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Ver 1.10 the venture capital ecosystem feb 2015

Venture Capital topics and Business Complexity

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Ver 1.10 the venture capital ecosystem feb 2015

  1. 1. Venture Capital Variables in an Art & Science of extreme complexity Ideas provocateur: Andrew J. Waitman, CEO www.AssentCompliance.com 01 02 03 04 05 06 07 08 09 10 2015 – Insights to Action CONFIDENTIAL 2015 ©
  2. 2. My Past Attention… SW Engineer 5 Years I-Banking/ Analyst 4 Years Managing Partner 12 Years CEO 6 Years
  3. 3. My Current Attention… 2nd Largest Investor Co-Founder Board Member FIDUS Systems Largest Investor CEO Board Member ASSENT COMPLIANCE Largest Investor Co-Founder Board Member Nectar Flowers 2nd Largest Investor Board Member Andrew Waitman
  4. 4. 4 CEO of Assent Compliance
  5. 5. 5 http://www.nectarflowers.com/
  6. 6. 6 http://www.nectarflowers.com/
  7. 7. 7
  8. 8. Reading Ideas © 2013 Andrew Waitman 8
  9. 9. Reading Ideas © 2015 Andrew Waitman 9
  10. 10. 10
  11. 11. Complexity Complexity in business can best be explained by analogy. The game of Chess has 64 squares, 16 Pieces and a relatively simple set of rules that a child can understand. Yet it is a game that remains interesting to Chess Masters following a thousand years of playing. Even now, following man’s defeat to IBM's computer Big Blue, Chess remains a popular game. Why? Because there are branches of exploration in end-game Chess that have yet to be fully explored by Master Chess players. In fact there are approximately 10 to the exponent 43 possible number of Chess positions after the first move, according to Wikipedia. The game of Chess illustrates the combinatorial explosion that can occur even with a relatively tightly constrained system of Chess Pieces and Chess Rules. Business on the other hand has an infinite number of squares/ moves, a constantly evolving set of rules and far more than two players in a competitive dance for success, profits and dominance. Business success is truly a frighteningly unconstrained complex game in a chaotic cauldron-- called a global economy--in which a myriad of micro-decisions, random events and macro-economic forces co-mingle into a devilishly difficult decision mosaic. As a result, applying the wisdom of the recorded past does not assure success in a future mosaic. Complexity complicates causality. 11
  12. 12. Historic insights are helpful but insufficient CONTEXT MATTERS 12
  13. 13. 1. Hyper CONNECTED What does this mean? •  Knowledge spreads rapidly •  “Network Effects” everywhere •  Easy to find people, skills, knowledge •  Digitial Distribution simple •  Your one click, call, email, IM, Tweet, Facebook wall away from several billion people What does this mean to you? •  Plethora of new businesses opportunities •  Web 2.0 has barely begun •  Social networking is a powerful force • Market size measured in billions • Cost of customer acquisition both higher and lower
  14. 14. What does this mean? •  The narcissistic generation •  Everything is public •  Social “Proof” Matters •  Facebook - Personal •  LinkedIn - Professional •  Everyone is Blogging, Tweeting •  Everyone is rating everyone •  Everyone knows everything •  REPUTATION MATTERS What does this mean to you? •  Be careful about your own brand •  Business opportunities in personal brand management •  Brand “cleaning” businesses •  On-line fame & notoriety : Susan Boyle •  Social Profile Matters 2. Hyper SOCIAL
  15. 15. What does this mean? • “All” information available to Everyone-nearly •  Competitors are 1 click from your ‘recipe’ •  Great ideas spread rapidly •  Everyone knows what everyone else is doing, saying, •  Everyone is consumer and competition •  Commoditization of ideas •  Google/Facebook/Apple have insights What does this mean to you? •  Opportunities in search ecosystem (SEO, SEM, etc) •  This search arms race will continue indefinitely as speed to relevance is highly valuable •  Researching, “surveying” for any business opportunity is cost effective •  Distribution “awareness” building can be cost effective •  Finding information is easy, using/apply requires context understanding 3. Hyper SEARCHED
  16. 16. What does this mean? •  Mobile Devices always on •  Email, Twitter, Facebook, Pinterest, Youtube •  Difficult to gain/keep people’s attention •  Messages need to be short •  Digital noise. Fractured audiences. •  Everyone is not paying attention to you… particularly your target audience! What does this mean to you? •  Cost of Customer/Client acquisition going up •  Harder to find new attention space from segments •  The dominant mediums become the critical channels to customers •  Counter digital noise strategies may work for business 4. Hyper DISTRACTED
  17. 17. What does this mean? •  Winner take all due to network effects •  Scale matters •  Strategy more critical than ever •  Rapid competitive responses •  Unregulated (consumer) markets more open •  Fast cloning/followers is very common What does this mean to you? •  Do not underestimate resources/scale to succeed •  Cost of customer acquisition is increasing •  Focus on new market spaces created by technology opportunity •  Stay below radar as long as possible 5. Hyper COMPETITIVE
  18. 18. What does this mean? •  Global Economic issues •  Climate Change / Global Warming •  Security Threats / ISIS •  Global Markets •  7x24 always-on global competition •  Good ideas rapidly replicated What does this mean to you? •  Competition from everywhere •  Market opportunity is global •  Focus matters •  Risk taking is necessary •  Regional implementations of great Silicon Valley business models 6. Hyper GLOBAL
