A Dozen Lessons for Entrepreneurs, by Tren Griffin (introduction)

FOREWO R D BY SCOT T B E LSK Y

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DOZEN LESSONS ENTREPRENEURS FO R

TREN GRIFFIN

Introduction

this book is about entrepreneurship. The delivery mechanism for the ideas presented here is the insights of some of the most successful venture capitalists and coaches of business founders in the world.

The venture capital industry has created more new industries, as well as significantly greater wealth, than any other approach to business formation in the history of capitalism. The founder coaches and individual venture capitalists discussed here have been major facilitators of that value creation and, in the process, have obtained immeasurable insights and timeless wisdom that can be shared with any (and every) entrepreneur.

The raw material for the book are interviews I have conducted and read over the past four years with a group of incredibly talented individuals who have seen more highly successful businesses launched than any other single group on the planet. It is possible to learn from both their successes and failures. If one presumes that experience equates to wisdom when processed by people who

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Introduction

have excellent judgment and above-average intellects, then this book could be retitled “Wisdom for Entrepreneurs.”

One attribute that the individuals featured in this book share is that they are natural teachers. While the featured individuals are each unique, they do tend to share certain bedrock methods of approaching business. They are presented alphabetically.

Why the separate category of founder coaches? First, the people who coach founders deserve a unique category. A founder coach helps entrepreneurs develop as individuals, managers, and leaders.

The coach mentors the founder by asking the right questions and giving advice. Many of the best venture capitalists are founder coaches, but not all founder coaches are venture capitalists. One of the venture capitalists profiled in this book said about one of the greatest founder coaches, “I know Bill Campbell wouldn’t want to be called a venture capitalist. He always used to tell me he wasn’t one. He said ‘You make the investment decisions. I just want to work with the entrepreneurs.’” Second, by having a short, upfront section on founder coaches, the book naturally begins with an introduction to the process of helping entrepreneurs.

Six of the thirty-five people profiled in this book are women, which is more than double the industry average on a percentage basis at a senior investing level. The number of women venture capitalists at this senior level is low despite the fact that women represent 60 percent of noninvesting roles at venture firms. I am hopeful that diversity—and more importantly inclusion of all kinds—will rise in the venture capital business. Studies have shown that a diverse team produces better business and investing outcomes—diversity allows you to see more ideas, include more perspectives, and consider more products for broader consumer bases. Scott Belsky, who wrote the insightful foreword, believes, as I do, that diversity produces better outcomes: Diversity of opinions and circumstances increases the likelihood of ‘happy accidents.’ Serendipity comes from differences.

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Introduction

Both entrepreneurs and investors must build teams that increase the odds of working at the edge of reason. The solution in one word: diversity. Diversity means different personalities, genders, backgrounds, educations, experiences, nationalities/ethnicities, etc. Diversity shouldn’t be a biological checkbox since it is more nuanced than that. The best way to increase the odds that your team will see things you don’t is to assemble incredibly different incredible people.

As this book was nearing final production, news broke that prominent venture capitalists were being accused of sexual harassment. This news is clear evidence that significant new efforts are needed to create a more open, transparent and welcome environment where founders and other startup employees of all genders, ethnicity, nationalities and sexual preferences can thrive.

The book includes a glossary and a concept map, which will help readers understand the principles shared by these founder coaches and venture capitalists. If you encounter an unfamiliar term in this book, such as “power-law distribution,” you can refer to the glossary for a definition and then refer to the concept map to see which of the individuals reference that term. I have found that by understanding the views of several venture capitalists on a particular issue, it is possible to see whether they adopt consistent or diverse approaches and to identify patterns that can be applied to pursue similar success.

It is wise to pay careful attention when a significant number of founder coaches and venture capitalists advocate the same idea.

Three concepts appear often enough in the book that they should be defined up front. The first of these concepts is “convexity,” which Jeff Bezos describes using the following baseball analogy: Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a 10 percent chance of a one hundred–times payoff, you should 3

Introduction

take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution.

When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs.

This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.

For those of you who may be unfamiliar with baseball, a home run is a hit of the ball that enables the batter to cross all four bases and score a run. The second key concept, which also comes from baseball, is the grand slam, which refers to a home run hit when all three bases are occupied by other base runners (a situation referred to as “bases loaded”), thereby scoring four runs with just one hit. A grand-slam outcome in venture capital may deliver one hundred to one thousand runs instead of just four as is in baseball. A grand slam in venture capital refers to an investment that produces a distributed spendable (liquid) return of one or more times the size of an entire venture capital fund.

For example, for a firm with a $400 million fund, an investing grand slam would be a single investment that generates a return of more than $400 million. A grand slam is different from what some people call a unicorn in that a valuation is often not enough since the outcome must produce a distributed return of liquid assets to investors.

