Walking Away

When I mentioned that Bonafide was shutting down, some people were surprised.  They were surprised that we’d disband a strong and cohesive five-person team, that we’d shut down a startup with enough cash to survive another year, that we’d throw away 2.5 years of work from great engineers, that we’d throw in the towel just a few months after getting started on a new and promising product.

Yet on a warm Monday morning, my co-founder Brian and I sat under the bright sun outside Philz in downtown Palo Alto and we agreed to shut down Bonafide, the company we’d been running together since late 2013.  We had a lot going for us — capital from great investors, a talented and devoted team, a helpful set of early adopters — but we failed to build a business and we knew that closing Bonafide was our least bad option.

Everyone asks what I learned from that journey. I’m still waiting for divine inspiration to strike me with a bulleted list of 14 amazing insights (#7 being especially shocking). Instead, I’ve tried to answer three questions:

Question 1: We had a lot of things going for us at Bonafide. Why shut down and not change paths or try to sell the company?

In December 2015, two years into our startup, we started building a shared address book for corporations. This new product, we hoped, would be useful for sales people eager to find the right contact or introduction through a colleague. We knew which features we needed to build, meaning our product strategy was focused for the first time in many months. I framed our situation to our team and our investors as Season 3 of Bonafide’s journey: a new year and a new set of opportunities.

After several months of work on the new product, we demoed it at a board meeting.  Our lead investor loved it and excitedly congratulated us for our great product design and impressive technology. I should have been thrilled: we’d gotten over a rough patch and seemed to be on the path to something great.

Instead, I felt a surprising, hollow indifference. This felt like the beginning of a long hike towards a destination I didn’t want to reach. Even with four terrific colleagues by my side, I couldn’t get myself psyched about building an enterprise product for sales teams.  I wasn’t able to step back and say “this product really needs to exist, and I really need to be the person building it.” Brian’s feelings were similar, and that meant neither of us was doing top quality work (though Brian’s was much better than mine).

In a series of conversations with investors, Brian and I confided that we weren’t terribly excited about the problem we were solving.  I made it clear that I didn’t think I was the right CEO for the business we were trying to build. That wasn’t setting us up for success, and we discussed four possible ways to keep things going:

  1. Keep going as is.  We suck it up and push things forward — at least to a stage where we could be acquired for a meaningful amount of money.
  2. Switch our product direction.  With a year of capital in the bank, we could build something better suited to the team’s skills and interests.
  3. Find a new CEO.  We find someone who’d be better leading this business than I would be.
  4. Put ourselves up for sale.  With a solid team and some impressive technology, we could put ourselves out there to larger companies who might want to acquire us.

We talked through each of those options.

Keep going as is?
Continuing as is would mean continuing something that wasn’t working, and unlikely to position us for success. There are plenty of entrepreneurs who can thrive while working on something they aren’t interested in, as long as they have a clear goal to go after. Brian and I are nerds and want to work on problems we find interesting and important.

Switch our product direction?
If there had been something we were dying to build, I could have seen trying something new with the team we had. But Brian and I were both pretty drained of both energy and ideas after 2.5 years, and the idea of starting over had very little appeal.

Find a new CEO?
If our product had been mature and ready to be scaled, we might have tried to find a new CEO. As it was, we had three meaningful trial customers, none using the product heavily. We were still figuring out what to build, meaning we’d need a scrappy founder CEO and not a professional growth CEO.

Put ourselves up for sale?
Our five person team was solid and it’s possible we could have found an acquirer. Selling the company would return a bit more money to our investors, it would allow us to claim our startup was a successful one (Bonafide was acquired by ____! Woo-hoo, we won!), and it might lead to a slightly better financial outcome for our employees.

However, an acquisition was uncertain and (if successful) would take time (so employees might leave, while we’d spend more of our capital), so we didn’t feel the ends would justify the means:

  • Investors were largely indifferent to an acquisition: even if we sold the company, they would likely lose money because their success is largely driven by one or two 100x returns, not by getting $0.75 on the dollar instead of $0.25.
  • Employees might have received marginally better equity packages, but the differences would likely be small, and they would entail being locked into an employer chosen by Brian and me.
  • The financial rewards might have been stronger for Brian and me as founders — but we have both been through acquisitions and are wary of the downsides of golden handcuffs. Those financial rewards would have to justify the opportunity cost of not doing something else, and in the event of a small acquisition we felt that was unlikely.
  • Brian and I would both rather admit defeat than lay false claim to victory, so we didn’t attach much value to checking the box that said our company was acquired.

That left a fifth option: shut down the company and the website, help the team find jobs, and return the modest amount of capital we still had in our bank account.

Though not the option we’d hoped for, shutting everything down felt right.  It was a strong decision: we would cut losses, and get on with our next things.

Question 2: The shared address book product held little appeal for our team — but in December 2015 it seemed like it would be better to build it than to continue what we were doing. How did we get to such a desperate position?

To answer this question, I go back about nine months to early 2015.  At that time, we had decided to focus our team on a product called Free Agents. A member would post about a Free Agent — someone they knew (member or not) who was starting to look for a new job. Other members could ask the poster for an introduction to the candidate. The dynamics were great: members’ recommendations were seen as quite valuable, the member was helping a friend/former colleague they held in high regard, hiring managers saw impressive candidates in their inboxes, and Free Agents were getting interest from great companies and hiring managers.