  19. 19. What does this mean? •  The rest wants the “WEST” stuff •  Consumerism growing world wide •  Purchasing stuff is happiness/success •  Confusing choices •  China makes everything including knock-offs What does this mean to you? •  Simplification business opportunities •  Find new trends, segments and shifting fashion/tastes •  Market bi-furcating into High End & Low End • Race to the bottom of price eg. Dollar store • Race to the high end for luxury goods for the 1% 7. Hyper CONSUMERISM
  20. 20. What does this mean? •  Nothing works easily •  Things break for no reason •  Need a PhD to operate things •  Contributes to anxiety •  Can’t understand why things happen •  Generational and cultural divide between the tech saavy and the less so What does this mean to you? •  Your kids are smarter than you •  Continuous education is a business opportunity •  Outsourcing complexity is growing trend •  Grid or utility computing •  Software as a Service •  Service as a Service 8. Hyper COMPLEXITY
  21. 21. What does this mean? •  Low & medium cost regions provide labor •  oDESK, Mechanical Turk •  Labour highly commoditized •  Automation & Manual engagement for Efficiency •  Lowest cost supplier •  Low to no wage inflation •  The loss of well paying middle class jobs in the rich world What does this mean to you? •  Constant learning, adapting •  Learning and Training for new skills •  To compete you must leverage 9. Hyper Labour Efficiency
  22. 22. 9. Hyper Labour Efficiency •  Amazon vs Walmart •  Netflix vs Blockbuster •  Instagram vs Kodak •  Tesla vs GM •  WhatsApp vs Nortel •  Gravity vs Braveheart
  23. 23. What does this mean? •  Winner take all economic dynamics •  1% get richer and richer •  Capital dominates labour for returns •  Battle of the Giants •  Market Power Concentrated What does this mean to you? •  Avoid them or Sell-out to them •  What will they buy next? •  They are your channel •  Watch what they are and are not doing and why 10. Hyper WINNERS
  24. 24. Venture Investing is Both an Art and a Science 24 $
  25. 25. Venture Capital •  Venture capital is an outlier business •  Often called Black Swans •  Paradox of Business •  Paradox of Venture Capital •  Its not an industry – Marc Andreessen The "venture capital industry" does not exist, says serial entrepreneur Marc Andreessen. Rather, the landscape is a loosely-affiliated network of over 600 investment organizations, with only about 30 firms performing well and returning profit overall. In parallel, there is a rise in seed funding for new ventures and a rise in latter-stage investing for established companies as well. http://www.youtube.com/watch?v=8C8cw4MR3LY •  Angels and Super Angels changing the Valley
  26. 26. United States Census Data 2011 SOURCE:  2011  County  Business  Pa7erns.     ENTERPRI SE   EMPLOYM ENT  SIZE   NUMBER  OF  FIRMS   NUMBER  OF   ESTABLISHMENTS   EMPLOYMENT   ANNUAL  PAYROLL  ($1,000)   1:      Total   5,684,424   100%   7,354,043   113,425,965   5,164,897,905   2:      0-­‐4   3,532,058   62.1%   3,540,155   5,857,662   230,422,086   3:      5-­‐9   978,993   17.2%   993,101   6,431,931   218,085,669   4:      10-­‐19   592,963   10.4%   626,981   7,961,281   284,251,614   5:      <20   5,104,014   89.8%   5,160,237   20,250,874   732,759,369   6:      20-­‐99   481,496   8.5%   651,624   18,880,001   746,085,051   7:       100-­‐499   81,243   1.4%   350,197   15,867,437   690,509,553   8:      <500   5,666,753   99.7%   6,162,058   54,998,312   2,169,353,973   9:      500+   17,671   0.311%   1,191,985   58,427,653   2,995,543,932  
  27. 27. Headlines •  Empirically The Majority Fails–- to achieve critical mass or attention of the masses 27
  28. 28. Where Venture Capital Fits into Financing New Ventures Financing Round Definition Typical Amts (US) Typical Holding Period (Yrs) Annual ROR% Who Typically Plays Seed Prove concept/qualify for start-up capital $25K – 0.5M More than 10 50-100% Or more Individual angels Angel groups Early-stage VCs Start-up Complete product development and initial marketing $0.5M – 3.0M Individual angels Angel groups Early-stage VCs First Initiate full-scale Manufacturing and sales $1.5M – 5.0M 5-10 40-60% VC Second Working capital for initial business expansion $3.0M – 10.0M 4-7 30-40% VC Private Placement firms Third / Expansion Expansion capital to achieve break-even $5.0M – 30.0M 3-5 20-30% VC Private Placement firms Bridge and Mezzanine Financing to allow company to go public in 6 – 12 months $3.0M – 20.0M 1-3 Mezzanine Financing firms Private Placement firms Investment Bankers Other stages/rounds: LBOs: Annual ROR: 30-50%, Typical holding period: 3-5 yrs Turnarounds: Annual ROR: 50%+, Typical holding period: 3-5 yrs Source for RORs: Valuation: Framework & Approaches, 2000 Entrepreneurial Finance, Smith and Kilholm Smith
  29. 29. Venture Capital in Detail
  30. 30. The Venture Capital Process ■  Introduction ■  Business Plan ■  First Meeting ■  Second Meeting ■  Term Sheet ■  Due Diligence ■  Negotiations ■  Investment & Board engagement
  31. 31. How Do Partners Make “Go” or “No Go” Decisions? 31 It’s all about risk assessment - Risk / Reward Partner Judgment Due Diligence Investment Decision Into Start-up - team, experience, track record, ability to adapt, tenacity, integrity - uniqueness, difficulty, relevance - capital efficiency, high margin/volume, velocity to a billion - $1M/year, / quarter, /month, /week.. - understanding of food chain, complexity, competition, networks/ relationships People Technology Business Model Industry/Market
  32. 32. What makes VCs invest?
