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.

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.

 

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.

 

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.

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.

My Letter to Starbucks Mobile

Dear Starbucks,

We’ve been close friends for years. I see you almost every day, some days more than once. I’ve visited you in over half a dozen countries, and there are probably half a dozen locations in Silicon Valley where you know me and my drink by name. I’ll be there for you when you need me, and I know you’ll be there for me when I need you.

My girlfriend at Starbucks, Cambride, MA in 2000

My girlfriend at the Starbucks in Harvard Square (2000)

That’s why we need to talk. About your mobile app and the app marketing it uses.

Starbucks Mobile is a Homescreen App

I use your mobile app every day. I love that it works in different countries. I love that it auto-reloads, and it (finally) gives me free drinks without the annoyance of postcards in the mail. And I will tell you, the Starbucks store-finder is a life saver in more ways than one.

Home Screen

It’s on the homescreen of my iPhone 5. Not in a folder. 2nd row. It’s #8 with a bullet.

I want you to know me

There are barristas at five different Starbucks who know the drink I normally order. The one in Los Altos actually knows the drink I usually order for my wife too. And yet, after over 1000 orders, you still don’t know my favorite drink?

The Starbucks app should:

  • Know what drinks I’ve ordered, and rank them by the number of times I’ve ordered them.
  • Know what I’ve tried, and what I should try.

Your best barristas try to know their customers & their drinks. Why not your app?

I want to know where I’ve been, and where I’m going

I’ve been to dozens of different Starbucks. If I drop the kids off a school, I might grab my morning drink at the Starbucks on Alma. If I’m late, I might go straight to the office, and walk to the one on University. If I’m heading to San Francisco, I’ll stop at the one in Los Altos before jumping on 280.

The Starbucks app should:

  • Have a hot list of Starbucks I’ve visited, ranked either by recency or by frequency
  • For each visited Starbucks, show me when I visited them last. Show me what I ordered.
  • If I break pattern, it’s even OK to suggest a drink to me.

You could know all of this, of course. But you don’t care.

I want you to care about my opinion

On most days, your barristas do a great job. But did you know that the line at the Los Altos location is really long during the week? Or that the Starbucks on Alma is the fastest?

Did you know that sometimes, your barristas see me, place my order, and have it made before I get to the head of the line?

I want to tell you these things. I want to let you know when your barristas are amazing. I want to tip them. I want them to get promotions. I want them to know they are appreciated.

The Starbucks app should:

  • Let me tell you when the line is long (like Waze)
  • Let me tell you when I waited a long time for my drink
  • Let me tell you when my drink was made poorly
  • Let me give kudos when my drink came quickly
  • Let me tip when my drink came quickly
  • Rank drinks and user reviews (like Movie Box)

Your mobile app eliminates tipping, and devalues my relationship with the barristas. It should be the other way around.

I want you to save me time

I love the Starbucks experience. But the truth is, I go to Starbucks for four different reasons, in order of frequency:

  1. I go for my daily coffee on the way to work.
  2. I walk to Starbucks for a meeting.
  3. I go to Starbucks as part of a social destination.
  4. I go to Starbucks to relax and read.

The problem is, you seem to only care about the last 3. For the first use case, I just don’t have time to kill. I’m alone, and I need to get in and out as quickly as possible. I love you, but sometimes I just don’t have time for the experience. I promise, we’ll catch up later.

The Starbucks app should:

  • Know my favorite orders
  • Let me order & pay for them before I get in the car
  • Have them ready for pickup when I arrive
  • Let me know when the order is ready

If you are worried about the casual user not getting the “Starbucks experience”, I understand. Maybe this should be a perk for being a frequent customer?

Last Thoughts

Since we’re being open and honest, I might as well tell you what no one else is. Just stop with the nonsense with the app of the day, song of the day. You are giving me a red badge on my app EVERY DAY for something that no one wants. It’s beneath you. You are better than that.

Notify me because you have a new drink, and since I’m such a loyal customer, I get one free.

