Author Archives: auren

We have reached Peak Planning … the declining Marshmallow Test advantage

We’ve finally reached “Peak Planning.”   

yes, we have reached “Peak Planning”

For the last 2000 years, one of the most important skills someone could have was the ability to plan ahead.  Those that could plan ahead would reap massive awards, those that didn’t would starve in the winter.  

But there has always been a tension between the forgetful creative genius (the absent-minded professor type) and the Planner.  Of course, the most successful people were the combination of the Planner AND the Creative Genius (like Bill Gates and like Warren Buffett) … but that is a real rarity. For the last 2000 years, you were MUCH better off being the planner than the creative-type unless you were the BEST creative in your field.  The 1,000,000th best planner still did very well.

The Planner is typically someone who is really good at seeing the likely future and making plans to address it.  For instance, 2000 years ago, it was really important to plan for winter.  Things did not grow in the winter so one needed to store food.  In fact, thinking about food was extremely important because harvests were not certain so you would need to save grain from a good harvest to cover an eventual shortfall year.  

The forgetful creative genius (the absent-minded professor) was at a big disadvantage in society because of their lack of planning skills. At the same time, the Planner (less creative but very good at logistics for the future) was needed for most tasks. 

While both skills (planning and creativity) are important, the future will need more creatives types and less planners.

A history of the Planner advantage

Being a Planner 25,000 years ago (as a hunter gatherer), while important, did not pay huge dividends.  You mostly wanted to avoid being eaten by lions or bitten by poisonous snakes.  And you had a limit to how much you could succeed because humans where generally confined to small tribes of people.

But as the farming revolution spread and we domesticated, planning became more and more important.  By the time the Renaissance and (later) Enlightenment hit, Planners could rule vast lands or get very wealthy.

Napoleon would have passed the Mashmallow Test

Napoleon Bonaparte surely would have passed the Marshmallow Test.

Then came the industrial revolution and Planners became even more in demand. Alfred Sloan, the famous CEO of General Motors, was an incredible planner.

But planning was not just important in becoming a successful business person. Planning was ESSENTIAL in every-day life.  

In 1990, the people with great social lives were the planners.  If you did not not plan to meet your friends, you might not be able to meet them.  In the pre-mobile phone era, you needed to be constantly planing ahead.  The rewards, both economic and social, went to the planners.

And yes, there were still some extremely successful forgetful creative geniuses like Einstein.  But Einstein had a brain like Einstein.  He was an exception.  

Even the most famous 20th Century artists were Planners

People think that “creative geniuses” are not planners. But in the 20th Century (the century were planning mattered most), most of the great artists were planners.

Warhol was a planner. Picasso was a super Planner. And other “artists” are planning machines.  The successful comics like Seinfeld and Chris Rock were always planning.  Most of the best actors, musicians, etc. have been Planners. Planning was how you got ahead.

Until recently.

In fact, we’ve reached Peak Planner.

Today, it is easier than ever to do something in the last minute.

Want to watch a TV show? Not that long ago you’d have to plan to watch it. Seinfeld was available to watch only on Thursday at 9p. Later, when DVRs came, you’d still have to plan by setting up your DVR. Non-planners often had to resort to watching infomercials. Today, you just go watch the great show whenever you want.

Want to go on a good vacation? It is actually possible to plan the whole thing that day.

Restaurants? Yelp + OpenTable = instant gratification.

Need a ride to the airport? You can call a Lyft or Uber a minute before.

Want food? The biggest problem is picking from one of the 400 apps that help you do that.

Want to meet a special someone? Swipe right on Tinder.

Even businesses need less planning. When I stated LiveRamp in 2006 I had to plan ahead to buy servers. I remember the day when we moved our colo to a new host and we had a checklist of over 250 items. I fondly remember the celebration when we completed the move. But need more compute power for your application today? Simple to spin up more instances on Amazon Web Services.

You don’t even need to plan for office space — WeWork gives you office space on demand.

And you can even get workers on demand through UpWork and Mechanical Turk.

On-demand services are built by Planners to give non-Planners an advantage

The best planners are working themselves out of a societal advantage because they are spending their time planning logistical companies that give small benefits to other planners … but very large benefits to the absent-minded professors.

