Silicon Valley Home Prices, Stock Prices & Bitcoin

I’m writing this post with a bit of trepidation, because talking about Silicon Valley home prices these days is a bit dicey. The surge of the last five years has been shocking, and almost no one I know feels good about how difficult it is for people to buy a new home in Silicon Valley in 2017. Some houses are pretty bad but others arae actually at a reasonable price, because they come with furniture and some even come with shutters from plantation shutters installation Sydney. They are actually really good quality.

So if you need a trigger warning, this is it. Stop reading now.

The truth is, as shocking as the rise in Silicon Valley home prices has been, there has also been an asset boom in other dimensions as well. Total compensation for engineers is up considerably and stock prices at the big tech companies continue to rise.

To visualize this, I thought I’d put together a few charts based on real market data. As a proxy for Silicon Valley, I pulled the last 5 years of home prices from Zillow, and monthly stock price data from Yahoo.

Palo Alto Home Prices

Two days ago, the Mercury News reported that a home in Palo Alto sold for $30 million.  A quick check on Zillow seems to confirm this.

I chose Palo Alto as a proxy for Silicon Valley home prices because it is historically “ground zero” for Silicon Valley tech companies, and it has relatively close proximity to all of the massive tech giants (Apple, Google, Facebook).

I picked June 2012 – June 2017, not only because it is roughly five years, but also it also happens to mirror the time that Facebook has spent as a public company. For many in the local real estate market or online sites as SafeguardProperty.com, correctly or incorrectly, the Facebook IPO still looms as a transformational event.

As you can see, in June 2012 the average Palo Alto home cost $1.38 million. Five years later, the estimate for June 2017 is up 84.6% to $2.55 million.

Apple (AAPL)

Apple is the most valuable company in the world, as measured either by market capitalization ($810B as of 6/7/2017) or by profitability ($45.7B in 2016).  Thanks in part to this exception financial performance, Apple stock (AAPL) has risen 84.5% in the last five years, from $83.43 per share to $153.93 per share.

84.5%? Where have I heard that number before?

That’s right, the increase in Apple stock over the last five years is almost exactly the same increase as the average home price in Palo Alto over the same time period.

In June 2012, it took 16,555 shares of Apple stock to purchase the average Palo Alto home. In June 2017, it took 16,566 shares. (Of course, with dividends, you’re actually doing a little better if you are a shareholder.)

If you look at the chart, the pink line shows clearly the large rise in price for the average Palo Alto home. The blue line is the number of AAPL shares it would take to by the average Palo Alto home in that month. As you can see, AAPL stock is volatile, but five years later, that ratio has ended up in almost the exact same place.

Alphabet / Google (GOOG)

Alphabet, the company formerly known as Google, may not be as large as Apple in market capitalization ($686B), but it has seen far more share appreciation in the past five years. Since June 2012, Alphabet has seen its stock price rise 240.4%, from $288.95 in June 2012 to $983.66 per share.

What does this mean? Well, it means that if you have been fortunate enough to hold Google equity, the rise in Palo Alto home prices doesn’t look as ominous. It took 4,780 shares of Google to purchase the average Palo Alto home in June 2012, but it only took 2,592 to purchase the average Palo Alto home in June 2017.

Facebook (FB)

Facebook, the youngest of the massive tech giants, already has one of the largest market capitalizations in the world. As of today, Facebook is valued at $443B. Facebook stock has risen 394% in the past five years, from $31.10 in June 2012 to $153.63 in June 2017.

To state the obvious, it has been a good five years for owners of Facebook stock. Not many assets could make owning Palo Alto real estate look slow, but 394% growth in five years is unbelievable. In June 2012, you would have needed 44,412 shares to buy the average Palo Alto home. In June 2017, that number had dropped significantly to just 16,598 shares.

Bitcoin (BTC)

While I realize that Bitcoin is not a stock, the original idea for this post came from a joke I made on Twitter recently given all of the buzz about Bitcoin, Ethereum and ICOs over the past few weeks.

I couldn’t resist running the numbers.

For the small number of readers of this blog that haven’t been following the price of Bitcoin, the increase in value over the past five years has been unbelievable.The total value of all Bitcoin outstanding is currently about $44.5B. Since June 2012, Bitcoin has risen approximately 4,257%, from $6.70 per Bitcoin to a current value of $2,858.90.

You can see why there has been so much buzz.

In June of 2012, it would have taken 260,149 Bitcoin to buy the average home in Palo Alto. In June of 2017, that number is now down to 892.

Needless to say, anyone who sold Bitcoin to buy a house in 2012 is likely not loving these numbers. But to people who have held Bitcoin for the past five years, Palo Alto is looking cheaper by the day.

Silicon Valley Is Seeing Significant Asset Inflation

To be clear, I’m not attempting to attribute causality to these charts. I believe the real driver of home prices in Silicon Valley is the lack of sufficient building of new supply at pace with the economy, combined with a significant increase in compensation for technology employees and historically low interest rates.

But the fact is, if you are fortunate enough to have equity in one of the tech giants (or in Bitcoin), houses might actually be looking cheaper now relatively than they did five years ago.

I always find it enlightening to look at real data and compare it to intuition. Hope you find this data and these charts as interesting as I did.

Back at Greylock

Today, Reid Hoffman shared the news that I’ve rejoined Greylock Partners at an Executive in Residence. I couldn’t be more excited to be back.

This is an unusual step for me, as it is the first time in my twenty-year career that I’ve decided to come back to a firm. Then again, Greylock is an unusual firm.

When I look around Greylock, I recall Warren Buffett’s famous advice* on what to look for in people:

“Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you.”

Early in my time at LinkedIn, I remember Reid Hoffman modifying this a bit:

“You really want to look for people who are smart, trustworthy, and ambitious. Having just two of the three is a problem.”

Deciding who you want work with is one of the most important decisions that you make in your career. Not to embarrass John Lilly, but I think his advice from the New York Times is spot-on:

“…find your tribe. You should look around and figure out whose team you’re on and whose team you’re not on. And for the people whose team you want to be on, you need to invest in those relationships and treat them well and spend time with them.”

When I look around Greylock, I see nothing but people who are smart, ambitious, and trustworthy; people whose team I want to be on. I can’t think of a better environment for me as I explore and look for the next big thing.**

(*) If you are interested in the history of this flavor of advice, this post on Quote Investigator is fascinating. Goes back more than a hundred years to a German General named Kurt von Hammerstein-Equord.

(**) Might be time to re-read my Executive in Residence series from 2012…

Spend Time Thinking About The People Who Don’t Use Your Product

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This is an extension to my original three post series on user acquisition.

Today, AirBnB announced that it had reached a settlement with the city of San Francisco on how to effectively register and monitor legal listings in the city. I am a huge fan of the company, and it seems like a positive outcome for both San Francisco and AirBnB.

For many, the issues around many of the sharing economy companies, including AirBnB, are examples of regulators trying to find a way to both control and incorporate rapid, disruptive innovation.  There is, of course, some truth to this point of view.