Things looked promising: after we walked through the metrics on Free Agents at a board meeting, our lead investor encouraged us to start preparing a list of VCs who would lead a monster Series A.  I was feeling confident.

There was just one more thing I wanted to show: that we could generate a significant number of Free Agent postings.  Unfortunately, this wound up being the downfall: the key actor (the connector) lacked motivation to post about Free Agents, and our attempts to encourage them were unsuccessful.

Four or five months working on Free Agents with no improvement on metrics put me into a bit of a tailspin. I felt like I was flailing as a leader and I didn’t really know what to do next. And not knowing what to do next is a very dangerous position to be in as a founder/CEO.

As an investor/adviser/friend to dozens of startups, I’ve observed the behavior of many founders. Only a select few are able to combine both a clear sense of purpose with humility: they know where they want to go but are wise in asking others to help get there. Some founders fail because they’re too stubborn to receive and process feedback; others lack a confident vision and wind up being pushed around like a kite in the wind.

In the summer of 2015, a year and a half in to Bonafide, with our Free Agent product not taking off, I’d become kite-like. I didn’t know which way to go and I hoped that a gust of wind would come along and swiftly point us in the right direction.

We moved offices, a change I hoped would magically lead to a reset and yield a surge in energy and creativity. We brought in several people to help us think through problems, and I held out the unrealistic hope that one would be our savior.

Meanwhile, we were working through several very complex projects that would never see the light of day. I couldn’t pinpoint one good thing to build, and so we built everything. Several people came to the table with interesting ideas, and rather than picking one we combined them into a smorgasbord of features that didn’t belong together.

All of that changed at a board meeting in December, when our lead investor rightly called us out for working toward a product that was far too complicated and unlikely to succeed.

Instead, he suggested, why not build a shared address book for teams? Every day, sales people at his portfolio companies were trying to figure out who he knew at Ebay, at Target, at Apple — either to initiate a conversation or to close a deal. It would be extraordinarily valuable to map out all of the people your colleagues know — by company, by job title and skill, by name.

The product he suggested was many times simpler than the other products we’d built and diagrammed. There was a simple privacy model — everyone on a team could see everything shared by their colleagues — and it took advantage of a lot of our intellectual property.

On the other hand, it sounded like a product for sales people — a departure from what we’d been doing, and not an area of interest or expertise for anyone on our team. Had I been presented with the idea two years prior, I would have quickly declined: a sales tool was not something I could envision spending years of my life on.

But that December day, the team and I were flailing, and the grass on the other side of the fence looked more attractive than the messy pile of junk on our side. Eager to leave the junk pile, we quickly climbed the fence and we jumped.

Question 3: What went wrong in the lead up to Free Agents?  Could we have done things early on that would have improved our likelihood of success?

When we started the company, we had a compelling vision and were working on some really important and interesting problems. We had a strong team and Brian and I were experienced entrepreneurs.  That meant we were able to raise a substantial seed round with a fairly vague idea of what we we’d be building.

Having that money in the bank seemed great: we wouldn’t have to worry about fundraising for a long time.  However, it meant we had little urgency to get to the next stage.  A lack of urgency and a lack of focus isn’t a great combination, and in our case it led to us building a large number of experimental features:

  • several iterations on best-of lists — best engineers I’ve worked with, best Series A VCs, top visual designers
  • a feature that parsed introduction emails you’d written to pull out quotes about people you were introducing (“John is the best engineer I’ve ever worked with”)
  • global lists of top people in various fields, largely using signals from Twitter
  • a feature to recommend someone looking for a new job (a “Free Agent”) to other Bonafide members and manage the process of introducing them to hiring managers
  • a dashboard of your standing as a connector
  • a profile with the nice things people had said about you in email introductions over the years
  • a feature that let you tell others what kind of people you were looking to find
  • mobile apps and a Chrome extension to let you write introductions more quickly
  • a way to recommend service providers to others with whom you share an affinity (e.g., lawyers to companies with the same investors)

That long list of features should tell you two things: first, our engineering team was talented and moved quickly; second, we were all over the place, and as CEO I was doing a poor job focusing the team’s efforts.

By the time we decided to focus on the Free Agent product, we’d been working on Bonafide for well over a year.  That meant our team (myself included) had less patience to get things right with Free Agents.  When our early attempts to make Free Agents weren’t fruitful, we got frustrated: it felt like we’d been at this for nearly two years without a lot of progress.  Instead of stubbornly persisting, we got impatient and flailed.

Had we focused earlier on, we could have attacked Free Agents (or another problem) more patiently and persistently.  I wish we had.

Parting Thoughts

When we first officially became employees of the company, each of us signed an offer of employment.  The offer letter, drafted by our lawyers, referenced the “company employee handbook,” a document which (as far as I knew) didn’t exist.  When my colleague asked me about it, I figured I should put together a very formal document (our company started as Laserlike).

That “handbook” followed us across four offices and now sits in my attic office.

I leave with fond memories and strong relationships, and I’m proud that my colleagues and our investors maintained a mature “treat people like adults” approach throughout.

I learned quite a bit in the past 2.5 years — though maybe not as much as a child does — and I’d like to think my colleagues did too.

I certainly made some mistakes — I’m not sure what qualifies as too stupid — but I’m really glad I got to work with some amazingly talented people who screwed up a lot less than I did.

