There Is No Retirement

Paul Erdös used to say that mathematicians “die” when they retire or cease to do math; when they physically die they simply “leave.” Well, my father wasn’t a mathematician but he did leave last night.

Alex Basch was born in December of 1940, which made him 71. He was the son of a prominent surgeon, and he became a doctor himself. He practiced brain surgery early on, but he didn’t enjoy it so he became a psychiatrist and psychoanalyst. He continued to practice this profession until the last minute of his life.

Given today’s liberal use of the word entrepreneur, you could say that my father was one. He started his most recent company a few years ago. It’s a halfway house in Buenos Aires, and it’s doing well. As it turns out, next week I’ll have to sit down with his co-founders and help figure out the transition.

Alex and I became very close as adults, and we could discuss matters that nobody else in our family can relate to. He told me last year that the halfway house was proving to be too much work for a man in his early 70s, but he still enjoyed it. He had the option to retire and do whatever, but that didn’t appeal to him. He genuinely enjoyed helping others, and the satisfaction he derived from it was something he wasn’t willing to give up.

Papa

During many years he worked with terminal patients and their families, to help them deal in the best possible way with the immediacy of death. That was intense, and I asked him how he was able to do it. He didn’t know. Somebody had to, and it turned out that he could.

I last spoke with my dad at 1:36 pm on Friday, according to my cellphone. It was a mundane conversation. He was doing fine after having had some health issues in February, making travel plans, and generally trying to enjoy life. He was as sharp as ever, he never got to face the loss of cognitive faculties that comes with old age.

One thing that my dad and I agreed upon is that the concept of “retirement” didn’t make any sense to either of us. If you are lucky enough that your profession is fulfilling, and if you feel you’re making a contribution to the world, why stop if you don’t have to.

Obviously not everyone is as lucky as we are, as the vast majority of the world has no choice but to work shitty jobs. Nevertheless, the concept of being able to afford doing nothing for decades of your life while in good health is a relatively new invention of rich societies. I wonder what would happen if “rich retirees” were incentivized to continue contributing to society in ways that didn’t let them get too comfortable. There’s evidence that as we age, cognitive ability decreases much more rapidly if we stop pushing our boundaries and trying to learn new things. It might be a win/win: stay sharp, add value to the world.

Of course this is pure speculation, and I don’t want to succumb to the “single-data-point” fallacy. My dad was not an average person. Not only he was very wise and smart, but also he managed to do something that I think is very hard: enjoy life to the fullest while being a kind person and helping others. I can only hope that just like him I’ll never retire, and that I will be able to find the balance between living a healthy life and doing fulfilling work.

Here’s to you, dad. 

RIP Alex Basch, 12/10/1940 – 6/26/2012.

Update: don’t know if this is Hacker-News-worthy, but a friend submitted it in case you want to comment there.

 

Exploiting Silicon Valley For Profit (and Maybe Fun)

I believe that Silicon Valley is like Las Vegas, except they make you pass a number of tests before they let you gamble. This means that only a relatively select group gets to sit at the table. The purpose of this post is to analyze the folowing problem:

Joe Founder comes to Silicon Valley with a laptop full of dreams, but no money. Joe wants to maximize his chances of making a few million dollars in five years. What should Joe do?

First off, let’s acknowledge once again that Silicon Valley is a sea of conflicts of interest. You have the Sand Hill Strip, where “reputable” firms like “Palo Alto Grand Investments” or “Burlingamio Ventures” want Joe to invest his body and soul, swing for the fences, hit the ball into the San Francisco Bay and become the next Sergei Zuckerberg. It sounds awesome; the problem is that the chances of this are slim. Joe does not like. 1/100000 odds of making billions of dollars is unappealing.

Still, Joe needs money to make money. He has to pretend to want what VCs want. He learns to spew lines such as “I want to change the world by helping people connect faster. My company is to GooBook what the telegraph was to horses. A quantum leap in virality technology.”

