I wasn’t even trying

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p. 59:

‘But I wasn’t even trying,’ he explained indignantly.  ‘I wasn’t even trying.’

The character ‘Owl Eyes’ has two odd little interludes in the novel.  In the first, Nick and Jordan encounter him as a drunken visitor to Gatsby’s library during a party.  After that same party, departing guests come upon a car gone off the road, wrecked in a ditch.  As the crowd gathers, Owl Eyes stumbles out of the car, and the bystanders begin to berate him for his wreckless driving.  But he wasn’t even trying – he wasn’t trying because he wasn’t driving.  The crowd gasps as the actual driver stumbles out of the car.

As the narrator, Nick must be the eyes of us, the readers.  But he’s not us – he is his own complex character, a famously unreliable narrator.  Owl Eyes is us.  He’s a nameless party guest, stumbling around the library, surprised to find that the books are real but cynically concluding that they are still a facade.  He’s careening around the property, but he’s not even driving, he doesn’t even know how to drive.  That’s us readers, we’re just along for the ride.

r.i.p. craig johnson

~ ginsu ~ 2 Comments

Craig Johnson passed away this weekend – in the peak of his career, he was one of the great startup company advisors of Silicon Valley.  In the late ’90s he left legal giant Wilson Sonsini to form “a new kind of law firm” that supplied both legal necessities and business advice to growing startups.

I joined Craig’s firm in Menlo Park a few years after beginning my career in New York.  In the large Manhattan firms, the partners have big offices with spectacular views of the city.  Craig opened Venture Law Group in a modest suburban office park, and he liked to change his own office location from time to time, to dispel the office politics around a physical locus of power.  At one point soon after I joined, he occupied the small office right next to mine, making me a very lucky neophyte to Silicon Valley.  He was always kind and generous with his time and advice.  There are two bits of his wisdom that I particularly remember:

Timing and sequence are as critical as any other factors in building a successful venture. People tend to obsess over having the right idea, and building the right pieces to pursue those ideas.  And undoubtedly, it matters greatly that you pursue the right idea, building the right pieces, with the right people.  But all of those things can be right, and you can still fail if you start at the wrong time.  And more subtly, even being in the right time is not enough – you have to do things in the right order.  Attention to timing and sequence requires extraordinary strategic focus and discipline.

You are an undiversifiable piece of human capital.  This advice grows out of the notion that we are all investors in our own careers.  And one of the first principles of good investment management is portfolio diversification – by distributing your investment across asset classes with varying risk profiles, you can maximize your return while minimizing overall risk.  But as a human being with one life, you have a limited number of opportunities to diversify your career portfolio.  Life is about risk in a deeper way than rational investments.

Craig inspired us with his humility and gentle wisdom.  He carried his great experience lightly, with a twinkle in his eye at the chance to share a new thought with you.  Most of all, I’ll remember the boyish enthusiasm he always had for helping new ideas become realities.  Rest in peace, Craig Johnson.

the iron quadrangle

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I was talking with a friend tonight about “The Iron Quadrangle” – my name for a concept that I’ve read about and pondered over the years.  Unfortunately, I can’t remember where I first saw it; happily, we agreed that this means I can restate it without attribution . . .

So here is the rule of the Iron Quadrangle:

Friends, family, work and health are the four most meaningful areas of pursuit in life.  The very best that most people can achieve is to be outstanding in two areas, mediocre in one, and barely tolerable in the last.

Be wary of any advice that rigidly proclaims to know which combination is best for everyone.  For example, a lot of well-meaning homilies put family and health above all other values.  But the Iron Quadrangle means that all four values are connected; activity in any one informs all of the others.

Keep in mind that health includes physical and mental health; and that work includes all vocation, whether in pursuit of profit or pursuit of a cause.  Meaningful and lasting friendships are a critical contributor to lifelong health.  Pursuit of your true calling in work should be both emotionally enriching and intellectually revitalizing.

So maximizing your pursuit of family and health, to the exclusion of full effort with friends and work, can limit your achievement in the areas you would want to advance the most.  Would you have given all that you could to your life partner and your children if you never tested your mettle with the greatest challenges at work, or failed to develop rich friendships outside of your family?

Some will try to argue for picking work and family, or friends and family, or health and friends.  Some would claim that the limitation to two outstanding areas is false.  But in my experience and observation, the Iron Quadrangle is pitiless and brooks very few exceptions – and what exceptions I have seen are more a result of extremely fortuitous circumstances than the result of thought and effort.

This isn’t a pessimistic message, but rather a reflection on avoiding regret.  Many high-achieving people in every area look upon their accomplishments with regret for the areas in which they did not excel.  I think regret is only appropriate where people made choices while lying to themselves about the consequences for the other areas.

betting on failure

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It’s interesting to watch reaction to the news of Twitter’s financing at a $1 billion valuation.  The vast majority of commenters seem appalled (or at least cynically amused) at such a lofty valuation for a company with no meaningful revenues.