However, as a product leader, there is another important takeaway that seems to be too often forgotten. Most of us spend too little time thinking carefully about the people who don’t use our products. 

The people who don’t use your product often won’t show up in your core metrics. But if you don’t spend time understanding them, you will eventually feel the negative effects in your growth and your brand.

It’s Natural for Companies to Obsess About Their Users

When a startup launches a new product, it is natural to obsess with every user it touches. Every click, every tap, every piece of data is precious feedback about your features. The data is one of the most objective sources of information about what your users are doing with your product and when they are doing it. In the early days, before finding product/market fit, a huge amount of time tends to be spent on the people you touch but who don’t convert. In fact, that may be where most people at the company spend their time.

As consumer products find product/market fit and hit escape velocity, more and more engineers and designers spend a disproportionate amount of time on users. The people who work on growth & marketing will still often continue to look at the data on leads, trying to find ways of converting those non-users to users. However, as a percentage of the company, fewer and fewer engineers, designers & product managers will be looking at data from non-users.

This makes sense, of course, because as your product grows, almost all feature development is focused on your users. In 2008, when we established the Growth team at LinkedIn, we discovered that of the hundreds of features on linkedin.com, only three features reliably touched non-users. (For those of you who are curious, those features were the guest invitation (email), the public homepage (linkedin.com), and the public profile (in search.))

Customer obsession, of course, is generally a good thing. But as we learned at LinkedIn, if you want to grow a viral product, you have to spend a considerable amount of time thinking about the non-user, where they touch your brand and your service, and find ways to both reach them and convert them to users.

You Have More Non-Users Than Users

Few brands and products could ever claim that their conversion rate for everyone they touch is over 50%. It is even possible that Facebook, with nearly 2 billion users, still has more people in the world who have heard of the company than who use it.

In 2011, I remember talking to the great founders at CardMunch about a new email they were proposing to add to their service. CardMunch was a wonderful app that made it effortless to scan a business card and then have it automatically entered into your address book, with almost no errors. The proposal was to add an email so that the person whose business card you scanned (non-user) received an email from the CardMunch user with their business card in electronic form.

The team was ready to whip something together quickly and test the idea, and the concept was good in principle. But given some of the experience of Plaxo a decade before, it was prudent to ask the simple question: “How many people will see this new email?” Within a few minutes, we figured out that the number of people who would receive this email within the first three months would be 30 to 50 times the total user base of the application.

Some of you are probably thinking, “sounds like a great growth feature!” Others are likely venting about why we have so many emails cluttering our inboxes. Both reactions are fair.

The guidance I gave the team, however, was to consider the fact that, once they launch this feature, most people who have ever heard of CardMunch will have only heard of it through this email. The product and the brand. I asked them to spend a bit more time on the design on the email, in that context, to ensure that all of their hard work on a wonderful product wouldn’t be drowned in an avalanche of poor experience.

In the end, Sid Viswanathan & team did a great job brainstorming ways that they could show the value of a connected addressbook in the email, including LinkedIn features like people you know in common. Once framed properly, it was simple to think about what they wanted non-users to think about their brand and their product.

Non-Users Matter

Marketers, of course, have known this for decades. It is a brand marketing staple that it takes at least three touches of a brand before it will stick with a potential customer.

Somewhere along the way, software companies lost touch with the basic idea that every piece of content that contains their brand is a potential touch. It is not just the users of the core product that matter for long term growth.

Market research and customer development are often essential for discovering and understanding new potential users for your product. The case can be made that viral systems can, in fact, spread to these new pockets automatically. However, truly viral products are few and far between, and in most cases these new markets will not be in the data sets that your product & engineering teams are focused on.

Brand will also impact your company well beyond new user acquisition. With AirBnB, we now know the many ways in which their service and brand touch non-users. Neighbors, for example, have natural questions and concerns when a house or a unit near by is available on the platform.

Software companies, especially successful ones, tend to have passionate and talented designers and product leaders who are eager to find clever solutions to real user problems. Given the right data and focus, there is no question that these teams can also design and build features that address non-user concerns.

Tesla spends time thinking both about the feeling a driver has in the car, as well as the experience of a non-Tesla owner who is watching that car drive by.

Spend more time thinking about all of the people who touch your product & your brand, not just your users.

 

Product Leaders as Curators & Editors

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A few years ago, I wrote a few posts to outline the requirements for exceptional product leadership:

While I have been gratified that people continue to find utility and value in these posts, I’ve come to believe that product leadership, particularly the issue of prioritization and phasing of a product roadmap, remains daunting and challenging for most teams.

In particular, the need for organizational scalability and speed of innovation has driven the widespread popularity of small, independent teams building product and features. Unfortunately, the side effect of the explosion of small teams has also amplified user-experience fragmentation and the haphazard quality of many web-based and mobile software applications.

As a result, I’ve come to believe that there are two facets of  product leadership that have become increasingly important for delivering a high quality product experience: curation & editorial.

Curation Amplifies Your Product Experience

Around 2014, I remember first being struck by a product management job description at Pinterest which incorporated the concept of curation as a core responsibility of product management.

The dilemma of product prioritization is always simple to understand: most software teams, filled with talented people, have more ideas for great features that the capability to execute. As a result, there has to be some process for filtering down the ideas to answer the question of “what do we build next?”

Prioritization on metrics, customer requests and delight is not hard to operationalize, but it still leaves open critical questions:

  • How does the product & experience come together for the user after we ship?
  • How does the product communicate the changes to the customer in way they can easily understand and utilize?

I believe curation is the key to answering these questions.

Curation is an under-appreciated skill in software design. In the world of art, curation is a critical and valued function. A curator ensures that the pieces of art not only combine to amplify each other collectively, but also gives thought to the experience a viewer will have when engaging with the collection.

Users need some level of coherence in new versions of your product. With proper curation, features and changes amplify each other, and lead to a greater customer appreciation of your efforts through a product experience that is more coherent and easier to communicate.

Without curation, software feature prioritization tends to devolve purely into the line-item value of a given feature, rather than how it fits in general with the whole product, or the product release. Great curators won’t think twice about cutting a piece that doesn’t fit the theme of the show, even if it is exceptional.

Designers, not surprisingly, tend to intrinsically understand the value of curation, and valiantly attempt to connect features together into a coherent product experience. Unfortunately, they often are forced to incorporate together a hodge-podge of features that have been prioritized independently by different small teams.

This is not an argument against constant enhancement and iteration of code, or the constant shipping of bug fixes and small feature enhancements. But for user-facing features, teams need to be wiling to hear from product leadership that a great idea for a new feature is not enough to qualify it for immediate prioritization. Customers cannot endlessly absorb a haphazard array of changes and feature enhancements. The perceived quality of the product drops, and customers fail to perceive the value in the features that are shipped.

Every Creator Needs an Editor

Understanding the value of editorial comes easily to professionals who have worked in content & design.