This is my first time shutting down a company.  It’s a painful experience to go through, but in our case it was the right thing to do.  I walk away humbled, but also grateful for a terrific team and the chance to build something meaningful.

The Story Behind One Introduction; The Data Behind 100K Introductions

Everything started at a Sunday brunch when I asked my friend JoAnne about the startup she’d just joined.  JoAnne, a fifty-something woman with the hip energy of a 25-year-old, perked up as she explained what the startup did: it was a super-secure payment service, founded by a libertarian Stanford grad and a young Russian-born cryptographer.  They’d raised $100 million and grown to 100 employees.  There was just one hitch: an international cadre of fraudsters had found ways to use their service to swindle millions of dollars and the team had to find a way to stop them.

Combating international fraud sounded way more interesting than my job.  I excitedly asked JoAnne if her startup might want to hire someone like me and a few days later I found an email in my inbox introducing me to Max Levchin, the CTO and co-founder of PayPal.  She described Max as a talented entrepreneur and technologist; I was a mathematically-inclined 22-year-old who might be able to help solve the fraud problem.

Although JoAnne took just a few minutes to write that email, it completely changed my life.  Our exchange led to me finding a new job and taught me an important lesson about the value of the right introduction.

Sharing Context, Sharing Trust

JoAnne’s introduction was valuable to both me and the team at PayPal because it accomplished four things:

  1. She gave me important context.  PayPal was growing and on a strong path but had a fraud problem where my skills could be helpful.
  2. She gave Max important context.  I was a promising data geek who was open to new opportunities.
  3. She expressed her trust in my abilities.  Because of her words and because Max and the team had confidence in her recommendations, Max wanted to talk to me.
  4. She expressed her trust in Max and his team.  Because I valued her judgment, I spoke to Max and ultimately decided to join a team I’d previously known nothing about.

Each of those four things was valuable and collectively they increased the probability of me working at PayPal by at least 100x.  I joined Max’s team a month later and thanked JoAnne for making it happen.  Without her intro, PayPal wouldn’t have hired me and I would never have made what became the most important move of my career.

More Intros Like This, Please

When you’re in an employer’s shoes and trying to hire good people, you’re looking for trustworthy information about candidates: who’s likely to do great work as part of your team?  When you’re in a candidate’s shoes and considering a new job, you’re looking for trustworthy information about teams: where could you do fulfilling work with people you’d enjoy working with?  JoAnne’s introduction answered these questions for Max and me, but it only happened because of a well-timed brunch.

Bonafide is my new startup, and our goal is to arm both candidates and teams with better information so they can make better decisions about whom to work with. Connectors like JoAnne facilitate good decisions by propagating trust between candidates and teams.

Today we’re excited to announce the release of a product that recognizes connectors and helps them become more efficient.  We’ve built a tool called Bonafide Connector that uses natural language processing to find introductions you’ve been a part of.  Bonafide Connector takes your archived Gmail intros and turns them into meaningful data about your strengths as a connector, the best things you’ve written about others, and the great things others have said about you.

For a sneak peak, here’s my Connector Report:

We’re recognizing some of our members as top connectors based on data from over 100,000 email introductions.  We’ll be updating these rankings as more people sign up for Bonafide (check back for updates).  Congrats to the top connectors!

Our Chrome extension, iPhone app, and Android app let you reuse things you’ve written in the past, so you can write a meaningful introduction in seconds.

The Beginning and The End

Each day, every professional gets to know a little more about the people she works with.  She learns of others’ strengths and weaknesses, she figures out whom she can trust and how she can trust them.

Connectors serve an important role in sharing trust and introducing people who could work well together, but it’s hard to make a great connection.  I got lucky with that Sunday brunch and joined PayPal, but more often than not, the right candidates and the right teams don’t find one another.

JoAnne did a lot of big things in her life, but the most impactful for me was the fifteen minutes she took to connect me with Max.  Thanks in large part to her, I got to spend 3.5 years at PayPal with dozens of phenomenal people, learning lots about using data and building a great company.  It never ceases to amaze me that an action that takes a few minutes can have such a huge positive effect on someone’s life.  I’ll always be grateful to JoAnne for her help, and I hope to make it a little easier for others to do what she did.

In memory of JoAnne Rockower, who passed away in 2014.  Thank you to JoAnne and Max for making this post possible!

And thanks to Michael Lipman, Leo Polovets, Karen Song, Andrew Chen, Jason Schwarz, and Nazila Alasti for providing feedback.

Get your Connector Report on Bonafide

It’s Easier to Be Honest the Second Time Around

In my first experience as a full-time founder, it was really tough to be upfront about challenges.

Shortly after launching Circle of Moms, we were growing quite quickly. Moms weren’t using our product as much as we’d hoped, but things were otherwise going well and we thought we were in good position to raise capital. Ephraim and I went to pitch Kevin Hartz, the understated and straightforward founder of Eventbrite.

We went through our numbers with Kevin, highlighting our user growth and barely mentioning our mediocre stats on user engagement. I’m embarrassed to say that I probably hoped that investors would be too dumb to ask about how frequently our users were using the product.

Kevin’s not dumb, and when he asked, I flailed. I knew the engagement stats, but I tried to dodge the question. After a bit of back and forth, I finally gave him the real numbers. To his credit, Kevin called me out, saying gently that I needed to be “more fluent” with our stats.