Notify me because 95% of the time I’ve visited Starbucks on Wednesday by 10am, and check to see if I want one today on the house?

I don’t want to hear about wireless charging mats. Seriously.

I love you Starbucks. Tell me you love me back.

Google vs. The Teamsters

Yesterday, Google launched Chromecast, a streaming solution for integrating mobile devices with TV, part of another salvo against Apple.  Google vs. Apple has been the hot story now in Silicon Valley for a couple of years.  Before that, Google vs. Facebook.  Before that, Google vs. Microsoft.  Technology loves narrative, and setting up a battle of titans always gets the crowd worked up.

Lately, I’ve been thinking about the next fight Google might be inadvertently setting up, and wondering whether they are ready for it.

350px-Optimusg1

Self-Driving Cars or Self-Driving Trucks

It turns out I’m not the only one who noticed that Google’s incredible push for self-driving cars actually has more likely applications around trucking.  Yesterday, the Wall Street Journal wrote an excellent piece about Catepillar’s experiments using self-driving mining trucks in remote areas of Australia.  It had the provocative headline:

Daddy, What Was a Truck Driver?

This is the first piece in the mainstream media that I’ve seen connecting the dots from self-driving cars to trucking, even with a lightweight reference to the Teamsters at the end.

Ubiquitous, autonomous trucks are “close to inevitable,” says Ted Scott, director of engineering and safety policy for the American Trucking Associations. “We are going to have a driverless truck because there will be money in it,” adds James Barrett, president of 105-rig Road Scholar Transport Inc. in Scranton, Pa.

The International Brotherhood of Teamsters haven’t noticed yet, or at least, all searches I performed on their site for keywords like “self driving”, “computer driving”, “automated driving”, or even just “Google” revealed nothing relevant about the topic.  But they will.

Massive Economic Value

The statistics are astonishing.  A few key insights:

  • Approximately 5.7 million Americans are licensed as professional drivers, driving everything from delivery vans to tractor-trailers.
  • Roughly speaking, a full-time driver with benefits will cost $65,000 to $100,000 or more a year.
  •  In 2011, the U.S. trucking industry hauled 67 percent of the total volume of freight transported in the United States. More than 26 million trucks of all classes, including 2.4 million typical Class 8 trucks operated by more than 1.2 million interstate motor carriers. (via American Trucking Association)
  • Currently, there is a shortage of qualified drivers. Estimated at 20,000+ now, growing to over 100,000 in the next few years. (via American Trucking Association)

Let’s see.  We have a staffing problem around an already fairly expensive role that is the backbone of a majority of freight transport in the United States.  That’s just about all the right ingredients for experimentation, development and eventual mass deployment of self-driving trucks.

Rise of the Machines

In 2011, Andy McAfee & Erik Brynjolfsson published the book “Race Against the Machine“, where they describe both the evidence and projection of how computers & artificial intelligence will rapidly displace roles and work previously assumed to be best done by humans.  (Andy’s excellent TED 2013 talk is now online.)

The fact is, self-driving long haul trucking addresses a lot of the issues with using human drivers.  Computers don’t need to sleep.  That alone might double their productivity.  They can remotely be audited and controlled in emergency situations.  They are predictable, and can execute high efficiency coordination (like road trains).  They will no doubt be more fuel efficient, and will likely end up having better safety records than human drivers.

Please don’t get me wrong – I am positive there will be a large number of situations where human drivers will be advantageous.  But it will certainly no longer be 100%, and the situations where self-driving trucks make sense will only expand with time.

Google & Unions

Google has made self-driving cars one of the hallmarks of their new brand, thinking about long term problems and futuristic technology.  This, unfortunately, is one of the risks that goes with brand association around a technology that may be massively disruptive both socially & politically.

Like most technology companies in Silicon Valley, Google is not a union shop.  It has advocated in the past on issues like education reform.  It wouldn’t be hard, politically, to paint Google as either ambivalent or even hostile to organized labor.