  33. 33. The UBER VC Story 33 http://techcrunch.com/gallery/a-brief-history-of- uber/slide/16/
  34. 34. The UBER VC Story 34 http://techcrunch.com/gallery/a-brief-history-of- uber/slide/16/
  35. 35. The UBER VC Story 35
  36. 36. 36
  37. 37. AirBnB Story 37
  38. 38. The UBER VC Story 38http://techcrunch.com/gallery/a-brief-history-of-uber/slide/16/
  39. 39. Largest VC Funding Rounds 39
  40. 40. 40
  41. 41. 41 TURNED DOWN $3 Billion Offer
  42. 42. 42 http://en.wikipedia.org/wiki/Snapchat
  43. 43. 43 http://en.wikipedia.org/wiki/Snapchat
  44. 44. SNAPCHAT 1.  A clever idea is born in a dorm room by 20 something's. 2.  Friends with computing/coding backgrounds hack together App (Bobby Murphy 25, Evan Spiegel 23). Version 1.0 needs refinement and iteration: WEB App à Mobile App. Picaboo à SnapChat 3.  Find the Viral Seed: High school Kids. Experience geometric explosion: Jan 20,000, April 100,000 ….. 4.  Raise some Angel funding to handle infrastructure cost challenges 5.  Learn quickly how to handle the rocket. Raise more money from deep pocketed Venture Capitalists. 6.  Refine what Company/Product is: –  Intimate and Exclusive (the anti Facebook) –  Young Cool and Hip –  Ephemeral, Temporary and lacking ability to get you in future hot water 7.  Following success is ‘Obvious’ Copy cats come in droves. Including first Buy out offer with threat to crush. 8.  More Venture Capitalists, Media and Fame. NO REVENUES! 9.  Outrageous acquisition offer accepted or turned down 10.  Manage Crazy Growth. Contemplate IPO 44
  45. 45. 45 $1 Billion in under 2 years
  46. 46. 46 http://en.wikipedia.org/wiki/Instagram
  47. 47. 47 http://en.wikipedia.org/wiki/Instagram
  48. 48. 48
  49. 49. 49
  50. 50. 50
  51. 51. 51 http://en.wikipedia.org/wiki/WhatsApp
  52. 52. 52 http://en.wikipedia.org/wiki/WhatsApp
  53. 53. 53
  54. 54. 54
  55. 55. 55
  56. 56. 56
  57. 57. 57
  58. 58. Venture capitalists make money from three types of outcomes:
  59. 59. 59
  60. 60. Why Consumer markets matter? It is noteworthy that the vast majority of outlier companies in the past decade (see slide below) have been consumer and not enterprise businesses. There are important insights even here. Consumer businesses (Apple, Google, Amazon, Twitter, Facebook, PayPal, Twitter, Pinterest) are less regulated by government and can bypass corporate inertia, status quo laziness and risk aversion. Remember Microsoft, DELL, Salesforce started off selling to consumers (or small business) and then moved into the Enterprise. Enterprise are laggard adopters due to business and decision inertia. This point—business inertia-- has to do with risk aversion, regulation, status-quo and laziness. Large segments of consumers are on the other hand quick to adopt new technology and new and better ideas and improved ways of doing things. 60
  61. 61. Blackswans •  Google •  Youtube •  Facebook •  Twitter •  Netflix •  Paypal •  Amazon •  Apple •  Skype 61 •  Bitcoin •  Instagram •  Pinterest •  Zynga •  Hulu •  Yammer •  Dropbox •  Yelp •  Groupon •  Linkedin
  62. 62. Then there are the outliers…
  63. 63. Most uninspired VC questions and how to respond: Q.  Why will ______ giant company not copy your idea and kill you? A.  Did Google kill Youtube? Did Blockbuster kill Netflix? Did Ebay kill Paypal? Did Kodak kill Instagram? Did Blackberry kill WhatsApp? Did Microsoft kill Google? Q.  Do you have the growth numbers and evidence of growth to support your thesis? A.  Dude (and please do reply ‘Dude’ to the VC) if I had that data, I would not be sitting here responding to your uninspired inquiry. Q. What is your financial forecast for the next five years? A. Dude in the start-up world ‘pivot’ is not a dance move, it’s a way of life…anything I project will be wrong in the next 10 minutes or major business decision which ever comes first!
  64. 64. Smart Mobile Cloud Big Data Social Analytics Internet of Things Setting the Macro Context
  65. 65. 1.  Social Currency : cool, smart, remarkable, clever 2.  Triggers: Remind people to talk about. 3.  Emotion: When we care, we share. 4.  Public: Social Proof. What is everyone saying/doing. 5.  Practical Value: People like to help people. 6.  Stories: Message fits neatly into narrative. The Science to Viral: STEPPS
  66. 66. Strategy Culture Risk Taking Execution Adaptation Metrics SCREAM to DREAM FABRIC   OF  SUCCESS  
  67. 67. Venture Investments – Follow (not lead) Winners BUILD WINNERS …that provide liquidity.
  68. 68. Venture Investments – Follow (not lead) Winners BUILD WINNERS …that exit.
