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

4

CEO of Assent Compliance

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

What does this mean? •  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

What does this mean? •  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

What does this mean? •  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.

ENTERPRISE EMPLOYMENT 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 Private Placement firms

Bridge and Mezzanine

Financing to allow company to go public in 6 – 12 months

$3.0M – 20.0M 1-3 Mezzanine Financing firms

Private Placement 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

Venture Capital in Detail

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

What makes VCs invest?

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

35

AirBnB Story

37

The UBER VC Story

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

Largest VC Funding Rounds

39

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

And in Canada….

70

And in Canada….

71

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

Answer some Questions

84

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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs

•  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


Lessons from Steve Jobs

•  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”


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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”


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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


Lessons from Steve Jobs •  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”

Creating an Industry

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

Business

Transcript of Ver 1.10 the venture capital ecosystem feb 2015