Joe gets Wayne Cofounder to join him, and they put together an impressive demo of ZombiePlatypus. They perfect their pitch and their deck. When a partner at GiganticTree Ventures asks them how they plan to reach sales of 100M/year, they have all the right answers. They don’t tell her that they are hoping that GooBook will acquire them for the magic number of $30M. Because they will keep 20% equity each at the time of the acquisition, that means $6M each before taxes and vesting. In other words, money problem solved.

With GiganticTree’s money in the bank, Joe and Wayne focus on recruiting an awesome, all-star team. They try to lure as many GooBook employees as they can, because that would make it easier to pass GooBook’s filters when evaluating an acquisition; if GooBook wanted to keep those people but couldn’t, they’ll be happy to get them back as part of an awesome team. This has an added advantage: GooBook employees know how acquisitions work at GooBook, and can help short-circuit the process.

The M/A folks at GooBook have to acquire something. That’s their job; they have a pile of money in the bank for that purpose. So, what will they acquire? Whatever looks like a safe bet. They like their jobs and they don’t want to be fired over a stupid acquisition.

Joe and Wayne work on building something they know GooBook could acquire without looking stupid. Something they might be able to do in-house, except their most talented engineers are desperately working on ways to extract more money out of ads, or to reduce the costs of their gargantuan infrastructure. Some are stationed in Antarctica building a self-cooling datacenter; others are diverted from creative projects into the new 99.9999999999% uptime initiative: one second of downtime costs a million dollars. Forget that stupid 18% free-time web app project, and come help make some mon-ay. The quarterly report must look good. Shareholders demand it!

So Frank Merger from GooBook starts talking to ZombiePlatypus. By now they have some traction: hundreds of thousands of users, some of whom are even real. The product looks useful and promising. They are making enough money to pay for the coffee, bandwidth and toilet paper consumed at their South-of-South-of-Market (SoSoMa) office in San Francisco.

Joe and Wayne are good communicators and hustlers, so they make noise. They blog a lot. They pester TechDaily and TeraOhm until they get featured there once in a while. They become well known on Hacker Noise. They give tech talks wherever they can. They amass an army of followers on Spitter.

GooBook wants them, so Frank relays a lowball offer: 15M in stock. It’s a no-go: GiganticTree Ventures would only double their money, and remember that they want 100x. A struggle between founders and VCs ensues. This is the key part of the process.

Joe and Wayne have control of the company. If they are not motivated to swing for the fences, it will not happen. GiganticTree understands that ZombiePlatypus won’t be the next GooBook, and now they have limited options. What they can do now is shop ZombiePlatypus around in order to get the most out of it.

It turns out that Spitter is also interested in ZombiePlatypus. Long story short, the bidding war between Spitter and GooBook pushes the price up to 26M. Good enough. GiganticTree is quadrupling their money in a relatively short time, which is not that bad. Joe and Wayne make $5M each. WIN.

Now that Joe and Wayne have solved their money problem, maybe they will want to create some world-changing stuff after some resting-and-vesting. But that’s a different post.

Here’s to cynicism and hustling.

Discuss this post on Hacker News.

Infallible Formula to Create a Money-Making Startup

It’s as simple as this:

Go work for an established company for a year. Preferably more than a thousand employees, so it will have a sizable IT budget. During that year, pay attention to all the inefficiencies of that company. Hang out with the IT folks, and ask them lots of questions, for example:

  • What tool do they hate the most? Why?
  • Does anyone spend a significant amount of time on routine tasks that could be automated by a service?
  • Are they using cloud services? Why or why not?
  • What third-party services is the company paying for? Are they happy with those? Which of those are provided by startups?

These are just examples, you get the idea.

