a16z Podcast - a16z Podcast: Earned Secrets

Episode Date: August 3, 2018

with Ben Horowitz (@bhorowitz) and Sharon Chang (@sychang) What does it really take to start a startup (or work at one)? In this episode of the a16z Podcast -- based on a Q&A with Ben Horowitz as part of an event hosted by a16z's Technical Talent and People Practices team for a16z portfolio company summer interns 2018 -- Ben shares quick thoughts and advice geared towards those early in their tech careers. The conversation covers everything from how to know what kind of company to join early (or when to strike out on one's own); the major platform shifts we should anticipate going forward; and founding (as well as exit) stories, like Microsoft’s acquisition of Github. What was the moral of that story for him, and for the industry?... this short a16z Bytes episode shares a glimpse into (some of) those "earned secrets". The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, everyone. Welcome to the A16Z podcast. I'm Sharon, an operating partner here. And every year, our technical talent and people practices team organizes a network building event for our. our interns at portfolio companies, including a Q&A with Ben Horowitz, which I guest hosted this year. Today, we're sharing just a part of that conversation as a short, snack-sized A16Z Bites episode. In this segment, we cover everything from how to know what kind of company to join early on in one's career to when to strike out on one's own. We also talked about platform shifts to anticipate and other bits of advice for those early in their tech careers. But first, we start with the moral of the story of Microsoft's acquisition of GitHub.

So let's start with Microsoft announcing its intent to acquire GitHub. What do you think about this acquisition and acquisitions like this? This one probably got the most criticism, particularly from other VCs, when we made it. It was they way overpaid, you know, businesses like that will never be worth a rational when for the most money ever in that space and I'll never make their money out of it. like, it's ridiculous to put that big a check and anything, like, what are you doing? And we would get that back from our investors, would say, hey, this is what the other VCs have been saying about the deal.

And that's a good lesson for me. So when people say it's stupid, that doesn't mean you're not going to make money. And that's probably the biggest thing I got out of it. But from an industry perspective, you know, there's a couple of important things to note. I would say one is that the cloud computing wars are starting. in earnest, and there's kind of three big players, Amazon, Google, and Microsoft, and Microsoft is willing to write big checks to play. And then related to that is the importance of developers. So developers as a market was never that big before. So if you were in the tools

business, the API business, the source code control management system business, any of these kinds of things that were for developers, just weren't going to get that big. But that's now changed both kind of in market size and then also in strategic value because the developers are the people who decide what cloud you're going to use and cloud is probably the biggest business to business market there is. So, you know, as a market, as something to invest in or something to work on the developer companies are all getting much, much more interesting than they've ever been. We call it around here the rise of the developer. Let me think about which company to work at when you're first out of school. How do you think

about that. What is it that you need to learn early in your career versus experiences that you'll get later? You know, like, it's hard to tell. It depends like how early you're going in, right? If a company is further along, then you can kind of tell what it's doing. You see the product in the market and working and so on, whereas the really early stage ones are hard to tell. They're hard for everybody to tell. You know, we make a lot of mistakes ourselves. But good people in good ideas tend to get more good people and good ideas on all sides on the board, investing, you know, employees, managers. So one of the traps on career advice is when you get it, you're not getting career advice for you. You're getting career advice for the person giving you the advice. And that may not

be for you. So like one, you got to ask yourself, okay, like, who am I asking for advice? You know, I always tell this to really young people, they'll be, oh, yeah, like I talked to like my friend's uncle. It's like, oh, what does he do? He didn't have a job. And it's like, okay, well, if you don't want a job, listen to his advice because he knows that formula. And, you know, that's true for a lot of things. People know. what would have worked for them in retrospect, but they don't necessarily know what it would work for you, so you have to take the advice like that.

So just give an example is, look, Mark Zuckerberg dropped out of Harvard and started Facebook. That was good for him, but when he was an unusual kid with a very amazing idea that was already working, that doesn't mean it's the right career path for you. It wouldn't have been for me. I didn't have that good an idea,

and I don't know if I was that just, like, developed as a person to go try and build a company as 19 years old. In fact, I know I wasn't, that was when my rap career was taking off. I was trying to get it going. Didn't succeed.

You know, just make the right decision for you, knowing where you are. I think about when I got out of college, there was really no such thing as consumer. My really wonderful job that I thought I had made it was... Consumer tech. Consumer tech, right.

