies and execution challenges/dysfunction. A great (outlier)
fundamental business concept or idea is incredibly robust and can
withstand a surprising amount of strategy and tactical mismanagement.
79

One-Mind
A single mind decision processor and accelerator—a priest like reverence and following of the
One Mind/Founder—unquestioned at critical decision times and able to cut through decision
ambiguity, delays and make bold decisions is a critical component of all outlier success. This
pattern is not as remarkable as one might expect, when you think deeply about its benefits. It is also
a self-fulfilling property of outlier success. The more successful the enterprise, the more “expected”
wisdom is bestowed upon the founder and the more unquestioned each decision/direction becomes…
to the point where people actually believe that the entire success is dependent entirely on one
decision maker—which practically is impossible—though ironically is somewhat necessary. A true
paradox in business success deconstruction. Jeff Bezos, Steve Jobs, Larry Page, Pierre Odymar are
absolutely necessary but not sufficient to explain outlier success, however they are not solely
responsible either. The deep-business-gusher they stumble upon (serendipity) takes more of a role
than the narrative gives credit—The Narrative Fallacy which Nassim Taleb ably describes in the
Blackswan http://en.wikipedia.org/wiki/The_Black_Swan_%282007_book%29 —fails to attribute the
cumulative effects in a winner-take-all business dynamic. The scale of success does not correlate to
business IQ but rather to context opportunity. People misattribute scale success with brilliance. Bill
Gates and Microsoft, Research in Motion and Mike Lazardous are two such humbling examples.
They are highly intelligent to have made some of their early business decisions in pursuing interesting
business opportunities, but the navigation to continued success is less about genius and more about
the size of the business oil well you have struck. Google’s was a gusher (after they stole/borrowed/
improved the Overture business model). Apple’s is only sustainable to the extent they continue to
reinvest entire new categories of product and digital delivery.
80

No Worrying Please
A predisposition for action, for speed of decision making and for risk taking. Bold, at times
unconventional, decision making with minimal regard to conventions, the iceberg of implementation or
challenges or difficulty of implementation must be a canon of all remarkable success. This topic is
critical to understanding why Miscrosoft, Kodac, IBM do not create Facebooks, Youtube, Twitter,
Facebook etc. One of the most dangerous and definitive definitions of defeat is decision paralysis,
fear and worry. The vast majority of people are wired to protect what they have, limit change and
avoid perceived problems in the future. Evolution has made this so. And it has a gender bias aswell.
Women are more cautious than men. For good reason. They were/are responsible for the nurture and
survival of the species. Pursuit of the new—new food, lands, shelter—was fraught with danger, risks
and survival. Why are there so few female entrepreneurs? Because risk taking is counter productive
in an evolutionary sense. But women alone are not risk-averse. Men, particularly men in certain
occupations and cultures are more risk adverse than others. Accountants, Lawyers and those in
‘protective’ careers tend to be risk-avoiders and great hand-wringers of business. The larger a
company gets, the more at stake to lose and hence the more cautious the people in the company
become. This is only partially the innovators dilemma ( http://en.wikipedia.org/wiki/The_Innovator
%27s_Dilemma ) , it is also driven by our natural pursuit of stability, control and avoiding the
unknown. While worrying is as effective as trying to solve an algebra equation by chewing
bubble gum, people in business get preoccupied with the improbable, unlikely and overblown
fears. The real troubles in your business are apt to come from areas that never crossed your
worried mind, the kind that blindsides you at 4 p.m. on some idle Tuesday.
81
“PROGRESS ALWAYS INVOLVES RISK, YOU CAN’T STEAL SECOND
BASE AND KEEP YOUR FOOT ON FIRST” –Robert Quillen

Deep Gushers produce
What is more remarkable though is not that consumer companies proliferate, but that
each company faced significant structural and self-dysfunction obstacles to success and
yet continued to succeed regardless of the people, structural, or execution turbulence
along the way. An outlier concept/idea has great survival resilience. But you
won’t always know or appreciate that you have a business-gusher until you are largely
wildly successful…certainly not in the early days of the adventure. Take time to
understand this point. Its a critical point. But it is one that is difficult to harvest unless
your business concept gold vein is deep and broad. What it means is that deep-veined
business concepts provide you room to stumble, room to experiment, room to
adapt, room to grow, room to learn. You can’t be an idiot to find or exploit these deep
veins—but that is more luck than brilliance in that even the Founders/early employees
are often shocked by the size of the success years later---, but neither do you need to be
a genius once encountered to exploit your position of dominance. You merely need to be
an intelligent adaptor. Lets review some of these examples:
82