Challenges of the Next Decade

The next ten years are likely to look very different for technology than the past ten.  We’re going to start to see large number of jobs previously thought to be safe from computerization be displaced.  It’s at best naive to think that these developments won’t end up politically charged.

Large companies, in particular, are vulnerable to political action, as they are large targets.  Amazon actually may have been the first consumer tech company to stumble onto this issue, with the outcry around the loss of the independent bookstore.  (Interesting, Netflix did not invoke the same reaction to the loss of the video rental store.)  Google, however, has touched an issue that affects millions of jobs, and one that historically has been aggressively organized both socially & politically.  The Teamsters alone have 1.3 million members (as of 2011).

Silicon Valley was late to lobbying and political influence, but this goes beyond influence.  We’re now getting to a level of social impact where companies need to proactively envision and advocate for the future that they are creating.  Google may think they are safe by focusing on the most unlikely first implementation of their vision (self-driving cars), but it is very likely they’ll be associated with the concept of self-driving vehicles.

I’m a huge fan of Google, so maybe I’m just worried we may see a future of news broadcasts with people taking bats to self-driving cars in the Google parking lot.  And I don’t think anyone is ready for that.

Challenges of Being an Executive in Residence (EIR)

This is the fourth 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 “How do you get an Executive in Residence (EIR) role?

If you’ve made it this far in my Executive in Residence series, you might be thinking, “This job sounds like a dream come true.  What could be better than a role where I’m working with intelligent people, meeting brilliant entrepreneurs and given time to think carefully about my next company?”

I’m a big fan of the Executive in Residence (EIR) role, when it’s taken for the right reasons and with the right firm.  That being said, the EIR role is one of the more unstructured positions out there, and can easily lead to an unproductive outcome for both the executive and the venture firm without the right perspective and motivation.

Time Management

There is no question.  The biggest lurking challenge around being an Executive in Residence is time management.

For an operating executive or CEO, you likely have gotten used to the implicit structure imposed by running an operating business.  There are people and teams who report to you, guidance you give regularly on talent and strategic decisions, key results you are responsible for.  If you’ve worked for a company of any scale, your biggest issue previously was likely paring your calendar back regularly to give yourself time to think.

You know what greets you as an EIR on your first day?  A calendar full of empty.  More importantly, while there are meetings all the time, you aren’t actually required for any of them.

As a product manager, it’s second nature to think backwards from your goal, and create a set of milestones and checkpoints.  As an EIR, I’d recommend thinking about the following milestones, within a rough timeline of one year:

  • What’s your investment thesis / area of focus?
  • Are you going to be an investor or an executive?
  • Are you going to start something or join something?
  • Are you going to look at companies outside your firm’s portfolio?
  • What stage of company and role are you looking for?

Investment Thesis & Focus

The first thing that happens when you join a venture capital firm is that you realize the world of successful startups is much broader and more diverse than you thought.  This goes beyond simple descriptors of “consumer” and “enterprise”.  Given your unique experience and skills, you may find yourself fascinated with marketplaces, collaborative sharing, mobile communication, next generation CRM, big data infrastructure.

The problem is, no one can be deep on everything.  It’s all too easy to find yourself broadly exploring an ever increasing number of sub-segments, business models and industries.  In a partnership, you’ll find that every partner has levels of expertise and exposure on multiple domains.  As an EIR, you could potential spend time digging into any one of them.

Some of this is good, to be sure.  One of the perks of the EIR role is the time and access to broaden your horizons.  However, the challenge for an EIR is that, in a limited time frame, you have weeks and months to explore, not years.  Most successful EIRs come to an opinion fairly quickly (within 6-8 weeks) of the rough dimensions of the currently exciting areas of innovation to focus on.

Investor vs. Executive

Being at a great venture capital firm inevitably forces even stalwart operators to ask the question of whether or not they want to be an investor.  Most likely at this stage in your career, you’ve already started to take advisory roles or participated in seed rounds as an angel investor.

