As computers get better, there are massive advantages of being older

Summation: Older people (over 50) are getting more advantages from computers than younger ones.  We should expect to see a huge renaissance the productivity of older business people in the future.

In business, there are advantages of being younger and advantages at being older.   And historically there has been tensions between the two.

Many advantages of Being Younger

Fearlessness: 
Youngers people have less fear of older ones.  They have less to lose, less social status, no mortgage.   If they fail, they will not be lower on the status ring.  The best soldiers are usually those in their 20s.  

Older people have much more to lose and that means they are often quite poor at calculating risks.

More time:  
The older you are, the more time commitments you gather. You eventually get married and have kids.  You volunteer at a non-profit. You get involved in your church.  You pick up golf as a hobby.  You go to the Sundance Film Festival and Burning Man every year.  

When you’re younger, you have not yet accumulated the debt of these commitments.  That allows you to spend more time working.  Of course, not every young person spends a great deal of time working (many spend an equal amount of time socializing) … but those that do concentrate on work have a massive advantage because working hours compound.  Almost all super-successful people worked insane hours in their 20s.  In fact, people who do not work insane hours in their 20s are at a massive disadvantage for the rest of their lives.

More raw brainpower: 
Younger people have better working memory, they have more stamina, and they have more calculations per second.  They have a much faster CPU.  It seems unlikely that we will have a 55 year old chess champion.  And most Physics Nobel prizes went to work that was done by people in their 20s or early 30s.

More ignorance of “what works”:
Older people are more likely to get stuck in their ways.  They have a hard time seeing that the Emperor really has no clothes.  So they are more likely to do things the way they have been done before.  The old saying “science advances one funeral at a time” applies to business innovation as well.  

But there are also many advantages of Being Older

Money:
Older people are a lot richer than younger ones.  Many older people gain leverage by hiring younger people and telling them what to do.  They are often able to rent the time, fearlessness, and brainpower of younger people.

Cunning:
Cunning is the ability to work with people and also work against people.  It is something one gets better at over time.  It is not something people are just born with.  A 55-year-old can often play two 25-year-olds against each other.

Wisdom:
While young people benefit from ignorance, older people benefit from wisdom (which is the opposite side of the coin).  Older people have had more time to read, learn, and compound knowledge.  

Connections:
While “What-You-Know” is now more important than “Who-You-Know”, who-you-know is still important.  Older people have had more time to develop meaningful connections.  And many of those connections will be other very successful people.  I did not know any major CEOs, U.S. Senators, world-renowned authors, etc. when I was 22 (but many of the people I met when I was 22 turned into these people).

Stature:
Older people have a history and a brand.  And while that history can work against them (like a voting record for a member of Congress), it gives comfort for others to work with them.  People with a brand have an advantage in recruiting talent, raising money, etc.  If an entrepreneur sold their last company for $300 million, it will be a lot easier for her to recruit people to her next company than a first-time entrepreneur.

Less competition:
Weirdly, older entrepreneurs have a lot less competition than younger entrepreneurs.  At least in Silicon Valley, it seems there are 100 times more entrepreneurs in their 20s than entrepreneurs in their 50s.  Most successful people in their 50s have no desire to go through the rigor of starting a company again.  They usually opt for less stressful lives (like deciding to be a venture capitalist or running a winery).  That means that those 50+ people that do decide to start companies have a pretty big advantage because there are a not a lot of wise, well-connected, monied people who they are competing with.

Young vs Old: Who Wins?

To summarize the post thus far:

AdvantageYoungOld
Fearlessness
Wisdom
Raw brainpower
Ability to buy brainpower and time
Time
Cunning
Ignorance
Connections
Stature
Less Competition

The advantages of being young seems to equal the advantages of being old … at least when it comes to starting companies.  

Historically young people have a way higher failure rate … but they also have a much higher rate of creating an iconic company (Google, Facebook, Microsoft, Apple, etc.).

