Marc Andreessen on Big Breakthrough Ideas and Courageous Entrepreneurs

Notes from the Video

 

I. In 2014 @pmarca started tweeting his wisdom in short bursts of 140 characters (or more). Good news, the @a16z GP does interviews as well…

II. Most recently @Stanford with the GSB’s @andredehaes interviewing. A Must Watch video. 55m of incredible insights!

III. If you don’t have the time, @Nivo0o0 took notes. @pmarca‘s talk from 3/8/14 is the latest DataFox Video Notes!

Outline:

  1. Tech is not in a bubble. We’re in the deployment phase of the web.
  2. MBAs going into tech IS a sign of a bubble… But companies are built differently now, and MBAs have a key role to play.
  3. The story of how the great tech companies have been built falls into 3 phases: really extreme characters —> professionals —> Zuckerbergs.
  4. MBA models that work: (1) Mark Zuckerberg/Sheryl Sandberg Model (2) Bill Campbell/Scott Cook Model (the @dickc model).
  5. How would you build a VC firm optimized for the technical founder? See: a16z.com
  6. Founders must have the right combination of Genius Courage. cc @pmarca + @bhorowitz
  7. The relationship? Internally they’re “like the old married couple” but for @a16z branding purposes: Marc is Beyonce, Ben is Kelly Rowland.
  8. @a16z is is looking for the big breakthrough. Ideas that are unpredictable and seem crazy at first. (Black Swans) cc @nntaleb
  9. The smartphone is the first computer that can get to everybody on the planet. Improved standard of living when everybody’s connected…
  10. Right now only 1/3 of the world has internet access. Some thoughts on Internet.org and Project Loon.
  11. The news industry will grow 10X-100X over the next 20 years, shift from monopolies/oligopolies –> competition.

“We’re Not in a Tech Bubble”

play  Jump to 1:00 in the video.

  • We are not in a bubble! We’re in the mature deployment phase of the web.

  • There was a bubble from 1998 to 2000 that ended with a very profound crash, followed by years of pain and a very slow recovery.

  • Was deeply traumatizing for people, “an abject lesson in the psychology of bubbles and markets.”

  • People are much more highly sensitized to bubbles right after a bubble (follows a historical pattern).

  • Carlota Perez is the best thinker on this topic (author of Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages).

  • Along with Clayton Christensen’s The Innovator’s Dilemma, these two book are really critical to understanding how the tech industry works.

 “First the new technology is not taken seriously at all. Then it’s taken way too seriously way too quickly – everybody gets too excited. Then there’s a gigantic catastrophe; and only then stuff actually starts happening.” (@pmarca speaking at the GS Conference)

What all the bubble talk in the last 10 years has been about:

The interviewer pointed out Marc’s earlier views about MBAs flocking into the tech sector being a sign of a bubble. So, could this perhaps be a sign of a bubble?

Marc’s response: “Things are heating up.”

Historically, there has been a direct correlation between P/E multiples and MBAs going into the tech industry, but Marc thinks that something different is actually happening. The way companies are being built changed in the last ten years and MBAs – and business people in general – turn out to be very central to it, in a way that is different than the past.

Marc groups the story of how the great technology companies have been built into three distinct phases:

1st Phase (1940s – 1980s)

Building a technology company before the 1980s was an “unbelievably exceptional thing to do.”  It was incredibly difficult and only the really extreme characters were able to do it.

  • Thomas Watson (Chairman and CEO of IBM): “He makes all of today’s entrepreneur’s look like cream puffs.”

  • David Packard (President and CEO of HP):  “When David Packard was running HP he had two nicknames: “Pappy” (the paternalistic type) and his other nickname was “The Mean One” – and similarly to Watson – he would just tear people apart.”

  • Ross Perot (Founder of EDS) is Marc’s favorite example. Ross Perot built the first great outsourcing company (EDS was one of the big tech successes of the 60s). He was fantastic as a business builder, but when he came in contact with the American public… People were surprised (paraphrasing). Perot is perhaps best known for being a presidential candidate in 1992 and 1996.

                

VCs from that era had to be extreme characters as well…

2nd Phase (1980s – 1990s)

In the 80s and 90s investors and tech entrepreneurs professionalized. VCs were business people/investors first, but did not have experience running their own company (even the great ones like John Doerr, Mike Moritz, Jim Breyer). Since everybody knew that founders could not possibly run their company… The default model was to “promote” or fire the founder to the chairman or CTO role and get a professional CEO in as fast as possible.

