Cheap Thoughts

Today Marc Andreessen joined Bill Gurley, Fred Wilson and a number of other prominent investors suggesting that start-ups are burning through more cash than they should be.  Personally these are three of my favorite VCs so I find it interesting and somewhat telling that all three of them have made similar statements publicly about the burn rates they're seeing. None have gone as far as saying that they are scaling back their investments quite yet but most VC firms have suggested that they are being much more careful when it comes to picking investments.

As I see it we are definitely getting towards the end of the current easy money cycle in tech (as well as the broader economy) and I would be surprised it we didn't see some epic stat-up failures in the next two years.  I'm personally interested to see if there is any correlation between the timing of the downturn in tech and the Fed deciding to raise the interests rates.  With so much money piling into equities and venture over the last few years in search for some reasonable returns it's not difficult to imagine that monetary policy could have a pretty significant impact on the amount of money flowing into private tech companies.  

You would be hard pressed to find a more dry subject to write or read about than to-do lists, but you would also have a hard time finding something that is as effective at keeping the ball rolling when there are a million things you need to do. It would be my guess that there is not a single successful corporate executive, start up founder, product manager or great employee out there who isn't using a to do list.  There is no other tool that I'm aware of that allows you to have a clear picture of what needs to be done even when you feel like your world is spinning a million miles an hour or you're in such a deep hole it seems impossible you'll ever get out.

I started using to-do lists about 9 months ago in the office.  My guess is that using them has helped improve my productivity by at least 3x, if not more.  Whats more interesting is that it actually get me excited at the start and finish of every day.  Knowing that I have a bunch of things to knock out in the morning and not leaving until everything is done (whatever time that ends up being) is a pretty rewarding experience.  

What I still have to work on is prioritizing the lists.  It's easy to try and finish the dozen little tasks and feel like you've accomplished a lot, while the 2-3 really big/painful things that are most pressing remain because you don't feel like attacking them.  In reality no one really cares that you've done the little things if your company or department is now at a standstill because you haven't taken care of the most pressing issues.   

If you're interested I would highly recommend reading The Checklist Manifesto , to see how important to-do lists can be if used properly.  

A close friend and I have had an ongoing debate over Amazon for quite some time.  He argues its overvalued and is generally short on the stock and I strongly believe they are one of the greatest companies of our generation.  Their revenue continues to grow rapidly year over year while net income has remained at almost zero for the past twenty years.  Who is right? 

Although their multiples are obviously quite high they are still, and will remain, one of the greatest companies on earth. I won't get into my entire argument here, but I do want to bring up one point that is more philosophical than anything else. I believe one of the factors that separates Amazon from the other tech giants is their willingness to ruthlessly reinvest profits to fuel future growth.  Apple is sitting on somewhere around $140bn, Google & Microsoft about $50bn each, leaving me to believe they have lost the ability to allocate their capital efficiently.  A failure of imagination.  These companies have hundreds of billions of dollars earning close to no return, meanwhile Amazon is busy creating the future and putting their money where their mouth is.   

As it so often happens I came across a much better description of Amazon's business model from Benedict Evans.  He is one of my favorite tech bloggers and I highly recommend spending some time reading his overview of the company in addition to any of his other posts.

Last night President Obama announced a new set of rules aimed at cracking down on tax inversions.  I take issue with this because during the 2012 elections both President Obama and Mitt Romney agreed that broad corporate tax reform was necessary (they even agreed to the point during their first debate) and something they were both planning on fixing if elected.  Rather than address the consequences of an antiquated corporate tax policy the President has decided to focus on a symptom of the current environment rather than attempting to cure the actual disease.  

What's frustrating is that this approach is the exact opposite from the one being taken on immigration reform.  Many of the most prominent voices in the technology community have been rallying for an increase in the number of H-1B visas granted each year.  The administration has pushed back saying that conversation needs to be a part of the broader immigration reform debate.  Google's Eric Schmidt has gone as far as saying that it is the government's stupidest policy.

It's clear that the current partisan environment in Washington is not going to yield many groundbreaking pieces of legislation in the next couple of years.  If that is the case maybe the administration should work for incremental progress as opposed to trying to pass broad legislative initiatives.

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” 

-Warren Buffett

That is one of the most important and about investing principles I have come across throughout they years.  It is one of the principles that Buffett and other prominent investors have lived and profited by for decades.  But in the context of the venture capital world it doesn't quite work like that, here's why...

