Joining Wealthfront

It’s official. As per the announcement on the Wealthfront Blog today, I have officially accepted the role of Chief Operating Officer at Wealthfront. I feel incredibly fortunate to be joining such an amazing team, with an opportunity to help build an extremely important company.

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From Human Capital to Financial Capital

One way to imagine your professional life is overlay of two types of capital: the building and growing of your human capital, and the transformation of that human capital into financial capital.

It feels like just yesterday that I was writing a blog post here about my first day at LinkedIn. At its heart, LinkedIn is building, growing & leveraging human capital throughout your career.  Wealthfront provides an answer to the second part of that equation – how to grow and leverage the financial capital that you accumulate throughout your career.

As Marc Andreessen put it, software is eating the world, and it is providing us a platform to bring the features and sophistication previously only available to the ultra-rich, and making it available to anyone who wants to protect & grow their savings.

Too many good, hard-working individuals today lack access to many of the basic advantages accorded to people with extremely high net worth.  With software, Wealthfront can bring features and capabilities normally available only to those with multi-million dollar accounts to everyone, and at a fraction of the cost.

Personal Finance as a Passion

For regular readers of this blog, the fact that personal finance has been a long standing passion of mine comes as no surprise.  What many don’t know is that this passion dates all the way to back to my time at Stanford, where despite one of the best formal educations in the world, there was really no fundamental instruction on personal finance.

In fact, upon graduation, I joined with about a dozen friends from Stanford (mostly from engineering backgrounds) to form an investment club to help learn about equity markets and investing together.  (In retrospect, the members of that club have been incredibly successful, including technology leaders like Mike Schroepfer, Amy Chang, Mike Hanson and Scott Kleper among others.)

A Theme of Empowerment

As I look across the products and services that I’ve dedicated my professional life to building, I’m starting to realize how important empowerment is to me.  At eBay, I drew continued inspiration from the fact that millions of people worldwide were earning income or even a living selling on eBay, many people use now a days, as a delivering system which makes it easier to have a business through eBay.  At LinkedIn, it was the idea of empowering millions of professionals with the ability to build their professional reputations & relationships.

With Wealthfront, I find myself genuinely excited about the prospect of helping millions of people protect and grow the product of their life’s work.

We’ve learned a lot in the past thirty years about what drives both good and bad behaviors around investing, and we’ve also learned a lot about how to design software that engages and even delights its customers.  The time is right to build a service that marries the two and helps people with one of the most important (and challenging) areas of their adult lives.

A Special Thank You

I want to take a moment here to voice my utmost thanks to the team at Greylock Partners.  My year at the firm has given me the opportunity to learn deeply from some of the best entrepreneurs, technology leaders and venture capitalists in the world.  The quality of the entrepreneurs and investors at Greylock forces you to think bigger about what is possible.  Fortunately, Greylock is also a partnership of operators, so they understand the never-ending itch to go build great products and great companies.

… And Lastly, A Couple of Requests

Since this is a personal blog, I don’t mind making a couple of simple requests.  First, if you have a long term investment account, whether taxable or for retirement, I would encourage you to take a look at Wealthfront.  I’d appreciate hearing what you think about the service and how we can make it better.

Second, and perhaps most importantly, we are hiring.  So let me know if you are interested in joining the team.

User Acquisition: Mobile Applications and the Mobile Web

This is the third post in a three post series on user acquisition.

In the first two posts in this series, we covered the basics of the five sources of traffic to a web-based product and the fundamentals of viral factors.  This final post covers applying these insights to the current edge of product innovation: mobile applications and the mobile web.

Bar Fight: Native Apps vs. Mobile Web

For the last few years, the debate between building native applications vs. mobile web sites has raged.  (In Silicon Valley, bar fights break out over things like this.) Developers love the web as a platform.  As a community, we have spent the last fifteen years on standards, technologies, environments and processes to produce great web-based software.  A vast majority of developers don’t want to go back to the days of desktop application development.

Makes you wonder why we have more than a million native applications out there across platforms.

