A friend suggested that I read the Five Dysfunctions of a Team over the weekend. Though I’m passionate about business books, I rolled my eyes. I had seen this one on best seller lists for a long time, and never thought it would have much to offer. I admit my book-cover bias was wrong. The author has a counterintuitive assertion. Meetings shouldn’t be boring.
“Evidence from science suggests that business people must be insane to use brainstorming groups.” That’s a shocking statement. Adrian Furnham, a professor of organizational and applied psychology at University College London, said it. It turns out it’s completely true.
Participants in interactive brainstorming groups rated their performance quite favorably…[and] felt that interactive group brainstorming was more productive than individual brainstorming…However, actual performance data [showed] …interactive groups generated fewer distinct ideas.
How quickly do the fastest growing software companies build their teams? The answer is incredibly quickly. In fact, this data bolsters the notion that management team’s top priority is recruiting, especially after the business has reached product market fit and capitalized itself well.
Above, I’ve charted the headcount growth rate for 10 of the fastest growing software companies in recent history. I’ve normalized the years for when all the businesses were roughly at the same headcount - fewer than 50 people. This is a proxy for when the business established product market fit.
There’s a parallel between cryptoassets today and the British colonial period predating the US. In the late-1600s, colonies began to print their own money. Today, we’re seeing many startups coin their own money, creating an explosion in the number of new (crypto)currencies.
States printed colonial money to pay debts to citizens. During tax collection times, the state accepted citizens’ bills as payment and retired the bills from circulation. Citizens would pay each other with these bills. They could also exchange them across state lines, but not at 1:1. Each state’s bills had a different exchange rate.
I’m grateful for all the entrepreneurs who have spent time teaching me how to build their companies. Over these past few days, I have been reading the book Antifragile written by Nassim Taleb. In the book, he writes about many provocative things, but the one that sticks out with me this holiday is about innovation, and it harkens back to the original title of this blog that I started to write nearly 7 years ago: ex post facto.
In the eleventh episode of Masters of Scale, Reid Hoffman interviews Peter Thiel. The episode revolves around the idea that to truly succeed, a startup must not beat the competition, but break free of competition entirely. The episode has many great points, but the one that stood out most to me is the idea of false competition.
You could say that Coke and Pepsi compete very intensely, on the other hand you could say that there’s somehow quite differentiated from a brand so that in practice different people prefer Coke or prefer Pepsi and they’re actually is a much smaller set of people who view them as interchangeable products. And so, I think measuring how much actual competition is happening is not always a straightforward thing to do. transcript
Disagree and commit. I first read about this idea in the 2016 Amazon Shareholders letter. But the idea can be traced back to Andy Grove at Intel. Grove wrote about this topic in High Output Management. Disagree and commit is a management technique for handling conflict. There are two parts to it. First, expecting and demanding teammates to voice their disgreement. Second, no matter their point of view, once a decision has been made, everyone commits to its success.
Founders often describe their unit economics in terms of their LTV/CAC ratio - the ratio of the Lifetime Value (LTV) of a customer to the Cost of Customer Acquisition (CAC). The LTV/CAC metric can be a powerful metric to unpack the health of the go-to-market team of a company, as Netsuite has shown. But this figure is often meaningless for early stage startups.
Why? Because a company one or two or even three years into sales can’t yet accurately forecast customer lifetimes. If a business suffers from a very high churn rate, then, yes, it’s possible to calculate LTV in just a few years.
The startup acquisition market is off by roughly 35% year-over-year. Why the decline? One consistent response from potential acquirers is that they are waiting for tax reform to happen. If it does happen, and when acquirers do decide to pursue acquisitions, I suspect we will enter a very acquisitive environment for three reasons.
First, the cash available to finance acquisitions on the balance sheets of public companies has grown by 20 X over the last 10 years and now totals more than $8.5 billion.
Initial Coin Offerings, a fundraising mechanism for companies using cryptocurrencies as a mechanism to buy their service, seem to be upending the world of venture capital. Filecoin raised $250M through an ICO. Tezos raised $232M. Bancor raised $153M. These are massive amounts of money. Recently, I’ve been wondering how prevalent ICOs are and whether they could potentially be a substitute for venture capital.