  69. 69. Sequoia Venture Investments – Exits Matters
  70. 70. And in Canada…. 70
  71. 71. And in Canada…. 71
  72. 72. Think Ottawa (circa 1998-2002) and Silicon Valley (circa 1970-2015) …and the money, investors, angels, VCs, entrepreneurs with crazy ideas and no mortgages, everyone with envy, many with ambition, drive, risk taking, initiative, people with good ideas, those who can work for free, lawyers, real estate, lots of failures, and more winners, bankers, accountants, advisors, gov’t program wannabes, advisor wannabes, tons of customers, expertise, many start-ups, fantastic entrepreneurial culture…… will follow…
  73. 73. Recipe for a vibrant technology city… (Scale of 1 to 10) Silicon Valley NY/ Boston Toronto Ottawa 1.  Money 10 8 7 2 2.  Talent 10 8 7 6 3.  Risk Appetite 10 7 6 4 4.  Distribution Proximity 10 9 8 2 5.  Culture/Encourage 10 8 6 5 6.  Volume/Probability 10 8 7 2 7.  Repeat Success 10 8 6 2 8.  Clusters/Networks 10 9 6 2 9.  Ambition 10 7 7 5 10.  Inspiration / Hero's 10 7 6 3 Venture Ecosystem Components
  74. 74. 74 http://en.wikipedia.org/wiki/HootSuite http://en.wikipedia.org/wiki/Shopify
  75. 75. Andrew Waitman Confidential 2015 © Fashion Cycles •  1950s – Cathode Ray Tubes •  1960s - Mainframes •  1970s - Semi-conductors •  1980s - Personal Computer •  1990s - Networking/Internet •  2000s - On-line / E-Commerce •  2010s - Mobile / Social •  2020s - BIG DATA/IOT/Wearables IMPORTANCE OF DISRUPTIVE MEGA TRENDS “Playing in new spaces where innovation and scale opportunities are growing rapidly” “New blue oceans with no whales, no sharks, few predators or parasites” 75
  76. 76. Andrew Waitman Confidential 2015 © Fashion Today •  Mobile & Social E-Commerce Apps •  Social eco-systems –  Facebook / Instagram –  Twitter –  Google –  LinkedIn •  Cloud Computing •  Internet of Things •  Wearables •  Flash Memory •  Genomics / Proteomics •  Big Data everywhere •  Machine Learning (AI) •  INTERNET OF THINGS •  BIG DATA •  WEARABLES •  VIRTUAL REALITY 76
  77. 77. Know Your Market Context © 2013 Andrew Waitman 77 BlackSwan Fashion Grinder Leadership Founder Any Any Growth Perspective Long Game Short Long Consumer/Enterprise Consumer Both Both Execution IQ Any Opportunistic Critical
  78. 78. Know Your Market Context © 2015 Andrew Waitman 78 BlackSwan Fashion Grinder Market Size Large Any Any Market Growth Rapid Rapid Modest Cost of Customer Acquisition Low/Viral Medium High Margins High Any Any Barriers to Entry High Medium Low Competition / Subst. Low High High
  79. 79. Blackswan Ideas A robust highly valuable business concept once acted upon can tolerate enormous business turbulence and human dysfunction. Each story has a lead protagonist with an ambitious idea that starts with a very modest beginning and underestimates the scale of its outlier potential. However, once the business taps into the gold vein or oil gusher [Choose your own metaphor] (A deeply rooted massively valuable business idea/concept) the strategy/business/organization will be able to sustain success in the face of people problems, misguided strategies and execution challenges/dysfunction. A great (outlier) fundamental business concept or idea is incredibly robust and can withstand a surprising amount of strategy and tactical mismanagement. 79
  80. 80. One-Mind A single mind decision processor and accelerator—a priest like reverence and following of the One Mind/Founder—unquestioned at critical decision times and able to cut through decision ambiguity, delays and make bold decisions is a critical component of all outlier success. This pattern is not as remarkable as one might expect, when you think deeply about its benefits. It is also a self-fulfilling property of outlier success. The more successful the enterprise, the more “expected” wisdom is bestowed upon the founder and the more unquestioned each decision/direction becomes… to the point where people actually believe that the entire success is dependent entirely on one decision maker—which practically is impossible—though ironically is somewhat necessary. A true paradox in business success deconstruction. Jeff Bezos, Steve Jobs, Larry Page, Pierre Odymar are absolutely necessary but not sufficient to explain outlier success, however they are not solely responsible either. The deep-business-gusher they stumble upon (serendipity) takes more of a role than the narrative gives credit—The Narrative Fallacy which Nassim Taleb ably describes in the Blackswan http://en.wikipedia.org/wiki/The_Black_Swan_%282007_book%29 —fails to attribute the cumulative effects in a winner-take-all business dynamic. The scale of success does not correlate to business IQ but rather to context opportunity. People misattribute scale success with brilliance. Bill Gates and Microsoft, Research in Motion and Mike Lazardous are two such humbling examples. They are highly intelligent to have made some of their early business decisions in pursuing interesting business opportunities, but the navigation to continued success is less about genius and more about the size of the business oil well you have struck. Google’s was a gusher (after they stole/borrowed/ improved the Overture business model). Apple’s is only sustainable to the extent they continue to reinvest entire new categories of product and digital delivery. 80
  81. 81. No Worrying Please A predisposition for action, for speed of decision making and for risk taking. Bold, at times unconventional, decision making with minimal regard to conventions, the iceberg of implementation or challenges or difficulty of implementation must be a canon of all remarkable success. This topic is critical to understanding why Miscrosoft, Kodac, IBM do not create Facebooks, Youtube, Twitter, Facebook etc. One of the most dangerous and definitive definitions of defeat is decision paralysis, fear and worry. The vast majority of people are wired to protect what they have, limit change and avoid perceived problems in the future. Evolution has made this so. And it has a gender bias aswell. Women are more cautious than men. For good reason. They were/are responsible for the nurture and survival of the species. Pursuit of the new—new food, lands, shelter—was fraught with danger, risks and survival. Why are there so few