The Art of Scalability

 

The second edition of the Art of Scalability is my book this week. It is coauthored by Martin Abbott and Michael Fisher. As its subtitle suggests, the book is about building scalable web architecture, processes and organisations for the modern enterprise.

In this book, the authors argue that the three key components of that are people, process and technology. In the introduction video, the author talked about how they thought initially that technology was the key, only to realise that people and process are no less important based on their consulting experience. These three components are covered in the first three parts of the book. More details on that to follow.

Before getting into the details, I share with you what I like and do not like about this book. Its content is vast, fascinatingly relevant, and not dry at all. It is engaging enough that I have had no trouble enjoying many chapters from around 3am to dawn nearly all days this week. Just to abandon this book and pick up another one is a very trivial action on my part. But I did not. The discussions, technical or not, are very plainly written. It opens up my view on how to scale. The quantitative approaches towards project management and scalability topics are straightforward. The main negative attribute of this book is repetition. It could be shortened significantly. That said, repeating concepts covered in previous chapters certainly helps to refresh the reader’s memory and improve the understanding of the topic currently under discussion. It could, therefore, be the intention of the authors.

Do I recommend it? Yes. If you do not have a large chunk of time to pursue such a big book, browsing the conclusion and key points sections of each chapter on safari books online can give you a quick overview of each chapter. The figures, tables, equations etc. are all beautifully presented online too.

 

Staffing a scalable organisation

In this part, the book discusses the necessary roles and their corresponding responsibilities in a scalable technology organisation. The lack of clearly defined roles or those with overlapping responsibilities can cause confusion and conflict.

The book then progresses to talk about the two key attributes of organisations: size and structure. Both can affect the communication, efficiency, quality and scalability of the organisation. The two traditional structures are functional and matrix. The third one, agile, is gaining traction for its increased innovation, measured by shorter time to market, quality of features and availability of services. There are pros and cons for both large or small teams. It is important to be aware of the specific pitfalls of each, know where your team is, take necessary steps to mitigate the negative effects of the team size.

Further, the book presents us Leadership 101 and Management 101. I like the guidance on goal setting for leaders. The goals should be SMART: Specific, Measurable, Attainable (but aggressive), Realistic and Timely (or containing a component of time). One piece of advice stands out for me in the Management 101: “spend only 5% of your project management time creating detailed project plans and 95% of your time developing the contingencies to those plans. Focus on achieving results in an appropriate time frame, rather than laboring to fit activities to the initial plan.” When it comes people management, the analogy of gardening is interesting: seeding (as of hiring), feeding (as of developing people), weeding (as of elimination of underperforming people within an organisation).

   

Building Processes for Scale

The second part of the book covers processes. The general idea is to create the right set of processes to standardize the steps taken to perform certain tasks, eliminate confusion and unnecessary decision making, and hence free up the employees to focus on important work. The authors use the following figure to illustrate the different levels of process complexity.

In this part, the authors discusses processes answering these questions:

  • How to properly control and identify change in a production environment?
  • What to do when things go wrong or when a crisis occurs?
  • How to design scalability into your products from the beginning?
  • How to understand and manage risk?
  • When to build and when to buy?
  • How to determine the amount of scale in your systems?
  • When to go forward with a release and when to wait?
  • When to roll back and how to prepare for that eventuality?

One chapter talks about headroom calculation. The authors advise to use 50% as the amount of maximum capacity whose use should be planned. Naturally we all know a discount factor should be used in estimating headroom, but the value to use for discounting is mostly informed from experience. This shows one great benefit of reading this book: informing me of what the authors summarised from their combined decades of experience of helping to scale businesses.

 

Architecting Scalable Solutions

The third part of this book discusses about the differences of implementation and architecture, how to create fault-isolative architectures, the AKF scale cube, caching and asynchronous design for scale. The AKF scale cube method suggests scaling along three dimensions: cloning the entities or data and distributing unbiased work across workers, separation of work biased by activity or data, separation of work biased by the requestor for whom the work is being performed. For illustration purpose, I cite the AKF scale figure from the book below.