Coordination is getting easier and easier

Coordination … especially between 2–10 people … is getting easier and easier. Not that long ago, if you wanted to meet someone you’d have to spend a lot of time coordinating it. You’d break out a map and plan your route. You’d call them a few days ahead of time and meticulously plan where to meet.

Today your mobile phone takes care of all of this in real-time. No need to coordinate. It is Planning for Dummies.

The Marshmallow Test will not be as important 50 years from now

The famous Marshmallow Test predicted that people who were good at delaying gratification would be more successful. These are people who better appreciated the value of compound interest. But in a future world where planning is not as needed as today’s world, delaying gratification may not be as important. 

I’m a planner and I benefitted from it.

And yes, you can still get big economic benefits if you plan.  I pay half price when I buy my GoGoAir Pass on the ground instead of in-the-air.  I can save a lot of money by packing a chocolate bar rather than buying one at the airport.  But the benefits to planning, while significant, ain’t what they used to be.

Yeah, I plan meticulously to queue up my reading so that I always have something good to read. I save book and movie recommendations from people. But while this lack of spontaneity has generally served this Generation Xer well, it is likely not a core skill that someone born in the last decade should be focusing on.   

Summation: While people that do well on the Marshmallow Test will still have an advantage … that advantage will be much smaller 50 years from now as it was 50 years ago.

Note: This is adopted from my 2017 Quora article on Peak Planning.

Five Links for January

here are five links worth reading …

Venture Capitalists are much less ambitious than their private equity siblings
Straw-man article on how most venture capital firms do not take their own advice on company building and world domination …. and instead opt to play it safe. Be sure to check out the responses in the comments section (much disagreement and discussion). And please add your comments.

How Cartographers for the U.S. Military Inadvertently Created a House of Horrors in South Africa by Kashmir Hill
How hard-geocoding an IP address for a city can cause lots of problems. (Note: we have been thinking a lot about this at SafeGraph as we recently launched IP-to-Place).

Energy and the Information Infrastructure: The Digital ‘Engines of Innovation’ & Jevons’ Delicious Paradox by Mark P. Mills
“Humanity fabricates 1,000 times more transistors annually than the entire world grows grains of wheat and rice combined.” Those transistors consume more energy than the entire State of California. This is their story.

What-You-Know now beats Who-You-Know
The old adage that “it’s not what-you-know but who-you-know” is so entrenched that we don’t question the premise. We should. The What-You-Knows are on the rise.
Please add comments to the blog.

Do the Rich Get All the Gains from Economic Growth? by Russ Roberts
Roberts (the host of Econtalk — which is one of my all-time favorite podcasts) discusses the complexity of inequality.

BONUS Listen: Venture Stories: What Tyler Cowen Thinks About Basically Everything
Five Links reader Erik Torenberg interviews Five Links reader Tyler Cowen (who is one of the most interesting people in the world). A fascinating interview that will enliven your commute.

In addition — Some books I read since the last Five Links:

“America’s Bank: The Epic Struggle to Create the Federal Reserve” by Roger Lowenstein

“How the Internet Happened” by Brian McCullough


Amazon could up-end and dominate venture capital and venture lending

Thought experiment: How would Amazon enter the venture capital business?  

Use data from AWS to inform investment decisions

Amazon can leverage its proprietary data from AWS (Amazon Web Services).  Amazon’s edge is that most of the best technology start-ups are built on its services.  Amazon has a lot of information about how much these companies are spending, what services they use, what technologies they use, and more. 

The AWS data could be extremely predictive and give Amazon early signs that companies are growing fast or reaching an inflection point.  And it can use the data as a better diligence check of a company … for instance, the data could help determine which companies that claim they have “AI” are real and which are just marketing.  

(see some great comments on this Twitter thread)

Amazon has a real investing advantage.

Using this data to invest in public companies would likely not be legal since it could be deemed as inside information.   But using it for private companies is something Amazon could do.  

Of course, Amazon’s worry is that some of their AWS customers would get mad and move to Azure (which is the biggest risk of going into the VC business) … but that could be managed.   Amazon could just use information from the AWS bill (and not have to see any real trade secret information) to make the initial selection of companies they might want to focus investing in.  Then, of a company gives its consent, the Amazon VC team can view server logs, etc.  