female entrepreneurs? Because risk taking is counter productive in an evolutionary sense. But women alone are not risk-averse. Men, particularly men in certain occupations and cultures are more risk adverse than others. Accountants, Lawyers and those in ‘protective’ careers tend to be risk-avoiders and great hand-wringers of business. The larger a company gets, the more at stake to lose and hence the more cautious the people in the company become. This is only partially the innovators dilemma ( http://en.wikipedia.org/wiki/The_Innovator %27s_Dilemma ) , it is also driven by our natural pursuit of stability, control and avoiding the unknown. While worrying is as effective as trying to solve an algebra equation by chewing bubble gum, people in business get preoccupied with the improbable, unlikely and overblown fears. The real troubles in your business are apt to come from areas that never crossed your worried mind, the kind that blindsides you at 4 p.m. on some idle Tuesday. 81 “PROGRESS ALWAYS INVOLVES RISK, YOU CAN’T STEAL SECOND BASE AND KEEP YOUR FOOT ON FIRST” –Robert Quillen
  82. 82. Deep Gushers produce What is more remarkable though is not that consumer companies proliferate, but that each company faced significant structural and self-dysfunction obstacles to success and yet continued to succeed regardless of the people, structural, or execution turbulence along the way. An outlier concept/idea has great survival resilience. But you won’t always know or appreciate that you have a business-gusher until you are largely wildly successful…certainly not in the early days of the adventure. Take time to understand this point. Its a critical point. But it is one that is difficult to harvest unless your business concept gold vein is deep and broad. What it means is that deep-veined business concepts provide you room to stumble, room to experiment, room to adapt, room to grow, room to learn. You can’t be an idiot to find or exploit these deep veins—but that is more luck than brilliance in that even the Founders/early employees are often shocked by the size of the success years later---, but neither do you need to be a genius once encountered to exploit your position of dominance. You merely need to be an intelligent adaptor. Lets review some of these examples: 82
  83. 83. The Multiple Paradox of Business Playing to win vs playing not to lose, offence vs defence is analogous to driving for reliability vs searching for discovery of new opportunity. This competing tensions in any organization must be balanced. The outlier successful entrepreneur ensures the natural tendency for size to drive defence versus offence is counter-balanced with constant experimentation, pet-projects and wacky ideas. Jeff Bezos started AWS in South Africa. He also started numerous other —pet project initiatives—far away literally and figuratively from the cautious management eyes of the larger Amazon management team. Many failed. Some became game-changing successes for Amazon eg.Kindle. There are two key and important ideas here. First you need sufficient resources to experiment constantly—often it complete conflict with your core business eg. Digital readers vs Selling Books—and you require a high placed priest/decision maker to encourage, nurture, protect and drive experimentation and innovation with the understanding that many initiatives will fail. But it is more than that. Bell Labs (Lucent/AT&T), Xerox Park and Kodak had enormous pockets of research, experimentation and investment in new things, however they were disconnected from the commercial exploitation of innovation. New ideas/products and services must face the rock-face of scrutiny of the market place. The INTERNET is the ultimate experimentation machine. And yes you must be willing to cannibalize your own business. 83
  84. 84. Answer some Questions 84
  85. 85. Start-up Success •  Cunning - Causality •  Complexity – A thousand decisions •  Context – Serendipity •  Creativity –Risk taking •  Cunning – Clever folks constantly pivot 85
  86. 86. Andrew Waitman Confidential 2015 © TALENT MATTERS A PERFECTIONIST Not just about IQ, Not just about genius, Its also about… 86 “How did Steve Jobs and Apple make a dent in the Universe?” “His ability to focus on the few things that count, get design right and co-op industry giants is remarkable…” - Bill Gates
  87. 87. Andrew Waitman Confidential 2015 © Apple’s Extreme Ascent 87
  88. 88. Andrew Waitman Confidential 2015 © Apples Extreme Assent 88
  89. 89. Andrew Waitman Confidential 2015 © Apple’s Market Value The most valuable publicly traded company in the world. 89
  90. 90. Andrew Waitman Confidential 2015 © Apple’s Market Value The most valuable publicly traded company in the world. 90
  91. 91. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  At Apple 1975 - Steve Wozniak •  At Apple 1981 - Andy Hertzfeld/Burrell Smith •  At Apple 1984 - MAC Team •  At NeXT 1985 - Avie Tevanian •  At Pixar 1986 - John Lasseter •  At Apple 1998 - Tim Cook •  At Apple 1998 - Jonathan Ive •  At Apple 1998 - Jonathan Rubenstein •  At Apple 2000 - Ron Johnson (store) •  At Apple 2001 - Tony Fedell/ Jeff Robbin (iTunes) The true Artists of the Business world IMPORTANCE OF OUTLIERS (EXTREMELY GIFTED PEOPLE) “One must be able to identify, attract and retain the truly gifted people of the world” “Outliers attract more outliers” 91
  92. 92. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Challenge matters to gifted outliers: artists, designers, engineers, etc. •  Pushing to achieve the impossible creates purpose and pride •  Keep pushing the envelope of the possible •  Keep pushing the details to get close to perfection •  Someone must “know” what perfection looks like •  The pursuit of perfection is an end in itself IMPORTANCE OF CHALLENGE “What makes people achieve greater than they thought possible?” 92
  93. 93. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Credibility comes from outlier, extreme, and unusual success •  Not only extreme, visible, and unusual success but also who gets credited with such success: •  Steve Jobs vs Steve Wozniak •  Steve Jobs vs Jonathan Ive •  Steve Jobs vs John Lasseter IMPORTANCE OF Early @ Bats SUCCEEDING “Those credited through money or fame with success gain additional and unfair advantage” 93