The first two dimensions of the AKF scale cube approach are very similar to our scalability studies for Exascale Computing: providing more compute nodes and duplicating data and code on each of them to perform a chunk of work (that can equally be performed on other node), partitioning and assigning a specific piece of work to its most suitable compute node in a heterogeneous environment or partitioning the data among a set of nodes and sending the corresponding compute to each node. The third dimension is to direct the service requests to different subset of nodes, based on the info available about the requests or requesters. The authors point out often these are nested together.

The last part of the book covers the issue of having too much data, grid and cloud computing, monitoring applications and planning data centers. Not to miss the appendices, the examples given there are very illustrative on availability, capacity planning, load and performance calculation.

There is a set of slides from Lorenzo Alberton available on slideshare, talking about the key concepts from this book.

Overall, I enjoyed learning about scalability and how to build scalable architecture through reading this book. It is thanks to reading books like this that the darkness of winter days is slightly more bearable than it would be.

The Startup Owner’s Manual

My book of this week is The Startup Owner’s Manual: the Step-by-Step Guide for Building a Great Company, by Steve Blank and Bob Dorf.

Thanks to Jim Terranova for recommending this book to me. Jim has been an awesome mentor, not only for his generosity of sharing his own vast knowledge about the startup world, but also for bringing the tremendous expertise of his network to me. Two and half hours every week with Jim and his guest is the most exciting way to spend an evening. I am grateful for the opportunities of learning from these great people in Silicon Valley, and the books coauthored by serial entrepreneurs such as Steve Blank.

I always love reading the Acknowledgment chapter of a book. It often tells me a lot about how a piece of work comes to its fruition. I found it fascinating to trace that “how did she/he come to write/do this” beyond the “what has she/he done or written” covered by the book. In the acknowledgement of this book, Steve wrote “As an entrepreneur in my 20s and 30s, I was lucky to have four extraordinary mentors, each brilliant in his field: Ben Wegbreit, who taught me how to think; Gordon Bell, who taught me what to think about; Rob Van Naarden, who taught me how to think about customers; and Allen Michels, who taught me how to turn thinking into direct, immediate and outrageous action.” These four axes underscored by me are great baits for thought.

This book is a how-to reference for aspiring entrepreneurs. Much of the book focuses on the customer development with the help of a business model canvas. This book recognizes that the process to get, keep and grow customers is different for web/mobile startups compared with startups that sell products through physical distribution channels. It provides step-by-step guidance for both types of startup.

The authors advise to not read too much of this book at a time. Unfortunately, I have to ignore this advice as my one-book-a-week project clearly requires me to read it within a week. However, the implicit message is to refer to this book often in the process of doing a startup. I got this point and agree with that this book would be a great companion for the entrepreneurial  journey. I would not go as far as the authors wished for: “your best friend – for the six to 30 months or more that it often takes to begin building a successful, scalable startup business.” No, I prefer real human beings as my best friends. Grammatically correct or not, “best friends” is prefered over “best friend” regardless.

Having not read Steve Blank’s other books, I think one great contribution this book made is the customer development methodology. It is crystallized into a Customer Development Manifesto detailing fourteen principles to guide the process. Two other main focuses of the book are customer discovery and customer validation. I like how the authors explain the two stages: Customer Discovery turns the founders vision into a business model canvas and then into a series of hypotheses. Those hypotheses are turned into experiments, and tested with customers to see if your understanding of the customer problem and proposed solution mesh. Customer Validation expands the scope of the business model testing to see if you can get enough orders or users to prove that you have a repeatable and scalable business model.

The series of checklists provided in this book are very comprehensive. These checklists are meant to help with tracking the progress of the customer development process. The multi-level indentation used in these checklists and the diagrams throughout the book make it very irritating to read on a Kindle. Do not read the e-version. Get a paper copy.

Many passages I highlighted while reading this book are great source of information and advice. With limited time and space, the rest of this post will share with you the Customer Development Manifesto from the book.

  1. There are no facts inside your building, so get outside.

It’s much easier to write code, build hardware, have meetings and write reports than it is to find and listen to potential customers. But that’s what separates the winners from the losers.