I was product manager of a raid controller, which is pretty glamorous. I was pretty excited about that. So, you know, we've really reinvented ourselves over and over again. What do you think we need to do now in Silicon Valley to stay on top? Well, I think Silicon Valley is about invention, and that's what I like about being in the tech world. It's actually hard to keep up because it keeps changing. But if you go back to, like, 2009 when we started the firm, the three big things that we thought were going to be new and important,

were cloud computing, social networking, and mobile. And that turned out to be right. But those aren't the things now so much. Cloud computing still has some headroom. It's pretty hard to have new inventions in social networking and mobile that are as exciting as they were 10 years ago. So looking forward, what are those three going forward? And I think some of the things that we think are interesting are for sure AI, crypto, computational biology, engineered biology. and then the proliferation of computers

as it relates to all of those an underlying component to all the trends now is kind of the proliferation of computing which if you go back to the beginning it was kind of one computer for every 100 people you'd all be on the mainframe and I actually kind of started a little bit in that era we had this thing at deck 20 when I was in college

and we were all logged into it and went really slow but then you know it's kind of gotten to one to one where like everybody has a smartphone So everybody's got a computer And it's going to go to kind of the other way Like one to 100 where you've got wearable devices Your car's got lots of computers in it Internet of Things and all the computers in your house and so forth

So like with that gigantic rise in the number of computers out there That becomes a platform for all kinds of things From crypto to AI and so forth So that's another big trend And so I think all of those things will really change the face of what we now think of as the Internet and mobile and Google and Amazon and Facebook. So talking about starting a startup, lots of people have great ideas.

What else does it take? Do you recommend people finding a co-founder, how much business experience do they have? Depends on how good the idea is, you know. I think if you're very young, then you have mostly disadvantages in starting a company in that you don't have that big a network. It's going to be harder for you to hide. hire really great people. It's going to be harder for you to raise money. But the one advantage you have is you have a little enough experience with the old world that it's easier to come

up with a breakthrough idea. So if, by some chance, you've come through with a breakthrough idea, like a real breakthrough, that will change the world. Something that, like, the world can't even imagine, and you can't even not imagine. Like, if you have an idea that's that good, people just want to instantly join the company as soon as they hear it, and then you've got some working prototype on something technically hard or something like that, then yeah, that might be a compelling enough reason to start a company. You'll need that in order to build the team in order to be tolerated for all the mistakes you'll make as CEO and all that kind of thing.

But without that, you're probably better off kind of learning more and getting more experience and building a better network and understanding what a good idea looks like and all those kinds of things. There are definitely people who have done that, and that's great if you can, but that's not everybody and you have to have the breakthrough idea like you just can't want to start a I mean you can want to start a company and go try it and it's not the worst thing in the world but it'll hurt when you fall let me tell you like it's painful and it can set you back a bit if you think about like how do you get to the idea it's usually we call it an earned secret so like you did something in your past and you tried

to solve some hard problem and you learn something about the world that you're that just not a lot of other people know. It's very rare that somebody goes just like whiteboards out like a market and goes, oh, this is a good blank space in the market and I'll go build that company. But those almost never work. The ones that work are some kind of earned secret. So Airbnb, the rough idea doesn't actually sound that good right,

like, okay, blow up an air mattress, stick it in your apartment and like rent it out, what could possibly go wrong with that. But when you got into like, okay, how did Brian get to that? And, you know, it started with, so his background was he was a designer, he wanted to go to design conference, he didn't have money for a ticket. But what he realized was, oh, wow, there's all these people coming in town wanting to go to the conference, and all the hotels are booked in San Francisco. So he said, look, maybe we could, like, rent out, like, a space in the apartment for somebody wanting to come into the design conference, and then, like, I can afford a ticket. So he puts an ad up to rent out, like he literally bought an air mattress to run out this air mattress. and like 500 people answered the ad.

So all of a sudden he was like, okay, the demand for this is way different. But he didn't stop there. He said, well, I wonder why there are even hotels. He goes back and he researches hotels, and he finds out that hotels have only been around like 100 years. And before hotels, they were inns and bed and breakfast, and you'd roll into town,

and there'd be like some old lady, she'd run out you a room at the inn. And the reason why that kind of started to lose out to Hyatt and Helton these guys, who came in kind of at the turn of the century into the 1900s was that you didn't know what you were going to get in that end. Like, it could be good, it could be, like, pretty bad. The quality was super variant, and there was no way to tell.

