Category Archives: Strategy

A Manual For The Low-EQ CEO

My name is Auren, and I am a low-EQ CEO.  

Most great CEOs have high EQ (Emotional Quotient) and Emotional Intelligence (also known as interpersonal intelligence).  While EQ’s importance is not as high as it once was, it still is extremely important, especially for leaders.  

So what to do if you are a low-EQ CEO?

Most successful leaders that don’t have high EQ tend to have off-the-charts IQ.  But what if you are a low-EQ leader whose SAT score was under 1590?  

This post is a self-help manual for those low-EQ leaders. 

The first half of this piece offers some ideas to improve your leadership skills as a low-EQ leader.  The second half provides insight into what it’s like to be a low-EQ person and how low-EQ correlates with other common character traits.  This piece should be valuable both for low-EQ leaders (I wish I read this myself ten years ago) and anyone that works closely with low-EQ leaders.

how to be a better low-EQ CEO

First, you are not alone.

If you are a low-EQ leader, the first thing to recognize is that you are not alone.  In fact, CEOs often have lower EQs than average.  

Source: TalentSmart

But that sugar-coats it — having a low-EQ is a severe disadvantage as a leader.  It is a real blind spot.

How to be a better low-EQ CEO.

There are five core things low-EQ leaders can do to help their relationships:

  1. Telegraph your low-EQ abilities to others. ☎️
  2. Rely on other high-EQ colleagues to be a translator.
  3. Be explicit about the context of your questions. 🙋
  4. Be honest and transparent.
  5. Create a personal operating manual. 📕

Warning: this piece will be a lot more personal than most of the other things I write (personal sections in italics — feel free to skip … of course, high-EQ people tend to enjoy more personal stories 🙂 ).

1. Telegraph your low-EQ abilities to others ☎️

If you are low-EQ, everyone you work closely with must know … because most of these people will come into any relationship with the expectation that you are adept at reading non-verbal cues.  If they know you cannot read their faces (reading faces is highly correlated with EQ), they will work with you to compensate in other ways.

It is also important to remind people that they will be less likely to read your face.  So they should not be assuming things from your nonverbal cues … because you are less likely telegraph your feelings consistently.  Yes, we all have tells.  But a grimace from a low-EQ person could actually mean that they are happy … so others should not read into these cues too deeply.

One leader I admire mentioned:

While telling people that you are low-EQ is a good step, it’s not really fair to put the responsibility of dealing with your low EQ on them.  Most people will not be comfortable being overly explicit and so you will need to draw it out of them by proactively ask questions (e.g., “how do you feel about what I’ve just said?”) and even make some assumptions (e.g., “I may be wrong (remember, I can’t read faces) but you look frustrated/happy/perplexed. Do I read this properly?”)

2. Rely on other high-EQ colleagues to be a translator.

If you were having a business meeting with someone that did not speak your language, you’d bring along a translator.  A good translator not only helps translate your words but also helps you observe and adhere to cultural differences, different norms, etc.  

Low-EQ leaders need to rely on translators in the office too.  They can entrust other executives with translation and interpretation.  So, find 1-3 people that can help you translate what others are thinking and explicitly enlist their help. They can tell you when someone does X, they really mean Y.

I’ve recently done this at SafeGraph — a few of the people on our leadership team have extremely high EQs, and they have helped me understand more complex situations.  Without their insights, I would have misread many situations.  

Of course, it is really important that these translators are trustworthy and do not use the situation to interpret things in their favor.  You want to find high-EQ people that also think clearly about the best long-term interest of the organization.

3. Be explicit about the context of your questions 🙋

When leaders (even those who have high-EQs) ask questions to others in their organization, their questions can often be interpreted as directives (even if they are just innocent inquiries).  

One way you can guard against this is to be explicit about what kind of question you are asking.  I learned this from Brian Gentile. I’ve been experimenting with five hash-tags that I now add to questions I ask (which could be live or in written form):

  • Telling
  • Selling
  • Consulting
  • Brainstorming
  • Learning

The #Telling hashtag is when you want to be explicit that this is a directive coming from you.  This is very rare, but occasionally, it is important to be explicit about that.