  1. Pair customer development with agile development.

Customer development is useless unless the product development organisation can iterate the product with speed and agility.

  1. Failure is an integral part of the search.

One of the key differences between a startup and an existing company is the one that’s never explicitly stated: startups go from failure to failure….If you are afraid to fail in a startup, you’re destined to do so….When something is not working, successful founders orient themselves to the new facts, decide what needs fixing, and act decisively.

  1. Make continuous iterations and pivots.

The best startup founders donot hesitate to make the change. They admit when hypotheses are wrong and adapt.

  1. No business plan survives first contact with customers so use a business model canvas

The difference between a static business plan and a dynamic model could well be the difference between flameout and success.

  1. Design experiments and test to validate your hypothesis.
  2. Agree on market type. It changes everything.

The product/market relationships generally fit one of these descriptions: bring a new product into an existing market; bring a new product into a new market; bring a new product into an existing market and trying to re-segment that market either as a low-cost entrant or as a niche entrant; clone a business model that’s successful in another country….Market type influences everything a company does. Strategy and tactics that work for one market type seldom work for another.

  1. Startup metrics differ from those in existing companies.

Startup metrics should focus on tracking the startup’s progress converting guesses and hypotheses into incontrovertible facts rather than measuring the execution of a static plan. It’s critical that board and management continuously test and measure each hypothesis until the entire business model is worth scaling into a company.

  1. Fast decision-making, cycle time, speed and tempo.
  2. It is all about passion.

The people leading almost every successful startup in history…their brains are wired for chaos, uncertainty, and blinding speed. They are irrationally focused on customer needs and delivering great products. Their job is their life. It is not 9-to-5, it is 24/7.

  1. Startup job titles are very different a large company’s.

Startups need the rare breed: open to learning and discovery – highly curious, inquisitive, and creative; eager to search for a repeatable and scalable business model; agile enough to deal with daily change and operating “without a map”; readily able to wear multiple hats, often on the same day; comfortable celebrating failure when it leads to learning and iteration.

  1. Preserve all cash until needed. Then spend.

Search not for the one-off revenue hits but rather for a pattern that can be replicated by a sales organisation selling off a price list or by customers regularly visiting the website.

  1. Communicate and share learning.

Share everything learned outside the building with employees, co-founders and even investors.

  1. Customer development success begins with buy-in.

Everyone must accept the (customer development) process, recognizing that this is a fluid, nonlinear search for a business model that can sometimes last for years….To succeed at Customer Development, the company must abandon the old model’s emphasis on execution of a fantasy business plan. Instead it must commit to a Customer Development process stressing learning, discovery, failure, and iteration in the search for a successful business model.

By reading these quoted passages, you have probably noticed that the tone of the book might have been a bit too forceful. It shows the authors’ conviction about the content presented in this book. As a reader, if you are sensitive to a “lecturing” style, I would suggest you to read beyond that. The wealth of information and advice in the book is worthy of my time invested in reading it. It is a great go-to book even though it would not be a best friend for me.

Venture Deals

My book this week is Venture Deals by Brad Feld and Jason Mendelson. The most valuable lessons from this book to me are demystifying the funding process, sharing the “secrets” about the venture capital industry in a plain and clear way, and providing many very concrete recommendations on what matters more and what does not deserve much energy dwelling on. The return on the investment of purchasing this book and reading it would be immense, if creating a startup is one’s plan.

Brad and Jason have decades of combined experience in the venture industry. I also infer from the writing that they have different strengths. This book is a great piece of collaboration between them, with the entrepreneur’s perspective contributed by Matt Blumberg. Matt’s perspectives are insightful and direct in conveying what the content covered in each section would mean to an entrepreneur or one to be. I appreciate that the authors share with us many real examples and great advice on handling numerous scenarios. It is impressively informative. During the last few days we experienced an extreme heat wave around Sand Hill, broadly the whole bay and peninsula area. It would have been much more miserable, if not for the pleasure of reading this book.