Native Apps Work

If you are religious about the web as a platform, the most upsetting thing about native applications is that they work.  The fact is, in almost every case, the product manager who pushes to launch a native application is rewarded with metrics that go up and to the right.  As long as that fact is true, we’re going to continue to see a growing number of native applications.

But why do they work?

There are actually quite a few aspects to the native application ecoystem that make it explosively more effective than the desktop application ecosystem of the 1990s.  Covering them all would be a blog post in itself.  But in the context of user acquisition, I’ll posit a dominant, simple insight:

Native applications generate organic traffic, at scale.

Yes, I know this sounds like a contradiction.  In my first blog post on the five sources of traffic, I wrote:

The problem with organic traffic is that no one really knows how to generate more of it.  Put a product manager in charge of “moving organic traffic up” and you’ll see the fear in their eyes.

That was true… until recently.  On the web, no one knows how to grow organic traffic in an effective, measurable way.  However, launch a native application, and suddenly you start seeing a large number of organic visits.  Organic traffic is often the most engaged traffic.  Organic traffic has strong intent.  On the web, they typed in your domain for a reason.  They want you to give them something to do.  They are open to suggestions.  They care about your service enough to engage voluntarily.  It’s not completely apples-to-apples, but from a metrics standpoint, the usage you get when someone taps your application icon behaves like organic traffic.

Giving a great product designer organic traffic on tap is like giving a hamster a little pedal that delivers pure bliss.  And the metrics don’t lie.

Revenge of the Web: Viral Distribution

OK. So despite fifteen years of innovation, we as a greater web community failed to deliver a mechanism that reliably generates the most engaged and valuable source of traffic to an application.  No need to despair and pack up quite yet, because the web community has delivered on something equally (if not more) valuable.

Viral distribution favors the web.

Web pages can be optimized across all screens – desktop, tablet, phone.  When there are viral loops that include the television, you can bet the web will work there too.

We describe content using URLs, and universally, when you open a URL they go to the web.  We know how to carry metadata in links, allowing experiences to be optimized based on the content, the mechanism that it was shared, who shared it, and who received it.  We can multivariate test it in ways that border on the supernatural.

To be honest, after years of conversations with different mobile platform providers, I’m still somewhat shocked that in 2012 the user experience for designing a seamless way for URLs to appropriately resolve to either the web or a native application are as poor as they are.  (Ironically, Apple solved this issue in 2007 for Youtube and Google Maps, and yet for some reason has failed to open up that registry of domains to the developer community.)  Facebook is taking the best crack at solving this problem today, but it’s limited to their channel.

The simple truth is that the people out there that you need to grow do not have your application.  They have the web.  That’s how you’re going to reach them at scale.

Focus on Experience, Not Technology

In the last blog post on viral factors, I pointed out that growth is based on features that let a user of your product reach out and connect with a non-user.

In the mobile world of 2012, that may largely look like highly engaged organic users (app) pushing content out that leads to a mobile web experience (links).

As a product designer, you need to think carefully about the end-to-end experience across your native application and the mobile web.  Most likely, a potential user’s first experience with your product or service will be a transactional web page, delivered through a viral channel.  They may open that URL on a desktop computer, a tablet, or a phone.  That will be your opportunity not only to convert them over to an engaged user, in many cases by encouraging them to download your native application.

You need to design a delightful and optimized experience across that entire flow if you want to see maximized self-distribution of your product and service.

Think carefully about how Instagram exploded in such a short time period, and you can see the power of even just one optimized experience that cuts across a native application and a web-based vector.

Now go build a billion dollar company.

Joining Greylock

Today, John Lilly put up a really nice note on the Greylock Partners blog officially welcoming me to the firm.  Needless to say, I’m both honored and excited to be joining such a great team.

We’re fortunate to be witnessing the explosive growth of not one but two incredible new platforms for consumer products and services: social and mobile.  Both are literally changing the fundamental ways that consumers interact with devices, and are rapidly changing the dynamics for building successful new products and services.  After spending the past four years helping to build out social and mobile platforms, I can’t wait to partner with entrepreneurs to help them build out the next generation of products and companies over them.