The #Selling hashtag is when you are selling an idea to other people in your organization.  You think this is the right way to go, and you are working on getting their buy-in.  Of course, you are open to changing your mind, but you are coming into the conversation with a strong opinion about what to do.

The #Consulting hashtag is when you want to dive into a recommendation someone else has made and understand it better.  You’re in coach-mode.  You might be able to offer your advice on how to improve it even more. Or by understanding it better, you might be able to help another part of the organization.

The #Brainstorming hashtag is when you just want to brainstorm an idea.  You are coming in with few preconceptions and want another person or a group of people to help get to a good answer.

Lastly, the #Learning hashtag is just to help you satisfy your curiosity.  I often use #Learning when asking our VP Engineering about a specific technology decision or machine learning technique.  In this case, I’m curious and just want to learn.  

Since I started doing this, I have found that 90% of my hashtags are either Consulting, Brainstorming, or Learning.  I’m rarely Telling or Selling.  But, in the past, without being explicit about my inquiry, people at my company have misinterpreted my questions as being directives instead.

These hashtags are a very analytical response to being low-EQ.  But being analytical is often something that low-EQ leaders are good at … so use it to your advantage.

4. Practice honesty and transparency. 

Low-EQ leaders need to telegraph their thinking to others more than high-EQ leaders. This is because people are much more likely to think a low-EQ person is not telling the truth (even though there is no relationship between honesty and EQ).

One of the best ways to do that is to be honest and transparent.  

I personally used to keep things close and never telegraph high-level strategy to the company.  Today, I am much more open with everyone in the organization about how we should think things through … and am also much more open when I don’t know something or have changed my mind (which is often).  I send out an email to the team at least twice a month diving into a strategic topic and giving the team a lens into how I am thinking about it.

You can compensate for your low-EQ by clearly explaining your thinking to others. This takes out the “guessing game” for your co-workers.  Because people are more likely to misunderstand low-EQ people, you will need to go to greater lengths to show your thinking.  It’s like seventh-grade math where your teacher made you show your work (and not just the answer). You have to show your thinking and where it comes from.

Of course, high-EQ people should practice honesty and transparency too. They just don’t have to work as hard to do it.  Low-EQ leaders need to put in the extra effort to actually build systems around honesty and transparency.  

One CEO I admire told me: 

Another technique I’ve been using to great effect: tell people how I’m feeling. I realized that I’m not good at telegraphing my positive emotions — especially over Zoom. I’ve been making a conscious effort to say things like “I’m very happy with this”, “I’m proud of what you did”, “this makes me very excited”, etc. At first it sounds cheesy to say, but it’s been so helpful. Especially in terms of building up credibility for when I have to share a negative emotion like, “I’m disappointed with how this turned out.”

These systems become even more important in a large company. High-EQ leaders might find it harder to transition from a 100 person company (when you can know everyone) to a 1,000 person company.  Their high EQ might have allowed them to get by (at 100 employees) without formal systems to translate their understanding and empathy.  This is especially true in a world where everyone was in the same office (low-EQ leaders are at less of a disadvantage in remote-first companies).  

5. Create and share a personal operating manual 📕

When I first started working with my friend Jeff Lu, he suggested we write a personal operating manual and send it to each other.  I had never heard of this concept before but I now send mine to everyone that reports to me or I meet regularly with.  

An operating manual defines how people should work with you. It should clearly define your personality quirks so that others can get the most out of you.  For example, here is a quote from mine:

Opportunities over threats

Auren is wired to seek out opportunities and discount threats.  He is generally focused on what can yield the 20x return and can discount the 1x loss.  Auren can be dismissive of problems because he has high confidence they can be solved.

An operating manual is good for everyone to write and share with their colleagues.  But it is especially important for low-EQ people.  One thing I do in my operating manual is specifically call out my low-EQ:

Direct over indirect

Auren only understands points that are directly made.  Auren rarely picks up on indirect points (like non-verbal cues).  Auren has mild prosopagnosia — which means he is poor at recognizing faces. (Facial recognition has a high correlation with EQ.)

Another good thing to do in an operating manual is to share your results from personality tests that you think are relevant — for instance, Enneagram, Myers Briggs, and StrengthsFinder tests.