In the past there was a tension between young and old. The young having big advantages in some societies and the old having big advantages in others.  If I had to pull a number out of my butt, I would say that the best age to start a company has been 34 (not exactly “young” but definitely not old).

The best age to start a company will get much higher as computers are becoming a bigger part of our lives …

How the age advantages shift with computers: advantage to the older

Computers significantly change the advantage calculation. 

Computers give younger people more access to wisdom through easy access to knowledge. The compounding advantage that older people have had in the past is going to be less important in the future. Computers also make it easier to find people and get in touch with them — so the Who-You-Knows are going to be less valuable in the future — and younger people, while still having less access to connections, are at less of a disadvantage here.

But computers help older people IMMENSELY.  

Computers are the world’s best way to get access to raw brainpower. And as more brainpower tasks are getting taken over by computers, people with money (older people) will have a significant advantage over those that don’t (younger folks).

The proliferation of tech services also advantage older people. You can get access to the best APIs and services with dollars. Of course, most people (especially older people) will have trouble selecting and managing vendors. Most people (especially old people) are going to be trapped in the 20th century paradigm (one that rewards hiring and growing people). The most important business skill in the 21st century is the ability to select and manage vendors. But the older people that can successful navigate the new world will have an advantage.

As computers get stronger, it gets easier and easier to buy time and brainpower. We already have compute-on-demand (AWS) and people-on-demand (UpWork).

The biggest disadvantage that remains for older people is being trapped in an old way of thinking. If science really advances one funeral at a time, innovation could be significantly slowed as older people have more advantages (and are living longer).

One of the advantages that older people have that seems to be not going away is lack of competition. It used to be that very few 24 year olds ever thought about starting a company (especially those that had lots of opportunities). Even when I started an Internet company in college in the 1990s, it was really strange to have a student entrepreneur. Today it is becoming easier and easier to for 24 year olds to start companies — easier to get training, knowledge, and seed capital. YCombinator and other institutions have significantly promoted entrepreneurism among the young. My guess is that the number of amazing twenty-somethings starting companies has gone up at least 5 times in the last decade … and that trend is happening all over the world.

But people over 50 are still not starting companies in large numbers. It never was big, and I see no anecdotal evidence that it is growing. People that have been successful in the 30s and 40s are rarely opting to get back “in it” in their 50s. Instead, they are opting for easier and less stressful lives. So the few 50-somethings that do start companies could have increasing advantages. Especially those that still put in the long hours. (Even Bill Gates, one of the best entrepreneurs ever, hung up his business cleats before he turned 50).

More people in their 50s SHOULD start companies. It is actually a great time to start a company. Many people in their 50s are empty nesters (or at least no longer have super young kids). They can actually travel more and work harder than those in their 40s because they have fewer family obligations. They are usually more financially secure (maybe have paid off their mortgage already) and potentially more willing to take some sort of financial risk. And people in their 50s have so much more energy today than in years past — people live healthier, are more active, etc.

What are the societal implications of computers giving older people advantages?

The most obvious implication is wealth inequality. If older people get more advantages as they age, their wealth will compound faster. Coupled with living longer (and being active longer) means more wealth inequality.

Since the person in their 50s is more likely to build a one-to-N business than a zero-to-one business … it could mean less innovation for society and more incrementalism.

But it also could give hope to millions of people who are over the age of 50 and still have big dreams and ambitions. Ambition shouldn’t end at 45. Computers can keep ambition going way longer than in the past.

This also means that MORE 50-year-olds should start companies. However, I don’t think they will. So the few 50-year-olds that do should see very big advantages.

Summation: They advantage of getting older is growing. Computers are getting better at doing what young people do.  