Over the past few years, I’ve shared a number of insights here on this blog about building great products and companies.  Here are a few that are worth reading if you are curious about how I think:

And of course, the most appropriate for this announcement:

For now, I just want to say thank you to Reid, David, John and the entire Greylock team.  I can’t wait to get started.

Observations: The Paradox of Being a “Smart” Venture Capitalist

My last post, and observation of business & government students, was popular enough that I think I’ll share a second one here.   This is an observation that I’ve shared with a large number of people in the past seven years, as part of my greater set of take-aways on working in venture capital.

I worked for Atlas Venture from 2001-2002 as an Associate, and during that time I had the chance to observe quite a the interesting paradoxes that make up success in early-stage venture capital.  This particular observation is about the paradox surrounding being seen as “smart”.

In the short term, venture capitalists often look smart by saying “No”.  But in the long term, venture capitalists can only look smart by saying “Yes”.

This applies generally to new people joining the industry, regardless of level.  New associate, venture partner, general partner.  Venture capitalists deal with exceptionally long cycles.  It takes the better part of a decade to build most businesses, and it can take that long to really determine who in venture capital is doing the job, and who is just playing the part.

In the long term, the metric is simple: how many successful entrepreneurs & companies did the venture capitalist fund & help build to extraordinary outcomes.

In the short term, people are desperate for any tangible signal that will predict the long term.   Unfortunately, in many cases, the short hand for this becomes evaluating their critical thinking about risks and issues on every pitch.

As a product leader, I see this behavior play out on a regular basis outside of venture capital as well.  More experienced product managers will review the work of junior product managers, and will prove their capabilities by highlighting problems.

They don’t realize that they will never be great by pointing out flaws.  They will be great by translating that knowledge into solutions for other people’s products, as well as leading their own innovative initiatives.

I could always tell when a general partner, whether at Atlas or another firm, was “ready to fund”.  You would see their posture in meeting shift radically from finding ways to say no to finding ways to say yes.

Not surprisingly, my fondest memories of venture capital surround the start-ups where I said yes.

Startups, Technology Companies & Giambattista Vico

I had one of those “delightful” newspaper moments today.  I was going through my Sunday morning ritual, page-by-page through the Sunday New York Times, when I happened upon an interesting editorial in the Week in Review.

The article itself was interesting, but likely one I would have ignored in the online version.  (It’s still one of the virtues of print that I put myself in the hands of the editor, and read the Week in Review from beginning to end.)  What was delightful about it was its philosophical reference to Giambattista Vico.

You see, until today, I had no idea who Giambattista Vico was.  However, it turns out that this 18th century Italian philosopher published a theory of societies that happens to match, almost exactly, my recent theory about start-up technology companies and their development into large, successful enterprises.   Here is a summary from the Stanford Philosophy website:

Nations need not develop at the same pace-less developed ones can and do coexist with those in a more advanced phase-but they all pass through the same distinct stages (cursi): the ages of gods, heroes, and men. Nations “develop in conformity to this division,” Vico says, “by a constant and uninterrupted order of causes and effects present in every nation” (“The Course the Nations Run,” §915, p.335). Each stage, and thus the history of any nation, is characterized by the manifestation of natural law peculiar to it, and the distinct languages (signs, metaphors, and words), governments (divine, aristocratic commonwealths, and popular commonwealths and monarchies), as well as systems of jurisprudence (mystic theology, heroic jurisprudence, and the natural equity of free commonwealths) that define them.

In other words, Vico outlines three distinct phases for societies:

  • An age of gods, when man and immortal walk amongst each other
  • An age of heroes, when the gods have departed, but their children or disciples perform wonders with their power
  • An age of men, when their is equality and democracy among men, and a lack of the supernatural

(Yes, I’m grotesquely paraphrasing.  Bear with me on this one for a moment).