If you had a recent 360 review, it might be useful to provide a link to the review from the operating manual, so your colleagues can dive into more details to help them understand how to get the most out of working with you.

Continue reading

Step Functions and One-percent Improvements

Business building happens by a series of 1% improvement. But business domination comes with step functions.  You can build a very good business with just the first one.  But you need both if you want to build a great business.

One-percent improvements can build a solid company.

You can build a good company with slow, constant progress. By building through a series of 1% improvements, a start-up can grow to $8M ARR in year 3, $16M ARR in year 4, $26M ARR in year 5, and $40M ARR in year 6, etc. 

Here’s what that growth looks like: 

The nice thing about continually making 1% improvements is that they have a high likelihood of success and a high likelihood of helping the business.  One can follow a playbook from other similar companies about what to do and how to up-level and make investments.  And no company can be successful without consistently making 1% improvements. 

One-percent improvements add up over a long time.

Seventy-two 1% improvements results in a doubling of the output of the company.  The faster you make these 1% improvements (OODA loops), the quicker you get to the doubling.   It works, and it can work well over the long term.

If your company could get just 1% better every day for an entire year, you’ll end up 37X better after 365 days. Writer James Clear has a great chart for this: 

Source: https://jamesclear.com/continuous-improvement

That’s the power of slow, constant improvement.

Continue reading

Judgment is the x-factor.

group of people huddling

SafeGraph has six core Values and one (“Judgment is the x-factor”) of them was basically lifted almost verbatim from the LiveRamp Values because it is the most important value to me:

Judgment is the x-factor. It is essential that every team member at SafeGraph makes key decisions autonomously, so that we move fast and limit bureaucracy. But as Voltaire (sometimes attributed to Spider-Man’s Uncle) said, “with great power comes great responsibility.” To make great and effective decisions at all levels of the company, we need to (1) clearly communicate the company’s strategy to all team members; (2) hire super smart teammates that work hard; (3) only hire people who have demonstrated sound judgment and are deserving of our trust.

It is really powerful to work at a company that exclusively employs people with good judgment.  It allows you to move faster. It builds trust amongst coworkers. It eliminates bureaucracy.

To do that one has to actively discriminate against people with bad judgment: which means you need to make this one of the core criteria during interviews (and through observations once someone starts).

The main reason that you want everyone in the company to have good judgment is so you can have fewer “rules” which allows you to move faster.  Much faster.  The more rules, the slower you will move.  The more you trust employees to make decisions, the more decisions will get made.  

I wrote in “Pace, Tempo, Speed, and OODA loops“:

“At SafeGraph, I try to deliberately make as few decisions as possible.  I deem it a failure if I need to make a decision … because that means we are moving slower in that area.  That does not mean I don’t make any decisions — I do.  But those are failures I hope to improve upon in the future.  Additionally, you don’t want the management team making decisions.”

Of course, when you trust others to make decisions, it means they won’t always be made exactly the way you want them to be made.  You need to be ok with that.  That is a by-product of decentralized decision-making. 

As a CEO, you can still reserve the most important one-way door decisions for you to make … that way if you completely screw up the company at least you can only blame yourself 🙂  In fact, that is one of the reasons I love being a CEO — I have only myself to blame.  For instance, you’ll likely be extremely involved in hiring people (even if you ultimately empower the hiring manager) because having people with good judgment that your team can trust to run with the ball is so important.

While most of SafeGraph’s values are aspirational (and we can fail at them), judgment is an absolute must.  If we hired someone without judgment, we would have to terminate them … as people with bad judgment are a real cancer on organizations.  Because people with bad judgment create rules.

When we sold LiveRamp to Acxiom in 2014, the first thing I did was read the Acxiom HR handbook.  There were lots and lots of rules.  One rule I found particularly interesting was “you cannot do cocaine on premises.”  After talking with the SVP of HR, I found that yes, there was a story of someone actually caught doing cocaine in the Acxiom bathroom. Rather than just immediately firing the offender, they also thought it was necessary to add a rule.  But you cannot enumerate all rules (there was no written rule against heroin or meth … there was no written rule stating people must wear clothes to work).  One must eventually rely on people for their judgment.