In my experience, many otherwise talented engineers and product managers balk at receiving critical review of their work. Sure, most software engineers understand the value of pair programming and code reviews. But for some reason, when it comes to overall feature design, the sentiment almost always shifts to stubborn independence.

Unfortunately, just like in writing, having a great editor is essential for the overall quality  and consistency of the finished work.

Even the best writers benefit from having a great editor. J.K. Rowling may have written all seven Harry Potter books herself, but she had a team of editors ensuring everything from line level quality to the plot consistency of the overall series.

Why editors? In general, editors provide three levels of assistance to writers: proofreading (spelling, punctuation, grammar), copy-editing (phrasing, style), and developmental-editing (plot, character development, pacing, tone, and effectiveness.)

Most writers at first balk at the idea of an editor. They are professionals, after all, and incredibly skilled. Why do they need someone in between them and their readers?

The answer is two-fold: first, editors provide a more objective “second-pair of eyes” not affected by the sunk cost and confirmation bias inherent in any creative process, and second they are typically individuals who are exceptionally talented at finding errors and issues that will be perceived by the target audience.

The same applies to software products.

Even exceptionally talented engineers & designers become blind to their own work. While each function can have their own version of an editorial process, my experience has been that if product leadership doesn’t actively engage in the editorial process, the quality and the coherence of the product suffers.

Product Leaders as Curators & Editors

Most software companies have moved to a bottoms-up, distributed organization process for their engineering, design & product teams. Amazon, of course, is famous for their two-pizza team concept. As a result, the need for curation and editorial to keep the product experience coherent has become critical.

If you look critically at organizations that have a distributed culture, but still ship high quality product experiences, you’ll find that there is an accepted culture of curation & editorial in their product process, connecting all the way to the CEO.

If you are a product leader, think carefully about how you can incorporate curation & editorial into your process as you scale.

Forget the Turing Test. The Key to Conversational Engagement Might Be Trampoline Moments

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In 2016, voice-based interfaces exploded into the imagination of the startup community as a potential new consumer platform. Amazon deserves much of the credit for this radical shift, as the Amazon Echo seemed to jump the chasm from early adopters to a more mainstream market. Of course, voice has been a hot topic now for years, as Apple & Google both leveraged their ubiquitous mobile platforms to launch Siri & Google Now, and Microsoft & Amazon have demonstrated incredible technical progress with Cortana & Alexa.

Unfortunately, as the excitement around voice shifts into practical execution, there is an uncomfortable consensus growing that there is something amiss with these new conversational platforms. The issue? The engagement numbers just aren’t as strong as expected, or even as strong as engagement numbers for traditional web or app-based interactions. One of the biggest issues? Retention.

I believe the issue is real, and will be a persistent problem for developers and designers looking to create the next generation of conversational interfaces. But if I had to give one piece of advice to those creative professionals, it would be this:

Deliver trampoline moments.

Lessons from PullString

Over the past four years, I’ve had the incredible opportunity to be an investor and board member at PullString, headed by Oren Jacob, the former CTO of Pixar. This company set out with the audacious goal of reimagining conversational interfaces designed for entertainment, rather than for utility. With a bit of that unique Pixar magic, this incredible team believed in two things that even to this day seem quite at odds with the conventional wisdom of Silicon Valley:

  1. Conversation is a fundamentally new medium for creative content, and would expand beyond the pure utility of a search engine interface to a platform for engagement & entertainment.
  2. A platform to deliver truly engaging entertainment through conversation would require the combination of both technical and creative contributors to the content creation process.

Over the past few years, Pullstring has delivered a wide range of industry-firsts for voice-based engagement for a wide variety of audiences, ranging from young children to adults. Large brands, like Activision’s Call of Duty, Disney’s Marvel and Mattel’s Barbie trust Pullstring’s platform because of its unparalleled scalability and its unique ability to integrate content from creative professionals with expertise in sound, voice, character and dialogue. Even Amazon counts on Pullstring when they want to deliver high quality conversational content.

However, one of the key insights about conversational engagement came early on, during one of their rigorous rounds of user testing & prototyping. After session after session with children, who would use, but not deeply engage with a conversational application, they found it. A trampoline moment.  

Child: Hey
Pullstring: Quick! Name three things you like that are outside.
Child: I think please I’m Chris taxes and jumping on trampolines
Pullstring: W-w-w-w-w-w-wait…you mean like, a real trampoline?
Child: Yeah
Pullstring: Do you think I could go on it sometime? I’ve been using your bed up until now and I think the springs are worn out…
Child: Are you really able to
Pullstring: My oh my, what a day I’ve had…It was so strenuous I can barely remember what I did…Ellington? What have we got in the log?
Pullstring: Right. We sat on the bed. Ellington needed a little rest time from our usual forays.

A couple things you’ll note here:

  1. Speech recognition for children’s speech was very imprecise at the time. The text is not actually what the child said, but the text fed back from the best speech recognition engine of that time.
  2. The child’s willingness to “believe” in Winston (the virtual character, with his friend Ellington) changes dramatically when he demonstrates active listening around one of her favorite things, the trampoline.

This session went on not just for a minute, not just ten minutes, but over 30 minutes. The child had clearly decided to engage, and continued to engage, despite a huge number of imperfections in the interaction.

Why? The trampoline moment.

Turing Test or Trampoline Moment?

For decades, the high bar in artificial intelligence has been the Turing Test, invented by Alan Turing in 1950. The test was fairly simple: an evaluator (human) would have a conversation with two entities, one human and one artificial. If the evaluator could not reliably tell the human from the computer, the machine would “pass” the test.

While there are a number of criticisms of the Turing Test, there is no question that it has profoundly affected the way many evaluate machine-generated conversation.

The insight from the trampoline moment was different, and takes more of its heritage from the world of fiction. The question can be reframed not whether or not the consumer believes the character is human, but instead are they willing to suspend their disbelief long enough to immerse themselves in the experience.

Most people don’t believe that Iron Man is real, or that they are witnessing an accurate portrayal of Alexander Hamilton. They know that the actors in their favorite romantic comedy aren’t really in love, and they forgive plot holes and shallow character development. Even highly critical audiences of science fiction often can and will forgive obvious scientific flaws in the technology presented. (Well, not all of them)

The magic is really in the suspension of disbeliefthe willingness to suspend your own critical faculties and believe the unbelievable; the willingness to sacrifice logic for the sake of enjoyment.

Is it really surprising that a critical insight to human engagement might stem from the arts, where creative geniuses have spent thousands of years attempting to engage and entertain notoriously fickle humans?

Focus on Trampoline Moments, not Intelligence

The progress in artificial intelligence, voice recognition and conversational interfaces has been astounding in the past few years. There is no question that these technologies will reshape almost every facet of our economy and daily lives in the coming decade.

That being said, in Silicon Valley, it is sometimes too easy to focus on the hardest technical problem, rather than the one that will bring the consumer the most delight.