The Multiple Paradox of Business
Playing to win vs playing not to lose, offence vs defence is analogous to driving for
reliability vs searching for discovery of new opportunity. This competing tensions in any
organization must be balanced. The outlier successful entrepreneur ensures the natural
tendency for size to drive defence versus offence is counter-balanced with constant
experimentation, pet-projects and wacky ideas. Jeff Bezos started AWS in South Africa.
He also started numerous other —pet project initiatives—far away literally and figuratively
from the cautious management eyes of the larger Amazon management team. Many
failed. Some became game-changing successes for Amazon eg.Kindle. There are two
key and important ideas here. First you need sufficient resources to experiment
constantly—often it complete conflict with your core business eg. Digital readers vs
Selling Books—and you require a high placed priest/decision maker to encourage,
nurture, protect and drive experimentation and innovation with the understanding that
many initiatives will fail. But it is more than that. Bell Labs (Lucent/AT&T), Xerox Park
and Kodak had enormous pockets of research, experimentation and investment in new
things, however they were disconnected from the commercial exploitation of innovation.
New ideas/products and services must face the rock-face of scrutiny of the market place.
The INTERNET is the ultimate experimentation machine. And yes you must be willing to
cannibalize your own business.
83

Start-up Success
•  Cunning - Causality
•  Complexity – A thousand decisions
•  Context – Serendipity
•  Creativity –Risk taking
•  Cunning – Clever folks constantly pivot
85

TALENT MATTERS
A PERFECTIONIST
Not just about IQ,
Not just about genius,
Its also about…
86
“How did Steve Jobs
and Apple make a
dent in the Universe?”
“His ability to focus on the few things that count, get design right and
co-op industry giants is remarkable…”
- Bill Gates

Apple’s Extreme Ascent
87

Apples Extreme Assent
88

Apple’s Market Value
The most valuable
publicly traded
company in the
world.
89

Apple’s Market Value
The most valuable
publicly traded
company in the
world.
90

Lessons from Steve Jobs
•  At Apple 1975 - Steve Wozniak
•  At Apple 1981 - Andy Hertzfeld/Burrell Smith
•  At Apple 1984 - MAC Team
•  At NeXT 1985 - Avie Tevanian
•  At Pixar 1986 - John Lasseter
•  At Apple 1998 - Tim Cook
•  At Apple 1998 - Jonathan Ive
•  At Apple 1998 - Jonathan Rubenstein
•  At Apple 2000 - Ron Johnson (store)
•  At Apple 2001 - Tony Fedell/ Jeff Robbin (iTunes)
The true Artists of the Business world
IMPORTANCE
OF
OUTLIERS
(EXTREMELY
GIFTED PEOPLE)
“One must be able to
identify, attract and
retain the truly gifted
people of the world”
“Outliers attract more outliers”
91

•  Challenge matters to gifted outliers:
artists, designers, engineers, etc.
•  Pushing to achieve the impossible
creates purpose and pride
•  Keep pushing the envelope of the
possible
•  Keep pushing the details to get
close to perfection
•  Someone must “know” what
perfection looks like
•  The pursuit of perfection is an end
in itself
IMPORTANCE
OF
CHALLENGE
“What makes people
achieve greater than
they thought possible?”
92

•  Credibility comes from outlier,
extreme, and unusual success
•  Not only extreme, visible, and
unusual success but also
who gets credited with such
success:
•  Steve Jobs vs Steve Wozniak
•  Steve Jobs vs Jonathan Ive
•  Steve Jobs vs John Lasseter
IMPORTANCE
OF
Early @ Bats
SUCCEEDING
“Those credited through money or fame with
success gain additional and unfair advantage”
93

•  Every disruptive innovation
has path dependency
•  All elements of innovation
have timing dependencies:
–  Technology
–  Distribution
–  User Experience
–  Knowledge
IMPORTANCE
OF
TIMING
“Getting major trends/technology/adoption right can be difference
between leading or lagging”
94
“Think Voice Recognition vs Mouse
Tablet vs iPad
Think Stylus vs Touch Screen”