My evasiveness stood in sharp contrast to Kevin’s own behavior. Kevin, who’d founded payments company Xoom and invested in PayPal and YouTube, was not afraid to own up to defeats. At that same meeting, he revealed in passing that Eventbrite had been turned away by investors in a recent attempt to raise a large round of capital. I was shocked by Kevin’s candor: that didn’t seem like something a founder would freely admit.

Figuring things out as you go along

Later on at Circle of Moms, our team had an internal meeting about messaging, to discuss how to frame the product we were building for mothers.

“Being a mom is all about figuring things out as you go along,” my colleague Lisa stated.

“Haha,” said the voice in my head. “Just like being an entrepreneur!”

I thought that, but I didn’t dare say it. Who was I to own up to any sort of weakness to my team? I had to show that I knew everything: I couldn’t be seen as figuring things out as I went along.

The next time around

Several years after that, we sold the company. Circle of Moms went from being a startup that wasn’t terribly interesting to investors to one that was perceived as innovative and successful. I spent a bunch of time writing about our successes and our failures and got my head around a few things I’m not very good at and a few others I probably do better than most. Some people started calling me a serial entrepreneur (not my favorite term).

In the process, something clicked and I became at least a tiny bit more like Kevin. One of the investors in my current startup remarked how surprised he was when I admitted that there were certain problems I had no idea how to tackle: he said most entrepreneurs would feign a deeper understanding than they actually have. I told my current team the “figuring things out as you go along” story with a smile on my face and no misgivings whatsoever.

The second time around, it’s easier to not take everything personally and so far, it’s a whole lot easier to own up to challenges.

Oh, and in that spirit: Circle of Moms was fortunate to have had many excellent investors, but we pitched Kevin two different times, and in both cases he turned us down.

Why My Startup Isn’t in Stockton: How to Further the Culture and Network Effects of Silicon Valley

TL;DR

1. Tech innovation is generally a good thing and should be encouraged.
2. Tech companies are better positioned to succeed if they’re in Silicon Valley, because of culture and network effects.
3. It follows from (1) and (2) that it’s good to facilitate the growth of tech companies in Silicon Valley.
4. There are three things slowing the growth of tech companies in Silicon Valley: education, immigration policy, and lack of housing.
5. The most immediately addressable impediment to innovation and growth is the lack of housing.
6. The tech community should be pushing cities in the Bay Area to do more to allow and encourage new housing, as doing so would foster innovation.

Starting Up Somewhere Else

Can you please build your startup company in Detroit or Stockton? They need the job growth there. We in Palo Alto do not!

This is a fairly common attitude among those who are opposed to any growth (residential or commercial) in Palo Alto, the city where I live and run my startup.

I know this because I’ve recently been working with my wife Elaine and several others on a new organization called Palo Alto Forward. I’ve spent some time reading about Palo Alto’s policies and plans and — warily — reading a handful of the online comments. Reading mostly anonymous online comments is at turns extraordinarily painful and surprisingly insightful, and in my generous moods I place the pseudo-quote above in the “surprisingly insightful” category. Several people asserted that startups should locate in depressed areas rather than Palo Alto, in order to help those areas grow.

I was surprised to see that sentiment, because it is completely at odds with the prevailing wisdom of Silicon Valley. My professional peers — those who live in the Bay Area and work with tech startups — are almost all here because they believe that Silicon Valley is the best place to start, grow, and work for a tech company. And nowhere else comes close.

Culture and Network Effects

In a recent blog post, HelloSign founder Joseph Walla did a good job explaining why he’s here. He cites eight reasons to locate startup is in the Bay Area and not in his home state of Minnesota. Those eight can fall into two simple categories: culture and network effects.

Silicon Valley has a great culture for building startups: we embrace risk and uncertainty, we hold entrepreneurs, engineers and product designers in high esteem, and we have a trust-based, pay-it-forward mentality that fosters good, productive behavior.

And Silicon Valley has strong network effects from its history as the center of the world of tech entrepreneurship: capital, knowledge, talent, and easier access to great people and companies.

As Joseph says in his piece, none of those things mean it’s impossible to build a great company elsewhere. It’s just a lot harder.

Moreover, because of those cultural and network advantages, founders and employees tend to learn more quickly in Silicon Valley than anywhere else in the world. If a childhood friend from my home town of Philadelphia came to me and said he wanted to spend six months learning how he could build a startup, I would very strongly recommend that he drop what he’s doing, move to Palo Alto or San Francisco, and surround himself with people who know how to build great companies.

Starting a company in Detroit or Stockton or even Philadelphia sounds like a nice idea: I could help the surrounding community and hire people from that community. But the reality isn’t so nice: I’d have to embrace a culture that is far less risk-seeking than Silicon Valley and convince investors to invest in a company they’d have much less interaction with. I’d have little surrounding talent to hire and learn from, and I’d have to convince engineers to come to a small pond with far fewer experienced colleagues and mentors.

In short, because of culture and network effects, my startup is likely to grow far more quickly in Palo Alto than it would in any of those other cities. Starting a company here is the equivalent of putting a child in a nurturing, education-focused home: it creates the best conditions for success.

Growing the Startup Ecosystem

For the reasons I laid out, most tech entrepreneurs believe that this is the best place to start a company.