The book explains the language of the venture industry. This serves as a great reference book to novice entrepreneurs and to those who want to be. It is centered on the economy and on control. First, covering the process of raising fund, how to, who to target, and what to expect as a typical process. Second, dedicating a great amount of writing to the term sheet, perhaps the most critical component if seeking venture funding. Third, explaining the capitalisation table, the pros and cons of using convertible debt. It also has a chapter talking about the recent phenomenon of crowdfunding. The chapter on How Venture Capital Funds Work helps the entrepreneurs to get the perspective from the other side of the table and know how to cooperate or leverage on that knowledge. The chapter on Letters of Intent informatively explains the potential acquisition stage.

Many insights from this book are applicable not only when you try to raise fund for your business endeavor, but also in many other professional and personal scenarios, especially the chapter on negotiation tactics. This book shows that being a good entrepreneur requires a varied set of skills. Although one can aim to develop as much as one possibly can, having partners to work together as a team through the journey potentially would stand much more chance to succeed, barring the numerous cases where the team has severe frictions and falls apart.

Below I select a couple of instances of specific advice among the many from the book.

On negotiation:

There are only three things that matter when negotiating a financing: achieving a good and fair result, not killing your personal relationship getting there, and understanding the deal that you are striking….Pick a few things that really matter – the valuation, stock option pool, liquidation preferences, board and voting controls – and be done with it….When you are going to negotiate your financing, have a plan. Have key things that you want, understand which terms you are willing to concede, and know when you are willing to walk away. If you try to determine this during the negotiation, your emotions are likely to get the best of you and you’ll make mistakes. Always have a plan.

Having an open and collaborative approach with your VC in the context of an acquisition…Being clear with your investors about what is important to you and your team early in the negotiation can help set a tone where you and your investors are working together to reach the right deal structure, especially when the acquirer is trying to drive a wedge between you and those investors. A negotiation in a state of plenty is much easier than a negotiation in a state of scarcity.

On raising money the right way:

Don’t be a machine. Be Human. Be yourself, let us get to know you, and become inspired by you. As the average length of relationship between a VC and entrepreneur lasts longer than the average U.S. marriage, this is a long-term commitment.

The authors’ advice on patents is very pertinent to me, as I had worked on filing a bunch and perhaps overemphasized the value of patents.

When you are working on software, realize that patents are, at best, defensive weapons for others coming after you. Creating a successful software business is about having a great idea and executing well, not about patents, in our opinion.

The authors recommend “The Entrepreneur’s Guide to Business Law” by Constance Bagley and Craig Dauchy as the best book ever written on legal issues for entrepreneurs. I shall append it to my list of books to read for 2018.

The Founder’s Dilemmas

In the last a few years, multiple friends recommended The Founder’s Dilemmas by Noam Wasserman to me. I did not pick it up till my recent trip returning from Canada. One evening, a friend, A.J., compared the startup environment in Canada with that in Silicon Valley. He commented on how this environmental difference affects the success and failure of startups, besides many other factors. That conversation reminded me to read this book.

The subtitle of this book tells the gist of it: anticipating and avoiding the pitfalls that can sink a startup. It consists of three major parts followed by a conclusion. The first part talks about the pre-founding career dilemmas faced by the entrepreneurs. Part two presents the founding team dilemmas over multiple chapters: the solo-versus-team dilemma; relationship dilemmas – flocking together and playing with fire; role dilemmas – positions and decision making; reward dilemmas – equity splits and cash compensation; the three Rs system – alignment and equilibrium. Part three covers dilemmas beyond the founding team, specifically hires and investors: hiring dilemmas – the right hires at the right time; investor dilemmas – adding value, adding risks; failure, success and founder-CEO succession. Finally, the last but one of the most distinctive points I learned from this book: the wealth versus control dilemmas.

Some messages presented in this book read familiarly, as I previously read Peter Thiel’s Zero to One and various others, and the Creative Entrepreneur: Innovation Through Design Thinking programme I attended at Stanford referenced the Founder’s Dilemmas extensively. Taking an extensive research approach adds great credibility to the findings and arguments presented this book. I realize there could be many flaws in these studies. But the essence of reading a book like this is not to follow its prescription, but to establish a certain amount of awareness of the unknown based on others’ experiences, and when appropriate to integrate those options into our knowledge set to be called upon when the time comes. To be fair to the author, there is no trace of intention of prescribing any rules for the entrepreneurs-to-be in the book. Furthermore, as the author put it: we know amazingly little about the chief perils that beset the entrepreneurial activity we so often acclaim as the very heart and soul of the economy. So for the scarcity reason alone, this book is worth a read.