One of the defining characteristics of technology is that it is often times a winner-take-all game.  As a result it becomes very difficult to be "scared when others are greedy" because you risk letting on of your portfolio companies lose ground to their competitor because they are willing to continually up their burn rate.  That slow erosion of market share is difficult to regain in a rapidly evolving market, and you are left at a permanent disadvantage.  You competition might gain new advantages from true economies of scale, network effects, public perception, easier access to capital, and a myriad of other conveniences.  

I suppose the questions VC's must then ask themselves is how many of their portfolio companies are they willing to take those risks for?  How many of their investments are they willing to sink millions of dollars into knowing that while burn rates and valuations are sky high their companies have not yet created sustainable business models?  

Most companies are open minded enough to see how technology can improve their internal efficiency (i.e. "I can see the value in this").  What's much more difficult is getting them to recognize that the introduction of new technology is not the end of the story, in fact its only the beginning.  The new technology will also require them to rearrange their internal processes if they want to realize the full benefits of your product.

It's my experience that the struggle of getting companies to understand and adopt these new processes is a much more difficult sell that convincing them that they need your product.  You are likely to encounter a company full of people who are not willing or do not see the value in rebuilding the inner-workings of their organization to accommodate your new and untested product.  In some cases the people who will be responsible for maintenance of the product were not present during the sales process leaving their questions and concerns unanswered.  In others they rejected it outright, but were overruled by the decision maker and are now left to learn about a something they dislike.  

There are a number of different approaches to help get new customers comfortable with all of the changes they are dealing with including; transparency during the sales process about your products capabilities and limitations, readily available support resources, training, and a roadmap for the customer to be able to grasp the progress they've made.  Failure at this stage leads to the most troublesome issue facing software companies today, a high churn rate.  As a result  the on-boarding process for a new client is one of the 3 most important thing companies must do to realize hockey stick growth.  

With the release of the iphone 6 and watch I figured an Apple video would be appropriate this week.  This is part 1 of a recent interview between Apple CEO, Tim Cook and Charlie Rose.  View here

I've always believed that DC has all the ingredients to become a city where tech companies set up shop.  Great weather, a diverse and culturally rich city, and some of the most educated residents in the country are obvious draws.  I also believe that as technology continues to directly impact the lives of so many Americans the tech community's relationship with the government will also continue to evolve.  

With that said it was psyched to hear that Oculus CEO, Brendan Iribe recently decided to donate $31 million to the University of Maryland to build a virtual reality lab on campus.  It gestures like this that draw people to a university campus and lay the groundwork for others to follow.

As a side note lets not forget the UMD has produced some great entrepreneurs over the past 20 years including: Sergey Brin and Squarespace CEO, Anthony Casalena.  

I'm going to post a video one a week, could be an interview, speech, product, anything that piques my interest.  Hopefully everyone will find them as interesting as I do.  Today is a debate of sorts between two of the most interesting and outspoken people people in tech, Peter Thiel and Marc Andreessen.  Enjoy

View video here

I'm pretty late to the game but I just downloaded the AdBlock extension for Chrome, which I use both at home and the office.  I'm only 72 hours in and have realized a significant difference in my web browsing experience, hammered home by being able to see how man ad's have been blocked (currently at 5,243).  Needless to say I couldn't be happier. The removal of ad's from the web creates a much cleaner, less frustrating browsing experience, which I highly recommend everyone try.  What are the ramifications of AdBlock though?  What happens when enough people download it and no longer have to look at the endless barrage of ad's on virtually every page they visit? I anticipate, to the dismay of the Google's Facebook's and Yahoo's of the world, that this will occur in the not to distant future and force us to rethink how we monetize the web.  

Obviously we should all be at least a little thankful for web marketing, being that it has made virtually the entire internet free to anyone who can access it.  But like everything else in life there is always a tipping point, and I expect that with services such as AdBlock we will have to rethink how we monetize the internet at a fundamental level. Furthermore, at a certain point I think we can all agree that there will just be too many ad's for us to consume, no matter how targeted to the individual they are.  Maybe it won't matter at all with the explosion of mobile apps, but I don't expect that to be the case in the short to mid term.  PC sales are up and I personally can't imagine ditching my MacBook for quite some time.