it takes two

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p. 63:

‘It takes two to make an accident.’

Here is the page where we really get to know Jordan Baker, the other woman at the center of the novel.  Daisy is the one who has become legend, the unforgettable golden girl for whom all was dreamt and all was lost.  But I always liked Jordan better, not least because she is revealed here to be an incurable liar.

When Nick scolds her for being a careless driver, she first lies that she is careful, then lightly insists that she doesn’t have to be careful since other people are.  Nick points out that she’ll be in trouble if she meets someone as careless as herself, and she deftly turns the conversation to their relationship, declaring her affection for solid, careful Nick.

Nick knows this lovely girl is a liar, but ‘Dishonesty in a woman is a thing you never blame deeply – I was casually sorry, and then I forgot.’ Is a thing truly forgotten if it’s remembered well enough to write down later?  Jordan’s not the only one with a loose concept of the truth.  It takes two.

the way we were

~ ginsu ~ 3 Comments

“The Streisand Effect” refers to an attempt to censor a piece of information that backfires because it brings more attention to the information than would have occurred without the attempted censorship.

At the risk of Streisanding the hell out a minor comment, I’ll talk about something I’d rather censor.  Noting the rather dated news of my departure from my prior company, an anonymous commenter to an anonymous and erroneous blog post recently said:

Thank goodness they finally got rid of this guy. He was the worst hire the company ever made.

Here’s what I have to say about that:  I like to think it could very well be true.

I like the idea that there are some people who took a good hard look at the history and said, ‘Yep, this guy was terrible, he almost destroyed the place, good bye and good riddance!’ Because that would mean that I was in a position to make some important decisions, and that I made decisions at the risk of being unpopular – that I did much more with the opportunity than just quietly collect a paycheck.

Now, please don’t misunderstand this:  I’m not saying that the critics are wrong, that they don’t understand, that I was both righteous and right.  Even my own review of my Linden tenure welcomes ambiguous judgment.  Obviously, I think and I hope that I did good things, but I could certainly be wrong, I could certainly be delusional.

But the one thing I don’t want to be is simply in the middle.  I don’t want anyone’s assessment to be, ‘Well, he was neither among the worst nor among the best, he was just there and he didn’t do a damn thing.’ To me, that’s a lot worse than being the worst.

So, if you had any opportunity to think about my work, and you thought I was the worst, then I thank you.  Let me give you my special gift in return:

I hereby waive any right I may have to sue you for libel for any statements you make about my work at Linden Lab, so long as:

  • your statements are posted exclusively by you on a blog open to anyone with Internet access; and
  • you post with your real name; and
  • the blog accepts comments from anyone; and
  • the post in question prominently links back to this blog post.

Simple enough, yes?  Forget Streisand, I call this the Safety Dance.

And you can act real rude and totally removed
And I can act like an imbecile

the price they paid

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Cue the background music [link to a streaming music play].

Watching the gyrating reports on the price paid for Apple’s purchase of music streaming service LaLa reminds me that acquisition prices are widely misreported and often misunderstood even when correctly reported.  Some people only want to know one number – the price paid – without caring about the many other numbers that are relevant to understanding who got what:  the company’s cash on hand, outstanding debt, financing history, and other numbers relevant to the capitalization of the company.

Even the best reporting often misses one important element of the analysis:  newly issued options (or other equity) shortly before the deal.  I like to call this the “options icing” – and it’s a very important concept for understanding what really happened.  For company founders, management and especially employees, it can mean the difference between a happy and tragic outcome for their startup.  The “icing” is both icing on the cake for employees, and also a good way to ice a bad cap table.

The options icing doesn’t come into play very often, but it is more common when the acquiror is a large, sophisticated tech company that historically rewards employees with equity incentive.  This kind of acquiror understands that the future success of the acquired product is less about the technology and more about the personnel continuing to prosper in the big company environment.

Let me make up an example.  A big company has got a problem if the market value of a 50-person company they want to acquire is only $20 million, while the investors have already put in $35 million into the company.  Typically, the investors have to be paid back first before anyone else gets paid, which means that employees would get nothing, which means that the big company would spend $20 million and get a bunch of seriously disgruntled employees, who will probably leave the company pretty soon after the deal. Even if the investors agree to restructure their liquidation preference, say by half, you still have very little left over:  $17.5 million to investors, $2.5 million for employees.  Let’s say that 1/2 of the employee stake is owned by 2 founders, and then you’re down to only $1.25 million for 48 other employees.  Nobody is happy with that outcome.