When I left eBay in 2007 to join LinkedIn, many people asked me why I was interested in joining a startup at that time.  Being an avid fan of Greek Mythology, I told friends that there were three phases to the tech company lifecycle in Silicon Valley:

  • The golden age, when gods (aka founders and first employees) walk the floors.  This is a time of incredible vision, passion, and risk.   The events and people of this era become myth and legend rapidly.  The company typically at this time has a product/concept, but no proven business model or engagement with customers.  The company is usually measured in tens of employees.
  • The bronze age, when the gods give way to the heroes, the first wave of executives who help grow and scale the company and fulfill its destiny.  Usually this is a time when the business model has proven out, and the larger risk to the company is its ability to manage growth and scale the organization in both talent and execution.  This is still a time of passionate debate and eccentricity, but now at a larger scale as the organization and business broadens.  This is when the company goes from tens of employees to thousands.
  • The iron age, when the gods and heroes have fled, and the company is managed as a large, public technology company.  At this point, the company is typically measured in tens of thousands.

Amazing similarity… no doubt both Vico & I were both fans of the classics.

When I joined eBay in 2003, it turns out that I joined the company well into its bronze age.  Many of the early employees (and a founder) had left, but most of the original heroes who worked under them and with them remained.   There was no separate corporate entity, and the PayPal acquisition had just happened.  In 2003, a product manager would still present a product strategy directly to Meg at times.  But by the time 2007 rolled around, as many of the heroes  departed, it was clear that eBay had entered its iron age.

Obviously, there are later phases for technology companies that can be interesting.  (Believe me, as someone who joined Apple in the mid-1990s.)  And there are always outliers (Google has stayed in its bronze age longer than most.)  But these phases do a fair job of describing the cultural dynamics of those first few phases of a technology company.

For companies, there are no clear delineations between the ages.  The transitions tend to be gradual, and as often as not tend to reflect the four-year pattern for stock option vesting schedules.  In the last few years, however, I’ve found this framework fairly effective in describing how company cultures evolve, and how that influences the enjoyment and job satisfaction of employees who prefer one phase over another.

Maybe the reason this analogy has been useful for me personally is because, as Vico supposed, it reflects a more general description of how groups of people evolve socially when they dedicate themselves to a single social contract.  For Vico, that was a nation.  For Silicon Valley, it’s a start-up.  It’s interesting to consider that the venture capital financing model and stock option vesting model tends to encourage this type of phasing almost naturally over the growth of a new technology venture.

Something to think about, of course.

J-Curve & The Hype Cycle: Potential Exits

Will Hsu had a very interesting post on his blog, Hitchiker’s Guide to 650.  (Yes, it’s a pretty cool blog title)

Will overlayed the now infamous Hype Cycle and a hypothetical startup valuation J-Curveover each other, like this:


(Minor nits – the J-Curve here likely shouldn’t start at zero, but at some higher amount.  The founding team and the concept itself has some value, and typically, while the startup is nascent, the value hinges on that alone.  In fact, it probably rises initially as risk is taken off the table with a few key hires/revisions.  It doesn’t change the insight from the overlay, however.)

He then postulated a few different exit points, with reasonable valuations and time frames, and then highlighted the different ROI values for each.

  • Exit #1: 2~4x, 50~150% IRR (assuming 1.5~2yr hold, 1~2 rounds)
  • Exit #2: 2~4x, 30~70% IRR (assuming 3~5yr hold, 2~3 rounds)
  • Exit #3: 10~100x, 30~70% IRR

(You can read the full details here)

I must have seen versions of the  J-Curve and The Hype Cycle curves a hundred times, but for some reason, seeing them overlayed in the context provides some unique insight into the highs (and lows) of a venture backed startup.  It also highlights the incredible cost to being caught flat-footed (ie, needing cash) at the wrong points in the curve.

I also like the clear, numerical validation of a simple truth of venture investing (and entrepreneurship):  you achieve the highest internal rate of return by cashing out quickly.  But to achieve truly game-changing cash returns for investors (ie, return the fund), the big win is required.

The numbers really aren’t as material as the visualization of the two curves together.