Which leads us to the second thing: “your margins are my opportunity”

Amazon can win VC deals the way it wins in all its other businesses: price and convenience.

On price, Amazon can offer much better terms than traditional investors that need to take high management fees and carry.  Amazon wouldn’t need to do that and it would not need to, want to, or be able to (because of conflicts) take board seats.  So it would have a lot more leverage … especially in the late funding stages where data is increasingly important.

And while Amazon could potentially try to buy equity, it could also instead just focus on debt (which is a product it is already familiar with — see below).  

Venture capital firms’ returns net of fees (management fees and carry) have historically been very low.  But if Amazon really focused on its investments, it could earn an extremely high real return.  

Extreme Convenience: The easiest way to get expansion capital

Imagine logging into AWS and being presented with a term sheet.  Just click here, agree to these simple terms, and we will wire $10 million to you.  It takes less than 5 minutes.  Yes, that seems crazy.  But it IS possible.   

Amazon gives its merchants loans today (and it is an extremely good business).  Square also gives its merchants loans.  Both Amazon and Square use its proprietary data to make loans just to businesses they are confident will pay them back.  Those loans perform extremely well.  Square Capital is heralded as a fantastic business.  They can do this because they have unique data … and they can give an attractive price (lower interest rate) and make it more convenient (like the ability to get it in one click).  There is no reason Amazon can’t give loans to AWS customers.

Amazon could create a product that gives companies funding at super attractive terms with just one click.  As an added bonus to cash flows, Amazon wouldn’t even need to wire these companies the money.  It could instead give companies AWS credits.  If a company is spending $500k/month on AWS and believes it will continue doing so in the future (as many technology companies are), getting $10 million in AWS credits is pretty much the same thing as getting $10 million in hard dollars.

Other examples of successful technology companies starting venture capital firms

Amazon would not be the first big technology firm to start a successful venture capital firm.  Both Google and Salesforce have extremely large (and, I’ve heard, very successful) VC investments (in the billions of dollars for Salesforce and in the tens of billions for Google).  Apple does not have a VC firm (even though it also has a huge data advantages).  But while it seems against Apple’s ethos to run a VC firm, Amazon relishes in challenging new industries and using its proprietary data to its advantage. 

Debt would likely be easier to initial product than equity

The first victims of AWS funding private companies would not likely be tradition VC firms.  It would more likely be the venture debt companies.  That could significantly hurt some of the traditional debt providers (like Western Technology Partners) and some of the new aggressive players (like TPG, large hedge funds, and other new lenders).  

Prediction: Amazon will not start a VC firm

If Amazon was a little less ambitious, it would enter the venture capital business line.   The only reason Amazon doesn’t start a VC division is precisely why it could: because the VC industry is small and the gains, while in billions, may not be worth Amazon’s effort.

Also: Amazon might be worried this could hurt their AWS business. Certainly many responses to my Twitter trial balloon believe this:

Summation: while Amazon will not likely challenge the incumbent venture capitalists and venture lenders, it is a really interesting thought experiment to see how it could.

yes VCs, your margin is my opportunity

a service to help you understand all the products and services your friends use

Enter: UltimateReviewer!

If you’re a company and want to pick a vendor, you can check out what products companies you admire use (see SafeGraph’s list of vendors on Siftery (a service of G2 crowd)). You can browse tools they use and discover tools that make sense for your company.

But there is no way to do this in your personal life.

Want to learn what the best mattress is? The most efficient way is to either go to a definitive review site (like WireCutter) or poll your friends on Twitter/Facebook. It would be a lot better if many of the people you know have already logged what mattress they use and what they think about it.

Of course, this is true for everything you use. What to find a plumber? What about a good tennis racket? How about where is a good kid-friendly resort near Tampa?

Note: This is a series of my free open-sourced business ideas. Feel free to copy, fork, use them, etc. All I ask is that if you become a bazillionaire, you must take me to dinner.

Getting a graph of your friends and colleagues today is cheap. It is easy. You can pull down graphs from Facebook, Twitter, and your mobile contacts.

But 15 years after the social networking revolution, it is still amazing that most of these services are 100% aligned to get you to spend massive time on the site (all about user engagement) rather than focused on giving you more value. Most social graph services are just about time wasting rather than making you much more productive or knowledgable (which is where their real power comes in).