  94. 94. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Every disruptive innovation has path dependency •  All elements of innovation have timing dependencies: –  Technology –  Distribution –  User Experience –  Knowledge IMPORTANCE OF TIMING “Getting major trends/technology/adoption right can be difference between leading or lagging” 94 “Think Voice Recognition vs Mouse Tablet vs iPad Think Stylus vs Touch Screen”
  95. 95. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Enables speed to resources, expertise, insights, experiments, talent •  Enables more experiments •  Enables longer experiments •  Tolerates more errors •  Enables ambitious scale decisions •  Enables risk appetite •  Attracts gifted outliers •  Reduces life’s mundane distractions •  Facilitates “brute force” competitive strategy •  Facilitates “unfair” strategies: •  Acquire competition/market share •  Undercut margins/lose money for years •  Control/acquire limited supplies •  Buy/control distribution IMPORTANCE OF MONEY “Money alone is not enough…but in combination with other attributes…it is critical to success” 95
  96. 96. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Success is an emergent condition of a thousand decisions •  Success drives its own momentum •  Success mollifies a great deal of conflict, dysfunction, internal strife and disagreement •  Success allows/enables others to tolerate intolerable behavior •  Success creates opportunity for future @ bats, & future success •  Success attracts and reinforces •  Success leads to fame IMPORTANCE OF SUCCESS “Success absorbs/ tolerates all kinds of dysfunction: Personality, Management, Internal organization strife, Poor decision making, Board of Directors” 96
  97. 97. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Fame facilitates awareness •  Fame facilitates access •  Fame facilitates opportunities •  Fame facilitates better terms •  Fame facilitates “believers”/followers •  Fame facilitates tolerance of missteps and misbehavior •  Fame facilitates no second guessing •  Fame attracts / drives / creates its own fashion •  Fame facilitates information advantage •  Fame drives boldness •  Fame becomes its own celebrity or halo effect –  Artists made iTunes/Apple so “cool”/hip…that… –  Artists then clambered to be in iPod Ads. IMPORTANCE OF FAME “Fame is its own unique and unfair advantage” 97
  98. 98. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Simplicity is a goal in itself •  Simplicity is sometimes difficult •  Drive for simplicity everywhere in business: –  Messaging –  Communication/presentations –  Products –  Components –  Suppliers –  Processes –  Contracts/Agreements IMPORTANCE OF SIMPLICITY “Less is more” 98
  99. 99. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Don’t be everything to everyone •  Be clear what you are and why you are different •  What do you stand for that is different… and people care about… and will know you uniquely…from anything else •  What natural advantages do you have that reinforce your focus •  Focus in all areas of decision making and strategy –  Products –  Messaging –  Channels –  Suppliers •  Focus and simplicity are self-reinforcing objectives IMPORTANCE OF FOCUS “Focus reinforces simplicity” 99
  100. 100. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Simplicity is a goal in itself •  Simplicity is difficult •  Reduce complexity in everything: –  Messages –  Products –  Components –  Suppliers –  Process –  Contracts IMPORTANCE OF SIMPLICITY “Less is more” 100
  101. 101. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Aesthetic matters •  Simplicity matters •  Integration matters •  Design first then Engineering •  Design in everything –  Product - Manufacturing –  Package –  Retail store •  “Why of What” matters •  Innovation requires Artistry •  User experience matters •  Vision by a “single mind” is critical to consistency and coherence IMPORTANCE OF DESIGN “Must understand the essence of everything” 101
  102. 102. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Design and Engineering needs to iterate toward an ideal •  That ideal keeps shifting as technology keeps improving •  Constant improvement and innovation is necessary •  However, someone must have a vision/capability of the judgment to decide when close to an ideal (eg.when to launch) and when to improve a product after launch •  A passion for perfection can drive to success or insanity IMPORTANCE OF ITERATIVE DESIGN “Perfect design or engineering comes only after many, many iterations” 102
  103. 103. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  First impressions matter •  People form an opinion about a company, a product or service based on ‘signals’ that it conveys •  People DO JUDGE a book by its cover •  For customers or clients to ‘care’ the designer, engineer, company must also care. •  You must understand the needs and desires of customers/clients as well or better than they do IMPORTANCE OF IMPUTE “Those who care that people will care show empathy toward wants, needs and desires” 103
  104. 104. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Path dependency drives negative or positive feedback •  Series of good decisions reinforced through numerous positive feedback loops (profit, fame, success etc.) •  Early poor decisions limit opportunity to adjust strategy later IMPORTANCE OF FEEDBACK “Large and rapid market successes are often surprises even to the innovator” 104
  105. 105. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Being timid gets you no where •  Always calling high does pay off once in a while •  Demanding more sometimes works •  Being obnoxious has its benefits •  Extreme narcissism keeps you focused •  Extreme behavior can be both powerful and dysfunctional •  Being a pathological truth recreator is audacious IMPORTANCE OF BEING AUDACIOUS “Outrageous success comes from outrageous people” 105
  106. 106. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Doing something that you believe in vs making money •  Motivation alignment during collaboration •  Motivation misalignments on team can be highly disruptive •  Steve Jobs vs Larry Elision •  A passion for perfection can make a huge difference •  People want to believe in something or someone IMPORTANCE OF VALUES “What motivates people in the face of adversity will often determine whether they keep going” 106
