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Blitzscaling Class 5: Tribal Stage

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Slides from Class 5 (10/6/15) of Stanford CS183C, Technology-enabled Blitzscaling.

Instructors: Reid Hoffman, John Lilly, Allen Blue and Chris Yeh.

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Blitzscaling Class 5: Tribal Stage

  1. 1. CS183C: Blitzscaling Instructors: Allen Blue, Reid Hoffman, John Lilly & Chris Yeh October 6, 2015
  2. 2. Today 1. OS1 Recap & Themes 2. OS2 Intro 3. Mozilla OS2: Competing Asymmetrically 4. OS2 Scaling and Resourcing 5. Prep for Thursday
  3. 3. What themes were most common across Sam, Michael & Ann?
  4. 4. Where was their insight most divergent? Why??
  5. 5. Organizational Scale 2: Tribe
  6. 6. Things start to move more quickly :)
  7. 7. Class Structure: Organizational Scale Org Scale (employees) User Scale (B2C users) Customer Scale (B2B) Business Scale (rev) OS1: Family 1s 10,000s 0 <$10M OS2: Tribe 10s 100,000s 1s 10M+ O3: Village 100s 1,000,000s 10s 100M+ OS4: City 1,000s 10,000,000s 100s $1B+ OS5: Nation 10,000s 100,000,00+ 1,000+ $5B+
  8. 8. OS1: The Household 1. Identify a non-obvious market opportunity where you have a unique advantage and/or approach. 2. Building a product with strong product/market fit
  9. 9. OS2: The Tribe Execute & iteratively improve a plan which gets you to significant market share.
  10. 10. OS2: The Tribe Get to scale: 1. Create your plan; execute it; learn from it; rethink it; build market share. 2. Adjust your product-market fit as you learn. 3. Address any competition by moving faster to market share.
  11. 11. OS2: Becoming a Tribe 1. A bigger team to scale, including new functions: - a bigger team to learn and build - marketing/PR - customer service, sales (for enterprise) - business development 2. Agile development and technology 3. Business operations (expenses, office space etc.) to let the team focus on what matters 4. The right financing and capital allocation to allow it
  12. 12. We’re going to talk about Mozilla from 2005 to 2008
  13. 13. First some context
  14. 14. In 2004, Microsoft & IE had ~95% share of personal computing marketshare
  15. 15. That looks like this 5% Microsoft 95% And Microsoft had 100% distribution advantage
  16. 16. By the end of 2004, Mozilla had built Firefox 1.0 Breakthrough product - fast - popup blocking - tabbed browsing - integrated search - customizable
  17. 17. Product Market Fit: Why? Key feature: popup blocking Sustainable feature: tabbed browsing Trigger: security
  18. 18. Best product is important, but not enough.
  19. 19. So Mozilla competed asymmetrically.
  20. 20. Naturally, they took out an ad. In the New York Times.
  21. 21. The core insight: Mozilla was the community. So the key was to let the community see themselves in Mozilla.
  22. 22. And to help the community help.
  23. 23. Move ahead 8 months to June 2005 when I got there Launch worked - 10M downloads first 30 days Growth was strong; financials strong Clear product-market fit 15 people in the organization
  24. 24. Mozilla at this point was a non-profit, open source, 6 year overnight success.
  25. 25. Not viral spread Spreading because we had a global community who made it spread.
  26. 26. Critical Decisions in 2005 1. Hiring & compensation - winning & losing
 2. Grow as distributed organization
 3. Always treat community as insiders 4. Ignore enterprise, 
 & everything else other than normal humans 5. Always hold mission as top goal
  27. 27. Timeline & Headcount Growth 2005 Firefox 1.5 Started MoCo 2006 Firefox 2.0 2007 No Firefox major releases Started Mozilla China, Labs 2008 Firefox 3.0, spun out Thunderbird Started Fennec, grew labs 2009 Firefox 3.5; Thunderbird 3.0; Fennec on Maemo Services, video, developer tools, more Total Headcount at Year-end 2005 2006 2007 2008 2009 2010 2011 0 80 160 240 320 400 406 341 258 196 132 85 40 +113% +32% +48% +55% +32% +19% proposed 2010 Firefox 3.6, 3.7; Fennec on WinMo, Android? Weave, Jetpack, reinvigorated+integrated Firebug 2011 Firefox 4 Desktop & Mobile More services, identity?