EIRs rarely transition to investing partners, but it happens more often than you might think.  (Most recently, Simon Rothman transitioned from an EIR role to a general partner at Greylock).

The real issue is one of time frame and priorities.  In the end, the process that investors go through to evaluate companies and opportunities has very different dynamics than finding a good fit for a CEO role.  While most EIRs have this internal debate at some point, the sooner you can resolve the issue with confidence internally, the sooner you can optimize your efforts towards a successful outcome.

Let’s face it: defining success is a big part of achieving it.

Entrepreneur vs. Executive

Alright.  You’ve figured out your investment thesis and areas of focus, and you’ve got confidence now that while you respect venture capital quite a bit, you’re an operator.  The next challenge that rears its head: are you sure you don’t want to start something yourself?

Meeting with successful, passionate entrepreneurs day-in and day-out does a funny thing to you.  It’s addictive.  Their energy is tangible.  And when you work with a great firm, more often than not, you meet superlative entrepreneurs, many at later stages of company development, proving that not only can it happen, it actually happens more often than you thought.

In my first post, I tried to explain the differences between an entrepreneur-in-residence and an executive-in-residence.  As it turns out, however, at most firms, there is a lot of flexibility around this issue.  At least in Silicon Valley, no one is going to talk you out of building something from scratch if you get set on doing it.

I hate to be cynical, but watching a number of colleagues go through this, the pattern is fairly predictable.  The reality is, most people actually have the answer to this question before they start their role as an EIR.  What actually happens is that EIRs tend to forget this fact quickly, spend some time debating it internally, and then realize that their initial assessment was correct all along.

Navigating Firm Bias

Another challenge that confronts EIRs is firm bias.  By taking a role with a specific venture capital firm, a number of questions are raised:

  • Will you only look at companies that fit the firms / partners current investment thesis?
  • Will you only look at companies that the firm has invested in?
  • Will you engage with recruiting partners from other firms or third parties?

Underlying these questions is an implicit misalignment between the EIR and the firm.  The firm is investing time (it’s most precious resource), reputation and knowledge with you.  At the same time, as an EIR, finding the right fit of company, stage, product, team & timing for a CEO role is exceptionally difficult.  Spreading the net as far as possible definitely can increase chances for a successful fit in a given time frame.

For most EIR roles, the answer to these questions is best resolved directly, with the firm, before joining.  Personally, I was fortunate enough to be an EIR at Greylock Partners, where the firm’s perspective was that any area or company that was interesting enough for me to engage with was by itself a strong vote of confidence.  Greylock is one of the oldest and most successful early stage venture capital firms, and sees its network as extending, through people, more broadly than just to the specific companies where they are currently invested.

By the way, for this reason, it’s not unusual to see EIRs split their role between two firms, just to signal strongly to both the firms and the outside world that they are not committed to a single firm.  While I don’t believe this is necessary for a successful EIR role, I do personally recommend that EIRs broaden their network to companies and opportunities beyond a single firm.

Company Stage & Role

This might be one of the biggest challenges an EIR faces in their search.  What are you actually looking for?

  • Are you interested in a startup that is pre-product/market fit?  Or do you operated best when product/market fit has been established?
  • Do you add the most value at a 20-person company going to 100+, or a 300 person company going to 1000+?
  • Are you willing to consider a COO role, or only a CEO role?
  • Will you consider GM roles or functional leadership roles at larger companies?

To some extent, you have time to entertain and consider a wide variety of roles.  There is significant learning, both about the company and yourself that takes place when you engage on a potential role.  That being said, spending time on roles you are not inclined to actually take is expensive, for both you and the company.

Tell Us Your Story

In the previous four posts, I’ve tried to remain objective and incorporate lessons from other EIRs that I’ve had the opportunity to both know and work with.  Due to popular demand, however, my final post in this series, Did you like being an Executive in Residence (EIR)?, is coming up next.

How Do You Get an Executive in Residence (EIR) role?

This is the third 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 “Should I be an Executive in Residence (EIR)?

