Musings of an Entrepreneur

                                                 

For the French speakers among you.

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This article tells a fascinating story of a journey of survival through entrepreneurship. The persistence and trial and error approach will ring true to all entrepreneurs. His conclusion does not apply to all, I know plenty of people who loved college and love the job they do since college, but he does have a point.

Read the article at:
http://www.violentacres.com/archives/235/college-will-kill-your-entrepreneurial-spirit-while-simultaneously-turning-you-into-a-worker-bee/

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I participated last night in an Internet entrepreneur ping pong tournament organized by Spark Capital. It was incredibly well attended – Fred Wilson, Chris Dixon, Kevin Ryan, Dina Kaplan, Charlie O’Donnell, Dan Allen and many more made an appearance as well as a few West Coasters who happened to be in town including Loic Lemeur.

What is amazing is that as amazing as the event was, this type of event is becoming commonplace in New York. When I started Zingy in New York in 2001, the tech scene was all but dead, but now there are many interesting events happening daily.

Aspiring entrepreneurs can join or attend any of the following:
• The Founders Roundtable organized by Amol Sarva, the founder of Peek
• New York Tech Meetup
• The Hatchery
• New York Entrepreneur Week
• The Bootstrapper Summit
• Web 2.0 Expo
• Web2NewYork

Charlie O’Donnell runs a great mailing list with everything noteworthy happening this week in tech. Just sign up for it!

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This is an old article by Paul Graham (October 2006), but a must read for all entrepreneurs.

Read it at: http://www.paulgraham.com/startupmistakes.html

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Looking at the most successful Internet and technology companies of the past few decades, it’s shocking to see how many have two or more founders: Google, Apple, Microsoft, Intel, Youtube, Skype, Yahoo to name a few all have multiple founders. Even Oracle which is closely associated with Larry Ellison has multiple founders. It’s much harder to come up with super successful Internet companies which only have one founder. Amazon and eBay seem to be the exception and Jeff Bezos is all the more exceptional as he is still CEO. The same applies to up and coming Internet companies which also seemingly all have multiple founders: Gilt, Yelp, Facebook and Twitter.

I would not have expected this result. Running a successful starting requires clear and rapid decision making: you ask everyone’s opinion and make an informed decision and assess its impact. If it’s a product decision, you A/B test the top few decisions and keep refining. There is no time to find the democratic consensus, the field is too dynamic and competitive and from experience the consensus decision is usually worse than an informed rapid decision followed by rigorous A/B testing with continuous refinement. I would have suspected that having multiple founders would slow down the decision making as the co-founders would have to agree on a decision before it gets taken.

Moreover, most marriages end in divorce. Why would it be any different for business relationships especially given the stress that the two partners are under and the financial stakes involved? In fact, I would have expected that companies with multiple founders to be more likely to fail than companies with one founder for that very reason as two disagreeing founders would tear the company apart.

If someone did the analysis, I would bet that companies with multiple founders are more likely to fail than companies with one founder, but when they succeed, they are more likely to succeed in a bigger way.

There are four reasons why having a partner might make a huge difference:

1. If you can’t convince your friends to join you, you probably should not be starting the business.

Your friends are likely to be your most lenient audience: they have no choice but to listen thoughtfully to your crazy ideas so if you can’t convince them you are in trouble. It might be that your idea is not convincing, maybe it does not meet the 9 business selection criteria? :) Alternatively, you might not be an effective pitchman for the idea. This is even worse, you can always find a better idea, but ultimately a startup CEO is a salesperson: he has to sell his vision of the world to investors, employees, customers, the press and anyone who will listen!

2.Being a startup founder is incredibly lonely and it’s great to have someone to pick you up when you are down and keep you grounded in reality when you become exuberant

As the sole founder you always have to exude confidence in your vision, idea and ability to execute, but the reality is that life in general and startup life in particular is anything but a continuous series of uninterrupted successes. There are countless ups and downs. While at Zingy for the first two years we were continuously on the verge of bankruptcy. We missed payroll countless times and I would raise $25k or $50k at the last minute to belatedly make payroll. Sharing those problems with existing investors, potential investors, partners and employees would have only made them worse. It would have been great to have someone to share my fears with.

Having a partner also makes you much more resilient as you don’t want to let him or her down. There is a magical esprit de corps that forms when you are working intensely with other people. Beyond having someone there to cheer you up when things go wrong, this fear of letting your friends down keeps you going no matter what!

3. It’s necessary to have a strategic sounding board

In a startup, you typically hire people based on their functional expertise: a fantastic VP of Marketing or Head of Engineering. You want to hire the very best at every position which means almost by definition that those people are hyper specialized. They are significantly better than you would be at what they do, but they don’t have the same global perspective and vision. That’s ok, but it’s your job as founder and CEO to define it. However, startup success is so much about effective execution that you can easily get lost in the details and forget the big picture.