  107. 107. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Details always matter •  Details are what make big things happen distinctly •  Does everyone and particularly the CEO care about the details •  Details matter must be in the culture •  Caring about the details requires time, patience, caring and an eye for the details IMPORTANCE OF DETAILS “Distinction comes from caring about the details” 107
  108. 108. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  During first @ bats is there the best coaches, bats/balls, training etc? •  Who do you get introduced to first? Who do you gravitate to? Who do you select? Who is in your sphere of opportunity? •  McKenna / Leonardo Da Vinci “Simplicity is the ultimate sophistication” •  Silicon Valley’s density of extreme talent is unparalleled IMPORTANCE OF PROXIMITY “If you are going to change the world it will take effort and contribution from numerous world class people, suppliers, service providers and advisors” 108
  109. 109. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  To attract gifted people you must “sell” them on a “different” future •  To achieve unusual or favorable supplier terms you must convince them its in their interest •  To raise money you must convince investors that you have a path to the “promised land” •  If you are trying to convince people of your ideas you must be compelling, charismatic and passionate (eg.crazy) IMPORTANCE OF SELLING FUTURES “Great Sales People Can Sell You The Future” 109
  110. 110. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  When you rely on other companies you put your vision of the future at risk •  Control provides significant advantages for end-to-end user experience •  The companies that control their eco-systems’s /customer experience / destiny are in a better position of making dramatic improvements/change in the industry •  Adobe <à Apple IMPORTANCE OF CONTROL “Not controlling your own destiny may mean not having one” 110
  111. 111. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  A single mind (Captain) who is capable of clear, consistent and efficient decision making •  Democracy is a terrible “outlier results” decision methodology •  Groups of people generally revert to average, sub-optimal, self-biased, self- interested, and inconsistent decisions by selecting lower risk, lower cost and uninspired, incoherent business decisions •  Great Boards do not interfere in great companies. They select the leader and help them lead to succeed with one clear vision and strategy. IMPORTANCE OF CLEAR & RAPID DECISIONS “Two Capitan's on a Ship, two Chefs in a Restaurant, two CEOs in a business has rarely ever been successful” 111 ONE-MIND DECISION MAKING DRIVES SUCCESS
  112. 112. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  The whole can only succeed when the majority of decisions around the important elements are good, consistent and coherent •  One element, attribute, variable or function decided well is not enough •  All functional decisions must synchronize toward consistent “end-game” values, goals and objectives •  “One mind” gains distinct advantages in achieving this IMPORTANCE OF SYSTEMIC DECISION MAKING “ The whole can only succeed if all the elements succeed with coherence” 112
  113. 113. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Are the key, important and critical decisions recognized and decided by the principals who have the right values, capability and insights? •  In the pursuit of WOW is the right balance struck between “speed vs perfection” for all the key, important, critical decisions? •  The “one mind” can help achieve great decisions but can bottleneck or slow decisions as company scales IMPORTANCE OF WHAT ARE THE CRITICAL DECISIONS 113
  114. 114. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Out of one thousand ideas which are the most important/valuable •  Which work in symphony with other great ideas •  Which ideas out of the myriad of ideas should be seized upon, improved and implemented? •  The “one mind” is often better at processing, synthesizing and selecting for implementation the coherent set of GREAT ideas IMPORTANCE OF RECOGNIZING GREAT IDEAS FROM GOOD IDEAS “Everyone has ideas. Every day new ideas arise. How to distinguish that which are great, from that which are merely good?” 114
  115. 115. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  iPod, iPhone, iPAD, iTunes •  MacBook Air •  MacBook Pro •  iMac •  Always out innovate your own products •  Easier said than done IMPORTANCE OF KNOWING WHEN TO AND WHEN NOT TO CHANGE A WINNER “What is working maintain until just before it doesn’t” 115 “Pace your innovation ahead of competition but not before customer frustration”
  116. 116. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Product: iPod, iPhone, iPAD •  Supply Chain •  Manufacturing •  Promotion: Launch, Campaigns •  Distribution: iTunes, Apple Store •  Ecosystem: Application Dev •  Integration: Software, Hardware, E- Commerce IMPORTANCE OF REINFORCING CLEVER STRATEGY “Dramatic or extreme outlier success requires broad, coherent & disruptive success” 116
  117. 117. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  What the competition was doing was observed and often derided by Steve Jobs but he never was preoccupied by competition •  You will end up in incrementalism if you don’t ignore the competition. •  Your strategy, differentiation, culture, philosophy, execution must stand unique and alone IMPORTANCE OF NOT GETTING PREOCCUPIED WITH COMPETITION “Rarely is competition worth watching. Focus primarily on your own, startegy, execution and innovation. ” 117
  118. 118. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Large organizations that become divisionalized become balkanized •  Each entity works to its own values, goals, cultures and priorities •  Apple was aligned under “one mind” and co-operated functionaly or be obliterated by Steve’s ire IMPORTANCE OF THE ELIMINATION OF DIVISION “ SONY had all the components and lost the war” 118