One of the most mysterious aspects of the Executive in Residence role is the relative obscurity about how these roles come into being in the first place.  After all, you’ll never find a job posting on LinkedIn for an EIR, and as a result there is no obvious description of the requirements or the process to get one of these roles.

However, a simple search on TechCrunch or Pando Daily reveals a fairly regular stream of people joining top tier venture capital firms as Executives in Residence.  How did they get that role?

Relationships Matter

Venture capital partnerships value relationships, and so it’s rare that you’ll find an Executive in Residence that doesn’t have some direct relationship to the firm that brings them onboard.  The three most typical ways executives form these relationships are:

  • They were an executive or founder at a company backed by that venture capital firm.
  • They worked with one of the partners at the venture capital firm in a previous operating role.
  • They sat on the board of directors of a company with a partner from that venture capital firm.

There are of course exceptions to these examples, but in most cases the most likely way to get an Executive in Residence role will be from one of the venture capital firms that you’ve personally worked with in the past, where they have a high opinion of your capabilities as an executive, your relationships in the entrepreneurial community, and your expertise in an area that the firm has prioritized.

Situations Matter

The Executive in Residence role is typically opportunistic in relation to timing.   There is some event, some inflection point where a talented executive ends up potentially free from an existing role, and yet will be looking for time to assess the market and decide on their next operating role.

The most common events that lead to this situation are:

  • Acquisition of a company. During acquisitions, executives either leave on completion of the acquisition or after some reasonable transition period.
  • Reorganization of a company.  As companies grow, they periodically will hit strategic shifts or management inflection points where it makes sense for some executives to leave the company.
  • Long tenure / Company size.  Sometimes as companies grow, executives who prefer earlier stages of company culture and growth will decide they want to pursue a role a new startup, but don’t necessarily have visibility into the full field of opportunities.

Once again, while there are exceptions to the above, you’ll find that almost all Executives in Residence come from a situation that generates a need to leave their current role, without sufficient time for the research and match-making process involved in placing a CxO.  These situations can also generate the catalyst for a venture capital firm to take the opportunity to deepen their relationship with a talented executive.

Reputations Matter

In the end, venture capital firms bring on Executives in Residence in order to bolster both their access to talent as well as their relationships in the startup community.  As a result, the reputation of the executive matters quite a bit in terms of getting an offer to join a firm as an EIR.  Common attributes are:

  • An executive with a well known reputation, or strong ties to a recent, well-known successful venture-backed company
  • An executive whose reputation will be compatible and additive to the brand of the venture capital firm
  • An executive whose existing relationships in the technology community will be compatible and additive to the venture capital firm.
  • An executive with expertise in an specific market or technology sub-sector that the venture capital firm is strategically interested in going forward.

You Don’t Ask, You’re Offered

The Executive in Residence role is, by its nature, a fairly opportunistic hire on the part of the venture capital firm.  If you are a founder or executive at a venture backed company, and one of the situations described fits your condition, make sure you are investing some of your time in relationships and being “top of mind” with venture capitalists you’ve worked with.

My next post in the EIR series will attempt to answer the question: “Challenges of being an Executive in Residence (EIR)

EIR Series: Should I be an Executive in Residence (EIR)?

This is the second 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 What is an Executive in Residence (EIR).

The most common question in relation to the Executive in Residence role has been a simple one:

Should I be an Executive in Residence?

The truth is, when people ask me this question, they are very often asking two similar, but different questions:

  1. Is the Executive in Residence Role a good opportunity?
  2. Is the Executive in Residence Role something I should pursue?

The answer to the first question is fairly simple, but it has an over-arching caveat.  Like most things relating to venture capital, the quality of the partnership that you’ll be working with and the expectations of that partnership around the role are paramount.  As long as there is strong alignment of expectations between the partnership and the executive about the expectations for the role, the Executive in Residence role can be a unique and fantastic opportunity.

The second question, however, is much more complicated.  And that’s because it implicitly brings up some of the most difficult career questions we have to ask ourselves.