•  Enables speed to resources, expertise,
insights, experiments, talent
•  Enables more experiments
•  Enables longer experiments
•  Tolerates more errors
•  Enables ambitious scale decisions
•  Enables risk appetite
•  Attracts gifted outliers
•  Reduces life’s mundane distractions
•  Facilitates “brute force” competitive
strategy
•  Facilitates “unfair” strategies:
•  Acquire competition/market share
•  Undercut margins/lose money for years
•  Control/acquire limited supplies
•  Buy/control distribution
IMPORTANCE
OF
MONEY
“Money alone is not
enough…but in
combination with other
attributes…it is critical
to success”
95

•  Success is an emergent condition of
a thousand decisions
•  Success drives its own momentum
•  Success mollifies a great deal of
conflict, dysfunction, internal strife
and disagreement
•  Success allows/enables others to
tolerate intolerable behavior
•  Success creates opportunity for
future @ bats, & future success
•  Success attracts and reinforces
•  Success leads to fame
IMPORTANCE
OF
SUCCESS
“Success absorbs/
tolerates all kinds of
dysfunction: Personality,
Management, Internal
organization strife,
Poor decision making,
Board of Directors”
96

•  Fame facilitates awareness
•  Fame facilitates access
•  Fame facilitates opportunities
•  Fame facilitates better terms
•  Fame facilitates “believers”/followers
•  Fame facilitates tolerance of missteps and
misbehavior
•  Fame facilitates no second guessing
•  Fame attracts / drives / creates its own
fashion
•  Fame facilitates information advantage
•  Fame drives boldness
•  Fame becomes its own celebrity or halo effect
–  Artists made iTunes/Apple so “cool”/hip…that…
–  Artists then clambered to be in iPod Ads.
IMPORTANCE
OF
FAME
“Fame is its own
unique and unfair
advantage”
97

•  Simplicity is a goal in itself
•  Simplicity is sometimes difficult
•  Drive for simplicity everywhere in
business:
–  Messaging
–  Communication/presentations
–  Products
–  Components
–  Suppliers
–  Processes
–  Contracts/Agreements
IMPORTANCE
OF
SIMPLICITY
“Less is more”
98

•  Don’t be everything to everyone
•  Be clear what you are and why you are
different
•  What do you stand for that is different…
and people care about… and will know
you uniquely…from anything else
•  What natural advantages do you have
that reinforce your focus
•  Focus in all areas of decision making and
strategy
–  Products
–  Messaging
–  Channels
–  Suppliers
•  Focus and simplicity are self-reinforcing
objectives
IMPORTANCE
OF
FOCUS
“Focus reinforces
simplicity”
99

•  Simplicity is a goal in itself
•  Simplicity is difficult
•  Reduce complexity in everything:
–  Messages
–  Products
–  Components
–  Suppliers
–  Process
–  Contracts
IMPORTANCE
OF
SIMPLICITY
“Less is more”
100

•  Aesthetic matters
•  Simplicity matters
•  Integration matters
•  Design first then Engineering
•  Design in everything
–  Product - Manufacturing
–  Package
–  Retail store
•  “Why of What” matters
•  Innovation requires Artistry
•  User experience matters
•  Vision by a “single mind” is critical
to consistency and coherence
IMPORTANCE
OF
DESIGN
“Must understand the
essence of everything”
101

•  Design and Engineering needs to
iterate toward an ideal
•  That ideal keeps shifting as
technology keeps improving
•  Constant improvement and
innovation is necessary
•  However, someone must have a
vision/capability of the judgment to
decide when close to an ideal
(eg.when to launch) and when to
improve a product after launch
•  A passion for perfection can drive
to success or insanity
IMPORTANCE
OF
ITERATIVE
DESIGN
“Perfect design or
engineering comes only
after many, many
iterations”
102

•  First impressions matter
•  People form an opinion about a
company, a product or service
based on ‘signals’ that it conveys
•  People DO JUDGE a book by its
cover
•  For customers or clients to ‘care’
the designer, engineer, company
must also care.
•  You must understand the needs
and desires of customers/clients as
well or better than they do
IMPORTANCE
OF
IMPUTE
“Those who care that
people will care show
empathy toward wants,
needs and desires”
103