  119. 119. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Patterns are valuable and limited •  Unknown or misunderstood contributor elements, variables, context will be missed, poorly understood or over-interpreted in any complex system analysis •  Recognize correlation vs causality •  Every success path has random elements--including timing—that contributed but were poorly understood a-priori •  Hindsight contributes to a sense of false wisdom IMPORTANCE OF COMPLEXITY “You can NOT deconstruct success paths perfectly” 119
  120. 120. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  The future is unknown. •  What ‘emerges’ from a thousand people making a thousand decisions in a thousand days can be dramatic or dreary •  Business is a complex system with a thousand constituents, a thousand variables and a thousand decisions resulting in an unpredictable & improbable outcome •  The timing of who you meet and whether you “connect” and whether you or they decide to work together impacts your future outcome and that process is somewhat “random” •  Decisions are often made for unintended, wrong or misguided reasons with unintended (both positive & negative) outcomes or consequences. IMPORTANCE OF SERENDIPITY or RANDOMNESS “Fortune comes to those who don’t count on it” 120
  121. 121. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  The reliance on one individual to orchestrate, organize, prioritize, authorize and drive a insanely great business is dangerous •  The pantheon of truly great business artist/ leaders is rather small: –  Andrew Carnegie –  Henry Ford –  Sam Walton –  Steve Jobs –  Jeff Bezos DANGERS OF STEVE JOBS “There are very very few gifted people who can navigate perfectly the art of design, engineering, and business” 121
  122. 122. Andrew Waitman Confidential 2015 © Lessons from Steve Jobs •  Because it takes a single mind to weigh the known, the possible, the probable and the unknown. Groups can't do that. Only one mind can. •  Making deals…ones that mattered….with Suppliers, Partners (think music), Industry Giants (Sony) was one of Steve Job's great talents. Why? Because he had fame, hustle and hutzpah. He understood often better than others how and when the one+one equalled five. He was aggressive, often obnoxious, and was a one man negotiating phenomena…on the important terms that mattered. •  One can not know whether a deal between Apple and Twitter was in the cards, was important to either party or really mattered in the large scheme of success in both their businesses or whether if Steve Jobs had been around would the outcome have been different. DANGERS WITH STEVE JOBS GONE Failure to get Twitter Deal by Apple because no longer “ONE MIND” 122 “Apple Talks With Twitter Said to End Without Investment”
  123. 123. Creating an Industry
  124. 124. Venture: Primary Issues •  Culture •  Talent •  Scale •  Proximity of Interface •  Success •  Critical Mass •  What are the “unfair” Advantages Complexity Competence Co-operation
  125. 125. Venture Ecosystem CULTURE •  Cautious •  Complacent •  Envious •  Oligopoly •  Cynical •  Tolerant of mediocrity A man watches a lobster fisher throw three lobsters into a bucket. Concerned, the man approaches the fisher and asks if he isn't worried that the lobsters will climb out because the bucket has no cover. "No worries," replied the fisher. "These are _________ lobsters. If one starts to climb out, the others will pull him back in."
  126. 126. Venture Ecosystem Cumulative Adv Scale •  Number of anything •  Dollars available •  Statistical opportunity •  Normal Curve •  Outcomes •  Market size •  End game opportunity •  Heterogeneity of markets
  127. 127. Venture Ecosystem Proximity of Interface •  Too spread out •  Talent •  Customers •  Partners •  Large Markets •  Key expertise •  Sophisticated service providers •  Investors (Angel, Venture, Corporate) •  “ All business is local”
  128. 128. Venture Ecosystem Cumulative Adv Success •  Vicious cycle •  Experience •  Understanding Formula •  Building •  Investing •  Understanding •  Building Upon •  Confidence •  “Virtuous reinforcing system”
  129. 129. Venture Ecosystem Cumulative Adv Talent •  Scarce talent •  Limited experience •  Top tier pulled into U.S. •  Smart people pursue other markets or geographies •  Pool size limited for “natural selection to take place”
  130. 130. Venture Ecosystem Cumulative Adv Critical Mass •  Industry elements •  Top tier talent in any area •  Market size •  Customer segments •  Proximity to customers •  Proximity to partners
  131. 131. Venture Ecosystem UnFair Regional Advantages •  Wealth •  Government free trade zone •  Skill Specialization •  Expertise •  Friendly Business policies •  Other
  132. 132. Andrew Waitman Confidential 2015 © Conclusion? Success is rarely one person or one thing… Causality is complex to understand and distil from context. 132 In Steve Job’s & Apple’s case, he was absolutely necessary… but not alone.
  133. 133. Andrew Waitman Confidential 2015 © How do you predict the future? 133 …by creating it….. 133
  134. 134. Where Have All the Great Leaders Gone? Recipe for a WOW early stage CEO… 1.  Cares about people and inspires as a leader-leader. 2.  Self-aware. Emotionally stable. ‘Keeps calm and carries on’. 3.  Core competency somewhere e.g. Business Strategy, Execution. 4.  Risk/resource judgment comfortable/capable. 5.  Adaptable/compatible with Founder(s). 6.  Understands all Functions and particular HR. 7.  Confident proactive decision maker (with humility). 8.  Strategy, Culture, Risk, Execution, Adaptation, Metrics. 9.  Equal parts Tireless, Energy, Enthusiastic, Encouraging. 10.  There is no ‘i’ in Team. An ‘i’ in Run the company is Ruin the company.
  135. 135. Summary - Ten Steps to Growth 1.  Stay calm! 2.  Establish clear Priorities, Ownership, Deliverables. 3.  Be clear about and communicate your strategy and goals. 4.  TAM++, Success = LTV - CAC 5.  The leadership team sets the tone, culture and dynamics. 6.  Timely, data driven, risk judgment decisions taken daily. 7.  Deliverables, Dashboards, Metrics matter. 8.  Sales/Marketing/Business Development recipe matters. 9.  Insights à adaptation matters. 10. Perpetual learning organization.
  136. 136. BE  AN  OPTIMIST  PRAGMATIST  

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