What Do You Want From an EIR Role? 

Last year, John Lilly wrote a simple blog post about leadership and the key questions to ask when you’re asked for advice.  If you are at the point in your career where you are qualified to be a CEO, then the question of what you want from your career becomes increasingly dominant.

What are you optimizing for?  Is it passion for the product you’re building, particular technology or a target market?  Are you looking for a particular business model, corporate culture or lifestyle? Are you looking to join the ranks of the Forbes 400?  Are you looking for power & influence and if so, in what industry / sector?

These questions can become increasingly difficult as you progress in your career because to be uniquely qualified to lead a company, there needs to be incredible alignment between your values and goals, and the goals of the company you want to lead.  Put another way, matchmaking for the right company actually requires a deep understanding of your own motivations, values & priorities.

Benefits of the EIR Position

The Executive in Residence role offers a lot of unique benefits.  These include:

  • Create, Build & Grow Relationships.  It’s an incredible opportunity to make new relationships, re-establish dormant relationships, and deepen existing ones.
  • Broaden & Deepen Your Knowledge of the Market. When you are in an operational role, you tend to become extremely deep on the companies related to your market and space, and tunnel vision sets in.  The EIR role gives you the opportunity to explore a much wider range of product categories and sub-sectors, and learn more deeply what strategies and tactics have been successful outside your specific niche.
  • Learn about New Companies.  We all like to think that we’re in the flow of knowing the important, successful private companies being built in Silicon Valley.  The truth is, there are a shockingly large number of amazing private companies that you haven’t heard of.  The EIR role gets you fantastic exposure to a large number of companies you haven’t heard of.
  • Platform for Thought Leadership.  Top tier venture firms have great reputations, and EIR roles offer a unique opportunity for you to nurture, develop & grow your own reputation around specific topics and issues.  The venture firm benefits from its association with thought leadership, and the EIR benefits from its association with the firm.  The end result can be magnified opportunities for both parties.
  • Try Before You Buy.  The EIR role gives you an exceptional ability to spend time with portfolio companies.  They are usually extremely happy to get additional help, and the time spent can help both parties figure out if it’s a potential good fit or not.  The best part about the role is that if it isn’t a good fit, the time spent was without firm commitment, and can be easily ended at any time without few (if any) negative relationship or reputation effects.
  • Self Discovery.  The EIR role is structured to give you time to ask the hard questions about what you are looking for in a company, a product, a market, a culture.  It’s structured enough to provide stimulus and ideas, but unstructured enough to give you gaps to ask (and answer) the hard questions.

Problems with the EIR Position

While I’m extremely positive about my experience as an EIR at Greylock Partners, I’m one of the first to caution people who ask me about the role that there are real issues to consider.

  • Firm Lock In.  When you are immersed in the people & culture of a particular firm, it’s very easy to de-prioritize networking and intellectual debate outside the firm.  Venture firms tend to discuss their own successes and failures, and the burden is really on the EIR to ensure they broaden & deepen their relationships outside the firm.  This is why, for example, some successful executives will take EIR roles at two different firms.
  • Paradox of Choice.  We are all human, and humans don’t do well with a massively expanded selection set.  The more companies, industries, products & concepts you are exposed to, the harder it can be to assertively make a choice to pursue a single company.  This is why, for example, successful EIRs will often frame their time in waves – spending weeks or months on a particular area or topic, and then shifting to another, rather than trying to explore and pursue everything at once.
  • Portfolio Work vs. Discovery.  Working with portfolio companies takes a certain amount of time and effort to be effective.  If you are going to spend 1-2 days a week with a company, you’ll quickly run out of days of the week.  As a result, it’s important for EIRs to find a system that allows them to balance networking & discovery time with active engagement with companies.  6-12 months can pass unbelievably quickly, and in the end, your goal is to find that next great role.
  • Operating Skills / Credibility.  Technology moves incredibly quickly, and it’s amazing how even in a matter of months the landscape of ideas and tactics can change.  Venture capital firms tend to be comfortable places, but never forget that you always need to be learning & growing, most likely by engaging and helping entrepreneurs with real challenges they have today.  The lessons from 2012 are interesting and useful in 2013, but the half life of those lessons can be shorter than you might think.