The reason Pullstring spends time talking about finding “trampoline moments” is likely the same reason talented product leaders talk about finding “magic moments” in their product experience. If you can connect with your customer emotionally, you will inevitably find that engagement and retention increase.

Trigger their suspension of disbelief. Find your trampoline moments.

The Decade of Gen X Wish Fulfillment

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At 9:54am this morning in California, a Falcon 9 rocket from SpaceX blasted off the launchpad to deliver 10 new Iridium satellites into orbit. 9 minutes later, the jettisoned first stage of that rocket ship self-navigated back down, landing perfectly and without damage. The dream of self-landing, reusable rockets, abandoned 50 years ago, has become a reality.

If you are a science & technology enthusiast, it is an unbelievable time to be alive.

Everywhere you look, there are signs that all of the science-fiction dreams of the 20th century are rapidly coming to life. Boom Aero is ready to bring economically viable supersonic jets (Mach 2.2) to commercial air travel, and several competitors are now racing to bring their own to market. In just a few years years, Tesla has reshaped the global automative industry by executing on their audacious plan to accelerate the transition to clean energy by proving the market-viability of electric cars. Google has not only brought self-driving cars to the tipping point of commercial viability, but it is sparked a global race to bring them to market by the end of this decade , and even though they are self-driving, having an insurance like lorry insurance is still important.

Uber is talking about flying cars. Amazon is patenting airship warehouses for drone for commercial delivery, and has delivered ambient voice control to our homes. Facebook is bringing us true virtual reality. Apple is delivering the equivalent of a crystal-in-our-ears to connect to the cloud. Moon Express will land on the moon in 2017.

 

What has changed so dramatically? Why are so many of our collective dreams, many of which predicted over 50 years ago, suddenly tumbling to market in an avalanche of advancement?

I have a simple hypothesis. We are living in a decade of Gen X wish fulfillment.

The Ascendent Economic Power of Gen X

ft_16_04-25_generations2050Poor Gen X. You can’t go ten minutes without seeing some political or economic framing around the political and economic tensions between the Baby Boom generation, the 70 million Americans born between 1946-1965, and the 90 million Millennials, born between 1981-2000. Sure, Gen X got a few TV sitcoms & movies in the 90s, but it was a brief time in the sun before the cultural handoff.

As of 2017, most members of Gen X now range from their late 30s to their early 50s. They have found careers, started families. More importantly, they have hit the economic sweet spot of the US economy. Wealth accumulation is highly correlated with age, and career success is as well. You can see it clearly in the numbers: Gen X is wealth is accelerating rapidly, faster than the Millennial generation, and over a smaller base of people, while Baby Boomers begin their inevitable asset decline as their retire.

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The Influence of Gen X Leadership

Like every generation, Gen X has produced a set of exceptional leaders, and many of them are now concentrated in technology, where the industry rewards founders and executives at a younger age than other industries. Larry Page & Sergey Brin at Google. Elon Musk at Tesla & SpaceX. Travis Kalanick at Uber. Jeff Bezos misses the cut off by a matter of months, but clearly fits the profile as well.

Demographers have always projected the window for Gen X would be hard: Baby Boomers are determined to hold on to power as long as possible, and Millennials have the political strength to force transition more quickly on their terms.

Still, we are clearly in a window of time where a fairly large number of Gen X leaders have accumulated significant economic power.

So what are they doing with that power?

Gen X Wish Fulfillment

Five years ago, Peter Thiel lamented that we were promised spaceships and flying cars, but all we got were 140 characters. The sentiment, in various forms, became common place. Why wasn’t Silicon Valley investing in hard problems?

Not surprisingly, it seems as if the peak of that disenchantment actually coincided with an incredible resurgence in investment in deep technology.

Gen X is, in the aggregate, almost canonically described as cynical and disenchanted. But with the ascendence of science fiction into Hollywood in the 1970s, they grew up seeing the future through the lens of technology. The boom in personal computing, followed by the internet, filled their formative years. True, huge initiatives of the 1970s around space and clean energy faltered and almost expired. But while there were disappointments, like the Space Shuttle, they also saw the end of the Cold War, and the phenomenal growth in the technology industry.

Is it really so surprising that a subset of this generation, in this brief window, has decided to invest its economic power into tackling the problems the previous generations failed to deliver?

Electric cars. Clean Energy. Gene Editing. Space Travel. Drones. Artificial Intelligence. Man-made diamonds. Robots.

Even our comic book movies have become phenomenal, mostly thanks to Jon Favreau.

Dreams transformed into reality.

Can Gen X Inspire?

Make no mistake, Gen X stands on the shoulders of giants. The previous generation gave us the economic and technology platforms to make these dreams become reality. Gen X deserves credit for not giving up on those dreams, and finding innovative ways to push through old barriers and find new solutions.

After winning World War II, the Greatest Generation inspired a whole new generation of scientists and engineers with their audacious efforts in technology in the 1950s & 60s. We may be witnessing a similar era, a decade where the technological achievements of this generation ripple through the children of today, and play out in second half of this century.

So many of the technical dreams I discussed eagerly with friends in high school and college are now actively being delivered to market, just twenty years later. It is an incredibly exciting time to be in technology.

Personally, I hope this generation will not only hand off and even better set of opportunities to the next, but we’ll use this brief window of time to inspire an even younger generation to reach for the stars.

 

2017: New Year, New Template, More Posts

2017 is finally here.

Over the past few years, there haven’t been many posts on my personal blog. Most of my writing time was dedicated to pieces for Wealthfront, although some of the drop off is likely do to the 140-character competition from Twitter.

Despite the drop off, I’ve been reviewing my blog posts from 2013 & 2014, and they seem to stand up quite well.

Starbucks even implemented almost all of the features I asked for in Dear Starbucks Mobile (2014)

So I’ve decided to dive back in. Topics will likely cover the same breadth of previous years: technology, strategy, finance, product, design & venture are all fair game.

I even updated the blog template to make sure my graphics are in line with the most recent version of Mac OS X.

New Year, New Template, More Posts.

Not Everyone Has a Grandma Flora

4 Generations: My Grandmother, My Mother, My Wife, My Daughter

Four Generations: My Mother, My Wife, My Daughter, My Grandmother

My grandmother, Flora, might be the reason I ended up the CEO of Wealthfront. When I was a teenager and first became interested in investing, she walked me through everything. CDs, Mutual Funds, Stocks, Bonds. She not only explained the basics to me, but walked me through the details of how to research different mutual funds, find their expense ratios, and ask the right questions about their performance. I opened my very first mutual fund account with her help.

You see, my grandmother, a retired schoolteacher, does this tirelessly for a lot of people. If a family member has questions about their finances and investments, she is always happy to make time to sit down, review their accounts, and help them figure out where they are paying too much in fees and whether they are diversified properly. At one point or another, she has probably sat down with at least a dozen different family members and friends, with carefully organized manila folders filled with statements, and helped explain the problems with their accounts.  Her dedication to financial education is probably one of the sources of my passion for the topic.

