Posted on

Thoughts on excessive use of leverage

One of worst mistakes I made was during the 2015/6 Oil crash. I bought into shares of oil exploration companies instead of buying the oil directly. 

It was a very painful and expensive mistake. While the price of oil made a nice recovery since then, the exploration companies never made it through to the other side. Majority of them filed for bankruptcy during the height of the crisis. Unfortunately they took on too much debt when the times were good and were unable to finance the debts and ongoing operations through the continued sales of their inventory when situations turned south. 

The lesson learned is that when buying the dip, it’s important to make sure that not just yourself but the underlying assets you hold are resilient to the environment shock. Utilization of excessive leverage reduces the resilience. Over expansion into fancy offices and overstaffing is another form of excessive leverage. Tech startup founders are often caught red handed committing these mistakes. 

With regards to oil, until the world stops relying on plastic, chemical lubricants and switches completely to alternative forms of energy, we should not expect the price of oil to fall to zero anytime soon. 

A simple acid test to figure out the intrinsic value of oil is to ask your neighbor for his tank of gasoline for free. The most likely response you will get from him is a suggestion to go f**k yourself…?!?

Posted on

Launch Scale conference with Jason Calcanis Day 1

Jason Calcanis on finding investments

Jason like Money. He believes it’s the fuel that make product and services that change the world. Looks for someone understand the customer, the product and the compound annual growth rate. Usually funds USD1 million for USD25K revenue?!? Is concerned about people who are high on the entitlement spectrum. Always prefer founders who are biased towards action instead of procrastination.

When dedicated event is created for under represented demographics, the diversity of founders brought into the pipeline increases.

Always ask how much have you raised and how much did you make last month.

He ensures his operation are cost effective and looks for founders who are equally scrappy.

Stay focus. The founder needs to be relentlessly focused on consumers and product.

Happy to start the conversation when already have 3-4 customers.

Jason Calcanis on PodCast

Create 2 pod cast per week where he interview founders. He builds an audience of startup tech listeners who want to find out how other founders succeed while stroking the ego of the interviewed founders.

Experiment with selling ad placements during within podcast.

Once its been the viability has been proven, hire a sales representative to do the selling.

For every 10 emails sent out 1 company will respond. For every 10 companies that responds 1 will sign up to do an ads placement for USD7500. That equals to a USD120,000 per month cashflow with a by-product of further entrenching Jason into the angel investing network.

Donna Boyer, VP Product Stitch Fix

Always ensure process is set up to allow for inclusion Pixie Dust. A process can scale if as it includes more users, you don’t need to manage larger excel sheets.

Always keep in mind why you are doing something – the vision.

Crystal, CEO Ruby Love

A financial controller by profession. Uses the same approach for interacting with people. Never took on any personal debt.

For bootstrapping use disadvantaged as advantages. Always do the math.

Watch what you are spending on.

Understand that potential users are searching for information on the web so use SEO to acquires users free.

Ignore media coverage on the competition. Everybody has issues. Just focus on ur product and not get distracted.

Focus on you people believes in you and ignore those that don’t.

You don’t need a cofounder if you do feel you need one.

Always think bigger.

Kept the efficiency while driving revenue during the first phase. Once the organization scales you need to build up an organization. Never loss sight of your customers along the way.

Don’t hire someone to interface between you and the customer. Always understand her emotional needs. The chat window she responds 24 hours a day. That is what drives her roadmap.

Hire using Fiverr all the time. First time hire was only done after hitting USD10 million revenue.

  • Potential product video: Voice Jungle

Zander Lurie, CEO, SurveyMonkey

Markets are volatile with trade war and recession coming soon. WeWork is an Enron like environment. Companies with bad governance will be punished by the public markets. IPOs are going to pull back now.

When building the board determine what is the role of the board of directors?

  • for younger companies, maybe use them for marketing plan
  • they play fiduciary type role as you mature

Very important to build trust as the CEO. You are asking people to work for you and people to invest in you.

Founders who ask for total control of board and then subsequently blow up is a failure of governance.

We are in an environment with endless capital for great ideas.

On WeWork

USD47Billion is a valuation that requires 10 plus years of successful execution. USD1 billion is probably a more reasonable IPO valuation

VC payout 2% management fee, 20% carry. That structure requires growth. So the gross profit (revenue – operating cost) is very import.

