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Response to Investing as Entertainment – Betting vs Investing

Shreyas Hariharan wrote a great post, Investing as Entertainment. Highly encourage you to read it (go on, I’ll wait).

In the post, Hariharan makes the case that there is a big difference between “investing for retirement” and “investing for sport.”

Robinhood isn’t competing with Interactive Brokers and Charles Schwab. It is competing with Netflix and TikTok. DeFi has built an even better casino than Robinhood and Wall Street. Besides the profits and the novelty, people are attracted to DeFi because it is entertaining. DeFi is an e-sport.

Hariharan makes a super point.

Real investing is about accumulating new capital very slowly. It is about using the power of compound interest. As Charlie Munger reminds us, when he was younger his goal was to get rich SLOWLY. Real investing is very, very boring.

In fact, the best strategies for real investing start with the word “passive.” Even the best funds for retirement investing are called “passive” funds. It is about getting low fees so you can get rich … but get rich slowly.

But now-a-days, many people don’t want to be passive. They want to be part of the story.

Watching a movie, while incredibly rewarding, is very passive. And people that like watching movies or curling up with a long book are likely highly correlated with people that engage in long-term passive investing.

By contrast, playing video games is very active. You are part of the story. Sometimes, you ARE the story. And people that play video games are likely highly correlated with people that want to be more part of the story when investing.

When you are part of the story, then you are very likely betting and not investing.

Most people bet on sports because they want to be part of the story. It is really fun. Very few of us will ever get to hang out with LeBron James, but we all can bet on basketball games. We even can run a fancy parlay bet and make watching the NBA finals even more fun.

Super fans love to bet … because they are now no longer just passive spectators … betting transforms them to active participants. And that is what more people that play video games regularly want to be. Being passive is boring.

This is why people even bet on the Academy Awards or the Grammys … the primary goal is not to make money but to be part of the broader story.

Which brings us back to Hariharan’s astute point … betting on stocks is fun. It is entertaining. Yes, some people do get rich by betting on stocks but most just do it because it is fun. They get to be part of the action. They might never get to hang out with Elon Musk in person but they can buy an option in him.

Elon Musk's new official title: 'Technoking of Tesla'

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Now is a great time to build a pure-play data (DaaS) business

There are hundreds of amazing companies that sell software and tools to data scientists and machine learning teams. In fact, many of the best companies in the last 15 years have been exactly that.

But outside of SafeGraph (where I work), there are almost no companies that specialize in selling data to data scientists.

Why?

Partially it is because it is MUCH easier to get to $10 million ARR by selling applications (traditional SaaS). Partially it is just tradition coupled with stagnation. Partially it is because venture capital firms have been wary of funding data companies. And, most convincingly, being a data-only business is less exciting to most entrepreneurs because data is a supporting role (see the last section on data and humility).

But selling data to data scientists is starting to be a big business. 

Selling data (DaaS or Data-as-a-Service) historically has not been a great business.  Outside of Zoominfo and a few others, there have been almost no pure-play data unicorns built in the last 20 years.

Check out the DaaS Bible — the ins and outs of running a data-as-a-service business (DaaS accounting, winner-take-most dynamics, and more)

That’s because very few companies had the ability to make use of raw data in the past.  10 years ago, only the most advanced engineering teams were able to make use of external data.  But that’s changing.  An order of magnitude more companies buy data today than did five years ago.  That’s because a good engineer with a tool like Snowflake can be as productive as a great engineer was 5-10 years ago.

This is happening across industries. 

One example is hedge funds.  Not that long ago, just ten funds were buying significant alternative data.  Today it is still under 100.  But there are 500-700 funds that are currently making the investment to ingest large amounts of data.

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Eight napkin graphs to building a unicorn

For those of you that missed the SaaStr SCALE conference last month, Jason Lemkin has a great overview including links to the top eight presentations.

The #1 rated session was an interview with Todd McKinnon, CEO Okta — it was excellent and I highly recommend it.

My presentation was the #2 rated session. Here is the full video:

And here is the full learnings:

(1) Avoid good opportunities

the MOST IMPORTANT advice I can give you is to avoid good opportunities.

avoid good opportunities like you work to avoid the coronavirus.