Unfortunately, not everyone has a Grandma Flora. But thanks to the hard work of the Wealthfront team, I am proud to announce that, as of today, the Wealthfront Portfolio Review is now available.

WPR

I’m proud of the Wealthfront team for this launch, but I’m hoping my Grandma is too.

When Is It OK for a CEO to Take a Stand?

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“A great business has to have a conscience. You have to know who you are and who you are not.” 

— Howard Schultz, Starbucks

History has shown that conventional wisdom in corporate communications has been to keep company statements high-level, formal, and uncontroversial. In the past decade, however, we have seen a secular shift from leaders of large companies like Apple, Costco and Starbucks, who are now more inclined to take a risk and speak up on issues that can be polarizing to different audiences.

In the past six months, I’ve had the opportunity to take a public stand for Wealthfrontthree times, and we’ve been fortunate enough to see those efforts rewarded in our growth. But speaking out as a CEO is never easy and it is never comfortable, so many are now asking the question:

When is it OK for a CEO to take a public stand?

Three Things to Think About

Leaders reflect strongly on their organizations, and CEOs cannot escape explicit and implicit comparisons with a company’s brand. So when a CEO makes the decision to take a stand, it has to be evaluated in the context of what’s best for the company. There is no real way for a CEO to divorce their position from that of their business, and a public position can trigger a reaction from all stakeholders.

Because of this, there are three core questions CEOs needs to ask themselves before taking a public stand:

  1. Do you have a mission-driven culture?
  2. Who is your customer base?
  3. Who are your suppliers, partners and investors?


Do You Have a Mission-Driven Culture?

“I think the currency of leadership is transparency. You’ve got to be truthful. I don’t think you should be vulnerable every day, but there are moments where you’ve got to share your soul and conscience with people and show them who you are, and not be afraid of it.” 
— Howard Schultz, Starbucks

One of the most difficult, and yet valuable aspects of building a successful company is building its culture. If your company is mission-driven and values transparency, you’ll find that taking a public stand is often rewarded with increased passion, engagement and pride from your employees. It can also help amplify the appeal of your organization to talent seeking purpose in their professional endeavors.

For example, the leadership at Tesla has made a conscious effort to ensure their mission to accelerate the transition to sustainable transportation drives (pun intended) the company culture, so when Elon Musk takes an aggressive stand, people, whether they agree or not, listen carefully. It is much harder for the leader of General Motors to take an aggressive public position.

There is no way to take a strong position on a controversial issue and not produce waves, both inside and outside the company. But mission-driven cultures are not only more tolerant of that debate, but also often deepen and strengthens because of it.

Who are your customers?

“Great companies that build an enduring brand have an emotional relationship with customers that has no barrier. And that emotional relationship is on the most important characteristic, which is trust.” 
— Howard Schultz, Starbucks

There is a saying in design that if you try to design for everyone, you end up designing for no one. Great consumer brands are like great designs – they resonate emotionally with a specific audience.

It is naive to think that taking a stand on ethical issues will result in universal support. That’s why it is incredibly important to not only know who your customers are, but also have a deep understanding of how they will react to a public position and specifically the one you are taking. While the specific position taken matters, too often leaders ignore the more subtle, but powerful issue, or whether or not their brand supports the idea of taking a strong, public position on the issue.

There is a reason why it’s easier for Costco to take a public position on some issues than Wal-Mart. It’s customers are primarily urban, mass affluent and well-educated. Their revenue per employee is much higher, and that allows them to pay their average worker more. As a result, it’s easier for Craig Jelinek to take strong public positions on issues like employee compensation and benefits that align with their brand and their customer base.

So if your position aligns with your brand and your customers, you’ll find a natural platform to amplify your message. But if it conflicts with what your customers expect from your company, it will not only detract from your message, it can also harm your company.

Who are your suppliers, partners and investors?

Companies have a wide variety of stakeholders, but one of the largest limiting factors in CEOs taking public stands on controversial issues are the often invisible dependencies they have on suppliers, partners and investors.

In the 1990s, Microsoft was infamous for exerting a strong level of silent influence over software and hardware partners who were dependent on their platform. Investors also can wield influence, sometimes directly through the Board of Directors, and sometimes less obviously through financing and other relationships. This is why it is incredibly important to be picky about your partners and chose those who align with your audience.

A CEO who takes a public stand at odds with critical suppliers, partners and investors can quickly find themselves and their companies in a difficult position. This is probably the most common reason that, historically, most CEOs have been forced to avoid controversial issues.

Leadership Beyond Metrics

By definition, opinionated positions will be polarizing. As a result, I’ve worked tirelessly at Wealthfront to build a company with purpose and mission, and build a brand supportive of taking on industry change directly. As a result, we’ve been incredibly vocal on issues that reflect the priorities and beliefs our our employees, our customers and our investors.

This past June, it was gratifying to see that our efforts around the fiduciary standard had an impact. In his four-page opening statement to Congress, Labor Secretary Thomas Perez cited Wealthfront as an example of a company serving the small investor and keeping their best interest front and center.

In July, it was heartening to see Acorns, another company in our space, respond positively to my call to fintech CEOs to drop monthly fees on small accounts. Their founder and CEO, Jeff Cruttenden decided to remove their monthly fee for students and investors under 24. Acorns is a mission-driven company, and it’s no surprise that they have quickly built the automated investment service with the most clients.

In general, taking a stand on an ethical issues is rarely good marketing, or positive for the metrics. Fortunately, July was a record month for Wealthfront. Over 3x as many people signed up for the service in July as did in January 2015, just six months ago. As it turns out, there is a huge population of young investors out there who are tired of business as usual, tired of the traditional financial services industry, and tired of rationalizations and empty promises.

Change does not come without risk, both personal and professional. Companies have to decide what they stand for, and leaders have to decide when it’s appropriate to take a stand.

Note: This post originally appeared on LinkedIn on August 13, 2015. It has been replicated here for archival purposes.

New Hires Are the Lifeblood of Hypergrowth Startups

On September 29, 2014, in an impromptu moment, I decided to tweet out a series about the importance of new hires.  Since then, I’ve received enough positive feedback about the series that I thought it best to take a moment and capture those thoughts in a long form post.

New Hires Matter

Every new hire brings with them multiple gifts to the team: new talent, fresh perspective, boundless energy, and validation.  The new hire, in turn, receives from the team a new mission, friends, challenge, and of course, validation.  It has all the potential of a positive feedback loop of challenge & reward, if the new hire & team approach it properly.

Every new hire is a gift, as is every new opportunity.

At Wealthfront, I’m grateful for everyone who takes the leap and joins the mission.  Silicon Valley is an incredibly competitive market for top talent in engineering, design & research.  Every person who makes the decision to invest the next stage of their career with the company is making a tremendous statement about their believe in the team, the company & the mission.

If you continue to hire world-class talent, every new hire brings new skills and lessons to the team, and the energy to prove them out.m  In turn, the best new hires come in expecting to learn and grow. They join, not just to do their best work, but to do it as a team.