Here’s where the options icing comes in.  The company could issue a huge pool of options to employees who would be critical to carrying the product forward (in any scenario, whether acquired or not).  Say they issue $10 million worth of new options.  The magic here is that a smart acquiror will be willing to pay for some or all of those new options.  Even though the company is still only worth $20 million, the acquiror could be happy to pay $30 million if the options are issued to the right folks with the right terms.

The “right terms” include typical vesting terms, so the employees receiving options are incented to do great work for the acquiror.  From the employee’s perspective, this is fair because it is a whole lot better than the stick in the eye they would have been getting under the $20 million scenario.  From the acquiror’s perspective, this is a good deal because rather than flushing $20 million down the toilet, they are making a rational $20 million purchase, with a nice $10 million compensation package that addresses the compensation disadvantage that big companies face in competing with startups.

One of the key reasons that people work in startups is that you can really move the needle for the company’s value.  In financial terms, if you are part of a startup that creates, say, $100 million in value, then it’s a pretty neat feeling to have made nothing into $100 million, and you can get rewarded handsomely for that.  But if you are in a big company that is worth $100 billion, nobody will really notice, or even be able to tell, that you added $100 million in value – it certainly won’t make much of a difference in the stock price.  And that creates a compensation disadvantage for big companies that are trying to motivate their employees with equity grants.

But in the scenario above, the big company can pay for $10 million in stock grants to motivate a relatively small number of employees to execute on a product they clearly understand.  If these employees can turn that $20 million business into a $100 million business, they will be rewarded for it in a manner comparable to their rewards if they had remained an independent company.  That kind of compensation is generally not possible to award in a big company other than in this scenario because of internal “fairness” issues.

The beauty of all of this is that it is one of the few situations in this rotten ol’ world that deal dynamics favor the rank-and-file employees.  Most corporate dynamics, especially in big deals, have a tendency to screw the little guy.  But in order for this situation to be a good outcome for everybody, the rank-and-file employees have to be rewarded in a fair manner.  Coming back to my example above, the options icing can be win-win-win all around:  The investors can get a little tip for agreeing to the restructuring and the new equity; let’s say they get $18 million, just a bit more than they would have made otherwise.  That leaves $12 million for the employees – say the two founders take $3 million, more than twice as much as they would have made under the $20 million deal.  The other employees get $9 million, more than 7 times as they would have made.  The acquiror paid $10 million more, but as described above, this is money that really makes sense to spend, and it’s more like incentive compensation than it is acquisition consideration.

And this deal gets reported as a $30 million price paid.  But really from the right perspective it should be regarded as a $20 million deal.  Now, I am not saying that anything like this is what happened in the Apple-LaLa deal – actually the discrepancy in the reported numbers is too large to be explained by options icing alone.

most affectations

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p. 62:

most affectations conceal something eventually, even though they don’t in the beginning

Here’s another casually sharp insight into human nature.  From time to time, everyone pretends to be something they’re not.  And sometimes this pretense is just a costume, worn as if for a holiday party, to be discarded and forgotten after the festivities of the moment expire.  But sometimes the pretense is aspiration in disguise; the costume turns out to be not a drapery over skin, but a layer emerging from underneath.

privacy matters

~ ginsu ~ 3 Comments

What is going on with Facebook’s constant gyrations about privacy policy?  Does anyone really care?

A little while ago I suggested that online privacy concerns are best addressed by free market solutions, not governmental regulation.  I’ve discussed the topic with quite a few entrepreneurs, investors and professional marketers, and the overwhelming view in that group is that regular consumers just don’t care about online privacy.  “They” say:

  • privacy is too complicated a topic for consumers to understand
  • no one reads privacy policies
  • consumers can be distracted from privacy concerns with the offer of just about any shiny object

Much of that might be true – but I also took the time to talk to a bunch of “regular” consumers.  And these things are definitely true:

  • consumers know that their privacy is being compromised by many online services
  • consumers do not like being taken for granted
  • consumers will avoid services that abuse their information, and will seek services that use their information properly

These two sets of “truths” are not mutually inconsistent.  To me, they add up to:   Online services can gain a competitive advantage by giving consumers the most sensible default choices along with the right advanced options for privacy – make it simple, but make it right.  I think Facebook believes this, and that’s why they keep tinkering with their policies.  They understand that a lot of their initial attraction was a result of making different privacy assumptions than more open services like FriendFeed and Twitter.  They know that even if no one ever reads their privacy policy, if they make the wrong choices about privacy, they will lose users.  As they saturate their available audience, they have to figure out how to strike the right balance among their different demographic bases, all the while competing with the advantages that more open services have.