If you believe that, and if you also believe the growth of new products and technologies is a generally good thing, it follows that you (like me) would seek to bring more skilled and talented people — entrepreneurs and employees — to build the next batch of great companies in Silicon Valley.

When it comes to top people, quantity is very important. As every founder will tell you, truly skilled and talented people are in short supply, even in the Bay Area. Almost all of them are trying to hire great engineers, for instance, and there simply aren’t enough to go around. That supply can be increased in three ways:

1) Education. The more educated the population is, the more skilled people can contribute to innovation and growth in Silicon Valley and elsewhere. No one refutes this as an important goal, even if its benefits won’t be seen for many years.

2) Immigration. There are many incredible entrepreneurs, engineers, and others who have been forced to leave Silicon Valley because of extremely strict immigration laws. This is a complex issue at the federal level, but there is broad consensus in Silicon Valley that immigration laws should be loosened to allow in highly skilled people.

3) Housing Supply. Silicon Valley is the best place for innovation to happen. But for all of the improvements that facilitate collaboration, nothing beats having people close to one another. And to have people working side by side, there need to be nearby places for them to live. Yet the tech community’s leaders have been surprisingly quiet about the need to increase housing supply. As a result, anti-development voices have had the upper hand, which has led to a scarcity of housing units and prices that are unaffordable even for professionals making six-figure salaries.

This is an issue we need to pay more attention to, in large part because techie/startup types can have a greater impact on the housing supply than on immigration or education. It is easier to influence local zoning/building/housing policies than it is to influence state educational policies or federal immigration policies.

Room for Growth

Palo Alto is the birthplace of Silicon Valley and has been its center for decades. It has spawned many amazing companies, from HP to Google to Facebook. But its growth as a place for people to live hasn’t kept up with its increasing economic importance: Palo Alto has just 25% more residents than it did in 1960, even as California’s population has grown by 150%. The result of that housing shortage has been astounding: the median home price has climbed above two million dollars.

Because houses cost two million dollars and supply hasn’t increased, even well-paid professionals working in Palo Alto and making six figures can’t afford to live in the city. Palo Alto’s draconian zoning policies enforce suburban-style development, ignoring the substantial demand for more dense townhouses, condos, and apartments within walking distance of services. Those policies make Palo Alto’s density just a quarter that of other top university towns located near big cities — Evanston, Berkeley, and Cambridge.

To be sure, a more dense Palo Alto would require infrastructure investments. But in a place where companies are spending billions of dollars to put together the big technologies for the next fifty years, better bus and train lines are surely not too much to ask.

Palo Alto, Ahead of the Game?

I live and work in Palo Alto largely because it’s the best place to start and grow important innovative companies. That’s great for me and my wife, and it’s a good example for our young daughters to see.

As the world changes, Palo Alto is going to change with it.

By being forward-thinking and growing intelligently, I believe Palo Alto and Silicon Valley can stay ahead of the game and continue to foster innovation.

P.S. If this resonates and you live in or near Palo Alto, please join me at Palo Alto Forward.

How the Heck Would I Know What I Should Do For YOUR Company?

This morning, shortly after I got into the office, I got an IM from a friend I hadn’t heard from in a while.

Mike, can I complain to you for ~15 seconds about something completely unrelated to whatever it is you’re doing right now?

This sounded promising! I said yes please.

So, [the company where this person has worked for several years] is a tough act to follow.
But startup CEOs are really annoying.
Whenever I ask them what they want me to do, they reply by asking, “what do you want to do?”
which is like, duh, if I knew the answer to that, I would go do it
this is why I should have learned a marketable skill- like typing, or how to run an engineering organization.

He sent that string of thoughts to me pretty quickly, so I replied that I thought he might actually go for the typing route after all. Then I said something a bit more serious:

So it’s actually funny you mention that… when I was planning to leave PayPal, I was already working part-time at LinkedIn and was pretty sure I was going to go there.
I did interview with one company, though — just met with the CEO and he kept asking me “what do you want to do”, and I kept saying “what do you need.”
And basically we went back and forth in that form for close to an hour… at the end he told me has was interested in hiring me, but I’d have to tell him what job I wanted. And I felt like I didn’t really understand the company, so there was no way I could tell him what I wanted to do for them.

In other words, I could relate to my friend. But, I continued, I could relate to the other side as well.

Now I’m on the other side, and I can see the crazy CEO perspective. You don’t entirely know what you’re doing or what you need… especially within a realm (e.g., [my friend's area of expertise]) that you may not personally understand.
And you feel like your best bet is to hire people who will figure it out themselves.
Obviously, that takes a lot of trust and belief on both sides.

My friend was intrigued, and told me about how he’d joined his current company:

i sort of wonder if this is [founder of his current company]‘s sort of black art genius gift
b/c he made it very easy for me to leave [big company where he'd worked before] for an ill-defined job at [current company, which was small at the time]
like, there was a broad goal/desire, but not much in the way of details about how it should be accomplished
and i remember feeling, on my first day, that i was basically useless
it really wasn’t obvious exactly what I should do
and I sort of panicked and set to work trying to figure it out

That made sense. Some people rush toward crazy ambiguity and thrive with it. Others hate it and will be crushed by it. I’m in the first camp; my friend is somewhere in the middle. As I explained, what he described was similar to my experiences at PayPal and LinkedIn:

yeah, my guess is that that’s reasonably typical… was pretty much my experience at PayPal and LinkedIn
at PayPal I at least knew what problem I was supposed to solve (find fraudsters); at LinkedIn I didn’t really even have that

Our conversation lasted longer than fifteen seconds, but covered some interesting pieces of startup psychology.