There should be a service to help you understand what you want to spend money on and giving you tools to more quickly and efficiently make purchases. This is still a holy grail of the Internet that has not yet fulfilled its promise.

You can get a full list of someone’s purchases or actions by asking them to auth their email (or credit card or physical location). You can get a graph of their friends from email mining, Facebook, Twitter, auth’ing contacts, and more. Combine what you bought and who you know and you have real power to help people!

People spend a crazy number of hours researching things to buy. They research and research and research. And then research some more. Sometimes it is a local search (like house cleaner, plumber, doctor, dentist, or car repair). Sometimes it is more of a global search (like the best bluetooth earbuds). Many people spend more time planning their vacation than actually being on vacation.

Imagine a service where one can put in past purchases and it uses that data to recommend products (purely unbiased). The service should be acting in the REAL best interest of the consumer (not like most recommendation services which are specifically designed or gamed or hawk specific higher margin products) so one can implicitly trust the service.

Purchases can be anonymized for privacy reasons (so the service does not broadcast to others that “Auren Hoffman” bought the headphones … but instead it aggregated to give real value AND protect sensitive information.

Of course, the simple revenue stream is affiliate links. But once you get the trust of the buyer, you can also add an ad-words-like feature (which would be incredibly compelling to an advertiser to get in front of a person right at the time of purchase).

Summation: UltimateReviewer is another billion-dollar idea that I will never do … so offering the idea up for free to all of you to take on.

America’s Bank – struggle to create Federal Reserve – great book

If you want to learn more about early 20th-Century America, look no further than America’s Bank: The Epic Struggle to Create the Federal Reserve by Roger Lowenstein.

You will learn a a great deal about the years from 1907 – 1914, about the great figures of the time (William Howard Taft, Woodrow Wilson, Nelson Aldrich, Paul Warburg, Carter Glass, JP Morgan, and more).

Before the creation of the Federal Reserve (in December 1913), money was issued by banks, not by the state. (Even after 1913, it took a long while for the federal government to issue money that we think of today).

A $20 bill from 1900 issued by the First National Bank of Carlyle, Illinois

Much of banking was decentralized and uncoordinated. While this had the pro-Jeffersonian benefits of having limited involvement from the Federal Government, it led to a lot of boom and bust cycles.

Lowenstein is also the author of When Genius Failed: The Rise and Fall of Long-Term Capital Management (which is a fantastic book) which covers a much more active Federal Reserve 85 years later.

One of the most interesting things that I learned from this book is that in the early 1900s, protectionism was championed by the entrenched aristocracy (the wealthy business people and the New York bankers) and the anti-tariff movement was championed by the populists (like William Jennings Bryan). Of course, today, tariffs are seen as a populist agenda. Interesting how issues can flip over a hundred years.

Summation: America’s Bank is worthwhile and well-written book. Rating 4 of 5.

Venture Capitalists are MUCH LESS ambitious than their private equity siblings

Venture capitalists rarely take their own advice when it comes to their own businesses.

There’s a common narrative that venture capital doesn’t scale. That narrative is so well accepted as truth that venture capitalists themselves don’t bother taking the advice that they generally dole out.

Here are some common truisms that are often passed down by VCs but aren’t applied in their own business:

Establish dominant market share and become the very best. VCs advise companies to find a niche and exploit it — and do not enter a super competitive space. But the venture capital industry is crazy competitive — often competing with 100 firms (that are usually staffed with super-smart people).

Have one CEO. VCs advise companies to have one core decision-maker. In the rare case, maybe there is a co-CEO. But many VC firms are run as a partnership with 3–8 equal partners (though some partners may be more equal than others). They’d never invest in a company run by committee.

Founders should demonstrate deep commitment to future value creation by taking low salaries. But VCs do not usually trade some of their short-term salaries for long-term upside. Most VCs pay themselves salaries out of their typical 2% management fees. If VCs took their own advice, they would be using most of that 2% fee to build systems and invest in the future. Or they would trade the bulk of the management fee for greater carry.

Companies should invest in growth and market dominance over profitability. But VCs themselves are extremely profitable. They do not hire aggressively, invest in technology, spend time on automation, or make any of the other investments in themselves that they would expect their portfolio companies to make.