Berkshire Hathaway’s Charlie Munger and Warren Buffett

SaaStr preso: The Top “People” Lessons — And Mistakes

Gave a talk at SaaStr today. A lot of people asked for the slides — here they are:

The Top “People” Lessons — And Mistakes — From Founding a $3.8 Billion Market Leader

The 7 “People” Things No One Tells You When You Scale a B2B Company

• Drum roll please

Recruiting is over-rated

  • What?????
  • Best companies will have fewer people
  • More People = More Communications Issues
  • Track revenue/employee
  • My mistake: I have ALWAYS over-hired

THE important business skill: selecting (and managing) vendors

  • Rely on APIs instead of hiring more
  • Vendors are getting better faster than employees
    • WhatsApp had under 60 people at time of acquisition
    • Kylie Jenner’s company has 7 employees
    • Vizio got to $2BB revenue with just 80 employees
  • My mistake: again, I have ALWAYS over-hired

Unbalanced teams beat balanced teams

  • Pick 1-3 areas where your team will be dominant
  • Just hire for the things you are already really good at … forget about the rest
  • Even Salesforce.com is not good at lots of things (like UI)
  • My mistake: I ALWAYS try to hire to fill the gaps – bad idea

Try to NEVER hire in the San Francisco Bay Area

  • Really hard to attract great people to SaaS in SF
  • Really hard to keep great people in SaaS in SF
  • Not being is SF is a massive strategic advantage
  • My mistake: I almost have EXCLUSIVELY hired in San Francisco

Put off hiring VP HR and VP Marketing (for as long as possible)

  • 90% of marketing people are in the bottom third of their organization*
  • 95% of HR people are in the bottom third of their organization*
  • Hire these VPs AFTER you have hired all the others. And you can wait to hire VP HR until > 100 employees
  • My mistake: yup … made this one too. * stats completely made up for effect

You CAN fire people too quickly

  • “you never fire someone too quickly” is very wrong
  • People can be saved … you hired them for a reason
  • My mistake: not being creative enough to find a fit

How to ID the 10X employee (before you work w her)

  • Threats vs Opportunities
  • Planning vs Action
  • Negativity vs Positivity
  • Individual vs Team
  • My mistake: I still don’t know how to ID this person

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.

selling the ultimate pill – the “Placebo”

The most effective drug in the world is “Placebo.” Placebo is more effective than most of the drugs on the market. Placebo cures the flu, fever, the common cold, and is even more effective at fighting cancer than most drugs.

Yes, Placebo is the wonder drug.

It is usually made of the compound C12H22O11 which is abundant in the Americas. When taken orally, C12H22O11 is very sweet and delicious. It is often used as a sweetener in cookies, baked goods, and candy. So next time your mom tells you that candy is bad for you, tell her it is full of Placebo.

For this free open-sourced business idea, I’m offering you the wonder drug of all wonder drugs: Placebo. All you need to do is market it and get it on the shelves of Walgreens (alert: there is already a whole load of candy on the shelves of Walgreens).

Talking Placebo will cure your pain, combat your depression, and even marketably improve your sex life. It is just that good.

Placebo is also getting better and better over time. And, even crazier, the more you charge for it, the better it works. As Dan Ariely says, “drugs are are effective because people believe in them.” The more you believe, the better it works. It turns out the mind is truly powerful.

So take two Placebos and call me in the morning.

kickstarter for real estate development

Note: I’m spending much of this month open-sourcing 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.

One of the interesting things about new destinations is that they become more valuable as they become popular. If you could get together with 100 of your friends and all decide to buy a lake house on the same random lake in Minnesota, you’ll find all the property on that lake and around that lake will likely triple in price really fast.

People don’t go to Aspen or the Hamptons just because they have great mountains or great beaches. There are plenty of places that are beautiful. They go to these well-known destinations because everyone else wants to go there.

Places are popular purely because they are popular. There is a recursive loop. Popularity breeds investment which breeds exclusivity which breeds more popularity.