Good judgment is the answer to lots of rules.  And lots of rules make decisions take longer which means the company would inevitably move at a slower pace (see recent scribe on pace).  Judgment is fused with pace.  All things being equal, a company filled with people with good judgment can outrun a company that is not.

Of course, judgment does not mean you need to stop and contemplate all your moves.  It should be ingrained in what you do.  It does not mean you never make mistakes.  It does not mean you never have a bad day or act in a way you regret.  But it does mean you don’t need a seminar to know that harassing someone is a bad thing. It means you don’t need a training to know you don’t discriminate on race.  Good judgment knows that one must act in the best long-term interest of the company.  

  clearly communicate the company’s strategy to all team members

It is really hard to act in the best long-term interest of the company if everyone is not in sync about the company’s long-term interests.  That is why it is really important to clearly and frequently discuss the company’s strategy.  The more you are all in sync about where the company is going in the long-term, the more you can rely on judgment of your fellow teammates to get you there.  Planning becomes less important with judgment because everyone knows where the company is headed.

One of the primary missions of the CEO is to help everyone in the organization understand the long-term strategy.  It is actually really hard to do that and I have frequently failed at it at SafeGraph, LiveRamp, and other organizations I have been a part of. 

How To Find A-Players In A Downturn

Photo by Razvan Chisu on Unsplash

I recently wrote about why hiring is harder in a recession than it is during an economic expansion. But, just because it’s hard (it is always hard) doesn’t mean you shouldn’t try. You should always be looking for A-Players to bring onto your team.

Hiring obvious A-Players is really hard because everyone else knows they are obvious and they will be extremely sought over (and very expensive). That doesn’t change in a recession. 

So, if you want to find the A-Players that are available, you can’t look for the obvious ones. You have to find the diamonds in the rough who don’t look like precious stones.

To find A-Players in a downturn, look for people that other people in Silicon Valley would discriminate against.

You want to find people that were passed over by other tech companies for reasons other than their talent and give them a chance. 

You can start with women and minorities. They are still very much discriminated against. Of course, few people in Silicon Valley will outwardly state that they want to discriminate against women and minorities.  And many companies even have active programs to reach out to them. You might not have an advantage in landing female and minority A-Players because there are a lot of other companies competing for this talent pool.

In addition to women and under-represented minorities, there are a lot of other categories of people who are actively discriminated against in Silicon Valley including:

  • Boomer generation (people born 1946-1964)
  • People that went to third-tier universities
  • Religious people (even slightly religious people)
  • People who are politically conservative
  • People with thick accents
  • People who are overweight
  • People who smoke cigarettes
  • People who are socially awkward

Let’s take a closer look at each of these categories.

Hire people over 55. 

Tech companies tend to be extremely biased against people with grey hair. This is especially true of older people who are seen as “past their prime” or recently part of a company that crashed and burned. It is extremely rare for a tech company to hire an individual contributor that is over 45.  And this trend is likely more pronounced during an economic downturn. 

There are plenty of people who, in 2008, ended up taking the Director-level job at Digg instead of at Facebook (even though they had job offers at both).  The ones who went to Digg are seen as past their prime and the ones that went to Facebook are living on their own private island and serving on the boards of directors of hot start-ups.  Just because the person made a wrong financial choice 12 years ago does not mean they cannot add immensely to your company.

Continue reading

The New Status Game for Companies: Fewer Employees

Bezos believes that you should be able to feed your team with just two pizzas

Crazy thought experiment: Imagine a new type of company that decided to only do what it was really good at and essentially outsourced everything else.

Because revenues of private companies tend to be secret, most venture-backed companies have historically bragged about how many employees they have.  A CEO will say: “we went from 100 to 200 employees last year” as if fast employee growth is always a good thing.

But this is changing: there is a new status game brewing between companies concerning who has the fewest number of employees, centered around who is engineering greater amounts output with less staff. Indeed, the freedom to iterate quickly is status. More resources along with lower headcount means that they can dominate new markets. This is because they are tripling down on their strengths.

In the future, those who achieve the greatest results with the least number of employees will be admired above all others; the key statistic to look at is the go-forward net revenues per employee because it best encompasses the company’s leverage. What matters is each employee’s productivity and how the business itself can scale?  