•  Path dependency drives negative
or positive feedback
•  Series of good decisions reinforced
through numerous positive
feedback loops (profit, fame,
success etc.)
•  Early poor decisions limit
opportunity to adjust strategy later
IMPORTANCE
OF
FEEDBACK
“Large and rapid market successes are often
surprises even to the innovator”
104

•  Being timid gets you no where
•  Always calling high does pay off
once in a while
•  Demanding more sometimes works
•  Being obnoxious has its benefits
•  Extreme narcissism keeps you
focused
•  Extreme behavior can be both
powerful and dysfunctional
•  Being a pathological truth recreator
is audacious
IMPORTANCE
OF
BEING
AUDACIOUS
“Outrageous success
comes from outrageous
people”
105

•  Doing something that you believe
in vs making money
•  Motivation alignment during
collaboration
•  Motivation misalignments on team
can be highly disruptive
•  Steve Jobs vs Larry Elision
•  A passion for perfection can make
a huge difference
•  People want to believe in
something or someone
IMPORTANCE
OF
VALUES
“What motivates
people in the face of
adversity will often
determine whether
they keep going”
106

•  Details always matter
•  Details are what make big things
happen distinctly
•  Does everyone and particularly the
CEO care about the details
•  Details matter must be in the
culture
•  Caring about the details requires
time, patience, caring and an eye
for the details
IMPORTANCE
OF
DETAILS
“Distinction comes from
caring about the
details”
107

•  During first @ bats is there the
best coaches, bats/balls, training
etc?
•  Who do you get introduced to first?
Who do you gravitate to? Who do
you select? Who is in your sphere
of opportunity?
•  McKenna / Leonardo Da Vinci
“Simplicity is the ultimate sophistication”
•  Silicon Valley’s density of extreme
talent is unparalleled
IMPORTANCE
OF
PROXIMITY
“If you are going to change
the world it will take effort
and contribution from
numerous world class
people, suppliers, service
providers and advisors”
108

•  To attract gifted people you must
“sell” them on a “different” future
•  To achieve unusual or favorable
supplier terms you must convince
them its in their interest
•  To raise money you must convince
investors that you have a path to
the “promised land”
•  If you are trying to convince people
of your ideas you must be
compelling, charismatic and
passionate (eg.crazy)
IMPORTANCE
OF
SELLING
FUTURES
“Great Sales People Can
Sell You The Future”
109

•  When you rely on other companies
you put your vision of the future at
risk
•  Control provides significant
advantages for end-to-end user
experience
•  The companies that control their
eco-systems’s /customer
experience / destiny are in a better
position of making dramatic
improvements/change in the
industry
•  Adobe <à Apple
IMPORTANCE
OF
CONTROL
“Not controlling your
own destiny may mean
not having one”
110

•  A single mind (Captain) who is capable of
clear, consistent and efficient decision
making
•  Democracy is a terrible “outlier results”
decision methodology
•  Groups of people generally revert to
average, sub-optimal, self-biased, self-
interested, and inconsistent decisions by
selecting lower risk, lower cost and
uninspired, incoherent business decisions
•  Great Boards do not interfere in great
companies. They select the leader and
help them lead to succeed with one clear
vision and strategy.
IMPORTANCE
OF
CLEAR & RAPID
DECISIONS
“Two Capitan's on a
Ship, two Chefs in a
Restaurant, two CEOs
in a business has rarely
ever been successful”
111
ONE-MIND DECISION MAKING DRIVES SUCCESS

•  The whole can only succeed when
the majority of decisions around the
important elements are good,
consistent and coherent
•  One element, attribute, variable or
function decided well is not enough
•  All functional decisions must
synchronize toward consistent
“end-game” values, goals and
objectives
•  “One mind” gains distinct
advantages in achieving this
IMPORTANCE
OF
SYSTEMIC
DECISION MAKING
“ The whole can only
succeed if all the
elements succeed with
coherence”
112

•  Are the key, important and critical
decisions recognized and decided
by the principals who have the right
values, capability and insights?
•  In the pursuit of WOW is the right
balance struck between “speed vs
perfection” for all the key,
important, critical decisions?
•  The “one mind” can help achieve
great decisions but can bottleneck
or slow decisions as company
scales
IMPORTANCE
OF
WHAT ARE THE
CRITICAL
DECISIONS
113