My takeaway from the book is: know yourself and your options at each stage of founding a startup, the potential consequences following each of your options, whether and how you can adapt yourself to match with the varying demand from each growth stage assuming you have not failed yet, the inevitable influence from being wealth-driven or control-driven, ways to adjust your approaches and mitigate the danger of failure.

A number of passages are fresh and educational to me. They either break down my old belief or broaden my view by providing arguments from new angles. Here are some examples.

Each of these founders aspired to build a high-impact startup, but “impact” meant very different things to each; to the financially motivated, it tended to mean a large gain in wealth, but to the control motivated, it tended to mean that the startup would bring to the world the product or service they envisioned.

Accumulating more experience is far less valuable if that experience does not shape the mental model in relevant ways (or, worse, if it shapes the mental model in counterproductive ways)….A broad range of work and educational experiences is indeed associated with a significantly higher willingness to become self-employed.

Among the founders in my dataset, only 18% had management experience before founding their startups, including 19% of technology founders and 15% of life science founders. (This is consistent with another study that found that technical founders tend to lack prior managerial experience and may even lack interest in developing managerial skills.)

Founding a startup requires the knitting together of all of the functions required to make an organization run effectively, from product development to marketing to sales to finance to human resources. Having prior experience in those functions arms the founder with the ability to understand how each one operates on its own and as part of the larger whole.

Prioritization is even more important in a startup than in a stable business. I realized that I needed people to not only prioritize what to do, I needed them to create not-to-do lists. It was easy for people to find new products for us to bring to market, new pieces to add, new customer segments to go after… when you are smaller, if you go after something, it takes precious resources. You are also moving a lot faster, so you can harm the organization…There’s much more at risk, much more damage you can do.

One hears a lot about “following your passion.” Potential founders should avoid the mistake of thinking that their passion excuses them from a rational assessment of their circumstances…. The heart is forever making the head its fool.

I learned that leadership is all about taking in information and making a decision – shared information but not shared decisions. Make decisions yourself and live with them. Another key is speed. I want a single decision maker, even below me. If I have a VP of operations, he makes the call about operations.

There are three recurring categories of founding-team decisions: relationships, roles and rewards – each involving trade-offs and tensions.

Researchers have already observed that specific founding experience is more valuable for startup growth than are overall work experience and educational human capital.

Knowing for sure that someone has to go is hard, but I have learned that if I start thinking someone needs to go, they need to go. It is always the right call to upgrade when you realize someone can’t or isn’t succeeding.

One of the most critical inflection points in the evolution of a startup: the “succession” from a founder-CEO to a “professional” (nonfounding) CEO.

Managing a technical team is quite different from managing multiple functions that must interact and with most of which the CEO has little direct experience. At this point, the startup’s finances and metrics also become much more complex, requiring a level of financial sophistication possessed by few founder-CEOs. The leap from leading product development to leading a multifunction startup challenges not only the founder’s skills, but – perhaps even more profoundly – his or her values.

Founders who refuse to give up ownership and control in either or both of these ways will be less likely to attract the resources they need and thus not be able to fully pursue the opportunities they envision. It appears, then, that each of our founding dilemmas is also a dilemma of what resources to acquire at what cost in ownership and control. This is the dilemma behind all the other dilemmas.

My analyses also suggest that founders who keep control personally give up a significant amount financially. Such founders tend to build a less valuable startup while keeping a larger share of equity in it, but it turns out that the value-seeking founder’s “smaller slice of a larger pie” is generally greater than the control-seeking founder’s “larger slice of a smaller pie.”

The hardest decision a founder, inventor, or entrepreneur needs to make is “when do I give up some control to grow the company”.