  28. 28. Move ahead another year to July 2006 Market share > 10% (~25M DAU, ~75M MAU) Product-market fit extremely clear (not viral!) Organization now ~30 people With PMF, you start to see new issues
  29. 29. Opera 1%Firefox 12% Safari 4% IE 83% Summer 2006, Net Applications
  30. 30. Mozilla BoD Deck (excerpts) July 7, 2006
  31. 31. Organizational Overview • Scaling still an issue for everyone • EA, “chief of staff,” project manager?? • Must get serious about VP operations & GC • Actively looking for 2 engineering managers, add’l product managers • Low key looking for VP marketing
  32. 32. Firefox High Order Bits • Where will Firefox be at the end of 2006? • What’s a reasonable goal for 2006? 2007? • 01/06 we said 20% market share • What can and should we do to affect marketshare numbers? What are we doing to increase it today?
  33. 33. Firefox Context (1) • About 13% worldwide marketshare • varies significantly by country and group • 25MM active users on a given day • Growth in the US appears to have slowed? • Continuing to work on data and analysis
  34. 34. Firefox Context (2) • Initial Disruption Period of Fx 1.0 diminishing • IE 7 and Safari on Windows • iTunes has been disruptive; might an iTunes- focused Safari be the next disruptive event? • What do we do to maintain momentum / motivate our community?
  35. 35. Reaching New People • Affinity groups/ vertical marketing • Joga extension as the model • What’s next and when? Fantasy sports? social networking? • “Long tail” distribution by many groups • offer customization (snippets, sidebar, etc) • program in conceptual phase, not yet concrete • Other?
  36. 36. Google’s Context • Has realized that the browser is critical to them • can’t allow MS to have a choke-hold on their customers • Current browser strategy: support leading alternative browser (Firefox) • High level question: is this the correct browser strategy?
  37. 37. Google Issues (1) • Browser is critical but “destiny not in their own hands” • Fx growth at a marketshare number that is too low for safety • Not clear that they or we have a plan to address • increasing Fx market share or • arrival of IE7
  38. 38. Google Issues (2) • Webkit/Safari on Windows is coming • Replay of the Unix wars? • believe anything > IE & 1 other browser target for web developers will fail, hurting Google • Apple pushing Webkit (faster, smaller, accessible)
  39. 39. Google Issues (3) • 80%IE, 20% Fx not enough, but hopeful • 80% IE, 10% Fx. 10% Safari is a win for MS • 80% IE, 20% Safari is bad for Google • If Google believes the latter will happen, then it must create its own browser • Hopes that some “convergence” between webkit and Fx is possible (rationale voices understand the difficulties)
  40. 40. Critical Decisions Summer 2006 1. Accelerate product releases (Fx2, Fx3), and
 stay the course with Gecko vs Webkit
 2. Aggressively invest in more localizations, 
 global reach 3. Keep building community, keep treating 
 them like insiders, embrace all
  41. 41. Mozilla Corporation All Hands Meeting john lilly / april 27, 2007
  42. 42. 2 years ago... ~15 employees, no MoCo, 2 people in MozJP, 2 in MozEU ~15 million users $15 million in the bank working on Firefox & Thunderbird 1.0.6 (& 1.0.7!)
  43. 43. Now... plus approximately 25 interns in US, China & Japan! Product & 
 Marketing EngineeringPlatform & Firefox G & A
  44. 44. Put Another Way...