These are extremely nuanced choices, but getting them right makes the barrier to competitive threat all the more defensible.  And these are product choices; this is something that many I’ve talked to misunderstand:  people think that this privacy stuff is just legal mumbo jumbo or regulatory mishmash.  That’s plain wrong – laws and regulations are just the cart behind the horse.  In a social product where community is paramount, policy choices are product choices.

a short affair

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p. 61:

I even had a short affair with a girl who lived in Jersey City and worked in the accounting department but her brother began throwing mean looks in my direction so when she went on her vacation in July I let it blow quietly away.

Nick reveals a lot about himself by how little he explains about his life outside his own definition of the story.  On this page, he’s trying to convince us that his summer in New York wasn’t dominated by all things Gatsby.  A short “affair” (whatever that means, in his day) might be cause for several pages or even a chapter in a more conventional account of Nick’s life.  But this sentence is all he says about the girl, because he isn’t here to tell you about himself, the ostensible story is supposed to belong to Gatsby.

But I’m curious.  Just what does an affair mean to Nick?  What sense of honor or cowardice allows a “mean look” to alter his pleasurable pursuits, whether frivolous or serious?  Is the description “blow quietly away” an accurate account from the perspective of our Jersey girl?

None of this gets any exploration.  Instead, later down the page Nick devotes a substantial narrative to an aimless fantasy of following a romantic woman in his mind’s eye.  She’s a New Yorker – he begins his account with a statement familiar to all transplants to the big city:  ‘I began to like New York, the racy, adventurous feel of it at night and the satisfaction that the constant flicker of men and women and machines gives to the restless eye.‘

As he goes on to imagine what it would be like to spot a woman in the crowd on Fifth Avenue and follow her home for nothing more than a smile, we realize that this romantic fantasy captures the essence of what he wants but didn’t get from Ms. Jersey City.  He gave the real “girl” a cursory sentence, and devoted a fulsome paragraph to a fantasy woman – and in that contrast told us more about himself with omission than he could have with description.

google killer

~ ginsu ~ 3 Comments

By my own admission, I’ve become a complete hack, for using the term [blank]-killer.  A lot of people are asking whether News Corp would really block its content from Google’s index, and make a deal with Microsoft for exclusive search access.  And if they did, and others followed, would this represent a serious threat to Google?

The tech-über-alles crowd would have you believe that “de-indexing” from Google would be suicide for any publisher.  The assertion there is that Google drives the majority of web traffic, so if you’re not findable through Google, you might as well not be on the Internet.

But that assertion flies in the face of another observation from the technoscenti – social media like Facebook and Twitter are becoming increasingly important as traffic drivers (though this importance may be overhyped).  We may be heading towards a future where the links are shared through social media are more valuable than search links.

More importantly, and against the prevailing wisdom in some circles, content still matters.  People use media services because of the content on it.  Other factors are important too:  the features must be complete, the UI has to be easy, the price has to be right, yadda yadda yadda.  But would any of those other factors make up for terrible content?  No, content is, if no longer king, still the jewel in the crown.

If Bing is able to be the exclusive search partner for the right content, Google is dead.  Of course, what’s “right” can vary quite a lot from person to person.  For me, it’s as simple as two publications:  If the New York Times and Wikipedia are de-indexed from Google, I’m going to stop using Google in favor of the search engine that has those two.  I might think it’s unfair, I might think it’s a triumph of soulless MBAs over tech heroes, I might think it’s the desperate grasping of dying empires.  But I want the content I want, and those principles aren’t enough to prevent me from switching.

Bing doesn’t have to make deals with every content provider, just a dozen or so critical ones that will cause another 40% market share gain (they’re at 10% now).  Sure it’ll be expensive to acquire the best content, but Microsoft’s got more cash than Google.  Once it’s 50/50, it’s anybody’s ballgame but the advantage goes to the one who has the content.

I’m pretty sure that Google is not going to sit back and smugly assume that Murdoch’s gambit will fail.  They’re going to get involved, they’re going to try to start locking down their own partnerships.  If I were them, I’d start with Wikipedia, one of the most important search result destinations on the web – it’s in the top five results of just about any search you do.  Sure, they’re a non-profit, but non-profits need money too.

sudden emptiness

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p. 60:

A sudden emptiness seemed to flow now from the windows and the great doors, endowing with complete isolation the figure of the host who stood on the porch, his hand up in a formal gesture of farewell.

I love the energy ascribed here to emptiness, a concept that is ordinarily quiet and passive.  Here the emptiness is a kinetic force that fills the house and overflows out the windows and doors, so powerful that it blankets Gatsby in a protective cocoon.