How to Bring Innovative, Not-Insanely-Wealthy People Back to Palo Alto

The other night, I found myself reading my almost-three-year-old daughter a children’s book from 1950. The book focused on family life, and I had to explain some of the things she didn’t recognize. The father was smoking a pipe, and sitting in front of a fire. There were no TVs, phones, or laptops anywhere in sight. Explaining to her that I’d had neither a laptop nor a cellphone growing up unleashed a series of “why”s I could only answer meekly.

The world has changed immensely — not only since 1950, but since 1996, when I arrived at Stanford as an 18-year-old freshman from Philadelphia. There are things I like about those changes, and things I don’t like, but one thing is clear: there’s no going back.

In 2006, ten years after first moving to the Bay Area, my wife and I bought a small house in downtown Palo Alto. We chose Palo Alto largely because of its innovative culture. Palo Alto was a place for crazy ideas that just might change the world, a place that wasn’t afraid to reinvent itself, a place where brilliant twenty-somethings could create something amazing.

In 2006, Palo Alto was the place for crazy ideas, the place where the smartest (if not the most acclaimed) would go to do a startup. My company, LinkedIn, had around 60 employees on one side of Palo Alto. On the other side, Palantir and Facebook were setting up small offices downtown.

Eight years later, Palo Alto is still great, but it has lost a little bit of its optimistic, youthful craziness. The city’s population has aged a bit, and a twenty-five year-old grad student with a brilliant idea — like Sergey Brin or Larry Page in 1998 — couldn’t afford to live in Palo Alto, nor could he afford to set up his office here. At nearly $100/square foot/year, office space in Palo Alto costs two to three times as much as office space in San Francisco. That’s a big part of the reason that most of the Bay Area’s top startups of the past five years — Twitter, Dropbox, Uber, Airbnb, Pinterest — are based in San Francisco.

When I started my own company last year, we decided to be in Palo Alto, but we’ve paid the price in multiple ways. It took us six months to find a 1000-foot sublease downtown, and we pay over $6000/month for a space that isn’t likely to grace the cover of an architecture magazine. Why is office space so expensive and hard to find? The answer is very simple: there is virtually no available inventory, as demand far exceeds supply. The same dynamic exists in the residential market. That’s a relatively good problem to have, but it’s still a problem: if it continues, Palo Alto’s population will continue to get older, and its offices will be populated not by startups but by venture capitalists, law firms, and a few big companies like Palantir.

So how can Palo Alto sustain its vibrant, innovative spirit? The answer is simple on the surface: the city needs to increase its supply of both housing and office space, so that costs will decrease and more not-insanely-wealthy people can be accommodated. There’s a very good reason that developers want to build houses, apartment buildings, and offices in Palo Alto: people want to live and work here. If it relaxed some of its extraordinarily stringent zoning policies, Palo Alto could see substantial residential and commercial inventory growth that would benefit many potential new residents and workers.

This is easier said than done, however. The first concern is political: the loudest local voices on this issue are saying Palo Alto needs less development. Those voices generally come from people who aren’t suffering from the supply-demand imbalance. They are mostly longtime residents who frequently travel by car, and are frustrated by traffic and parking troubles. Their reaction, and the city’s default options in creating a plan for the future, would seem to solve the parking and traffic issues: either make it harder for individuals and developers to build, or at least keep it as hard as it is now. However, this approach looks at two of the symptoms of the problem (traffic and parking), and deals with those symptoms rather than the deeper problems of imbalance, vibrancy, and infrastructure. Moreover, this “stop any development” would exacerbate the supply-demand imbalance, and turn Palo Alto into a town of 40-, 50-, and 60-something executives and VCs. I have nothing against 50-something VCs, but I’d also love to see more 20-something entrepreneurs — not to mention the engineers, teachers, designers, and city employees who can’t afford to live here now.

How, then, can the city put in place something that improves Palo Alto’s vibrancy while dealing with the challenges of those loudest voices? Palo Alto needs to simultaneously address two challenges: the supply-demand mismatch (easy: ease regulation), and the city’s transportation and infrastructure challenges (harder).

Solving the transportation issue is hard, because the obvious approach — more parking spaces — exacerbates the traffic problem. With free or very cheap parking and few non-driving options, there is currently little reason for most people not to drive to work, so traffic increases. To reduce traffic and parking problems, the city should charge an appropriate amount for parking. 200 square feet of office space downtown costs approximately $17,000 per year. In contrast a 200-square foot parking space in a lot costs a few hundred dollars a year, and that same parking space on the street is free. Increasing parking costs overnight would be a huge shock; instead the city could make the change gradually and charge $10/month to park on the street next month, $20 the month after that, then $30, $40, etc., up to a fair market rate, giving drivers time to adjust.