  45. 45. Dave Camp Developer
  46. 46. 1 90 Dave Camp Developer Mozilla Corporation
 Firefox Development Team
  47. 47. 1 60 100s Seth Spitzer Developer Mozilla Corporation
 Firefox Development Team Daily
 Contributors
  48. 48. 60 100 1000 Seth Spitzer Developer Mozilla Corporation
 Firefox Development Team Daily Contributors Contributors
  49. 49. 1000 10,000 Mozilla Corporation
 Firefox Development Team Daily Contributors Contributors Nightly testers
  50. 50. 300k Monthly users (>180,000,000) Nightly testers Beta testers Contributors
  51. 51. Sometimes Things That Seem Big, Aren’t
  52. 52. Firefox 3 Launch July 2008 Launched in 70 languages (IE7 launched 5)
  53. 53. Issues on the Horizon (but for OS3, not for OS2) 1. Chrome
 2. Farmville (no, seriously) 3. But mostly: Mobile
  54. 54. Paths to Scale consumer and enterprise
  55. 55. OS2: Scaling Execute & iteratively improve a plan which gets you to significant market share.
  56. 56. OS2: Scaling Consumer Products • Growth through Value • Virality • Word of Mouth • Repeat Use (vs. churn)
  57. 57. OS2: Finding Growth through Value • You’ve found product-market fit (organic or inbound usage)… with which segments? • Not — nice — want — need • Options once you have found where the product-market fit is: • Improve product market fit for “nice” groups • Take full advantage of want/need groups • Optimize growth at “nice” level
  58. 58. OS2: Scaling Consumer Products • Growth through Value • Virality • Word of Mouth • Repeat Use (vs. churn) • Growth through Awareness • SEO and SEM • Partnerships • Facebook, LinkedIn • Incentives
  59. 59. OS2: Scaling Enterprise Products • The decision-maker growth hypothesis • Beta customers • Beta customers to validate value hypothesis, identify needs • Will confirm or refute your sales decision-maker hypothesis • Successful beta customers become “lighthouse” customers • Build awareness at low cost • Trade Marketing: Gartner and Forrester • Pitch reporters and bloggers. • Consumer-style bottoms-up approaches
  60. 60. Resourcing Execution scaling team and essential operations team
  61. 61. Resourcing Execution Your operational decisions should fit into two categories: 1. Direct, leveraged investment in the scaling goal 2. Keeping the scaling team focused by removing distractions
  62. 62. Resourcing Scaling: Development and Technology • Agility (speed and flexibility) is the key target • Optimize for speed of pivoting • Development process is as important as the tech • Expect to accumulate technical debt • Almost certainly need to grow the technology team
  63. 63. Resourcing Scaling: Learning • Data and Dashboards • PR/MarComm • For Enterprise: • Customer Service • Sales (not sales manager) • Business Development
  64. 64. Resourcing Scaling: Recruiting • You will have to reach beyond immediate network • All of your recruiting will be outbound • Hire a recruiting lead who can do this • Full-time, attracting cofounder-equivalents • Set up a simple, modestly rigorous hiring process • Reference checking • Five interviews per candidate • Establish a talent brand, cheaply • Engineering should contribute to open source • MarComm should land speaking engagements
  65. 65. Resourcing: Protecting the scaling team • Essential: generalists who can allow the founders and scaling team to concentrate on scaling • Minimum team for essential but distracting needs: • Customer Service and Business Development (for consumer companies) • Security • Your workspace • Travel and expense policy, accounting, legal, finance • Office manager, utilities, vendor relationships, food • IT and productivity technology
  66. 66. OS2: What’s next?
  67. 67. Next 2 weeks (OS2) 10/8: Jen Pahlka, Code for America 10/13: Mariam Naficy, Minted 10/15: Shishir Mehrotra, new project; former YouTube
  68. 68. Jennifer Pahlka Founder & ED, Code for America
 Former US Deputy CTO Ran Web 2.0, GDC Thinks about movements, communities & how to get real & leveraged outcomes Assignment: reading & forum discussion
  69. 69. Appendix
  70. 70. OS2: Navigating Competition • Competitive threats come mainly from other startups (or parts of companies which are operating as startups) who are approaching the same market as you. • You should rarely respond to competitive threats. • On the contrary, your goal is to force your competitors to respond to you. • Stealth mode can be helpful to give you as much runway as possible before competition finds your space “interesting” • Main threat is that your competitors will learn faster and better than you do, and scale more quickly. • You win by iterating and learning more quickly, to improve product- market fit and to scale market share faster.