The shocked reaction misses an important point:  Everyone believes that investments in companies like Twitter are likely to fail, including the investors in Twitter.  For the most part, people who invest their money in companies like Twitter are not putting their life savings into a single company; they are investing their portfolio (or an allocation of it) into high-risk, extremely-high-return-potential companies.  For that high-risk portfolio, it could be rational to invest in companies with a 90% chance of failure, if there is sufficient return for the other 10%.

Now, there aren’t many actual portfolios that are (intentionally) structured with any allocation to a class of investment with a 90% failure rate.  But it would be completely typical if every single non-employee investor in Twitter made their investment from an allocation that has a greater-than -50% failure rate.  In other words, most Twitter investors believe that it’s likelier than not that Twitter will fail.  (Here, “failure” means that the investment will fail to reach the modeled return, not that the company will completely go out of business.)

It’s easy to say that Twitter will probably fail, but how many critics are confident that there is a less than 10% chance at a 10X return?  Investors in Twitter don’t bank on Twitter, they plan that either Twitter or one of the other companies in that allocation of their portfolio will make an outsized return.  Many of those investors have been right time and time again about their projected portfolio performance, which means that as a reward they will continue to invest in companies that are likely to fail.

losing my privacy

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Another burst of news about privacy online, with Ars Technica explaining that removing personal information from data isn’t enough to protect anonymity, and The Monitor giving an overview of how we’re losing our privacy online.

But these people seem to talk on and on about privacy with some seriously flawed assumptions.  They assume that everyone agrees on what privacy is, and that everyone wants privacy in exactly the same way.

I’ve become enamored of the comparison between privacy and religion.  Even without being religious scholars, most people have a basic notion of what the word “religion” means.  And most everyone understands that different people can have very different views about how to practice their religion, or whether to practice any religion at all.

Privacy is the same way, isn’t it?  There is some shared understanding of what the term means, but the specifics of the meaning and practice of privacy can be very different among different people (especially across generations).  Some people don’t believe privacy is important at all, choosing to live without it.

Both religion and privacy deserve the protection of our laws, and for very much the same reason:  the practice of these matters according to one’s own belief is essential for building and maintaining a sense of meaning in life.  In simpler terms, a personal view of these things are required elements of the pursuit of happiness.

Our laws protect religion (and atheism) without saying that “religion” must include a single deity, or prayer at sunset, or robes or hats or ritual.  It’s a mistake to think we should protect privacy by defining exactly what data people should consider private.

Breaking my tradition of linking privacy posts to ’80s songs, because this early ’90s song has perfectly apt lyrics:

Every whisper
Of every waking hour I’m
Choosing my confessions
Trying to keep an eye on you
Like a hurt lost and blinded fool, fool
Oh no, I’ve said too much

I see you, you see me

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Does anyone care about online privacy?

The New York Times thinks so:  just since I’ve been paying attention, I’ve noticed – 1 2 3 4 5 6 7 8 – eight articles about the threat to consumer privacy posed by increasingly effective online behavioral ad targeting.

Jeremy Liew is concerned that the recent public interest push for privacy regulation will threaten startup media companies, suggesting that the ad networks should band together to lobby against online privacy regulation.  He says “While it is always hard to argue against privacy, the impact of this level of restriction would be enormous for companies relying on online advertising.”

It’s not that hard to argue against privacy, it’s just . . . delicate.  And I think simply saying that a lot of money is at stake isn’t enough of an argument.  So I’ll try to make a better argument for why privacy legislation of online advertising is likely to cause more harm than good.

I’m actually a huge fan of the Electronic Frontier Foundation and Consumers Union, and I think their hearts are in the right place on this.  I’m generally in favor of legislation that protects consumers from predatory practices in the marketplace.  But although privacy is a special value, it is not something that is well served by detailed regulation.

The problem is that privacy means many different things to different people, so everybody’s expectations can be quite different in terms of both substance and process.

The substance of privacy is the content of what you want to keep private.  Some people don’t care if you know whether they are male or female, but they don’t want to reveal their age.  Some are ok with gender and age, but not job and income – etc, etc.

The process of privacy is about the availability, collection and use of the information.  Some people want to opt-in to every interaction, some prefer to have opt-out control.  Some are ok with information used in the aggregate but not the individual, or even vice versa.  Some are ok with information being used by private parties, but not the government, or for a day or a month, but not a year or a decade.  Etc ad nauseum.  Few of us are ever thinking about exactly the same thing when we think about privacy.

Privacy may be a fundamental right, but it’s more like the right to freedom of religion than the right to trial by jury.  The latter is a specific procedural right, which we want everyone to have in a very clearly defined way.  The former protects an abstract and highly personal set of values, which each person may regard in a different way.