This statistic doesn’t just ring true for the technology space, rather any business should be aiming to maximize that metric. By doing so, every employee feels and acts like Warren Buffet; they’re investing their capital (time and skill) into the company. Every good CEO should be spending time trying to increase their employees’ productivity, which is the strongest form of leverage the company retains.

Continue reading

M&A is a Power Law

Warren Buffet once famously stated that compound interest is the eighth wonder of the world. Power laws rule much around us, but more so in the technology and business worlds. One fantastic deal, such as Facebook buying Instagram, can shift the bedrock of business everywhere. Despite the common belief that 80% of company acquisitions are failures, the remaining 20% can shape a new path for in that company – the expected value is still enormous and is definitely a worthwhile path if executed properly.

Many people mistake averages for value. Venture capital is exactly the opposite of this: missing the seed round of AirBNB if you had the chance to invest means you would be financially worse off than had you invested in 50 Theranoses. The difference is that in the first case you would make 1000x your investment or at worst 0, so the opportunity cost is immense. 

Power Laws also exist in company acquisitions.  

The Power Law of Company Acquisitions is why companies continue to make acquisitions. In the few cases it does work, like Google’s purchase of YouTube, the gains can continue to reap dividends decades later. Fundamentally, most of the best acquisitions are contrarian in nature; otherwise, they would have been bought by another company already. And sometimes, like the YouTube acquisition, there are only a few companies that could have acquired it successfully – the key is to stay within your circle of competence. 

Continue reading

First Principles About When to Use First Principles

Summary: in this post you will learn when to take the time to use first principles and the three rules for thinking.   

There are tons of people that claim you need to use first principles for all things. People I follow and greatly respect (Naval Ravikant, Shane Parrish, Julia Galef, Eric Weinstein, Scott Alexander, Peter Thiel, Elon Musk, etc.) regular promote first-principle thinking.

The problem is that you cannot use first principles to determine everything. You don’t have the time to do that. You need to rely on proxies who you believed have figured things out and believe in them (until you eventually figure out that the proxies are wrong, frauds, etc.).

For instance, I have never actually done the full proof that the world is round. I don’t actually know, with 100% certainty, the shape of the earth. I use proxies to help me determine that. It might not be round. There might be a conspiracy. Or we might be living inside a simulation. I’m not 100% sure. But I rely on proxies and make an assumption that the world is round (at least for my purposes).

I don’t know (with certainty) that the moon landing in 1969 was real. Some people believe it was faked. But I use proxies who I respect and therefore adopt the belief that the moon landing was real. I believe this even though I have not taken the 100+ hours to prove it myself.

Therefore, I believe the world is round and also believe the moon landing was real. Am I 100% certain? No. But I live life believing it and know that I will likely never take the time to prove either to myself.

Continue reading

What is the rate you should be scammed?

Let’s say you are investing money in something, what is the rate you want to be scammed?

You could, of course, say that rate should be zero. That you will tolerate no loss due to scams, unethical practices, etc. But that puts an extreme due diligence burden on you before you make an investment. You can’t be 100% on BOTH precision and recall. If you have fewer false positives, you will inevitably have fewer false negatives. 

Being skeptical of everything will allow you to avoid investing with Madoff, but it will also have you miss that angel investment in Facebook and Airbnb. Many ideas seem very crazy (until they aren’t). 

This is also true in life.

You can distrust every taxi driver and every construction contractor … but that might lead do you distrusting most people which could lead to a lot of unhappiness.

Or … or … or … you can accept that you will have some rate that you will be scammed.

You should have a rate you want to be scammed.

A good rate is likely 1-3% of your interactions. This can be on taxi cab drivers, investments, hires, etc. If your scam rate is under 1%, you are likely not taking enough chances. If your scam rate starts approaching 10%, you might lose all your money. 

If you never get into a car, you will never die in an auto accident. But you will also have a lot of trouble living life. So you need to have some guide-rails (wear a seat belt, don’t get in a car with a drunk (or sleepy) driver, etc.). The same is true for investing or doing anything else in life. 

Continue reading

The unintended consequences of rising stock prices – decreased risk taking among employees

Rapid raise in stock prices result in some people in the company being overpaid.  This can be very bad for the overpaid employee and also very bad for the company.