The Hard Thing About Hard Things

The Hard Thing About Hard Things is written by Ben Horowitz. This book is hard for me to summarize. The lessons learned from the book are invaluable, but by not reading the stories themselves, you would only comprehend its gist with a large discount. In fact, most of the advice offered in the book might be covered by Ben’s blogs. As he said at the beginning, this book is his attempt to tell the back stories from where those insights were derived.

In the first a few chapters, Ben shared with us his years of experience with SG, an unsuitable startup, Lotus, Netscape, Loudcloud and Opsware, and finally moved on to found the venture capital firm Andreessen Horowitz with his long-term business partner Marc Andreessen. I found his explanation on why he has worked well with Marc over many years very fascinating: “Most business relationships either become too tense to tolerate or not tense enough to be productive after a while. Either people challenge each other to the point where they don’t like each other or they become complacent about each other’s feedback and no longer benefit from the relationship. With Marc and me, even after eighteen years, he upsets me almost every day by finding something wrong in my thinking, and I do the same for him. It works.

Ben’s honesty and courage of sharing all these behind-the-scene stories is very admirable. A few interesting stories about his early years as a young boy and student shine the lights on how some of his worldview was developed, particularly how not to judge by appearance and to separate facts from perception.

Based on the lessons distilled from his time at Loudcloud and Opsware, Ben offers advice on the many challenges that a startup CEO might face. For example: how to survive the struggle, communicate with the team, hire and train people, and build the company culture,  use different approaches for wartime from those for the peacetime. He also covers how to become elite at giving feedback, suggestions on handling the accountability and creativity paradox, how to evaluate CEOs, deciding whether to sell or not sell your company and so on. I’d recommend all managers or aspiring ones to read the sections about employee training and retention, what features a good vs poor organisation has, what the characteristics of being a good product manager are vs those of being a bad one.

I particularly like the discussion about making yourself a CEO. Do not despair, if you as a CEO feel incompetent doing some of your work and fear that you do not have the talent to handle being a CEO. Take Ben’s advice: “This is the process. This is how you get made.”  “Being CEO requires lots of unnatural motion. From an evolutionary standpoint, it is natural to do things that make people like you. It enhances your chance for survival. Yet to be a good CEO, in order to be liked in the long run, you must do many things that will upset people in the short run. Unnatural things.

Here are a number of practices and lessons covered by Ben in the book that stood out for me. As in all previous posts, the words in italic are quoted from the book.

When it came to the realisation that LoudCloud had to reset its earning guidance to the investors, facing the tough choice of either minimizing the initial damage by taking down the number as little possible (as their immediate quarter number is met, but the whole year forecast is way off) or minimizing the risk of another reset, Dave Conte advised to Ben: “No matter what we say, we’re going to get killed. As soon as we reset guidance, we’ll have no credibility with investors, so we might as well take all the pain now, because nobody will believe any positivity in the forecast anyway. If you are going to eat shit, don’t nibble.

Some things are much easier to see in others than in yourself.

Needs always trump wants in mergers and acquisitions.

Michael Ovitz advised to Ben and his team when they were working on selling part of Loudcloud to potential bidders (IBM and EDS):

Gentlemen, I’ve done many deals in my lifetime and through that process, I’ve developed a methodology, a way of doing things, a philosophy if you will. Within that philosophy, I have certain beliefs. I believe in artificial deadlines. I believe in playing one against the other. I believe in doing everything and anything short of illegal or immoral to get the damned deal done.

What a clear message! Another piece from Michael from the book: Going past the deadline is a better move than not having one.

After the deal of selling part of Loudcloud to EDS was signed, Bill Campbell advised Ben to stay at Loudcloud instead of going to New York to announce the deal: You need to stay home and make sure everybody knows where they stand. You can’t wait a day. In fact, you can’t wait a minute. They need to know whether they are working for you, EDS, or looking for a fucking job. Retrospectively from Ben, “that small piece of advice from Bill proved to be the foundation we needed to rebuild the company. If we hadn’t treated the people who were leaving fairly, the people who stayed would never have trusted me again.”

I move onward, the only direction. Can’t be scared to fail in search of perfection.