In the US, we don’t protect religion by telling people what it means; we protect it by saying that the government won’t promote any particular form of religion, and people can exercise any form they choose.  The failing of the public interest proposal on online privacy is that it presumes to define privacy for everyone.  That’s a dangerously unsophisticated view of a standard that varies from person to person and evolves across generations.  A time-traveler from before the Internet would not recognize what the average Facebook user calls “privacy.”

So how do I think privacy concerns should be addressed?  Well, by the market, of course. Don’t get the wrong idea:  despite my love of entrepreneurism and therefore capitalism, I don’t believe that the market is infallible, nor do I believe a free market must be unregulated.  But where you have complex consumer preferences and an infinite variety of potential solutions, a market is often the best way to satisfy the most people.  Think again back to religion:  people basically make their religious choices in a free market as well.

Consumers should have a large variety of choices about how their personal marketing-relevant data is collected and used by advertisers.  The role of governmental regulation here should be limited to traditional consumer protections about clear and full disclosure, contracts of adhesion, and anti-competitive practices.

The government just needs to make a level playing field.  People do care about privacy, and companies that can address those concerns correctly and creatively will make a lot of money.   And that matters not just because it’s a lot of money, but because it’s a case where consumer interest and the pursuit of money can be aligned.

[Apparently I’ve decided that my posts on online privacy must be titled by reference to 80’s hits.]

unforgiven

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Apparently Chris Dixon is my new blog crush, a potential successor to worthies such as Pmarca and Steve Blank.  And I’m not alone:  Venture Beat picked up on Chris’s suggestion that the 2-and-20 compensation “rule” in venture capital compensation deserves to be revisited.

But my thinking about this whole conversation is best summed up by the immortal (and surprisingly moral) William Munny:  Deserve’s got nothing to do with it.  People talk about venture capital compensation as if there is some moral justification for what they make, or conversely a moral reason why they shouldn’t make their money.

Now, I don’t belong to the amoral school of thought that says that people “deserve” whatever the market will pay them – sometimes the market is wrong, sometimes the conditions are unfair, so sometimes there are outcomes that are morally unjust.  However, this is not one of those times.

Venture capitalists negotiate their compensation terms with extremely sophisticated investors.  Those investors are willing to pay VCs an amount that still gives the investment portfolio an expected return that is correct at the time of projection.  Sometimes the investor projects incorrectly, but that’s not a moral misjudgment, it’s just people not being good and/or lucky at their jobs.  And if the VC sector underperforms expectations, compensation will get adjusted over time.  Deserve’s got nothing to do with it – this is a case where the market is perfectly capable of taking care of itself.

iocane advice

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Chris Dixon and Fred Wilson provide a very special kind of bad advice on the topic of equity grants in startups.  Now, Dixon and Wilson are both very smart and very successful, and what they say about equity grants is absolutely true, so the advice is not bad due to its supporting expertise nor its substantive merits.  The advice is bad because nearly everyone who attempts to use this advice will use it to their own harm, and the few folks who cannot be harmed by this advice have already lived a life full of preparation and savvy choices.

Dixon emphasizes that the most important thing about equity grants is the percentage of the capitalization granted, and Wilson adds that the implied valuation of the grant (number of shares times share price of most recent financing) is also useful.  While these things are true, my objection is that the probable audience for this advice is composed of prospective startup employees, and the use that they will make of this advice is to try to choose a job based on the value of the equity grant.

This is a bad idea for two reasons.  First, valuing an equity grant is only secondarily about determining the percentage of the company – it is primarily about determining the exit value of the entire company, an exercise at which professional investors in the field routinely fail. (Fred himself will tell you that 2/3 of venture investments in a successful fund will break even or lose money.)  If you are thinking about joining a startup, and you have 2 choices, you are very unlikely to have any rational basis for believing that 0.1% of one startup will be worth more or less than 0.2% of the other.

Second and more importantly, if you want to work in a startup, you should not choose where to work based on compensation.  You need to pick the project and the people that get you most excited, period.  Without a belief in the mission and an authentic fit with the team, you will not be successful anyway, so any compensation will be a waste of your time and their money. If you have other employment options, you should explain that to the place you want to join, and if they want you they will make the comp work within their range, and you should accept.  Or, if you simply want to work at the place where you will be paid the most, you should not work at a startup. (Don’t be offended, this isn’t a test of character or a judgment of your soul – if you’re not a startup person, that doesn’t make you any worse or better than the people who are.)

Dixon actually gives really good advice in his post, for those who are paying attention:  “If management tells you the number of shares and not the total shares outstanding so you can’t compute the percent you own – don’t join the company!”  As I’ve said before, the reason to have a detailed conversation about equity comp with your manager is to test management’s clarity and forthrightness in general – not because you have any hope of making a correct equity valuation.