So let’s say you find a really beautiful lake in Minnesota. It is gorgeous as a summer destination. It is close enough to a major airport. It has natural beauty. It is close to some amazing restaurants. The people are really friendly. And, oh yeah, you can buy two lake-front acres for $100,000.

How do you profit from that?

A traditional real estate developer will buy up a massive amount of property on the lake, build a community, and maybe some shared tennis courts and a golf course. Then the developer would market it as “Lakeside Commons” or something trendy like that and target rich people in Chicago or Houston (to escape the summer heat) to buy into the community.

Traditional real estate is very risky so it is in the real estate developer’s best interest to reduce those risks. Things are kept cookie-cutter. Things don’t deviate much from the tried-and-true approach.

enter kickstarter for real-estate

Now let’s revisit a new business idea. A community that forms online that wants to start a in-real-life community together. 50 to 250 families getting together to use their joint buying power to purchase a place. Each person is committed to marketing and building the new area so they see price appreciation (and a community that they want to spend time in).

Envision an entrepreneur scouting an amazing place and creating a vision for what it could be in the future. She negotiates to buy it. Then she recruits people to her vision and, if enough of them commit their dollars, they buy in. But not buying in just as investors … they buy-in as members of the community.

“We will buy this property if we raise at least $10 million from 100 different families.”

And sure, some of the community members will flip their holdings and make a quick profit. But most of the community will be formed with committed members that want to invest the next decade into seeing it blossom (and then benefit from the real appreciation).

Just think about getting together with your 20 best friends from high school and all deciding to focus your energies on owning a second home in the same place. You’d have an instant community.

Summation: if you start a kickstarter for real-estate, invite me to join your community.

Photo by eberhard grossgasteiger on Pexels.com

the ultimate combination: doughnut and mochi – the Doughchi

Note: I’m spending much of this month open-sourcing 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.

We’ve all heard of the cronut — the croissant crossed with a doughnut that is yummy delicious. (I have not yet tried one myself, but I 100% take for granted that they are amazing). I have had the pretzel croissants at The City Bakery in New York which are out-of-this-world good.

That got me thinking … the doughnut is amazing food. It represents much of what is great in life. The doughnut crossed with lots of things is almost certainly going to be really good. And lots of people have already tried. (though not sure I would recommend the pickle-doughnut).

One thing that is super over-rated is the jelly doughnut. Jelly is just not a good filling. Jelly isn’t really tasty.

But other doughnut fillings ARE really good. Nutella-filled doughnuts are mouth-watering.

So started to think … what would be an even better filling for a doughnut???

Well, the only thing that is better than a doughnut is mochi. Mochi is amazing. And I’m not talking about crass ice-cream filled mochi. I’m talking about pure rice-and-sugar mochi.

only mochi is better than a doughnut

So pretty much the best dessert in the world would be a mochi-filled-doughnut. Whoa … my mouth is watering just thinking of it. I’m about to fly five Chicago police-officers (the best doughnut experts I can think of) to Tokyo for a taste test.

Just think … you bite into a doughnut and have a delicious chewy middle.

Yum.

And yes, you will have a 18% chance of having a heart attack.

But … yum.

Ok … the next thing is marketing. We need to market this invention really well so that everyone remembers it and forms crazy lines around the block hours before the Brooklyn bakery opens (yes, this is mostly likely to happen in Brooklyn … or Portland).

Originally I was thinking of copying the “Cronut” (which is actually trademarked) and calling this the “Monut” or even the cooler “Moghnut.” But besides for worrying about trademark violations, that name might be selling this creation short.

First, this creation would not have a hole in it (because it is a filled doughnut). Thus, no “nut.” Plus, who cares about the “nut” part of the doughnut anyway. The “dough” part is what everyone really likes.

So I give you (drum roll please): THE DOUGHCHI !!!

Enjoy the doughchi. And if you are lucky enough to create one, please consider me to give you needed product feedback. I will also offer up my kids and wife as beta testers.

Summation: enjoy this free business idea.