Also needed are alternatives to driving. Many thousands of people work in downtown Palo Alto, which means the area can be a great laboratory for new transportation solutions. Are there places in Redwood City, San Jose, and San Francisco that could support Google bus-style shuttles? Could Palo Alto encourage commuting by means other than cars with moderate density buildings that would have fast and regular transportation to downtown, with far fewer parking spots per unit? Could a dedicated fast bus or train between downtown Palo Alto and downtown Mountain View be a reasonable alternative to VTA buses (too slow), trains (too infrequent), and driving (doesn’t scale)? I’d love to see the city test programs like these, much as a startup would test a new product: no fancy studies, no commissions to talk about talking about something — just try it, see if it works, and scale it if it does. A transportation demand management program could be well-suited for this.

In short, Palo Alto needs to embrace a changing world. Let’s not defensively try to return to the “good old days” of decades ago, let’s be bold and decisive. Some day, we or our kids can look back at 1996 and 2014 and smile at all of the crazy backwards things people were doing. The best way to do that is to go on offense: allow the growth that both businesses and potential residents are clamoring for, and put in place intelligent infrastructure and transportation worthy of one of the world’s most innovative cities.

Care about these issues? Palo Alto’s City Council will soon be deciding on a comprehensive plan for future development. Send them a quick email with your thoughts: city.council@cityofpaloalto.org

Best of Numerate Choir

Here are my best posts from the past few years:

Founder Stories

Silicon Valley

Data

Data + Product + Growth

Crazy Ideas

Design vs. Darwinism. Data vs. Darkness.

The data geek, it’s said, wants to make every decision based only on the numbers. Test this shade of blue against that shade. Pick the winner. Test something else.

The designer is a creative artist, creating something beautiful, something people love. The antithesis of the data geek.

I’ve been thinking about this because I’m a data geek, I just started a new company, and I know that a skilled UX designer could help our product immensely. Are my data-loving values in conflict with the values of those who are UX-focused?

No. As someone who spent lots of time painting in college, I assert that the artist vs. data geek model is an overly simplistic view of the world.

That dichotomy assumes that the data geek cares only about superficial numbers, and lacks the thoughtfulness and creativity to understand things that are hard (or impossible) to measure. It also assumes that the designer cares only about beauty and creativity, and not about whether they’re building actually works in the real world.

It’s easier to understand ourselves with these two questions:

1) Do you want to scientifically understand the way people are using your product, and use that understanding as part of your decision making process?

2) Is your business an automatically shifting, evolutionary machine that moves itself purely based on numbers, or is someone guiding it in a specific direction?

My answer to the first question is a very strong yes: I want my company to deeply understand how people are using its products.

The second question is a bit tougher for me. I like evolution, and I understand that natural selection can yield great outcomes. On the other hand, guidance and clear direction can be a far more efficient way to get to the best outcomes.

My first blog post, The Visionary and The Pivoter, discussed my experience building a company that wound up being more evolutionary than directed, and the challenges of that.

Here’s how I see things now:

Sites focused purely on viral content — Buzzfeed, Upworthy, et al — are in the top left: impressive (to me) for their ability to iterate based on data, but far more reactive than visionary.

My last startup, Circle of Moms, was focused on improving the lives of a specific audience (moms!), but we too were more evolutionary than visionary.

Amazon is a very data-centered company, but one with clear visions on where their product and business will move the world. Apple, on the other hand, possesses clarity of vision and an intent to push the world in a certain direction, but is seemingly less data-focused. Clearly, both of those models can yield tremendous successes.

Being reactive/evolutionary and in the dark with respect to data is the worst combination: you don’t know where you want to go, but you can’t see anything around you to help you find a good path. I’ve seen a few startups like that — they change their strategy every month based not on data but on a (bad) blog post someone writes — and it’s ugly.

Many companies move up on the scientific scale over time. There’s a real cost to collecting and analyzing data, and it’s easier to invest in doing it correctly with 100 employees than with ten.

I’d like to be in the brown box that has my picture: deeply scientific, but more directed than evolutionary.

Long term, I suspect that most great user experience people won’t be too far from me. They’ll use data to help them design things that more people like. But they’ll be thoughtful in the application of that data, so they won’t feel forced into a massive, evolutionary pinball game that throws them around randomly.

Your Metrics Are Bad and Why “Data Driven” Isn’t Enough

Being “data driven” is all the rage these days.

We all — businesses, government entities, sensor-equipped individuals — have more and more data that can help with decisions. The era of Big Data is here, yada yada yada: you know the annoying cliches as well as I do.

There are more and better tools. Dozens of startups are working on better ways to collect data, process it, query it, visualize it.

I recently talked with an entrepreneur who, fresh off of raising a big round of funding, was told by his investors that he needed to make his company more data driven. He wasn’t sure what “more data driven” actually meant, and he told me he wasn’t sure his investors did either.

It sure sounds nice, though — doesn’t it?

Honestly, I don’t know how I’d define “data driven”, and I’m not sure I care enough about the term to really think it through. But I’m pretty sure I know what’s missing.

Very, very few companies know what questions to ask of their data. They have metrics that are beautifully plotted on their real-time data dashboards. They’re calculated in technologically scalable ways, using something that’s much simpler than SQL, and they’re accessible by everyone inside the company.

But more often than not, the metrics are superficial and poorly thought through. They’re not reflective of the health of the product or the business.

I’ve certainly been guilty of this: for months if not years at my last startup, anything other than new user registrations barely mattered to me. For Circle of Moms, getting new users was extremely important, but at times distracted us from more important long-term goals.