  • Technology companies were like shells – not too interested in the technology.

  • Companies were racing to go public as fast as possible.

  • Catchphrases like “forget details just do deals” were common.

  • At the height of the bubble the products being built were simply not very good.

  • Engineers hated working for those companies because they were mercenary and completely sales-driven.

3rd Phase (2004 – present)

The way companies are being built changed in the last ten years – the pendulum has swung all the way in the other direction! Design, product, and most importantly, the technical founder/CEO is now central to the modern day technology company. Mark Zuckerberg the apotheosis of that.

Marc believes that since a lot of the entrepreneurs today are engineers and not business people, the actual art of building a business may have been lost. Particularly the art of sales and marketing. Founders today are very technical, very product centric, and they are building great technology; but one of the big issues they’ve seen at Andreessen Horowitz is that many of them just don’t have a clue about sales & marketing, “it’s almost like they have an aversion to learning about it.” The challenge for these companies is knowing how to integrate top-end business and operational thinking to their products. Unlike the Dot-Com Bubble, the technology today is incredible advanced and the products are fantastic, so there’s a big opportunity over the next five years to fit the tech/business pieces together.

MBAs: Two Models That Work

play  Jump to 9:27 in the video.

The Mark Zuckerberg/Sheryl Sandberg Model

Pairing a very high-powered business person with deep capabilities in sales, marketing, and operations, who is able to partner as a No. 2 (president or COO) with a technical founder/CEO when you have somebody like a Mark Zuckerberg. This past decade a lot of the top-end business leaders in Silicon Valley have figured this out, and like Sheryl Sandberg, have come in as No. 2, where before they would have taken the CEO role. The most recent example is Dennis Woodside (former Google exec/CEO of Motorola Mobility) becoming Drew Houston’s No. 2 as COO of Dropbox. Everybody needs a Sheryl…

I work with Sheryl at Facebook and tease her all the time that she’s lost control over her own name, it’s now become a proper noun!

The Bill Campbell/Scott Cook Model (Dick Costolo Model)

If the company doesn’t have a founder that is capable of being the CEO or who wants to be the CEO then it can work to bring in a “professional CEO” who really understands the role of founders and the importance of product/technology strategies. For example, Bill Campbell  may not be a technologist, but he’s an outstanding operator of businesses and has profoundly deep respect for founders. In the 90s, professional CEOs tended to view founders as inexperienced kids. Bill Campbell’s partnership with Scott Cook worked so well at Intuit because it was just that: a partnership.

“For MBAs going into the tech industry, the key question is what kind of partnership are you going to have with the technical visionary, who will often be the technical founder. If you can crack that code there is an enormous opportunity to have 1+1=3.”

In the early days of Twitter the founders did not want to be and/or were not capable of being CEO. Some Things a little Bird Told Me

A _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 16 Z

play  Jump to 12:29 in the video.

 “How would you build the venture capital firm optimized for a technical founder who wants to be a CEO?”

1. Operating Experience

  • General partners at A16Z must have operating experience running a company.

  • “You get somebody on the board who has been through the war and really understands what things are like.”

  • Technical founders have typically never run a company before. Some have never managed people before. At times they have never even held a job before! So when they become CEO of their own company… It shines a very bright light on the background and caliber of the GP that joins their board.

2. Professional CEO Network

  • Seasoned executives in Silicon Valley have an enormous network at their disposal that younger founders do not and cannot be expected to have.

  • Andreessen Horowitz’s venture capital model reconstructs that network on behalf of their portfolio companies.

  • The firm has over 60 full-time professionals organized across 5 operating teams organized around the different areas of the network.

  • The firm is organized around the following teams: investing, market development, technical talent, executive talent, marketing, corporate development, operations, special advisors, and board partners.

“Lets reconstruct the network where we can take technical founders and inject them straight into the network and give them the superpowers of a network that is comparable to what a John Chambers might have.”

Founder Traits: Genius and Courage

play  Jump to 16:32 in the video.

A numbers game

  • 4,000 tech startups are founded each year that want to raise venture capital – A16Z can invest in 20.

  • “Our day jobs is crushing entrepreneurs hopes and dreams.” They say no all day; might as well be good at it.

  • A16Z sees 3,000 opportunities per year, narrowed down to a few hundred that are taken more seriously.