It’s important not to lose sight of strategic considerations as they ultimately determine how much value you are creating. In other words, it’s not just important to implement the right billing platform but to make sure we have selected the right business model. Similarly, we need to be cognizant of the macro environment. Valuations may be inflated or the competitive dynamics may be about to shift dramatically suggesting that now is the time to sell.

It’s easy to lose sight of all this while you are busy executing. There are alternatives to having a founder for these roles: throughout my life, I have had the pleasure of having fantastic strategic advisors: my friends from McKinsey like Bryan Ellis, thoughtful businessmen like my dad, other Internet entrepreneurs and more recently my amazing VC board members at OLX: Jeremy Levine and Joel Cutler. However, I know how privileged I am to have been surrounded by such amazing people. Many entrepreneurs don’t have the same business background and network and a co-founder is a fantastic sounding board for strategic ideas.

4. There is so much work to do, it’s good to have someone you completely trust to split it with

Many people imagine that a CEO merely sits in his office thinking big thoughts. I doubt that’s the reality at large corporations and I know it’s not in startups which are perennially under staffed relative to the amount of work they have to do. As a founder you have to be willing to do whatever it takes to succeed. Chances are you will be involved with PR, legal issues, partnerships, product decisions and much more! So much time is spent dealing with fires (we just got sued, this huge company is willing to sign us but we have to be ready by tomorrow, etc.) that it’s good to be able to split the work with!

Not only are there four good reasons to have a partner, but currently having had a Co-Founder and Co-CEO for three and a half years, my aforementioned fear of it slowing down the decision making process was overrated.

My partner is Alec Oxenford. I have known him for 11 years. I met him when his friends and he were considering what to do on the Internet in Latin America and I provided them with the business plan and technology to create Deremate, an adaptation of eBay for the Latin American market.

We have extremely similar backgrounds: he went to Harvard, I went to Princeton. He worked at BCG, I worked at McKinsey. He was CEO of a copy of eBay for Latin America, I was CEO of a copy of eBay for Southern Europe.

You might have argued that our similar backgrounds would lead to conflicts over who does what. What’s interesting is that we never once discussed our respective roles – we fell naturally into them based on geographic location, linguistic ability and personal preferences.

He is based in Buenos Aires where 110 of our 140 employees are based so he takes a much more hands on role in hiring and day to day management. Similarly, his more attuned political skills mean that he takes care of solving conflicts in the company and plays a much bigger role in post-merger integration. Given his linguistic skills, he obviously takes the lead on Spanish and Portuguese related partnerships and PR (public relation) opportunities.

Because I am based in NY closer to where our investors and potential investors are, I take more of a lead in IR (investor relations). Given that I am at a stage in my life where I have an easier time to travel (I am single while he is married with two amazing kids), I take more of a lead in frontline M&A (identifying and speaking with potential acquisition targets in the early stages of the process) and BD (business development). Given my linguistic skills, I take the lead on French and English PR opportunities. Finally, I care deeply about product decisions and involve myself more closely in the product planning process.

What is interesting is that our skill sets are essentially identical. We could actually successfully swap roles and often cover for each other when one of us is at a conference, on vacation or if there is some sort of fire that needs to be put out.

We are equally involved in strategic decision making. It’s the one place where a slight difference emerges, he is much more conservative by nature and I am much more gung-ho. Even there our differences balance each other and let us reach a better outcome. Interestingly enough, our board members also have a similar distinction: Jeremy is more conservative and Joel more aggressive. (BTW this is not to say I prefer Joel to Jeremy – they are both extremely smart and thoughtful and the discussions all four of us have had have proved invaluable). As an aside, Jeremy seemed like a new man in the last board meeting ready to conquer the world and take no prisoners. I was fun to see! I wonder if the rumors that one of his portfolio companies had recently received a $500 million buyout offer had anything to do with it :)

Any combination of founders works, but similar people who respect each other is probably best

The common recommendation is for a business founder to join forces with a technical founder. When I look at successful startups though there does not seem to be a rule. If anything there are more teams were all the founders have technical background (e.g.; Google) than mixed teams. From my experience with Alec, I can glean why that might be: if you understand where your partner is coming from, you are in a stronger position to respect his choices and mutual respect and trust is essential to sustain the partnership – just like in a marriage!

I actually once described my relationship to Alec as a good marriage, but he immediately corrected: “it’s much better than a good marriage: we never argue about anything and never fight!” He should know: he has been in a fantastic happy marriage with an amazing girl for over ten years!

The conclusion is clear: if you are creating a startup get at least one partner!

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I loved this year’s LeWeb. I met many great entrepreneurs and was truly impressed by the organization and the quality of the participants.