You may find that several people are dedicated to the administration of source control systems (which is why GitHub can become a huge company). Or perhaps they don’t have a way to automatically erase sensitive information when people leave the company. Or they don’t have a directory of people’s personal phones, and they would like to map virtual extensions to them. Maybe they are not complying with privacy logs, or not keeping records as they should. Perhaps they are in dire need of red staplers that send an sms when they need to be refilled. Whatever, I’m just making these up.

During that year, find potential co-founders who work at similar companies. When you find a weakness that you believe may be generalizable, validate it with them.

Once you’ve decided on which problem you’ll address, give notice. But don’t quit before making sure you have established a relationship with a decision maker: they can become your first chartered customer.

Important tip: don’t implement anything while at the company. Make sure you start working on your product after quitting.

Another tip: don’t pick something that you find extremely tedious just because you think it will make money. If you’re not excited you’ll probably have a hard time making it happen. There are a ton of exciting products nobody has been building; the shiny Facebook Ecosystem has sucked talent away from the “boring” b2b space.

Bonus points if you and your cofounder managed to save enough money to work on your product / service for three months.

Profit!

Ok, it’s not infallible. It’s not even a formula. Still, it has better odds of success than creating a solution and then looking for a problem.

Before I started IndexTank I already knew that people would be willing to pay $$$ for such a service because I’d been making money with search consulting for a while. The only question in my mind was whether we could out-execute our competition.

TL;DR: Infiltrate BigCo, learn their weakness, take their money. Who knows, you may end liking BigCo and decide that startups are for suckers. Especially if your boss doesn’t ask you to work on weekends 🙂

Thread for this post on Hacker News.

 

“Hello, Want to Buy IPO Shares?” 13 Years Ago I Said No.

In the late nineties, internet IPOs were all the rage. It was really easy for a company to go public, and most of them had a tremendous first-day pop. TheGlobe.com was one for the books: the first trade was 9x the target price. Everyone wanted in on IPOs back then, because it was a given that you would multiply your money in a few days. Friends-and-family shares were highly coveted, celebrities called executives to ask for shares. It was crazy.

One fine day in June of 1999 I was sitting at my desk, writing code, in the zone. My phone rang, I picked up. A friendly voice greeted me and started a sales pitch:

“Would you like to participate in the QuePasa dot Com IPO?” I’d heard of the company, it was one of the contenders to be the Spanish-language Yahoo back when Yahoo was the king of the net. I even used the site now and then.

My first reaction was:

Happy-big-smile-l

But then I was like:

Futurama-fry

I was a lowly programmer. There were no blogs or Twitter. Not that I’m famous or anything now, but back then I was nobody. Why did they call me? I was working for a recently public company out of lockout, so it was safe to assume I’d have some money to invest. My name is Diego, so my odds of being interested in a Spanish-language portal were relatively high. In 1999 it was common practice to print the employee roster every week (including phone extensions) and distribute it to everyone. Those rosters were money to everyone who had something to sell, so obviously they leaked.

Ok, I understood why it would make sense to call me. Luckily I knew something about economics, so it was clear to me that celebrities were not lining up to perform sexual favors in exchange for this company’s shares. Clearly there wasn’t enough demand. Still, I listened to the pitch.

The IPO price was set at $12, at the top of the range. It was expected to go significantly higher. The only restriction for me would be that they didn’t want me to sell the shares within the first 30 days. I said I’d think about it and call them back, which of course I didn’t do.

A week or so later, the stock went public. So what happened?

Que Pasa? A Killer IPO

The stock doubled in the first couple of days, and stayed in the 20s for a while. I was starting to think that I’d made a bad decision, but then moved on. At the 30-day mark I checked the stock, and it was trading at $6. During the 2001 crash it lost all its value. Interestingly it managed to survive and it’s still around in some form, you can read about it on Wikipedia.

I have never bought a stock at the IPO, and I don’t think I ever will. Being born and raised in Argentina, I have no interest in short-term investments. If you look at the volatility of most stocks in the few days / weeks after the IPO, it’s a complete gamble. I’d rather be playing poker. Or tossing a coin.