We need to institutionalize the systematic use of listening. The web is a really efficient place for feedback to surface.

99% of in-house designs within Apple never made it to the public.

Mar Hershenson, Pear VC

Need to show that a product is really sticky amongst a pilot user instead of having a few pilot users that try and leave.

Need to come to the VC with a team with the necessary skill set to execute on

If app is changing UVP to acquire or retain a customer, it is a 0.5% criteria for seed round. The next 0.5% is showing that you have a growth engine that works.

5K-10K revenue MRR to raise USD1million round.

To show a few thousand users that have high retentions. Doing cohort analysis.

Need to have really scrappy operations and iterate fast.

Ignore fake signals

To prove if I spend $X in Ads, I will get Y number of new users and $Z increase revenue.

Series A investors do not want to have product risk. So there needs to be a strong product manager.

Growth alive. If shut down acquisition, then

3-5X growth in the next 18th months. Venture wants to be able to get investment money back within 12months.

Posted on

Chat with Yi

  • Building user profile data set for machine learning purposes can be a lucrative business
  • getting an MnA guy involved to manage relationships with acquirer is helpful to tweak the company features for eventual acquisition. Once an acquirer signals intent other competitors will follow along
  • enterprise business
    • Once software is complete is about solidifying business model and supply chain
    • High revenue but potentially low margin business
    • once u get into this it’s hard to crawl out
  • Finance
    • Benchmarking negative momentum across entire industry
    • company with the slowest negative momentum in a negative environment is the one with the most resilience
Posted on

Insights from evening with Wine and Jam session with Adriene and Dennis, Birthday party with Konstantine

From Tommaso on Machine Learning – Economics

  • Study was done on Italy
  • Voting patterns can be leading indicators for credit spread
  • When a political party is stable, Eigen distance between votes of party members will cluster together, even for bills that are not critical for parties
  • When a political party becomes unstable, the Eigen distance between vote on non-critical bills by party members will increase
  • Alignment will increase before a wild swing to misalignment
    • periods of high alignment leads to very tight credit spread
    • tight credit spread indicates a very high price for bond
  • Misalignment will decrease before consolidation towards alignment
    • periods of low alignment leads to very wide credit spread
    • wide credit spread indicates a very low price for bond
  • proposed strategy:
    • when alignments increase, short bonds in anticipation for forthcoming misalignment
    • when misalignments increase, long bonds in anticipation for forthcoming alignment

From Tommaso on Machine Learning – Micro-biology

  • Started studying how presence specific bacteria affects health at an aggregate level
  • Studying ancestral tree of bacterias help estimate the distribution of bacteria in the gut of different individuals

On sales

  • Mormons are one of the best sales people due to their coming to age ritual.
  • They typically will get rejected many many times during their passing through rite

On human cyborgs

  • Neil Harbisson is an artist who is color blind, he implanted a device into his brain which allows him to see colors

On hardware and biotech with Andrew

  • To design printed circuit board install IDE which allows easy assembly, simulation and coding – DesignSpark
  • Firmware for micro-processors are written in C. Firmware controls where signals are past to when incoming signals are received
  • Micro-processors are installed on circuit board
  • Can be printed in China and shipped over in 5 days – PCBWay
  • BioCurious and another biotech hacker space up in Berkeley have managed to train yeast to product cocaine and THC

Related readings

Posted on

Thoughts on avoiding the greater fool theory

Once a project’s mission statement is defined, it becomes easy to determine when to stop further iterations. 

Below are the listed of statements I periodically revisit when pursuing GetData.IO’s mission to help people make good decisions by making data gathering simple and affordable. 

Hypothesis 1: People no longer need make good decisions.

Hypothesis 2: People no longer need data to make good decisions.

Hypothesis 3: People no longer find it hard to get data.

Hypothesis 4: We have exhausted all known approaches to lower the cost of data gathering to an affordable range. 

Hypothesis 5: We have exhausted all viable approaches to reach people who need to make good decisions.

Hypothesis 1 and 2 are existential questions, while hypothesis 3 focuses on substitute availability. These are out of our control. The only thing we could do is monitor for changes.