I would be willing to bet that neither Dixon nor Wilson has ever made a choice of company to join or invest in based on equity percentage.  They made their choices from their interests in the market, the product, the team – and then later, after a decision to join/found/invest has essentially been made, they did some optimization around the equity.  Choosing the other way around is about relying on luck, not successful choices and preparation.

[Bully for you if you know the reference for the title of this post!]

trademarks gone wild

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I try to avoid drawing parallels between trendy tech issues of the day and my own past experiences – generally I believe that to move forward you have to treat most of your past as irrelevant.

But the parallels are too strong in watching Twitter make a controversial attempt to trademark the term “tweet,” bringing them into a cycle of uncomfortable conflict and limited accommodation with their own developers.

Second Life faced exactly the same issues – a passionate and well-meaning developer community using many terms associated with Second Life that the company hoped to protect as trademarks.  We ultimately came up with a comprehensive policy that was and remains a subject of derision in the SL community (see comments to the linked blog post).

It can be very difficult to engage in a productive conversation about trademark law, because even the basics are hard for nonlawyers (and some lawyers) to absorb, and yet because we’re just talking about using the English language, it seems like anyone who speaks English good should be able to comment intelligibly.  [Yes, the usage error in that sentence was intentionally ironic.]

I think everyone – the company and the commentators – could make better progress by ignoring the legal issues, and just focusing on the marketing questions.  Now, marketing is another one of those disciplines that requires a lot of expertise, and is nonetheless discussed with fervor by anyone who has a couple of IQ points to rub together.  But I think the marketing questions here are simple enough even for me to understand.

1st question:  Is there a name for the product or service that the company should be able to control?  The answer to this question is almost always yes for at least one name – companies are generally better off when they control the primary name for their offering.  Once you reach that answer, following trademark law in order to implement that answer is a straightforward process, and having good customer communication around that process is a requirement.

2nd question:  When there are words associated with the product or service that facilitate the use or adoption of the service, is that facilitation improved or hindered with greater company control over those words?  Marketers and lawyers almost always have the same bias for control (though for different reasons).  The bias itself is always wrong – I don’t mean that it’s always wrong to have that control, I mean that it’s always wrong to approach this question with bias.

Does it really do any good for Twitter to own the word tweet?  Some brand marketers and lawyers will raise the specter of genercide (basically, losing control over your brand name), but this fear should not be the primary analysis unless we are talking about the primary name.  When we are talking about those strongly associated words that help spread the gospel of the company, the analysis should not be of the law and certainly should not come from a place of fear.

The analysis should dispassionately examine whether unrestricted use of the words will help spread that gospel.  And it will often make sense to have less control over these words, not more.  If religion were a business, it would probably make sense to trademark “The Holy Bible” – but trademarking “Christ” would probably make for a lot fewer Christians.

fighting the good fight

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Bernard Moon pointed out these slides on the culture at Netflix, which may be the best presentation on company culture that I’ve ever seen.  But does that mean that Netflix actually has an effective culture?

Of course not, you can’t tell from a slideshow how a company really operates.  Employee comments are helpful, but not conclusive – Netflix has public reviews at Jobvent, Telonu and Glassdoor, which show a mixed approval rating.  But from the outside you never know if the complainers are malcontent underperformers, or if the fans are deluded Kool-Aid drinkers.

At Linden Lab, we spent a lot of time on company culture, creating and periodically revising the Tao of Linden.  That document was similar to the stated Netflix culture in emphasizing a high degree of both choice and responsibility.  I loved the culture we built, as did many employees, but I can’t say that it’s a culture that works for everyone.  And I won’t say that there’s any single best way to run a company (though there are many undeniably wrong ways).

I’ve worked in some centralized, command-and-control environments, and cultures based on internal competition and depersonalization to the point of dehumanization.  And I’ve had plenty of fun in most of these places.  I’ve come to believe that the single most important thing about a company culture is whether or not management truly believes the culture matters.

Every management team will give at least some lip service to company culture.  The companies that stop at mere lip service end up with hollow words engraved in the lobby – these are the truly miserable places to work.  The companies that put real time and thought into their culture, in the firm conviction that a great culture is required for enduring success – these are always great places to work, almost independent of the actual values of the culture.

Commitment to the culture, a genuine determination to fight the good fight to make the company a place with a certain cultural identity – this always leads to a great place to work for some set of people.  A culture of choice and cooperation works well for certain kinds of people.  A culture of command and competitiveness works well for others.  Even a culture based on greed and amorality can work, depending on the industry.

Which is not to say that anyone can work in any culture – in fact I’m saying just the opposite:  you should understand what preferences and constraints your own personal values carry, for this determines what kinds of cultures you will enjoy.  And then it will be easy to identify the companies that express your cultural values.  The hard part will be determining whether the leadership is really committed to fighting the good fight.