The third concept is the importance of having a “contrarian” outlook. The best venture capital investors believe that the most effective way to find convexity in their businesses is to adopt a perspective that goes against the views of most other market participants. This belief is true of all investing, not just venture capital. The hedge fund investor Ray Dalio puts it this way: 4

Introduction

You have to be an independent thinker because you can’t make money agreeing with the consensus view, which is already embedded in the price. Whenever you’re betting against the consensus, there’s a significant probability you’re going to be wrong, so you have to be humble.

The investors profiled in this book believe that the best place to find convexity is where other investors and business founders are not looking. The first person I heard refer to the concept of a contrarian outlook in the venture capital business was Andy Rachleff, who has said he borrowed it from the famous investor Howard Marks. According to Marks, “The problem is that extraordinary performance comes only from correct nonconsensus forecasts, but nonconsensus forecasts are hard to make, hard to make correctly, and hard to act on.” Airbnb is a classic example of founders thinking differently. Marc Andreessen said once that the conventional wisdom about Airbnb was “people staying in each other’s houses without there being a lot of ax murders?” The book will go much more deeply into how to apply this contrarian outlook.

The famous investor Sam Zell once described the relationship among convexity, grand slams, and a contrarian approach to investing in this simple way: “Listen, business is easy. If you’ve got a low downside and a big upside, you do it. If you’ve got a big downside and a small upside, you run away. The only time you have any work to do is when you have a big downside and a big upside.”

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from the foreword by SCOTT BELSKY

“ the cost of starting a

company has collapsed . more experiments are being run . ” naval ravikant

Tren Griffin works at Microsoft. He writes

the www.25iq.com blog and is active on Twitter (@TrenGriffin). He was formerly a partner at Eagle River, a private equity firm controlled by Craig McCaw with investments in telecommunications and startups. From 1999 to 2001 he was vice president

“more startups die of indigestion than starvation.”

b i l l gurley

broadband satellite communications startup, which raised over a billion dollars at a valuation of more than $3 billion. Griffin previously worked as a consultant in Australia and Korea. He is the author of six other books, including Charlie Munger: The

Complete Investor (Columbia, 2015).

marginal improvements are rarely decisive . ” reid hoffman

“our motto is to make something that people want. if you create something and no one uses it, you’re dead.”

“ most of the big breakthrough technologies / companies seem crazy at first . it has to be a radical product . ”

“instead of starting with the market and then finding the product, the really big winners start with a product and find a market.”

j e s s i ca l i v i n g sto n

marc andreessen

andy rachleff

of strategy at XO Communications. In 1994, Griffin was the fourth person to join Teledesic, a global

“ people underestimate how much of an edge you need .

“if everyone loves your idea, i might be worried that it’s not forward thinking enough.”

“ believe me ; selling is honorable work — particularly in a startup , where it ’ s the difference between life and death . ”

kirsten green

c h ris dixon

john doerr

“nobody is born knowing how to be a ceo. it’s a learned skill, and unfortunately, you learn it on the job.”

“ every business plan is wrong .

the moment an entrepreneur hits ‘ save ’ or ‘ print ’ the plan is out of date . things change . ”

b e n h o row i t z

josh kopelman

“ now that people are

bombarded with information , we are in a golden age where brands matter .”

“startup building is hard. there is no manual for it.”

A DOZEN LESSONS FOR ENTREPRENEURS

“ tren griffin captures invaluable wisdom on entrepreneurship from every angle . ”

$24.95

GRIFFIN

FOR EWORD BY SCOT T B E LSK Y

A

DOZEN LESSONS ENTREPRENEURS FO R

Dozen Lessons for Entrepreneurs shows how the insights of leading venture capitalists can teach readers to create a unique approach to building a successful business.

Through profiles and interviews of figures such as Bill Gurley of Benchmark Capital, Marc Andreesen and Ben Horowitz of Andreesen Horowitz, and Jenny Lee of GGV Capital, Tren Griffin draws out the fundamental lessons from their ideas and experiences. Entrepreneurs should learn from past successes but also be prepared to break new ground. While there are best practices, there is no single recipe they should follow. By better understanding the views and experiences of a wide range of successful venture capitalists and entrepreneurs, readers can discern which of many possible paths will lead to success.

With insight and verve, Griffin argues that innovation and best practices are discovered by the experimentation of entrepreneurs as they establish the evolutionary fitness of their business. The products and services created through this experimentation that have greater fitness survive, and less-fit products and services die. Entrepreneurs have always experimented when creating or altering a business. What is different today is the existence of modern tools and systems that allow experiments to be conducted more cheaply and rapidly than ever before. Griffin shows that listening to what the

ann winblad

best venture capitalists have to say is invaluable for entrepreneurs. Their experiences, if studied carefully, teach bedrock methods and guiding

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cup.columbia.edu Jacket design: fifth letter

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principles for approaching business.

TREN GRIFFIN