One great characteristic of Ben’s stuck me while reading the book: the extreme simplicity of his communication style. The book provided many examples of his messages to the employees, advisors etc. One example:

“You have now heard everything that I know and think about the opportunity in front of us. Wall Street does not believe Opsware is a good idea, but I do. I can understand if you don’t. Since this is a brand-new company and a brand-new challenge, I am issuing everyone new stock grants today. All that I ask is that if you have decided to quit that you quit today. I won’t walk you out of the door – I’ll help you find a job. But, we need to know where we stand. We need to know who is with us and who we can count on. We cannot afford to slowly bleed out. You owe it to your teammates to be honest. Let us know where you stand.”

As painful as it might be, I knew that we had to get into the broader market in order to understand it well enough to build the right product. Paradoxically, the only way to do that was to ship and try to sell the wrong product. We would fall on our faces, but we would learn fast and do what was needed to survive.

Throughout the book, the importance of a great team is crystally clear. There are numerous examples in the book showing that how many brilliant minds were part of Ben’s journeys. For example, Anthony Wright was described by Ben in the book as: self-made, super-determined, and unwilling to fail. Anthony had an uncanny ability to quickly gain deep insight into people’s character and motivations. I was particularly drawn to how Anthony handled Frank regarding Frank’s plan of dropping Opsware software completely and immediately. “Frank, I will do exactly as you say, I’ve heard you loud and clear. This is a terrible moment for you and for us. Allow me to use your phone, and I will call Ben Horowitz and give him your instructions. But before I do, can I ask you one thing? If my company made the commitment to fix these issues, how much time would you give us to do that?” That rhetoric and the subsequent answer probably saved Opsware from a lot trouble.

Whenever a large organization attempts to do anything, it always comes down to a single person who can delay the entire project.

It is a good idea to ask: what am I not doing?

Startup CEOs should not play the odds. When you are building a company, you must believe there is an answer and you cannot pay attention to your odds of finding it. You just have to find it. It matters not whether your chances are nine in ten or one in a thousand; your task is the same.

Sadly, there is no secret (to being a successful CEO), but if there is one skill that stands out, it’s the ability to focus and make the best move when there are no good moves. It is the moments when you feel most like hiding or dying that you can make the biggest difference as a CEO.

The struggle is where greatness comes from.

CEOs should tell it like it is. My single biggest personal improvement as CEO occurred on the day when I stopped being too positive.

When hiring executives, one should follow Colin Powell’s instructions and hire for strength rather than lack of weakness.

We take care of the people, the products, and the profits – in that order.

Being too busy to train is the moral equivalent of being too hungry to eat.

When you think there are things you can count on in business, you quickly find that the sky is purple. When this happens, it usually does no good to keep arguing that the sky is blue. You just have to get on and deal with the fact that it’s going to look like Barney for a while.

There are two kinds of cultures in this world: cultures where what you do matters and cultures where all that matters is who you are. You can be the former or you can suck.

As a venture capitalist, I have had the freedom to say what I want and what I really think without worrying what everybody else thinks. As a CEO, there is no such luxury. As CEO, I had to worry about what everybody else thought. In particular, I could not show weakness in public. It would not have been fair to the employees, the executives, or the public company shareholders. Unrelenting confidence was necessary.

Embrace the struggle….Embrace your weirdness, your background, your instinct.

Zero to One: Notes on Startups, or How to Build the Future

This book came out of a course about startups that Peter taught at Stanford in 2012. My overall experience of reading this book front to back once and selected passages twice has been a very unsettling one in a positive way. It would be an understatement to say it is thought-provoking.