Hypothesis 4 and 5 focuses on economic feasibility. These we will fully focus our efforts on. Once we eliminate all none viable options, whatever remains will be the limitations we must accept and live with. 

It is useful to note the lack of any mention on funding. The underlying assumption is that every successful iteration necessarily unlocks resources from the environment which is then fed back to further the compounding process. The discipline is to minimize wastage. 

Relying on external funding is like utilizing margins during day trading. While earnings get amplified, failures tend to be really spectacular. One additional drawback is that they tend to mask critical flaws in the short run leading to the commonly observed greater fool phenomena in the financial markets.

https://GetData.io/about-us 

Posted on

Learnings on enterprise sales – SVB and SalesForce workshop

General observation on networking

  • There were a total of 40 attendees and we received a total of 2 name cards – net conversion rate 5%
  • Social expectation during a networking session is that you can approach people to talk
  • Start with a clearly one liner if asked about your project
  • actively direct the conversation to them and spend more time listening
  • make sure to bring name cards

Compare and contrast small businesses and medium sized businesses

  • Small businesses
    • acquiring new customers
    • accessing to investment capital
    • not enough time
  • Medium sized business
    • acquiring new customers
    • achieving work life balance
    • not enough time

Sales best practices for founders n SMB sales leaders

managing leads process

  • Develop a concrete definition of a lead and make sure all employees understand it.
  • Install an effective Customer Relationship Management (CRM) Tool.
  • Track the source.
  • Distribute your leads quickly.
  • Nurture your leads and get your Sales team excited about every prospect.
  • Treat your prospects like customers.
  • Measure everything you do.
  • Hold regular meetings with your sales staff and anyone else involved in the sales process.

build out sales stages n codifying it

standardized sales process see up to 28% increase revenue

  • A consistent schedule: You should know when and how often you are going to be
    performing your sales activities.
  • A strong message. You should know what you are going to say and at what point in the
    process you are going to say it.
  • Mixed media plan. Use multiple channels to convey your message and mix it up – emails and phone calls are the most common, but perhaps it’s appropriate to reach your potential customers on a favorite social channel.

focus on boosting sales rep productivity

  • Make ongoing sales coaching a priority.
  • Advance prospects faster with Value.
  • Evaluate & re-evaluate sales processes.
  • Embrace Automation and technology.
  • Use Analytics to always be improving.

Observations on Sales force

  • UVP helps users get data from spreadsheet into systems that allows easy sharing within the sales team
  • Sales force comes with Gmail integration
    • disrupted CollaSpot’s business model
  • Social proofing: Video where users talk about the benefits they get using a tool
  • Extending existing business lines
    • current base – market segment with higher margins using enterprise sales acquisition strategy
    • new business line market segment with lower margins using self service model
      • USD25/user/mth package self service tier
      • acquisition strategy is not well defined yet
  • partnership with companies to value add for their customers
    • sales force partners with SVB to throw event to teach SVB clients how to better do sales.
    • Helps with SVB retention.
    • tap into Silicon Valley Bank’s extensive distribution network

Alessandro Chesser, VP of Sales Carta

Key regrets

  • Not investing early enough in sales operations.
    • CRM system very important. Cleaning up the mess later is going to be a headache
    • Dealing with duplicate accounts are pretty painful
  • Don’t over engineer sales process up front.

Enterprise sales versus organic adoption

Organic signup forces u to put your whole pitch online for easy copying. A sales rep can sell the vision to extract higher margins. Deliberate back and forth. Use the demo form to generate leads for sales rep

Getting the enterprise sales engine started

  • The more data you have the better your decisions. Create baseline and iterate over it over time.
  • Marc Benoff on Closing. When he joined eshare there was no product. His job was to get potential customers excited about the future of their own company. The vision and the pitch is so important. Get their feedbacks.
  • Don’t sell to far ahead and can’t deliver. Need to spend time with engineers to know what can be delivered. Always keep in mind a 1 to 2 months implementation cycle. Only sell ahead when is early stage company but don’t over promise. If failed to deliver, will create bad PR
  • Always iterate on the vision of the company and the pitch to figure out what resonates with your potential buyers
  • Early stage startups can utilized VC to generate inbound leads. The more money raised the more inbound happens with PR that follow each fund raising events

Scaling the sales organization

  • Make sure one person can bring in 100K ARR before replicate and scale up sales process
  • When is Sales cycle replicable? Use revenue as signal. Driving 100K ARR per month is a good signal. Gut feeling. When deals leads are starting to slip through the cracks
  • Charge via ACH instead of credit cards. ACH is more scalable, since the latter tends to expire.