Leverage existing advantages to expand into adjacent markets. VCs want companies to hire great people and continually level-up the management team. Yet the VCs grow their own businesses very slowly and do not take risks. VCs rarely move into adjacent markets, expand their brand, etc.

Keep expenses low — spend less on rent, fly economy, and generally be frugal. Yet most VCs do the opposite with their own expenses — often spending lavishly on rent, travel & entertainment, and more.

Companies should be long-term focused and should be doing things that outlast the founders. But many VCs set up their firms in a short-term oriented way. VCs often have much bigger key-man risks than the companies they invest in. And VCs, even successful VCs, rarely outlast their founders.

Governance structure in portfolio companies is a high priority. VCs think it is wise to have investors and independents on a company’s board. But VCs themselves often have much less oversight. Many thrive on potential conflicts of interest.

Companies should go public and being a public company is very good for the long-term. But venture capital firms themselves rarely go public.

Acquisitions can be accretive and strategic. The growth of a synergistic merger often can outweigh the dilution that comes from growing the firm. VCs rarely acquire other firms.

Venture Capitalists, as a class, are much less ambitious than one would expect.

Almost no venture capitalist would fund themselves. They are looking to fund people that are essentially the opposite of themselves. They are looking to fund outliers because their returns come in power laws. But for their own business, they are looking to play it safe and be conservative.

VCs generally do not want to rock the boat. They don’t want to do something different. They don’t want to change the industry. In fact, for many VCs, their biggest fear is that the industry will fundamentally change. They want to keep collecting their two and twenty.

That’s not to say there are not ambitious venture capitalists. There are. Many people are looking at changing the game. Naval Ravikant’s AngelList is a full frontal assault on venture capital. Tim Draper invented the venture capital franchise model. Masayoshi Son’s Softbank Vision Fund is changing everything in the late-stage venture capital (as did Yuri Milner’s DST before that). Sequoia’s amazing work ethic and competitiveness to be number one. Peter Thiel runs four large venture capital funds, a global marco hedge fund, and many other investing vehicles. Chamath Palihapitiya’s Social Capital is taking a long view on venture capital. Chris Farmer’s SignalFire, while yet unproven, is attempting to automate venture capital through data (like Renaissance Technologies and Two Sigma has done in the hedge fund world). Marc Andreessen and Ben Horowitz create a full-service firm which aims to have the best marketing, best recruiting, best conferences, etc. And the most ambitious people in Silicon Valley may well be Paul Graham, Jessica Livingston, and Sam Altman from Y Combinator.

Many readers may have an adverse reaction to some of the people above. They may think these people too bold or too reckless. And some of them may well be (time will tell). They will not all succeed with their grand ambitions. But their ambition is exciting. It is refreshing. And these individuals are acting more like the entrepreneurs they fund than the classic VCs that are the funders.

Most venture capital firms are surprisingly less ambitious than the entrepreneurs they fund. And they are also much less ambitious than their siblings who run private equity firms and their cousins who run hedge funds.

Private equity firms are run significantly differently from venture capital firms. As a recap:

  • PE firms have 1 or 2 CEOs. VCs have 3-8 CEOs
  • PE firms make large investments in back-office, consulting, and data science (Vista Equity has been so successful with this model). VCs usually don’t.
  • PE firms create new products and become international fast (Blackrock spun out of Blackstone … and Blackstone also built up an incredibly successful real estate practice). VCs rarely create new huge products.
  • PE firms focus on having succession plans. VCs have trouble making the transition.
  • Many PE firms are public. It is extremely rare for a VC to be public.

PE firms are generally much more ambitious than VCs. They are often 10-100 times larger in size (both in the number of people they employ and in the dollars under management). And they generally have much larger dreams.

The most successful PE titans are more wealthy than the most successful VCs. And while wealth does not equal ambition … it is correlated. There are an order of magnitude more PE billionaires than VC billionaires. And many of the most successful VCs made more money founding companies before they became VCs than they did as VCs.

Lack of ambition among VCs could be feature (not a bug).

Many entrepreneurs like the idea that venture capitalists are less ambitious. A founder might not want want someone on their board that is crazy ambitious … because that VC might not be able to make time for the new founder.