  71. 71. Financing the Tribe financing strategy and capital allocation
  72. 72. Resources: Financing strategy • You will almost always need to raise money here, because you are hiring non-founders who require salaries, and it’s highly unlikely your business has grown to the point where it is throwing off sufficient revenue. • You should strive for a quality venture round as soon as you can, even if you don’t have product-market fit yet.  That’s ideal, but the sooner you have the money the faster you can scale.
  73. 73. Resources: Capital Allocation • Minimize outgoing expenses • Carefully manage large expenditures • It’s “costly” to grant equity to employees, but that bill doesn’t come due for a long time.  This is a key way to attract quality talent, so you don’t want to be parsimonious here.  You’re playing for a big exit, after all. • Often the largest commitment is an office lease.  Don’t sign a long- term lease, as you don’t know what you’ll need if you’re blitzscaling. • You can’t save your way to success.  Optimize your spending to maximize your learning.
  74. 74. The Power of Networks • “As much as I’d like to say the value of YC was the advice of the partners, it’s really the network of alumni.” (Sam) • “All the enterprise software companies [in YC] get all their customers from the YC alumni. I have no idea how you do it if you don’t have that!” (Sam) • “The best companies are using their employee base to unlock the latent talent in another organization. They’re just picking great talent from other companies one at a time. They’re snipers.” (Ann)
  75. 75. Founders are Quick and Decisive • “Founders can be presented with a problem that you’ve never seen before and solve it very quickly.” (Sam) • “You need to be screaming across these stages. Today we’re in technical insight mode, in a month we should be productizing, and monetizing right after that.” (Michael) • “When a founder is frozen or needs more data, that’s the sign of distress.” (Ann)
  76. 76. Be Contrarian—and Right • “Great ideas that look bad lead to outsized returns.” (Sam) • “[Contrarianism is] where you find value as an investor. It’s the wild enthusiasm of conventional wisdom that chases prices higher in an investment round.” (Michael) • “Every great startup has one fundamental assumption that has a less than 50% chance of being correct, but if true, will give you a 100X advantage in the market.” (Ann)
  77. 77. Build in Diversity from the Start • “Diversity is a clear win.” (Sam) • “Diversity in terms of perspective is very important. I don’t think you can go from a homogenous organization to a diverse organization later on. It’s very difficult.” (Ann) • “To the extent that you can round out one another’s edges, we like to see that kind of yin and yang. In our own firm, me and Mike, you just look at us, and we’re clearly very different. He’s a lover, not a fighter…I’m more of a fighter.” (Ann)
  78. 78. Don’t Believe (or Pay for) the Hype • “[A big self-inflicted problem are] Founders that fall in love with their public image — who want to be on those 30 under 30 lists. Founders who go to networking events. ‘You were out of the office more than you were there.’ When you say it like that, the problem is obvious.” (Sam) • “What I wish was on the [things to ignore] list is f---king PR. The idea of founders as brands is a lie. It’s a lie spread by the people who sell ads for pageviews. Many times, PR can tip the outcome in the wrong direction.” (Michael)
  79. 79. Real Founders Make Money • “Many things are being backed by VC right now that are not businesses — they are public goods, science experiments, or hobbies.” (Michael) • “An opinionated person who wants to start a company ought to know how they intend to go to market. If that doesn’t exist, it reflects a laziness of mind and is a big red flag.” (Michael) • “There are lots of unicorns today that are still searching for that scalable business model.” (Ann)
  80. 80. Individual Flavor • “Joining a successful company has a higher expected value that starting a startup.” (Sam) • “Every big, good idea is going to be subjected to a devil’s advocate, who should be the smartest person you can find, whose job is to try to destroy the idea.” (Michael) • “Treat yourself to shareholders. Convertible debt is a terrible poison in our industry. Ownership mechanisms ensure the best long-term custodianship of those investments.” (Michael) • “One of the most important pieces of a marketplace is not demand, it’s supply. If your supply is loyal, the demand will come.” (Ann)

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