So they built these big brands, you know, which they connected to the now national media of radio and then television, and you knew that if you stayed at it in Hilton, you'd get, like, at least a, like, a clean room and that kind of thing. So Brian said, but with the Internet, like, I could rate every room, every air mattress, every house to a finer degree than even like the Hilton can. So I could get everything about the in bed and breakfast

and everything about hotels in one product. That would be a good product. And I already know there's demand. So that was kind of the secret that he earned along the way. So your background matters a lot. In terms of like founders and co-founders and so on, I've seen all kinds of things succeed. Like I think Facebook had like five people who say they were co-founders at one time.

none of them are there except for Zuckerberg now some of them made money some of whom sued him you know like to think he would tell you as a bad founding model but it's Facebook so that worked you know I think Paul Graham did a Y Combinator study a while back and he said like two is the ideal number of founders and you could see where that would help and that it's a psychologically

challenging thing to start a company and if you have somebody at least one person who's in the boat with you that can help when you get too many then it's like you hire employee number one there's five of you and it's just like stupid it's like why would I join you idiots unless you make me a founder too and everybody's a founder

so you know you got to find a balance so you and Mark have worked together for over 20 years yeah and you once described your relationship as Mark upsetting you almost daily yeah there has to be enough tension in the relationship that you're learning from each other

but not so much tension that you actually hate each other and that's tricky. Like if you're too friendly then you never actually ask a hard question to the other one or say I don't think you're thinking about that right or hard enough or you're not doing that right

which is what you need to grow. You need somebody constantly on you. On the other hand, if it gets too harsh then you can't stand each other and then that doesn't work. So it's been a super productive relationship for us for, yeah, now 23 years now. They're all kinds, ups and downs, and three companies.

On that note, I'd love to open it up for questions. You talk about what investors look for in founders, and I'm curious about a different question, which is, what is it does the good founders look for in their investors? That's a great question. So I think the first thing, and the most important lens to look through it from, which is very difficult to do at the time,

and this is the same lens you want to look through hiring executives. and actually everybody you hire is you can't think of your investor of like how's this investor going to be if everything goes great that's a bad way to think about it because when everything goes great you don't actually need it

anybody can be okay like any investor will be okay and you know it's the same with executives the real question is when things go wrong and they always go wrong who's going to one not hide under their desk and who's going to help me get out of this problem because they'll have the knowledge

They'll have the skill, they'll have the will, they'll have the courage, they'll have the character. There are VCs who are like, well, I'm going to focus all my energy on the winners. Well, the winners don't even need your help. So that's great. You know, fantastic. Who has the skills to help you? Like, who knows what they're doing? Who knows how to build a company for real?

What do I do when I get stuck? Like, who's going to help me then? What are your thoughts on the career path where, you know, you go, you plan on working at a big company for several years, gained a lot of deep experience in a field. And then, you know, hopefully you stumble on an idea and you start your own company, as opposed to this idea of, well, go as soon as you can, come up with an idea, you know, jump to the blackboard and try to figure out something. You start a company.

Because I feel like that's more romanticized, that latter option. Entrepreneurship is kind of like a mini scientific discovery. So if you look at the history of science, like most of the big discoveries weren't looking for what they found. They were trying to solve some hard problem, and then they stumbled into something. something else. But unless you go like try and do an actual work and solve an actual thing, it's really hard to just imagine what the problem is and imagine the solution. It's much better to go trying to. Drew Hauston, he wanted to have his files with him wherever he went. And he's a engineer, so he's like, I'll just program. He's like, oh my God, the differences in operating

systems and like this version of DOS I have here and my phone. And like, this is a really hard problem and that was Dropbox. So getting into it, going hard at a problem is generally the way you get to a really good idea. If we're building a startup, what would be the most effective or what would be the best recommendation that you have for us to reach out to investors or to talk to them about your idea? Well, a few things. How you get to the investor is important. So if you get to the investor through somebody that they trust, that shows them something. Do you have a connect that's like real that VC trust, and I would try and go in that way, because that's going to mean something. They're going to take you more seriously than somebody just like shooting a business plan

to their email alias, because anybody can do that. That doesn't show me any entrepreneur skills. And people, oh, it's not fair. Well, like, building a company is not fucking fair. That's not what it's going to be. It's going to be unfair. It's going to be gnarly. It's going to suck at times. But you're looking for the people who can do that. So that would be the first thing. And then, you know, it helps to have shown something like, what do you have to show on this idea? Have you proved anything out on it? Or is it just like literally off of your head into the pitch? And so the more you can prove about, like, you can make the technology work or people will adopt it or whatever, that also kind of helps.

That's kind of the thing. Awesome. Thank you.