Good opportunities must be avoided at ALL costs.

this is true if you want to build a great company … but this is JUST AS true in life.

the more successful you become, the more good opportunities are going to come at you.  soon you will be swimming in good opportunities.

again, that’s true for companies and true for you individually.

let’s first dive into this advice individually and then show it applies to building a business. 

let’s say you are 22 years old and don’t have any money.  well then you are likely going to see very few opportunities to invest and most of them will be bad.  but as you gain wealth, you will see more opportunities to invest — and many of them will be good.  but even the good opportunities take time and effort to review — so it is in your best interest to do everything possible to wait only for the great opportunities.

this is even more true when running a company.  the possibilities of the number of things you can do to grow your business are endless.  you can launch new products, be better at recruiting, speak at SaaStr, and so much more.  my advice, have some sort of rubric that allows you to ID good opportunities and avoid them.

but how do I know when an opportunity is just good and not great?

my simple heuristic: if the opportunity has few obvious downsides, it is almost certainly NOT a great opportunity.  all great opportunities have very big and very obvious downsides.

of course, just because it has obvious downsides doesn’t mean it is a great opportunities — it still is more likely to be a bad or good opportunity … but if you see something with no obvious downsides, it almost certainly is not great.

this is also true with people you hire.  if you want to hire a 10xer, that person will almost certainly have glaring faults.  anyone that you can hire without glaring faults will, at best, be good — they will certainly not be great.

summary: avoid good opportunities like you avoid COVID-19

(2) Delegate things you are good at

most people advise us to delegate things you are not good at.  they advise to surround yourself with people that have different strengths and different weaknesses. 

this is the conventional advice.

maybe someone on your board already gave you this advice.

most of us have heard this advice many times over the years.

but this is terrible advice.  don’t listen to it.  ignore it.  take it outside in the backyard and bury it.  stab it and kill it.

do the opposite.

instead: Delegate the things that you are good at.

I know this sounds really strange … so let me explain. 

the things that are the EASIEST to delegate are the things you are already good at.  you know how do those things really well.  you might already be an expert in them.  you can break down these things well.  you can also hire for these things. 

so delegating these functions will, for sure, have the highest success rate.

if you are a great engineer, who do you think you will be better at hiring — other great engineers or great salespeople?

the answer is obvious — you will likely hire super engineers and very mediocre salespeople. 

so the first thing you should always delegate are the things you are best at. 

I cannot stress this enough.

you even see it in all great companies – they rarely get great in things that are not traits of their founders. 

for instance, Marc Benioff is the world’s best software marketers.  he was an amazing software marketer ever before he started Salesforce.  he’s incredible.  he’s hired great marketers and delegated to them.  Salesforce continues to be great at marketing. 

but Marc Benioff is not a great UI/UX person.  while he’s been able to acquire great UI/UX people through acquisitions over the years (Stuart Butterfield, CEO of Slack, is one of the world’s greatest), the Salesforce product still suffers from having one of the worst UI experiences. 

and guess what?  it hasn’t mattered. 

it is better that Benioff focused on his strengths.

you should focus on your strengths too — you cannot be all things to all people.   focus on being great at just a few things.

let’s look at the napkin graph (above).

on the y-axis is things you are good and things you are bad at.  the x-axis is things you love to do and things you really hate doing. 

when you get a chance, try to fill out these quadrants for yourself. 

the easy thing is to delegate as much as possible on the things you are already good at.

build systems to make delegation easier.  hire super talented people and work on up-leveling them.

now you have two other buckets left.

for the things you like to do but are not yet good at … work on investing in yourself.  get a coach.  read.  learn.  try a few different things (and know that you will fail).   while it is unlikely you will ever become great at these things … you can get yourself to good.  once you are good, you can better effectively delegate (and hire). 

now there are things that you are bad at and you also do not like doing.  my advice in this quadrant is to do everything possible to get leverage through APIs or software … or maybe you do not need to do them at all.  remember, you don’t have to do everything to have a super company.  there can be many functions that you either outsource or just not do.

the great thing is that the number of vendors you can choose from is growing exponentially.  you have amazing choices. 

the number one skill to have in the next 20 years is the ability to select and manage vendors —  almost every company now has more vendors than employees.

(3) Do the opposite of “smart” people

take a look at what the smart people around you are doing … and do the opposite.

most smart people optimize for the mid-term.

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