Structuring and managing the sales team

  • For smooth transition from inbound sales to outbound sales first create demand from SDR first before hire sales team.
    • Not all sales people are comfortable with generating sales leads
  • Extremely important to make that SDR hire early. Utilize tools like OutReach.IO
  • SDR – handle email marketing and phone calls. Uses pitchbook. Scrape Startup names and email addresses. Thousands of emails a day to generate leads.
  • Ensure at least sales development representatives hit at least 60% their quota. If hitting below, it means u have over hired. It’ll create very bad culture like sales leads stealing if not hitting above quota.
  • Have sales people prioritize and focus on closing and not be the jack of all trades.
  • Promote Successful SDR  to become sales reps. They will be well positioned for success.

Mapping the hiring process for the sales leader.

The mistake is hiring really experienced and expensive people who are not willing to roll out his sleeves. You need someone who is really willing to get his hands dirty to go out to close sales. Industry experience is important, will ensure sales leader motivation level. Since he knows what is broken

Balancing the functions of marketing and sales

  • Early in startup marketing and sales goes hand in hand. How to ensure no stepping on each other’s toes?
  • Marketing organization should have good process too
  • Need to balance load of marketing and sales organization. Make sure invest more heavily in marketing to generate more leads than sales can handle to ensure good culture.

On Pricing

Pricing is important. Need to make sure not too cheap. Perceived value is very important. Need to be more expensive than competition and explain the value clearly to targeted subset of customers.

Learnings from Loominance

 UVP to attract customers via word of mouth: They need us when they are drowning in data.
Account based marketing
  • Scrap company websites, identify and recommend similar companies as sales leads to clients

Related readings

Posted on

Insights from dinner with Brian and Jason

Engineering compensation

  • 1% equity max for first 2 engineers.
    • 1% equity and low salary
    • 0.5% equity and medium salary
    • 0.25% equity and full salary
  • 0.5% equity max for second round of engineers
    • 0.5% equity and low salary
    • 0.25% equity and medium salary
    • 0.1% equity and full salary

Advisers compensation

  • Typically 0.5% to 0.25%

On managing the sales team

  • important to clearly defined guiding principles and policies up front
  • This will prevent sales representative from selling out of line and clashing with the Ops team leading to all round frustration.

Fund raising

  • can raise money from angels before there is even a product and distribution
  • Jason Calacanis invest in people who he feels are winners
  • Frame the opportunity and let investors fill in the details with their own models

Investors

  • Really open doors to help with follow on funding rounds
  • Brad slowly stepping away from USV to pursue his investment thesis in the crypto-currency space
  • SiliconValley Banks has established fund for investment purposes

Building

  • figure out what your super power is and quadruple down on it
  • always focus your time on the highest leverage activity
  • hire people to fill the positions and eventually replace yourself
  • practice discipline do not step across boundaries and get in the way of specialist. Focus on framing the problem and let the specialist define the solution
  • Use Slack – setup process to ensure information about sales process is disseminated to engineering team as well

On exiting

  • important to grow your personal network so that you can tap on it for key resources
  • seek out other operators within the space seeking to bolt on to their business model
  • company making 20K to pay their staff sufficient wage to continue working on the project
  • eventually find a new home of the team by selling off the company
  • figure out the key strengths of the CEO you hired and structure operations around them.

Related references

  • https://medium.com/@SiliconValleyGC/how-much-is-my-startup-advisor-worth-d97d825a6742
  • JoinMassive.com
  • Begin.com
Posted on

Book summary AI super-powers, China, silicon valley and the new world order by Kai Fu Lee

The difference waves of AI

  • Internet AI – Facebook, Netflix, Google search
  • Business AI – Palantir
  • Perception AI – Tesla cars
  • Autonomous AI – Tesla self driving, Google self driving

Key locations

  • Silicon Valley
  • Zhong Guan Cun – Beijing

State of the Union

  • We are in the stage of implementation/application as opposed to RnD
    • having access to more data is more important than have expertise to do more RnD
    • having solid AI engineers is more important than AI researchers
  • We are still far from general AI
  • Key ingredients
    • data
    • computing
    • maybe work of strong AI algorithms engineers