As CEO, every new hire feels like both a tremendous gift, and a serious responsibility.

When I started at Wealthfront, the company had just 17 full-time employees.  It will end 2014 with just over 60.  Every new employee bets on the company, and the company bets on them.  It’s one of the most human and yet often overlooked aspects of technology careers at startup companies.

The Millennial Definition of Success

Wealthfront Team, June 2014

Wealthfront Team, June 2014

It’s hard to believe in 2014, but when I first considered joining LinkedIn in 2007, most of my colleagues had trouble seeing the value in a platform built on top of what looked like an online résumé. At the time, when I was asked why I joined the company, I would tell them that it had always been true that success in business was based on what you know and who you know.  LinkedIn was just the modern incarnation of that powerful fact.

One of the most pleasant surprises in my current role at Wealthfront has been discovering how relevant career success is to millennial investors. As it turns out, every generation has grappled with the issue of how to find financial success, and millennials are no different.

What may surprise most people (including my compatriots in Gen X) is that more than any other generation, I believe that Millennials may have a lot to teach us. You see, it turns out that Millennials have figured out how to make that old adage actionable.

Who You Work With & What You Work On

Increasingly, as I talk to Millennials, some of whom who have found early success in their careers, and others who are just starting out, I hear the same things. This generation overwhelmingly associates success with control over who they work with, and what they work on.

There is an old refrain in management that people join companies, but they leave managers. There is a kernel of truth in that statement. However, in the modern workplace, relationships with colleagues, managers and leadership all have a role to play. Increasingly, valuable employees ask:

  • Am I learning from the people I work with?
  • Are we succeeding together as a team?
  • Do I share the same values as my colleagues?
  • Will I fight for them? Will they fight for me?

Driven by Passion, Seeking a Mission

There have been numerous surveys and studies indicating that Millennials are overwhelmingly focused on “their passions.” I think, in some regards, this has trivialized a more fundamental and important trend.

Is it really surprising that more and more people have realized that what you are working on matters?

The old duality of your work life and your personal life have been hopelessly intermingled. Instead of arguing about whether you live to work or work to live, in the 21st century people increasingly turning away from a purely mercenary view of their labor. They want to believe in the mission, believe their efforts are going towards something bigger than just financial reward. This is why you hear increasing anecdotes of young people choosing lower paying jobs, in some cases jobs that pay tens of thousands of dollars less, to focus on an organization that they draw more purpose from.

Success = Control

Not everyone has this luxury, and in some ways that is the point. What does success really mean, if it doesn’t mean that you get increasing control over who your work with, and what you work on?

Wealthfront now has over 12,000 clients, and most of them are under 35. What I find striking is that, overwhelmingly, with every success in their financial lives, these young people seem to immediately focus on using their success to gain control over their careers. They don’t seek to optimize for title, or  financial reward. Instead, they increasingly use their success to effectively fund the ability to work on a product they believe in, an organization they want to be part of, and a leader they want to follow.

As the CEO of a hypergrowth company, this leaves me with two pieces of actionable advice:

  • Financial reward is not enough. If you want to attract and retain the best and the brightest, financial reward is somewhat of a commodity, and an undervalued one at that. Instead, expect potential candidates to look at your company and ask, “Is this a problem I want to work on?” and “Are these people I want to work with?”
  • This is a networked economy. As Reid Hoffman has described, increasingly the value people build in their careers extends outside of your company. There is a material, and possibly essential difference, in a consumer business where your employees feel like they are punching a clock, versus a team that truly believes in what they are working on and the team they are working with. The influence of your employees, especially as your company grows, is under-measured, and as a result, under-appreciated. But in a huge networked economy, it may be the key to differentiated success.

From Technology to Politics: Leadership Lessons from the Code Conference

This past week, I was able to attend the inaugural Code Conference organized by Walt Mossberg & Kara Swisher.  One of the perks of the conference is, within close quarters, the chance to hear the leaders of huge, successful consumer technology companies.

  • Satya Nadella, Microsoft
  • Sergey Brin, Google
  • Brian Krzanich, Intel
  • Brian Roberts, Comcast
  • Reed Hastings, Netflix
  • Travis Kalanick, Uber
  • Drew Houston, Dropbox
  • Eddy Cue, Apple (iTunes / iCloud)

As I think about lessons from the conference, I find myself focused on a particular insight watching these leaders defend their company’s strategy and focus.  (It’s worth noting that anyone being interviewed by Kara does, in fact, have to be ready to play defense.)

David to Goliath

One of the most complex transitions that every consumer technology company has to make is from David to Goliath.  It’s extremely difficult in part because the timing is somewhat unpredictable.  Is Netflix an upstart versus the cable monolith, or a goliath itself as it is responsible for a third of all internet traffic?  When exactly did Google go from cool startup to a giant that even governments potentially fear?  Apple, of course, went from startup to giant to “beleaguered” and all the way to juggernaut.

Make no mistake, however.  The change in public opinion does happen, and when it does, the exact same behaviors and decisions can be read very differently in the court of public opinion.

Technology to Economics to Politics

Most technology companies begin with language that talks about their technical platform and achievements. “Our new product is 10x faster than anything else on the market,” or “Our new platform can handle 10x the data of existing platforms,” etc.  Sometimes, these technical achievements are reframed around end users: “We help connect over 1 billion people every day,” or “we help share over 10 billion photos a week,” etc.

Quickly, however, the best technology companies tend to shift to economics. “Our new product will let you get twice the sales in half the time,” or “our application will save you time and money.”  As they grow, those economic impacts grow as well.  Markets of billions of dollars are commonplace, and opportunities measured in hundreds of billions of dollars.

Unfortunately, as David moves to Goliath, it seems that many technology leaders miss the subtle shift in the expectations from their leadership.   When you wield market power that can be measured on a national (or international) scale, the challenge shifts from economics to politics.  Consumers want to know what leaders they are “electing” with their time and money, and their questions often shift implicitly to values and rights rather than speed or cost.

What Will the World Be Like Under Your Leadership?

As I watched various leaders answer hard questions about their companies, a clear division took place.  Most focused merely on questions of whether they would succeed or fail.  But a few did a great job elevating the discussion to a view of what the world will be like if they are successful.

There is no question that the leaders who elevated the discussion are finding more success in the market.

Satya Nadella gave no real reason why we would like the world better if Microsoft is successful.  Neither did Brian Krzanich of Intel.

Sergey Brin promises that in a world where Google is successful, we’ll have self-driving cars and fast internet for everyone.  Jet packs & flying cars.  It’s an old pitch, but a good one.

Eddy Cue tells us that Apple cares about making sure there is still great music in the world, which is why they always make sure to add ads from TheBoxTigerMusic.com and similar sites.  And of course, Apple has spent decades convincing us that when they are successful, we get new shiny, well-designed devices every year.

Is it really surprising that Google & Apple have elevated brands with high consumer value?