So, Should You Do It?

I’m colored by own personal experience, which was with a great firm and a great outcome (I’m exceptionally happy with my role at Wealthfront).

If you are looking for either your first CEO role, or your next CEO role, and you have the opportunity to be an EIR with a great firm, I believe the Executive in Residence role can be a unique & excellent opportunity.  Going into it, however, you need to do two things to be successful: be prepared to take advantage of the unique opportunities of the role, and be extremely cognizant of the potential pitfalls and issues inherent with the position.

Going forward in this series, I’ll be focusing on the Executive in Residence role. My next post will attempt to answer the question: “How Do You Get an Executive in Residence Role (EIR)?

EIR Series: What is an Executive in Residence (EIR)?

This is the first post of a multi-part series on being an Executive in Residence (EIR). The initial post outlining the full series can be found here.

One of the first things I learned when I accepted the role of Executive in Residence at Greylock Partners was that almost no one actually knows what that means. (I can hear my father asking me now, “You’re a resident now? Like a doctor?”)

In fairness, the role is rare enough that, outside of the Silicon Valley venture community, you might never run into it. It’s almost pathologically designed to be cryptic. Not only is it rare, but it’s also designed as a short term role, not a permanent one. If that wasn’t tricky enough, it turns out that there are a few flavors of “EIR” just to add a good dose of acronym confusion to the mix.

So before discussing the details of the Executive in Residence role, let me clarify the three different types of EIR you may come in contact with. (As a side note, the following definitions and examples are certainly biased towards my recent experience at Greylock Partners.)

  • Entrepreneur in Residence. The original EIR role, the Entrepreneur in Residence role is designed for entrepreneurs who are actively working on both the conception & execution of their next company. These roles are generally structured as 3-6 month engagements without compensation, but the entrepreneur is given resources & a place to work, and significant time & exposure to the investment team at the venture capital firm. The entrepreneur benefits from the constant challenge & framing of world-class investors, and a higher than average likelihood of funding from the venture capital firm. The firm, on the other hand, gets a significant degree of proprietary access and influence over the new company.

    Notable recent examples: Nir Zuk, co-founder of Palo Alto Networks (PANW, $3B+), Josh McFarland, founder of TellApart.

  • Executive in Residence. Sometimes referred to as an XIR, the Executive in Residence role is designed for executives, typically CEOs, who are in between companies. These roles are typically structured as 6-12 month engagements with limited compensation (well below typical executive salaries). The executive is given an office, with an expectation that they will split their time between working with portfolio companies, helping with due diligence on potential investments, and completing their own search efforts for their next role. The executive gets a platform for broadening their strategic thinking, networking and inside access to a number of extremely promising companies, while the firm gets inexpensive support for their portfolio companies and disproportionate access to top executive talent.

    Notable recent example: Jeff Weiner, CEO of LinkedIn (LNKD, $20B+)

  • “Something Else” in Residence. Behold, the age of the SEIR. In recent years, there have been a few top venture capital firms experimenting with other “in residence” roles. There have been designers, engineers, data scientists and even growth strategists in residence. The basic proposition for this role is similar to the traditional executive in residence role, with a notable tilt towards work with portfolio companies and PR to help build the reputation of the individual and the firm.

    Notable recent examples: DJ Patil, Data Scientist in Residence, Andy Johns, Growth Strategist in Residence.

There have been quite a few good blog posts on the pros & cons of the Entrepreneur in Residence role. On the other end of the spectrum, it’s probably too early to talk categorically about the plethora of new “in residence” variants as a class.

Going forward in this series, I’ll be focusing on the Executive in Residence role. My next post will attempt to answer the question: “Should I be an Executive in Residence (EIR)?