So there is definitely a possibility that perverse thing could happen: a less ambitious VC might actually be more successful because it might allow them to get into the best deals. (Yes, this is a weird theory and there is a 58% chance I will disavow it in the future … in fact, there is a 38% chance I will disavow this entire post in the future).

Of course, there is nothing wrong with only wanting to be worth $200 million and not $2 billion. That extra zero is not going to change their lifestyle much. So why rock the boat for that extra zero? Why get everyone to hate you to get that extra zero? Why take huge risks for an extra zero that is not going to change your life?

Venture capital can think bigger.

A few random thoughts that an ambitious venture firm might think more about:

  • Instead of ruling by consensus, VC firms could have a designated CEO (or co-CEO). While many firms do have this in practice, making this more explicit would add clarity.
  • Fund-by-fund equity really creates short-termism and creates lots of conflicting incentives. Imagine if Amazon gave out equity in each of product lines (AWS, Prime Video, e-commerce, Alexa, etc.). Ultimately an evergreen fund (like Berkshire Hathaway) will lead to greater ambition.
  • Passing the baton to a new generation should not completely wipe out the equity of the older VCs that founded the firm. But the older VCs can’t keep running the firm while spending most of their time at their winery either. Being a good VC should be intense and take over 60+ hours a week. The older VCs could maintain equity in the evergreen company while issuing new equity to new employees (and new LPs).
  • Run the firm with the aim to go public. That’s how you run a company. Think about how to get big.
  • Look to acquire other firms. And yes VC is a services firm — but services firms can be run well at scale. Think of Accenture which has $41 billion in revenues and market cap of almost $100 billion at the time of this writing.
  • Defer more cash payments to equity. While layering fees has been a great way to get rich in the last 15 years, it does seem like this model is very fragile.
  • Look to dominate a niche (rather than competing with the smartest people in the world). Look to build a moat and some sort of network effect. That might mean significantly changing the game (like AngelList or Y Combinator).

Summation: Venture Capital firms rarely take their own advice when running their own firm. Private Equity firms (like Blackstone, KKR, Vista Equity Partners, etc.) are actually much more like venture portfolio companies than VCs are.

This is modified from a Feb 2018 Quora post.  Special thank you to Tod Sacerdoti, Jeff Lu, Tim Draper, Will Quist, Joe Lonsdale, Bill Trenchard, Ian Sigalow, Villi Iltchev, and Alex Rosen for their insights, thoughts, and debates on this topic.

Big Ambitions: Robert F. Smith, CEO of Vista Equity Partners

The Dinner Party — restaurant for engaging discussions

So you and your significant other are headed out for the night. You want to do something intellectually interesting … but going to a lecture can be so boring. Plus, there is no good food at a lecture. You could go to a movie but the only thing playing is Transformers 8. So what to do?

Enter a new restaurant theme: The Dinner Party.

Note: This is a series of my free open-sourced business ideas. Feel free to copy, fork, use them, etc. All I ask is that if you become a bazillionaire, you must take me to dinner.

Buying a ticket (pay-up-front to prevent no-shows) is required for to The Dinner Party. You arrive at a designated time (like 8p) and you sign up for the type of discussion you’d like — from religion, art history, sports, entertainment, modern history, physics, bio-ethics, book discussions, or even U.S. politics. You also choose a knowledge level.

You can come single, with your significant other, come with a sibling, or arrive in a big group. You get assigned to a table of the topic of your choice. The table has up to 8 people and is very small so you can hear everyone at the table (ideally the room has a series of small sound-proof booths) complete with question cards to pose to the table.

The Dinner Party would be a marketplace for dinner discussions. It can help create a better world by allowing people to change their mind.

It is simple and fun. But it is work. And it is run as a “private club” so you can readily exclude “members” that are jerks or not respectful of others (or people that get insulted too easily). Everyone rates their table mates and The Dinner Party keeps tabs of everyone’s ratings. Want to be at the big kids’ table … you have to prove yourself over time.

It is like having a built-in intellectual Dialog any night of the week. And if you are on a business trip in Kansas City and do not know anyone there, this is a great place to have an interesting discussion, learn a lot, and meet super interesting people.

There is a real need and desire for people to learn and to engage with others. But most smart people do not want to just be talked to … they want a real participatory discussion.

Summation: count me and my wife in as regular customers when you create The Dinner Party.