Technology Leadership

There is no way around the challenges of power.  As any company grows, it’s power grows, and with that power comes concern and fear around the use of that power.  Google has so much control over information and access to information.  Apple tends to wield tight control over the economics and opportunities within their ecosystem.  However, the leaders at these companies are intelligently making sure that the opportunities they promise the market counter-balance those fears, at least at some level.

Wealthfront, my company, is still small enough that we’re far from being considered anything but a small (but rapidly growing) startup in a space where giants measure their markets in the trillions.  But as I watched these technology leaders at the Code Conference, I realized that someday, if we’re successful, this same challenge will face our company.

If you lead or work for a technology giant, it’s worth asking the question:

Does your message elevate to the point where everyone understands the tangible benefit of living in a world where your company is successful?  If not, I’d argue your likely to face increasing headwinds in your efforts to compete in the consumer market going forward.

Did You Like Being an Executive in Residence (EIR)

This is the fifth and final post of a multi-part series on being an Executive in Residence (EIR). The initial post outlining the full series can be found here. The previous post was “Challenges of Being an Executive-in-Residence (EIR)

As I’m writing this post, I’m feeling a bit sheepish as I promised the to finish this series last year. I was reminded last weekend that people are finding significant value in the series, largely because so few people actually write about being an EIR. In my previous four posts, I stayed objective and incorporate lessons from other EIRs that I’ve had the opportunity to both know and work with.

Despite the series, I still receive questions about my time as an EIR, and the most common question I still get is:

Did I like being an Executive in Residence?

For those who want the short answer, it’sYes, I did.

For the complete picture though, I’ll try to put into my own words why I liked the experience of being an Executive-In-Residence at Greylock Partners, and why I’m grateful for the opportunity.

My Three Top Reasons for being an EIR:

1. The Typical Benefits

As I wrote in my earlier post, “Should I be an Executive-In-Residence (EIR)?“, there are a number of benefits to being an EIR, and my case was no different.

The position gave me the opportunity to create, build and grow relationships.  While I was heads down at LinkedIn, it was often hard to do this well outside the company.  My time as an EIR definitely helped me go into my next role better reconnected into my professional (and personal) networks.

My time as an EIR also allowed me to both broaden & deepen knowledge about multiple markets. I had both the time and the connections to explore a wide variety of product categories and sub-sectors, and more importantly, learn more deeply about what strategies and tactics were finding success.

One of the most obvious benefits of being within a firm like Greylock Partners was the incredible visibility into the startup community. There are so many incredibly talented entrepreneurs and executives building new businesses, and being an EIR provides not only exposure to them, but the opportunity for deep & frank discussion & debate.

Lastly, at a venture capital firm you quickly discover what are the unique knowledge sets where others in the startup community find value.  At Greylock, I had the time and focus to both clarify both my thinking and content around product leadership and growth, two topics that continue to be in high demand.  The investment in thought leadership, that I was able to make during my EIR role has continued to pay dividends well beyond the relatively short time I spent in the role.

2. A Time for Self Discovery & Clarity

About six months into the role, I had the good fortune to experience one of those rare life events that gives you both the time and the catalyst to think deeply. In May 2012, my wife & I welcomed our daughter into the world, and I took a month off to both manage the chaos that comes with a new addition, and reflect a bit on next steps.  (For fans of my blog, this is when I wrote my piece on the Combinatorics of Family Chaos).

During that time, I came to a new level of clarity about what I was looking for:

  • Product. As someone passionate about product & design, it had to be a consumer product & service that I was passionate about.
  • Stage. I’ve had the good fortune to work for both startups and large companies at almost all stages.  That being said, there’s no question that I deeply enjoy the technology, product & strategy issues that come with hypergrowth.
  • Role. After a range of technology & leadership roles, I realized that I wanted the opportunity to help build and lead a company. I wanted to be the CEO.

Finding a company that fit the above felt a little bit like finding a needle in a haystack, but fortunately Silicon Valley turns out to be one of the better haystacks in the world, and the EIR role gave me time to find my needle.

3. Finding My Needle

In the summer of 2012 I met Andy Rachleff for the first time, through an introduction by Jeff Markowitz at Greylock. While I knew of Andy by reputation, we had never had the chance to meet in person. Wealthfront was not a Greylock investment at that time. I told Andy that I loved what Wealthfront was doing, and that I had opened an account almost immediately after it launched in December 2011. That being said, I told him that the only way to make Wealthfront succeed would be to find the right talent and the right growth strategy.

Over a few months we met and debated different ways to attract the right talent to Wealthfront and find a growth strategy that would succeed. One day, as I was discussing the company with my wife, Carolyn, she provided me with exactly the final clarity I needed.  She said, “It seems like you really like Wealthfront and want it to succeed.”

It was true. I not only liked the idea of Wealthfront, but I also liked the idea of a world where Wealthfront was successful. I signed on before Thanksgiving (Wealthfront had about $79M under management at that time), and formally joined after the new year. Andy wrote his own version of his decision to bring me on as CEO on the Wealthfront blog, but I credit the EIR role with the time, the relationships, the clarity and the opportunity to find my dream job.

Right product. Right team. Right role. Right time.

 

ETFs as an Open Platform

This post originally appeared on the Wealthfront Blog on March 20, 2014, under the title “Wealthfront Named ETF Strategist of the Year.” This post summarizes the content of the speech I gave at the ETF.com event in New York when accepting the award.


T
oday I am proud to announce that Wealthfront has been named the “ETF Strategist of the Year” by ETF.com (formerly IndexUniverse), the world’s leading authority on exchange-traded funds. We are especially gratified to be chosen for this award from among all investment management firms that use ETFs, not just new entrants.

At Wealthfront, we strive to build a world-class investment service and we’re proud to have assembled an unparalleled investment team led by Burton Malkiel. Over the past year, we added asset classes, released an improved and more diversified investment mix, delivered different asset allocations for taxable vs. retirement accounts to improve after tax returns, and launched the Wealthfront 500. In short, we aim to relentlessly improve our service to help our clients reach their financial goals. It’s gratifying to receive public recognition for our efforts.

Our success thus far has been predicated on a lot of hard work and a fundamentally different approach to building an investment management service. While we are different, our service owes its existence to the profound innovation generated by a relatively new financial product: The ETF.

Why ETFs?

Academic research has consistently proven that index funds offer superior returns, net of fees, over the long term vs. actively managed mutual funds. Despite this irrefutable evidence, index funds have grown their market share relatively slowly over the almost 40 years since Vanguard launched the first one in 1975. It wasn’t until State Street launched the first ETF, the Standard & Poor’s Depositary Receipts (Ticker: SPY), in January 1993 that passive investing had the proper vehicle to enable explosive growth. In just the past 10 years, ETFs have attracted almost $1.5 trillion, which now equals the amount of money attracted by index funds over the past 40 years. We believe the ETF’s success is primarily attributable to its role as an open platform.

The Power of Open Platforms

“We are especially gratified to be chosen for this award from among all investment management firms that use ETFs, not just new entrants.”