Hacker News discussion of this post here.

Builders and Guardians

There are 10 types of people in every company: the Builders and the Guardians. This is an oversimplification of course, I don’t want to go all hexadecimal on you. Let me illustrate by example.

It’s day one in the life of your startup FourGramPin. There is something you want to build. Maybe you have some scattered ideas or prototypes, but now you are serious about this. You and your cofounder rolll up your virtual sleeves and start building stuff.

At the same time, in galaxy three freeway exits away:

It’s day six thousand in the life of a large, public corporation. The company has a steady, profitable line of business. It’s been a long time since it developed its last significant product, these days most innovations come in through acquisitions. However, this company has a lot to lose should anything go wrong. For example, an hour of site downtime can cost a million dollars. Many people here must act like Guardians.

The large corporation was a startup once (although it may not remember it). It needed no guardians, just builders. Over the years guardians started to become necessary: the site crashes too often, they build a dedicated ops team. People push crappy code to production, they implement release engineering. Redundant clusters over the world. The site is too slow, a team optimizes the hell out of the backend. I could go on, if you ever worked for a large web company you know what I’m talking about. One challenge every tech company faces as it grows is finding the right balance between Builders and Guardians.

 

Some of us are more interested in the Builder role. We like to hack something, see if people want it, iterate, get others on board, and get it to a point where it kinda works. Sure, it’s not ultra-reliable, there are countless ways to crash it, obvious bugs have not been discovered yet. Still, we’re happy let others take over while we go build something new.
5consbar2_e0
Other people are can be happy in either role. They were the builders of the product so they see it as their baby. They won’t let go so easily, and they want to make sure to be around as it matures. Perhaps they can get a bit possessive, like Pink Floyd’s mother. I’m thinking of how Jerry Yang couldn’t let go of Yahoo when possibly the best thing for the company was to be acquired by Microsoft.

 

Some are more comfortable as Guardians. In a large organization Guardians can wield significant power. A competent Guardian will get resources: people, money, hardware. Companies become risk-averse as they grow, and at some point Guardians are in charge. They own the short term, especially if the company is public and must report its numbers every quarter. Sometimes things go to shit quickly:

 

The end of the quarter is looming, someone finds out your CEO’s resume says he was King of Scotland once, armies of patent drones can be seen on the horizon. Your elastic cloud platform just had a 24-hour outage because you were hacked by Ukrainian ninja rockstar turtles, and Techcrunch is beating you while you’re down. Right now, you need someone like this:

 

 

Still, Builders are crucial for the long term. Problem: many companies don’t seem to understand this, so they don’t make an effort to keep builders happy. This is why Yahoo has been suffering a neverending exodus of people desperate to start a new project somewhere. Do you think Young Einstein would be a good fit for Yahoo today? Maybe they should rename themselves to Global Web Estate Properties or something. The “Yahooness” is gone.

 

My own anecdotal observation suggests that tech companies do better when the original builders stick around because they are still passionate about their creation: Larry and Sergey, Bill Gates, Jeff Bezos. Steve Jobs came back to save the day, still hungry and foolish (perhaps too foolish for his own good, that would be a different post).

 

Committed founders enjoy creating new things, and they are invested in the long term. They are in the best position to know when to act like a builder or a guardian. It doesn’t seem the case with Jerry Yang and David Filo, and it’s hard to know why. Maybe they are Guardian types who lucked out? From what I know, Yahoo has been a revolving door for Guardians who have been adept at keeping the core business and the brand alive. Make no mistake, this is no small feat. It’s not sexy though, so the best the tech press can do with it is present it as a soap opera.

 

Is there a moral to all this? I have no data so this is pure speculation on my part, but I think that the dynamics between Builders and Guardians could be one of the most important predictors of the long-term prospects of a company. If Guardians dominate, There Will Be Boredom (and ultimately, death by a thousand startups).