  • Fairly easy to tell if a team/company will get funded by a top VC (approximately 200 per year).

  • 95% of all the economic returns are generated by about 15 of those 200 companies.

  • Getting funded by a top VC is not complete validation… Even the best firms write off about half their deals.

“The thing that all the top venture firms have in common is that they did not invest in most of the great successful technology companies.”

The Right Combination of Genius and Courage

  • Surface level characteristics: huge market, differentiated technology, incredible founders/team.

  • VCs spend a lot of time talking about markets and technology but 90% of the decision comes down to people.

  • Andreessen Horowitz focuses on two key founder traits: genius and courage.

  • Courage means not giving up in the face of adversity and being absolutely determined to succeed.

  • They talk a lot about courage because it’s the trait that people can learn.

  • It may be hard… But you can force yourself to do it (can’t force yourself to be a genius).

“Courage without genius might not get you where you need to go, but genius without courage almost certainly won’t.”

Failure

  • Silicon Valley has a failure fetish: failure is good, failure is a wonderful thing, failure teaches you all this stuff, it’s great to fail a lot…

  • Andreessen Horowitz doesn’t believe any of that, think it’s complete nonsense.

  • “We are strongly biased towards people who are so determined to succeed that they never give up and never quit.”

  • Must be fundamentally deep in someone’s character – not the kind of thing that’s listed on a resume.

“We think failure sucks. Failure is a terribly depressing thing to go through. We think success on the other hand is wonderful.”

Relationship Between Marc & Ben

play  Jump to 22:55 in the video.

  • People describe them as “the old married couple sitting at the opposite ends of the bench.”

  • For A16Z marketing purposes: “Marc is Beyoncé, Ben is Kelly Rowland,” (6:10)

  • A very deep level of trust between them (partners since 1995).

  • May constantly argue about everything; but they always know they have each other’s best interest.

  • Marc is more abstract and thinks of product/strategy — ”what should we do?”

  • Ben is a better operator and focuses on running the business — “what are we capable of doing?”

How VCs Think about Products and Markets

play  Jump to 31:58 in the video.

A Top-Down Approach

  • Some VC firms are very explicit about how they think about markets/technologies (Sequoia, Accel, Bessemer, Kleiner).

  • Annual planning process at the beginning of each year and draw a value-chain map of what markets will look like (i.e. Networking –> fiber optics –> communication chips –> routers –> ISPs).

  • One box for each product category, and the goal for the year is to put a name in each box (VC can only invest in one company per category).

A16Z Approach: Big Breakthrough Ideas (Black Swans)

  • A16Z’s approach is most similar to the Benchmark/Arthur Rock approach.
  • “The entire art of venture capital in our view is the big breakthrough for ideas.” (Black Swans)

  • The breakthrough ideas are unpredictable, and at first often seem nuts.

  • If an idea seems nuts it can be a very positive signal (1) explains why it hasn’t already been done (2) if it works those companies can become “gigantically huge” (mainstream adoption).

  • Most of the big breakthrough technologies/companies seem crazy at first: PCs, the internet, Bitcoin, Airbnb, Uber, 140 characters.

  • As a VC you always have to be prepared for the big breakthrough ideas (despite their unpredictably) by learning as much as you can about as many thing as you can.

  • The key is to let the really smart entrepreneurs teach you without dismissing their idea – if it has already been tried many times beforehand.

“Enter as close as you can to a zen-like blank slate of perfect humility at the beginning of the meeting.”

Best/Worst Pitch Meetings

play  Jump to 35:48 in the video.

Worst Pitch Meetings

Best Pitch Meetings

  • Most exciting pitch meetings are when the really bright founders that have done a tremendous amount of work and completely understand the domain walk them through their idea maze.

  • The best founders have usually been working on their idea for years and can articulate how they went from the initial crazy starting point to a concept that can actually work in the world.

  • Venture capital theory says that VCs should back “coachable entrepreneurs.”

  • The entrepreneurs with the really radical ideas are generally not only not coachable, but they react with hostility to being coached!

Andreessen Horowitz partners often suggest to the entrepreneur who is pitching a new way for doing their startup – as a test – that agreeable entrepreneurs fail. The best founders have been thinking about their idea for so long and have such a clear vision for what they want to create that they usually react with hostility towards the VC for even thinking that they can offer them a suggestion after only being exposed to the concept for a few minutes. They way entrepreneurs react to the feedback can be very revealing when trying to find out if they have the right combination of genius and courage.