Many tech companies are going public right now and many tech companies have seen significant share price increases in recent years.  We can expect that most of these are facing real internal motivational challenges that could be extremely hard to overcome.  
The weirdness of RSUs in public companies

Let’s say that a company gives you an offer of $100k salary and $500k in RSUs vested over 5 years.  That essentially means that the company values you at $200k per year (as stock and salary are fairly fungible in public companies).  

Let’s say the stock goes up by 20% after six months.  The RSU grant (over 5 years) is $600k and your yearly comp goes from $200k to $220k (a 10% increase).  No big deal for the company as you are probably worth more than 10% more than what they originally offered you because you now have been at the company for 6 months, understand the processes there, have grown your skills, etc.

But now let’s look what happens when they stock goes up by 300% after 3 years (which happens in the tech world).  Now the original grant of $500k is now $2 million (over 5 years).  So the stock alone is $400k per year.  Add in the salary (with assuming some raises is now $150k/year) and you pulling in $550k per year.  

This is when things get a bit hairy.  Because likely the company only values you at $350k so you are making $200k more than you are worth. In fact, if you quit the company and went to work for its top competitor, you might have a hard time getting more $300k.

So now both you and the company are in a bind.

Continue reading

How do you tell a great business from just a good business? (spoiler: key metric: acquiring new customers gets easier over time)

When you are evaluating a business (to invest in or join), one simple heuristic is to understand how easy is it for the business to get new customers.

In B2B businesses, the metric that companies track is CAC (Customer Acquisition Cost). But this metric in itself isn’t that interesting and companies typically track LTV/CAC ratio where LTV is the LifeTime Value of customers. The problem with this ratio is that many companies are constantly focusing on the numerator rather than on the denominator.

The cost of acquiring the next marginal customer should be less than the cost of acquiring the last customer. And you should see this cost decline over time.

The CAC itself should decline each month. If it does, it means you likely have a great business. If it doesn’t, the business is a good business at best.

Of course, CACs should be declining for a specific cohort of customer. If your business was only focused on small businesses and now you are selling to enterprises, your CAC will increase dramatically. In this case, the key thing is to track the CACs for SMBs and enterprise customers separately (with is why so many firms use the LTV/CAC ration to simplify this step).

The best way CACs will decrease over time is if you haver some sort of network effect. LiveRamp (my last company) is a middleware company … which means it is essentially a marketplace of buyers and integration partners. It is a classic network effect business that makes it easier and easier to acquire new customers over time. Once we hit about $10 million, the CACs started dropping fast.

One other way to think about this when selling to enterprise is to track the quota for a full ramped sales rep. Is the quota for an average sales rep going up over time? If so, you have a great business. If not, the business still has some work to get to great.

All platforms follow this logic. Companies like Plaid, Segment, Marqeta, LiveRamp, and Carta are classic platforms where acquiring new customers gets cheaper over time (disclaimer: I’m either an investor or friends with the CEOs of all these companies). These types of companies can take the savings (from not having to invest as much in sales and marketing) and put them into the product. So the product can get better and better over time (which is the double-edge flywheel that all great companies have).

Other companies that have declining CACs are ones with great brands. Essentially every time a company buys their service (and raves about it), other companies are more likely to use it. Twilio and Stripe have declining CACs because they have become the default go-to companies in their space. There is a LOT of power in being the default.

Summation: Once a business gets over $10M ARR and it has declining CACs, it has the makings of a great business.

the power of even a slightly better product. (or why do people use Zoom instead of Google Hangouts?)

Old lessons die hard.Everyone of a certain age has heard the VHS verses betamax tale.

VHS was an inferior technology to betamax but it won out due to marketing, etc. After hearing enough of these tales, one starts to wonder how important a better product actually is. Is it all about marketing? That was the moral of the VHS story.

Turns out a better product … even a slightly better product … is REALLY important.

One interesting case study is Zoom — the videoconferencing solution. Now let me put my cards out there: I use Zoom at least once a day. SafeGraph uses Zoom (and Zoom rooms). I like Zoom and would recommend Zoom. And we pay for Zoom (it isn’t free).

Why does one pay for Zoom?