•  Out of one thousand ideas which
are the most important/valuable
•  Which work in symphony with other
great ideas
•  Which ideas out of the myriad of
ideas should be seized upon,
improved and implemented?
•  The “one mind” is often better at
processing, synthesizing and
selecting for implementation the
coherent set of GREAT ideas
IMPORTANCE
OF
RECOGNIZING
GREAT IDEAS
FROM GOOD IDEAS
“Everyone has ideas.
Every day new ideas
arise. How to
distinguish that which
are great, from that
which are merely
good?”
114

•  iPod, iPhone, iPAD, iTunes
•  MacBook Air
•  MacBook Pro
•  iMac
•  Always out innovate your own
products
•  Easier said than done
IMPORTANCE
OF
KNOWING WHEN TO
AND WHEN NOT TO
CHANGE A WINNER
“What is working
maintain until just before
it doesn’t”
115
“Pace your innovation ahead of competition but not
before customer frustration”

•  Product: iPod, iPhone, iPAD
•  Supply Chain
•  Manufacturing
•  Promotion: Launch, Campaigns
•  Distribution: iTunes, Apple Store
•  Ecosystem: Application Dev
•  Integration: Software, Hardware, E-
Commerce
IMPORTANCE
OF
REINFORCING
CLEVER STRATEGY
“Dramatic or extreme
outlier success requires
broad, coherent &
disruptive success”
116

•  What the competition was doing
was observed and often derided by
Steve Jobs but he never was
preoccupied by competition
•  You will end up in incrementalism if
you don’t ignore the competition.
•  Your strategy, differentiation,
culture, philosophy, execution must
stand unique and alone
IMPORTANCE
OF
NOT GETTING
PREOCCUPIED WITH
COMPETITION
“Rarely is competition
worth watching. Focus
primarily on your own,
startegy, execution and
innovation. ”
117

•  Large organizations that become
divisionalized become balkanized
•  Each entity works to its own values,
goals, cultures and priorities
•  Apple was aligned under “one
mind” and co-operated functionaly
or be obliterated by Steve’s ire
IMPORTANCE
OF
THE ELIMINATION
OF DIVISION
“ SONY had all the
components and lost
the war”
118

•  Patterns are valuable and limited
•  Unknown or misunderstood
contributor elements, variables,
context will be missed, poorly
understood or over-interpreted in
any complex system analysis
•  Recognize correlation vs causality
•  Every success path has random
elements--including timing—that
contributed but were poorly
understood a-priori
•  Hindsight contributes to a sense of
false wisdom
IMPORTANCE
OF
COMPLEXITY
“You can NOT
deconstruct success
paths perfectly”
119

•  The future is unknown.
•  What ‘emerges’ from a thousand people
making a thousand decisions in a thousand
days can be dramatic or dreary
•  Business is a complex system with a thousand
constituents, a thousand variables and a
thousand decisions resulting in an
unpredictable & improbable outcome
•  The timing of who you meet and whether you
“connect” and whether you or they decide to
work together impacts your future outcome and
that process is somewhat “random”
•  Decisions are often made for unintended,
wrong or misguided reasons with unintended
(both positive & negative) outcomes or
consequences.
IMPORTANCE
OF
SERENDIPITY or
RANDOMNESS
“Fortune comes to
those who don’t
count on it”
120

•  The reliance on one individual to orchestrate,
organize, prioritize, authorize and drive a
insanely great business is dangerous
•  The pantheon of truly great business artist/
leaders is rather small:
–  Andrew Carnegie
–  Henry Ford
–  Sam Walton
–  Steve Jobs
–  Jeff Bezos
DANGERS
OF
STEVE JOBS
“There are very very few
gifted people who can
navigate perfectly the art of
design, engineering, and
business”
121

•  Because it takes a single mind to weigh the
known, the possible, the probable and the
unknown. Groups can't do that. Only one
mind can.
•  Making deals…ones that mattered….with
Suppliers, Partners (think music), Industry
Giants (Sony) was one of Steve Job's great
talents. Why? Because he had fame, hustle
and hutzpah. He understood often better than
others how and when the one+one equalled
five. He was aggressive, often obnoxious, and
was a one man negotiating phenomena…on
the important terms that mattered.
•  One can not know whether a deal between
Apple and Twitter was in the cards, was
important to either party or really mattered in
the large scheme of success in both their
businesses or whether if Steve Jobs had been
around would the outcome have been different.
DANGERS
WITH
STEVE JOBS
GONE
Failure to get Twitter Deal
by Apple because no longer
“ONE MIND”
122
“Apple Talks With Twitter Said
to End Without Investment”