Open platforms have had an enormous impact on the technology landscape in recent decades. They enable a much wider variety of market participants, business models, features and services than closed platforms. By simplifying, standardizing & commoditizing the way applications & services interact, open platforms tend to provide far greater opportunities for diversity, innovation and lower costs.

ETFs As an Open Platform

John Bogle was extremely public about his distaste for ETFs when they first launched. By virtue of their ability to trade like equities, ETFs made it much easier to trade index funds. Active trading is the source of much of the under-performance individual investors experience in the markets — it raises transaction costs, tax-related costs, and possibly worst of all, results in market-timing errors. Passive investing was created in large part to minimize these issues.

Ironically, the primary danger of ETFs is also their most valuable strength. By providing a fund format that can be freely traded by any broker-dealer, index funds are not only released from the constraint of pricing and trading once a day, they can also be accessed by any client, from any brokerage firm. This has freed index fund issuers from the previous limitations of one-off distribution agreements with individual brokerage firms, and the associated myriad fees and subsidies. Not only can clients of any brokerage firm trade ETFs, but ETFs also offer significant improvements in transparency and facilitate much lower trading commissions.

As a result, innovative financial services can now be implemented over the custodian of choice, freeing up a new level of innovation that was extremely difficult before.

No single firm controls the creation of ETFs. No single firm controls the trading of ETFs. No single firm controls access to the ETFs that have been created. Fees have been simplified & standardized. ETFs for large common asset classes have become commoditized. Thanks to this environment we now have access to a broad, open platform of high quality, inexpensive financial products, with a far more competitive market of custodian platforms and pricing models on which to innovate. The emergence of brokerage application programming interfaces now make it possible for software experts to automate the use of ETFs in ways never before imagined.

The Future of Investing

Over the next decade, we will see increasing value created for both investors and market participants around automated investment services. With trading costs approaching zero, new strategies not only become possible, but practical.

Wealthfront is an obvious product of the ETF revolution. Despite launching just over two years ago in December 2011, Wealthfront now manages over $750 million in client assets. (In fact, Wealthfront added more than $100 million in client assets in February alone.)

Coming from the world of software, the benefits of open platforms seems obvious to us. As long as ETFs remain a relatively open platform for innovation, we’ll continue to see a broad range of new solutions for investors in the years ahead.

Make Things As Simple As Possible, But Not Simpler

It can scarcely be denied that the supreme goal of all theory is to make the irreducible basic elements as simple and as few as possible without having to surrender the adequate representation of a single datum of experience.
Albert Einstein

It has become fashionable of late, during the second coming of Apple, for a large number of consultants, executives and professional speakers to frame simplicity as an absolute good.  Simplicity, however, can have a number of negative implications for both design and usability, so I thought it prudent to highlight a few of its limitations as a guiding principal.

Ockham’s Razor vs. Einstein’s Razor

Before jumping to technology, it’s worth noting that this debate has origins in science as well.  Ockham’s Razor famously dictates that, given two hypotheses, the one with the fewest assumptions should be selected.  While not absolute, the principle is important because it shifts the burden of proof to the more complicated explanation.

Einstein (as quoted at the top of this post), pointed out the obvious: simplicity has its limits.  As a result, Einstein’s Razor is commonly stated as:

Make things as simple as possible, but not simpler.

Too many entrepreneurs and executives preaching the simple religion forget this.

Example: iPhone Home Button

When the iPhone launched in 2007, it was an extremely aggressive vision of the future of the smartphone.  Bucking the trend from 12-key numberpads to full QWERTY keypads, the iPhone debuted with just one button.

What could be simpler than one button?

iphone

Well, technically zero buttons would have been simpler.

iphone-0

Why the single button?  Apple decided this was as simple as they could get it without hiding a key function they felt people needed to be able to access with “tactile” accessibility.  Apple had decided to remove quite a bit of tactile access from the phone.  Feature phone users lost the ability to know that the “*” key was in the bottom left, or “3” was on the bottom right.  Treo & Blackberry users lost the ability, without looking, to know where keys like space and return were.

The answer? Apple decided that the importance of having a tactile method of accessing “home” was more important than enforcing that next level of simplification.  Simple as possible, but not simpler.

Wait? They Added a Switch?

Industrial design aficionados might have already spotted an issue with my previous example.  Apple may have reduced the keypad to a single button, but they actually were applauded at launch for adding a new physical control.

Apple added a hardware switch to mute the phone.

iphone2G

Along with hardware buttons for home, power, and volume up/down, the iPhone added a physical switch for turning mute on or off.

With most other dominant systems at the time (Nokia, Blackberry), turning off your ringer meant navigating from:

Home -> Settings -> Ringer (or Volume) -> Off

Now you could argue that Apple “simplified” the ability to turn off the ringer, but from an interface standpoint they added a control to their highest level of information architecture (the device) for this one function.  This is roughly the equivalent of a website adding this function to its primary header.

In the push to reduce the number of controls, simplicity gave way to an equally important design consideration: minimizing the number of steps to perform a high value action (with the added benefit of tactile access, crucial for a function you might want to perform sight-unseen, in your pocket)

Simplicity Can Lead to Overloading, Which Is Complex

Anyone who has worked on a design project around information architecture is familiar with the tradeoff.  Reducing the number of controls or number of entry points definitely simplifies the interface.  Fewer choices, less cognitive load on the user.

Unfortunately, if you have five branches at each level of a command structure, you can make 25 commands just two steps away.  If you have three branches at each level, you need three steps to reach that same number of commands.

No one wants to replicate the Microsoft Office hierarchy of thousands of commands littered across dozens of entry points.  But if your software honestly has four key functions, “simplifying” to one entry point can make the users job harder, not easier.

Wealthfront: Building Trust with Transparency

At Wealthfront, one of top priorities is building trust with guest visitors to our site.  Interestingly, we’ve discovered that over-simplification has another negative attribute: when people don’t readily see the answer to a key question, there is potential for them to assume you’re hiding that information.

As a result, our new user experience is a careful balance of simplicity, but balanced with providing crucial information to our visitors, even at the risk of some complexity.

We show our clients up front our investment choices, down to quick answers for why we’ve chosen each particular ETF.  We provide examples of both taxable and tax-deferred account allocations up front, even before the visitor has signed up for the service.

Screen Shot 2013-09-24 at 4.08.39 PM

To be sure, like all software interfaces, there are significant improvements that we can make to our new user experience.  But it’s worth sharing that our experience has been that blind adherence to simplicity can actually hurt the level of confidence and trust people have with your service.  This interface has seen the company to record growth in 2013, up over 250% for the year (as of September).

More broadly, it’s worth considering that when you bury functions and features, you may trigger emotions in your user that aren’t positive:

  • Frustration. They don’t know where to look for something they want.
  • AnxietyThey worry that the thing they need is no longer supported.
  • Distrust. They assume that you are hiding something for a reason.

So remember, when someone preaches the religion of simplicity, think carefully about Einstein’s Razor.

Make it as simple as possible, but not simpler.