Loic Lemeur, LeWeb’s founder, generously invited me to chat about OLX and entrepreneurship. We had a lot of fun!

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Great article on the value of persistence:
http://blogs.harvardbusiness.org/bregman/2009/11/how-not-achieving-something-is.html

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In the past few weeks I met a few seasoned executives who had reached a point in their lives where they had saved enough to take on additional risk and were looking forward to experiencing the thrill of joining a startup.

What is interesting is that for the most part they felt that they should join an existing startup which had recently raised a Series A round and was looking for a CFO/COO/Head of Business Development/Head of Marketing depending on their respective experiences.

The reasoning was that they partly de-risked themselves by going to a company which was already funded and thus both capitalized and vetted by professional investors who have deemed the project worthy. Thinking of the risk/reward, I don’t think this is the correct decision.

When a company raises a Series A of funding it typically has built its website, launched, obtained a bit of traction and now needs more capital to grow. It is usually too early to tell whether the company will be extremely successful. In other words, it’s unclear that joining a company at this stage is significantly less risky than starting your own company or joining a startup at an earlier stage. After all, a seasoned executive can be thoughtful about the company he or she elects to start or join (especially if they use my 9 business selection criteria :), can help execute and is likely to increase the probability of getting a Series A.

By joining a company that already has its series A funding, the seasoned executive will save 12-24 months at the cost of changing his/her equity participation by a factor of 5-20! It’s not inconceivable that he/she would get around 2% after the Series A where they could have obtained 20% at an earlier stage. If you are willing to take the risk of being an entrepreneur, it makes more sense to go all the way and join a very early stage startup or start your own.

Alternatively join at a later stage and join a company that is rocket ship and has a shot of a multi-billion dollar exit in the next few years. You will get 0.1% of the equity, but the exit is much closer than that of an early stage startup if the upside can still be huge – it’s easier to grow a company from $100 million in value to $500 million than from $1 to $100 million… Moreover, the seasoned executive might feel more at home in a larger company with more processes. However, make sure you join rocket ships with huge growth trajectories because they will get the high exit multiples. Today those companies would be companies like Gilt, Twitter and Zynga.

If you can identify a Series A funded company on such a growth trajectory that’s even better, but usually at that stage it’s still unclear how successful the company will be.

Conclusion: If you are ready to jump in the entrepreneurial fray go early stage or join a late stage rocket ship!

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I had the pleasure of being invited to attend the Liberty Media Net Leaders Forum. The forum was fantastic featuring great presentations from Mark Mahaney, the star Internet analyst from Citigroup, and a chat between John Malone and Greg Maffei, respectively Chairman and CEO of Liberty Media. Reed Hastings’ discussion of the lessons he learned as CEO of Netflix were one of the highlights of the day.

If you read Reed’s fantastic presentation on Netflix’s culture which circulated on the Internet a few months ago, the lessons will be familiar, but are interesting nonetheless:

• Contrarily to what VCs say, don’t go after the biggest market possible. It’s key to completely dominate your market to extract significant profits from it so pick the smallest market possible to go after and focus relentlessly on dominating it. It must just be sizeable enough and offer the opportunity of growing 5-10x in the next 10 years.
• Focus on flexibility, not process. If you focus too much on process, you will attract process oriented people and lose the creativity that will be required to thrive when market conditions change.
• Don’t keep good employees, only keep super stars! It’s not enough to get rid of the lowest performers. Get rid of the B+ performers as well. In the last downturn, Netflix fired 1/3 of the company, mostly good performers, and went from 120 employees to 80 employees. Both the productivity and the fun of working for the company increased!
• Don’t give bonuses. Star performers don’t work to earn a bonus at the end of the year. They take pride in the work they do and in successfully achieving their goals.
• Don’t keep anyone who is there just to be there! To weed out those who don’t truly love working there Netflix gives generous severance packages to those who leave and even gives an incentive for people to leave in their first week on the job!
• Give flexibility to employees with regards to pay. If they are risk takers and want many stock options, give it to them in exchange for lower pay. If they are more risk averse and would prefer only a salary, that’s ok as well. You need to adapt to their risk profile and needs.
• Let employees think about their career development and express their desires. Map an appropriate career path with them. Employees are thus empowered to take charge of their careers. Help them find a job elsewhere if you can’t accommodate their wishes.
• Commit to your employees that they will only be surrounded by super smart fantastic colleagues and stick to it!
• If you work from a notebook computer give up your office and work at various places around the office (moving spot every day) to be around people. It’s one of the best things you can do! It should allow you to get a much better understanding of what is going on.

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BFM is the leading French economic and business radio channel. They were interested in hearing about my American adventure and the latest happenings at OLX.

French speakers can download the mp3 of the interview.

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