Venture: Primary Issues
•  Culture
•  Talent
•  Scale
•  Proximity of Interface
•  Success
•  Critical Mass
•  What are the “unfair” Advantages
Complexity
Competence
Co-operation

Venture Ecosystem
CULTURE
•  Cautious
•  Complacent
•  Envious
•  Oligopoly
•  Cynical
•  Tolerant of mediocrity
A man watches a lobster fisher throw three
lobsters into a bucket. Concerned, the man
approaches the fisher and asks if he isn't
worried that the lobsters will climb out because
the bucket has no cover.
"No worries," replied the fisher. "These are
_________ lobsters. If one starts to climb out,
the others will pull him back in."

Venture Ecosystem
Cumulative Adv
Scale
•  Number of anything
•  Dollars available
•  Statistical opportunity
•  Normal Curve
•  Outcomes
•  Market size
•  End game opportunity
•  Heterogeneity of markets

Venture Ecosystem
Proximity of Interface
•  Too spread out
•  Talent
•  Customers
•  Partners
•  Large Markets
•  Key expertise
•  Sophisticated service providers
•  Investors (Angel, Venture, Corporate)
•  “ All business is local”

Venture Ecosystem
Cumulative Adv
Success
•  Vicious cycle
•  Experience
•  Understanding Formula
•  Building
•  Investing
•  Understanding
•  Building Upon
•  Confidence
•  “Virtuous reinforcing system”

Venture Ecosystem
Cumulative Adv
Talent
•  Scarce talent
•  Limited experience
•  Top tier pulled into U.S.
•  Smart people pursue
other markets or
geographies
•  Pool size limited for
“natural selection to take
place”

Venture Ecosystem
Cumulative Adv
Critical Mass
•  Industry elements
•  Top tier talent in any area
•  Market size
•  Customer segments
•  Proximity to customers
•  Proximity to partners

Venture Ecosystem
UnFair Regional Advantages
•  Wealth
•  Government free trade zone
•  Skill Specialization
•  Expertise
•  Friendly Business policies
•  Other

Conclusion?
Success is
rarely one
person or one
thing…
Causality is complex to
understand and distil from
context.
132
In Steve Job’s & Apple’s case,
he was absolutely necessary… but not alone.

How do you predict the future?
133
…by creating it…..
133

Where Have All the Great Leaders Gone?
Recipe for a WOW early stage CEO…
1.  Cares about people and inspires as a leader-leader.
2.  Self-aware. Emotionally stable. ‘Keeps calm and carries on’.
3.  Core competency somewhere e.g. Business Strategy,
Execution.
4.  Risk/resource judgment comfortable/capable.
5.  Adaptable/compatible with Founder(s).
6.  Understands all Functions and particular HR.
7.  Confident proactive decision maker (with humility).
8.  Strategy, Culture, Risk, Execution, Adaptation, Metrics.
9.  Equal parts Tireless, Energy, Enthusiastic, Encouraging.
10.  There is no ‘i’ in Team. An ‘i’ in Run the company is Ruin the
company.

Summary - Ten Steps to Growth
1.  Stay calm!
2.  Establish clear Priorities, Ownership, Deliverables.
3.  Be clear about and communicate your strategy and goals.
4.  TAM++, Success = LTV - CAC
5.  The leadership team sets the tone, culture and dynamics.
6.  Timely, data driven, risk judgment decisions taken daily.
7.  Deliverables, Dashboards, Metrics matter.
8.  Sales/Marketing/Business Development recipe matters.
9.  Insights à adaptation matters.
10. Perpetual learning organization.

BE
AN
OPTIMIST
PRAGMATIST

Ver 1.10 the venture capital ecosystem feb 2015

Recomendados

Recomendados

Mais conteúdo relacionado

Mais procurados

Mais procurados (20)

Destaque

Destaque (7)

Semelhante a Ver 1.10 the venture capital ecosystem feb 2015

Semelhante a Ver 1.10 the venture capital ecosystem feb 2015 (20)

Último

Último (20)

Ver 1.10 the venture capital ecosystem feb 2015