Many opinions shared in this book shake up the conventional beliefs, particularly the part dissecting how profoundly flawed our education system is. For example, educating people like a manufacturing pipeline, pushing people to think alike, being competitive for certain metrics, being “good” in many areas but “great” at none etc. Peter’s discussion on competition and monopoly challenges the conventional view that most of us are accustomed to: that competition is good and monopoly is bad. Partially to blame are the educational experiences we all had in competing against our peers to get ahead at school. Partially to blame is the distortion of our perceptions of the two as a result of legislation, morality or bending the facts to support our arguments. From an entrepreneur’s point of view this conventional view is not necessarily correct. This part of the book was one of the most stimulating debates for me. With the belief that I think for myself and do not agree blindly with others, I found myself taking the risk of being unoriginal and agreeing with his points on monopoly and competition. Last but definitely not least, compared with many other (non-fictional leadership/management/entrepreneurship) books I read recently, the writing demonstrates that the author has very high-powered and unyielding points of view charged with great logical reasoning. In my imaginative world, by reading this book I experienced what an ancient Roman citizen had while listening to the great orators debate in the Roman Forum (such as Cicero, about whom I wrote three blog entries earlier). A law school education certainly contributed to this. This supports one argument in my previous post on immersing in a new domain and broadening the frame of reference. To me, a human life is wasted, if you do not have, and are willing to defend, strong beliefs about what matter to you, under the condition that you stay open-minded and let your beliefs evolve as you gain more insights.

The book started by asking a contrarian question: What important truth do very few people agree with you on? Most answers to the contrarian question are different ways of seeing the present; good answers are as close as we can come to looking into the future. Peter classifies the progress we could make towards a future into two forms: horizontal (or extensive) progress and vertical (intensive) progress. The former means copying what has worked before, going from 1 to n; the latter is about doing new things, going from 0 to 1. Globalisation is a typical approach of horizontal progress, while technology is the vertical one. Circling back to the contrarian question, Peter’s answer is that most people think the future of the world will be defined by globalization, but the truth is that technology matters more. The argument is supported with a few examples. The gist is that globalisation without new technology is unsustainable.

Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding. This book has broadened my view on what qualifies as proprietary technology. It is not limited to patents. Proprietary technology must be at least an order of magnitude better than its closest substitute to lead to a monopolistic advantage. Depending on how you view this, proprietary technology is rather more broadly defined than developing new patents or acquiring patent rights; or, viewed more restrictively, a new solution that is only mildly better than the existing widely adopted products might not be significant enough to attract the customer base.

Below I share with you some selected passages from the book that have stirred up a lot of thinking on my part.  

Today’s “best practices” lead to dead ends; the best paths are new and untried.

The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative. Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.

Brilliant thinking is rare, but courage is in even shorter supply than genius.

Positively defined, a startup is the largest group of people you can convince of a plan to build a different future. A new company’s most important strength is new thinking: even more important than nimbleness, small size affords space to think. This book is about the questions you must ask and answer to succeed in the business of doing new things: what follows is not a manual or a record of knowledge but an exercise in thinking. Because that is what a startup has to do: question received ideas and rethink business from scratch.

Ask yourself: how much of what you know about business is shaped by mistaken reactions to past mistakes? The most contrarian thing of all is not to oppose the crowd but to think for yourself.

There’s an enormous difference between perfect competition and monopoly, and most business are much closer to one extreme than we commonly realize. The confusion comes from a universal bias for describing market conditions in self-serving ways: both monopolists and competitors are incentivized to bend the truth…..Non-monopolists exaggerate their distinction by defining their market as the intersection of various smaller markets….Monopolists, by contrast, disguise their monopoly by framing their market as the union of several large markets.

Rivalry causes us to overemphasize old opportunities and slavishly copy what has worked in the past.

If you focus on near-term growth above all else, you miss the most important question you should be asking: will this business still be around a decade from now? Numbers alone won’t tell you the answer; instead you must think critically about the qualitative characteristics of your business.

The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.

As you craft a plan to expand to adjacent markets, don’t disrupt: avoid competitions as much as possible.

Iteration without a bold plan won’t take you from 0 to 1.

We don’t live in a normal world; we live under a power law (distribution).

The most valuable kind of company maintains an openness to invention that is most characteristic of beginnings.

The most valuable business of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.  

Finally, there are far too many intriguing discussions in this book for me to quote them all. To me, this is one of those books of which I will flip through some pages after having new experience and re-think. The final words in the book would be a great parting message here:

Our task today is to find singular ways to create the new things that will make the future not just different, but better – to go from 0 to 1. The essential first step is to think for yourself. Only by seeing our world anew, as fresh and strange as it was to the ancients who saw it first, can we both re-create it and preserve it for the future.