And I see this again and again with tech companies. There’s a focus on one or two superficial metrics, rather than a deep understanding of what it will take to build out the broader ecosystem necessary to make the company successful.

I don’t want to be too negative: the understanding of these ecosystems has significantly improved in the decade-plus I’ve been in Silicon Valley. Ten years ago, entrepreneurs building consumer startups barely thought about distribution (if we build a great product, people will come to us!). Five years ago, entrepreneurs (myself included) started to realize that distribution mattered, but rarely took the next step (Facebook is the notable exception). Today, more and more entrepreneurs understand that both distribution and engagement matter, even if they can’t get at all of the underlying components.

Today, a few of the strongest consumer companies — Facebook, LinkedIn, Twitter — have built out growth and data teams that collectively measure and understand the key dynamics.

But there are still huge areas of our society — small non-tech businesses, government at all levels, medicine, academic studies, many startups — where there are lots of data, but not much understanding of what the data actually mean.

And that’s a big problem: I’ve long felt that having bad metrics is often worse than having no metrics at all.

If I were trying to gauge a basketball player’s skill level, my top preference would be to use a well-structured metric incorporating an entire season’s worth of extremely detailed, second-by-second data, looking at his impact on all aspects of the game. My second choice would be a good coach’s purely qualitative assessment of his skill. And my last choice would be a simple stat — say points per game — that was state of the art in 1950.

Today, most businesses are using the equivalents of the coach’s qualitative assessment and points per game to make their decisions. And quite frequently, “data driven” effectively means “we’re using points per game.”

Most of the new “Big Data” companies are focused on the relatively simple stuff: speed of processing data, ease of accessing data, beauty of data presentation. Those are all valuable, but they aren’t enough.

So how will the “bad metric” problem be solved? Certainly with some mix of better data training for everyone, plus tools that automatically discover and surface the important metrics. Both are important and I’m not sure whether training trump technology or technology trumps training.

Either way, if we want these new data to improve our collective decision-making, the good metric-bad metric problem badly needs to be solved.

To Avoid the Perils of Get-Rich-Quick, Work With People Who’ll Play the Game Again (and Again)

Why is it so irritating to be nickel and dimed?

There is of course a financial aspect (you’re trying to take more of my money) and one of expectations (I might have paid $15 if you’d quoted me that, but you told me it was $10 and now you’re asking for $15).

But perhaps more important is the message you’re sending: a few extra bucks on this transaction is more important to you than our relationship.

In an extreme case, that behavior is completely rational (even if dishonest). If you weren’t well off and had limited future opportunities, you’d probably opt to “nickel and dime” Bill Gates for a million bucks.

In most real world cases, it’s a little more dubious.

Prisoner’s Dilemma, Over and Over

Everyone knows about the Prisoner’s Dilemma, in which the rational strategy for both arrested parties is to testify against their partner. This results in a situation where both men wind up worse than if they’d colluded and remained silent.

In this situation, the players only play the game one time, and almost inevitably wind up screwing one another over.

However, the optimal strategy in other variations of the game gets a lot more complex. If rather than just playing once, players play an unknown number of repeated games, a “tit for tat” strategy can be a very good one.

In a tit for tat strategy, a player starts off playing nice. He plays nice in subsequent rounds if his opponent just played nice with him, but he plays mean if his opponent just played mean with him. If both players adopt this strategy, they’ll wind up colluding and they will consistently help one another out.

Playing the Business Game Many Times

Business is usually both more enjoyable and more successful when your co-players expect to play the game repeatedly.

I can try to extract as much value out of you from you as possible for the thing I’m working on right now. That may mean taking your money, driving you to overwork yourself on my behalf, or getting you to do me favors. I’ll probably be better off tomorrow than I would have been, but you won’t trust me and I won’t be as well positioned the next time I play the game.

Or I can work with the expectation that we’ll play the game again: by doing a little more for you and asking a little less, you’ll treat me well in the future and we’ll both wind up better than we otherwise would have.

Oddly, those who likely have the most games in front of them — new professionals just out of school — are generally more likely to act like they’re only playing the game once. When I first started working, I didn’t have the experience of working with the same people at different companies.

Sure, I might have thought, I’m working with that guy now, but could I really have imagined that I would be part of his company or he of mine ten to twenty years down the road? Probably not: I didn’t fully internalize the importance of investing in relationships.

When, later in your career, you’ve had the experience of working with one person two or three times, you see the pattern. You realize that for any of your colleagues, this may not be the last time you work together.

LinkedIn is, at its core, an embodiment of the importance of ongoing professional relationships. Keith Rabois recently mentioned that an amazing five of LinkedIn’s first twenty-seven people (Keith, Lee Hower, Reid Hoffman, Josh Elman, and Matt Cohler) are partners at VC firms; in large part, that’s because each plays the game collaboratively, with the expectation that there will be many future iterations. Keith, Lee, Reid, Josh, and Matt are all in it for the long term.

It’s very easy to adopt a mentality that prioritizes the thing that’s in front of you. In business, that often manifests itself as a get rich quick scheme.

If your goal is success right now (screw the future), you can spend time with the nickel-and-dime, get-rich-quick types. If you’re interested in the longer term, I suggest working with people like Keith, Lee, Reid, Josh, and Matt.