Well, you might say that you need a videoconferencing solution, you evaluated the market, and choose Zoom. Maybe Zoom is more expensive than its competitors but it is the best so it is worth paying for.

The problem with that logic is that one of Zoom’s most feature-filled competitors is Google Hangouts. And Google Hangouts is “free” if you are already a Google Apps customer (which 99% of technology start-ups are).

So there is a choice to be made.
Google Hangouts which is a very good product and is effectively free.
or
Zoom which is a better product (but not massively better) and is also pretty expensive.

Tons of companies need to make this choice. A lot of them have chosen to go with Zoom (as evidenced that Zoom is one of the fastest growing B2B companies). Why is this?

Of course, from a customer’s perspective, free is much preferred than paid. My company chose to use Google Drive rather than Box or Dropbox because we thought Google Drive was pretty good and did not think Dropbox or Box was enough of an improvement to justify their very high enterprise cost.

So for video conferencing, why don’t people choose Google Hangouts over Zoom?

First off, to state the obvious, Zoom is actually better than Google Hangouts on almost every dimension (the one dimension that Hangouts is superior is that it has a better integration with Google apps: no surprise there).

So if you are choosing to go with Google Hangouts verses Skype or verses GoToMeeting or verses Webex or verses one of the other dozen video conferencing systems, choosing Hangouts (because it is free and it is very good) is a no-brainer decision.

But Zoom is just better enough that people are happy to pay for it. Well, they might not bee “happy to pay” exactly. No one loves spending money. But companies are certainly willing to pay for Zoom. Zoom Rooms is an amazing product and they have really focused on a great user experience. The Zoom video quality is really strong. The mobile experience isn’t wonderful but seems to work better than most of the competition.

One of the things that Zoom proves is that you can be extremely successful even when you have a crowded category, lots of great competition, and when even your strongest competitor is giving away the service for free.

Twenty years ago no one would think that a company like Zoom would thrive.

One of the biggest trends that is driving Zoom’s success is that companies are forgoing the full stack and buying the best-of-breed. The number of vendors the average company is buying from has increased almost 10x in the last 12 years. Companies are happy to buy from many different places … they are even happy to buy from new start-ups.

In fact, it has never been easier to sell to large companies. Large companies are open for business. They want to be sold to. They are sick of having a third-rate solution. They want to use the best product. If you can show them your product is superior, they are excited to buy.

The best product is actually starting to win. Sales and marketing and partnerships are really important (as is brand), but it is so much easier to market a great product than one that is fifth-best. Even amazing companies like Google, Microsoft, Oracle, SAP, Salesforce, etc. are struggling to get their clients to use products or features if they are deemed sub-par by the customer (even when they bundle it in for “free”).

That wasn’t true 20 years ago. In the 1990s, it was really hard to sell software to a big company for less than $3 million. You had to hire Anderson Consulting (now Accenture) to integrate the software. So big companies spent most of their money buying from a very small number of big trusted vendors. And they mostly had a fourth-best solution across their stack.

Today it is much easier to buy. The SaaS revolution has changed everything. Big companies can dip their toe in the water and start for $10,000 per yer in many cases. So even if it doesn’t work out, no one gets fired. It is a low cost option to try out the later and greatest technology.

Even the most crowded markets and even those markets dominated by amazing companies are open to new ideas, new products, and new companies.

Having the right vendors is as crucial to one’s success as having the right employees … and in the case of large companies potentially even more crucial (because it might be impossible for a large boring company to hire the best people in the world but it is still possible to get the best vendors … because a software vendor will sell to everyone).

In fact, one of the best ways to evaluate a company is looking at what vendors it has. You should have a really good idea about the sophistication of the talent, the ability to move quickly, and how fast the company can respond just by knowing which vendors it uses.

Before I invest in a large public company I personally like to review what vendors it employs (you can get the data for free on a site like Siftery). The list of vendors is essentially like a DNA snapshot — no two companies are alike … and like DNA, there are some genes that are just better than others and some genes that work with each other better.

Summation: we need to take new learnings from the old lesson that superior products lose to superior marketing. While both are important, the quality of the product ultimately trumps the quality of the marketing.

Enough better than hangouts that they are doing really well.