Key differences between eco-systems

  • Silicon Valley businesses are mission and core values driven while Chinese businesses are pragmatically focused on profitability.
  • Silicon Valley businesses stay in bits and binaries offloading the brick and mortar to external vendors vendors while Chinese businesses extend their business model into the brick and mortar (online to offline)
  • Silicon valley prefers one size fit all strategy, Chinese businesses utilized localized solutions often investing/acquiring in local startups
  • Americans treat search engines like Yellow Pages (come and leave fast) while Chinese treat search engines like shopping mall (come to linger around long)
  • Silicon Valley is adversed to copying preferring to be unique Chinese business copy the heck out of each other

Chinese Advantage

  • Abundant data – quality and quantity aided by their online to offline initiatives
  • hungry entrepreneurs
  • AI scientist
  • AI friendly policy environment – strong emphasis by Chinese government
  • Hardware manufacturing know how – Shen Zhen
    • unparalleled supply chain flexibility – XiaoMi

Silicon Valley Advantage

  • Microchip manufacturing know-how

Trends within the Chinese eco-system

  • Darwinian eco-system has lead to extreme levels of competition
  • Chinese companies have already moved past the stage of clone Silicon Valley business models
  • Businesses innovate to build a defensive moat around themselves. Local businesses have advantage, with no timezone differences to deal with, decision making is relatively faster.
  • Online to offline
    • an essential ingredient to building strategic moats
    • caused the decline of cash use
  • Chinese government information systems will be able to leap frog US government information systems

Policy approaches

  • Google – impeccable safety
  • Tesla / China – trial by fire
  • key to winning the Autonomous AI race
    • is the bottleneck technology (Silicon Valley) or policy (China)?

Key concerns

  • having cheap labor is no longer going to be a source of advantage in a world heavily powered by automaton.  Developing countries hoping to employ this well tested strategy to progress will not be able to do so anymore
  • Estimated 60% potential job loss worldwide barring policy interventions
  • Job loss probability assessment
    • physical labor
      • environment – unstructured versus structure
      • tasks nature – level of dexterity versus high dexterity
    • cognitive labor
      • social – high versus low
      • cognitive – optimization based versus creativity/strategy based
  • AI replacement approach
    • single tasks approach
    • ground up rethink re-imagination
  • A population of irrelevant (no longer employable) as opposed to unemployed

Tackling Key concerns

  • Silicon valley – reduce, retrain and redistribute
  • Kai Fu Lee – stipends for care, service, education

New promise

  • Humans freed up from repetitive tasks can now focus on becoming more human oriented

Related readings

  • Disruptor, Zhou
  • www.Arvix.org – an online repository of scientific papers
  • Folding Beijing – Hao JingFang
Posted on

Mark Zuckerberg chats with Yuval Noah Harrai on the Future of AI

Key take aways

  • Spread of inequality where some countries have the ability to harness AI while others don’t
  • AI based recommendation systems moving from being just an oracle to becoming a sovereign
  • AI as a tool is an amplifier
    • concerns that it will benefit totalitarianism more than democracy leading to totalitarianism becoming a more favorable governance model worldwide
    • surveillance
    • psychological manipulation – the inability to know your true self through your thoughts
    • what happens if morality and expediency diverge when it comes to governance
  • Effectiveness of curbing the negative effects of AI by encoding values within policy frameworks governing these AI based systems
    • Companies based in Democratic countries will encode democratic values within their systems vice versa for Totalitarian countries
  • Personalization versus Fragmentation
    • when everyone in a country chooses his own community that is mainly online there is no longer a glue holding the local community together
  • Long term versus short term
    • The long term benefits might come sooner than expected when taking a short term trade off

 

Posted on

Book summary – Range

  • specialists by instinct will grip tighter to their core tools when the environment becomes more chaotic
  • Repetition to optimize for efficiency is only suitable for a predictable environment
  • in a chaotic environment being able to draw solutions from a wider range of domains will lead to qualitatively better and more innovative break through solutions
  • build culture that encourage dissent rather than blind adherence
  • build teams that are deeply networked rather than hierarchical