“Part of it is the words, but in particular it’s the look on their face. We love that look. It’s like caviar.”

The Look:

“We Love Those!”

What matters to you most today and why?

play  Jump to 39:23 in the video.

  • “We are really deep believers in the power of technology. We think that the technology industry has made the world a radically better place in the last 70 years and we think it will make the world a radically better place yet in the next 30 years. It’s just starting.”

  • “I feel like I have spent my entire career, and previous generations of entrepreneurs have spent their careers, getting to the point where we can do the things that we can do. It’s an amazing time in terms of what we can do.”

  • After 70 years in the computer industry we’re just now reaching the point where we can apply technology to a lot of fundamental problems and opportunities around the world.

  • The smartphone is the first computer that can get to everybody on the planet (mostly lower-end devices running Android).

  • The limiting factor is: internet access.

Internet.org is a partnership between Facebook, Samsung, Ericsson, Nokia, and others to provide users with free basic text based services like messaging, Wikipedia – and naturally – Facebook. The goal is to connect everybody on the planet by reducing the cost barrier for internet access. This requires new business models that enable low-cost access, and new ways to optimize/reduce bandwidth consumption must also be developed. Peter Gregory’s bidding war with “Google” is making a whole lot of sense now…

Meanwhile… Hooli is taking a slightly different approach. Project Loon aims to extend internet access to remote areas across the developing world by sending large balloons around the globe – in 22 days – as recently announced on Hooli+.

The News Industry

play  Jump to 41:07 in the video.

  • Marc is very interested in the news business because he’s a huge consumer of it.
  • Also because as the inventor of the Mosaic web browser… Marc gets blamed for the decline and fall of journalism (popularizing the World Wide Web).

  • “Everybody knows the internet completely destroyed the news business.”
  • Marc is one of the few people that looks at the news business as an actual business.

  • The news industry is undergoing a major restructuring from monopolies/oligopolies towards monopolistic competition.

  • For non Economics majors, perhaps an illustration will clarify:

Perhaps not. The point is…

  • Today we look at objectivity as this pure concept that has to maintained.

  • “Objectivity is an artifact of an era in which news businesses were monopolies or oligopolies.”

  • Pre-World War II subjectivity was the dominant model in the news business.

  • Everyone had a their own point of view and you had to be prepared to defend your opinion.

  • Objective news coverage was necessary to ward off antitrust allegations – but ultimately reporters embraced it – so it stuck.

Now that everyone is on the internet… 3 things are happening simultaneously:

  • In the monopoly and oligopoly dominated news industry there was:

    • 1 major newspaper per metro area (because of the cost of distribution).

    • 3 national TV networks (because of the limited bandwidth VHF TV).

    • A handful of magazines (limited space on newsstands).

    • A couple of local radio stations.

  • The internet works a little differently.

    • Now there are million of voices! (soon to be billions)
    • Industries collide on the internet, different media platforms are all competing with each other. (newspaper, magazine, TV, radio)

    • The rise of new online media and communication platforms: blogs, podcasts, micro blogs, social journalism. (see: Evan Williams)

  • The news business should be run like a business.

    • There is huge opportunity for market growth for companies that are able to and are willing to compete.

    • Executives in the news industry don’t know how to compete because they didn’t grow up in a competitive market.
    • “Healthy business, healthy journalism. You have to get to the healthy business before you get to the healthy journalism.”

    • Very smart entrepreneurs entering the space with new points of view (Jonah Peretti @BuzzFeed / Sarah Lacy @PandoDaily).

  • A gigantic expansion of the addressable market!

    • Increasing volume is more important than slumping prices.

    • There’s a big opportunity  to increase market size 100X and drop prices 10X.

    • Price reduction is a function of internet-related efficiencies.

    • Market size increase is a function of the developing world connecting to the internet.

If you extrapolate from the number of smartphones globally, the total addressable market for news by 2020 is around 5 billion people worldwide.

Conclusion

A Venture Capitalist may contemplate spending more time tweeting and less time blogging, but in the digital age: tweets last a week; blogs last a lifetime (or as long as WordPress is around). Given the absence of a properly functioning “Bing for Tweets” (Google is a bit preoccupied) some permanence must be added to Marc Andreessen’s insights. We hope that this was a good start.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>