Another wild party is over, and the host stands in the doorway alone, with his true mission still incomplete – the girl of his fevered dreams didn’t come.  He’s chased her across years without seeing her, other than in his boundless imagination.  Now she’s just across the bay, and surely she must see his mansion alight with festivity, night after night, a beacon calling to her to come and join him at last.  But she doesn’t come this night, and all the people and music and laughter that evening have only fed the emptiness which now fills the house and his heart.

the age of illusions

~ ginsu ~ 1 Comment

The NY Times asks what we should name this decade.  I’m going to go with The Age of Illusions.  It certainly matches the experience of those of us in the United States.

In the very first minute of the decade, we found out that the looming Y2K disaster wasn’t real.  Then the dot-com bubble burst, proving that vast paper fortunes weren’t real.  Most of us voted against GWB for president in 2000, but he took office anyway, showing that popular democracy isn’t real.  The September 11 attacks seemed too horrible to be true, and we began a War on Terrorism with no real evidence that our target was involved in the attacks.  But the real illusion turned out to be the hope that “nothing will ever be the same again” – we quickly returned to ironic humor and emotional distance.

The Web 2.0 bubble came and went without a meaningful public company being created.  Massive investments in complex financial instruments that ultimately had no real basis for valuation led to a worldwide financial crisis.  A nation that stands as the apotheosis of capitalism turned to massive government bailouts, ultimately saving at least one sector of the economy:  big banking, whose leaders rewarded themselves handsomely for work they didn’t do.

Yep, the Age of Illusions it is.  Naughty Aughties, don’t let the door hit you on the way out.

new york state of mind

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There’s nothing like New York City – this has been said so many times in so many ways that it hardly bears repeating.  But the compulsion to declare love for New York is like the compulsion for love itself:  it doesn’t matter that countless generations have found this magic and proclaimed their discoveries to the world, each person still engages in a distinct journey for a song of one’s own heart.

I was born in New Jersey, grew up about 45 minutes outside of the city, and went to school and started my career in NYC.  I’ve been out in the San Francisco bay area for over a decade now, and I’m firmly rooted here with family and career, but the thought of going back to The City (the one and only “The City” – pretenders begone!) still occasionally buzzes in my head like a bee in a speeding car.  However, on a trip back to New York last week, I realized that one of the things that prevented me from moving back is my own very New York attitude.

Over the past few months, a few New York based technoscenti have carried a conversation about NYC as a startup environment.  Chris Dixon said conditions are ripe for a new NYC tech revival, Fred Wilson and Charlie O’Donnell agreed but noted that NYC has been a strong tech scene for years, and Dixon and Wilson came together to agree again that the NYC startup sector is special.  All this caused me to reflect on why I left the city that I love to pursue a tech career in Silicon Valley, and why I’d do it again.

It all goes back to why I went to NYC in the first place.  I was learning the law, I wanted to be a dealmaking lawyer.  And while there’s law and lawyers all over the world, the pinnacle of the practice is in New York.  Routine transactions in New York would be considered fantastically complicated almost anywhere else, and complex transactions in New York are so far above other places that they can’t be considered the same category of endeavor at all.  So if I was going to be a lawyer, I had to try to do it in the belly of the beast.

And it was a great time, but after a few years I realized I wanted to be more connected to the creation of something from nothing, rather than the financial engineering of something into vast amounts of money.  That meant working in startups, because startups aren’t about money but about value creation (a distinction often lost on New Yorkers).  So I shifted the path of my journey, but I retained that New York attitude of wanting to play on the biggest possible stage, and in the startup world, that meant going to Silicon Valley.

There are other great startup scenes in the world, and New York is certainly a special startup environment.  But if you’re a stage actor, you don’t go to New York dreaming of playing Off Broadway; you dream of your name in lights on the Great White Way.  Because I grew up as a New York dreamer, dreaming of a startup career meant leaving New York for the biggest and baddest startup scene in the world.

It’s all a bit ironic, and I’m not saying this “big stage” attitude is right.  In fact, it’s almost certainly not a healthy way to live.  A healthier attitude would be less entranced with the size of the stage, and more focused on the production and your role within it.  I think that’s the attitude held by Chris, Fred and Charlie, and I really look forward to seeing those guys continue the public conversation (and private work) about making New York into one of the great startup locales in the world.  For those interested, Elie Seidman is another good new voice in the thread, and of course Joel Spolsky is a longtime stalwart for software engineering in NYC (or anywhere).