2017-06-09 22:20:18
There are times a CEO needs to withhold information. For example, “If we don’t close this round we’re out of money in 60 days, now back to work everyone!” is not motivating. Sometimes you also have to bend the truth: “Our product has established a clear leadership position in the marketplace.” Great benders who are benign are called visionaries. However, on the whole, lying is a payday loan. Your words begin to lose purchase. Oh, and it’s wrong.
Mitt Romney was mistaken: corporations aren’t people. The same rules do not apply. Increasingly, the prevalent strategy for large firms seems to be: “Lie, apologize, and carry on.”
— Google told Congress information wants to be free, and that it was still early to register the impact Google was having on newspapers.
— Facebook told brands they would own their fan communities, and that the cost of building these communities was a good investment. It wasn’t.
— Amazon claims it’s leasing planes and purchasing tractor trailers to supplement other delivery services during peak periods. So FedEx, UPS, and DHL, prepare to be “supplemented.”
Companies perceived as innovators are made men, not to be bothered regardless of their offense. They are too cool for you, me, America, capitalism, the planet, SF real estate prices, and so on. And the wheel spins. There is a justice system, but it’s blind much of the time. It’s good to be rich, or a tech giant, when caught in a lie.
The latest example: When Facebook sought approval of the acquisition of WhatsApp, they assured EU regulators that it would be impossible for the two entities to share data in the short term. This assuaged regulators’ concerns over privacy, and the acquisition was approved. Spoiler alert: Facebook figured out pretty fast how data could jump silos. So, feeling lied to, the EU fined Facebook $122M. Facebook felt WhatsApp was worth $19B, so a .6% premium for increasing the likelihood the acquisition was approved is a no-brainer. This is tantamount to getting a $10 parking ticket for not feeding a meter that costs $100 every 15 minutes. Yes, you should NOT feed the meter.
Wealthy people and firms increasingly play by different rules. An audit or a 100M+ euro fine can be disruptive or ruinous for a middle-class family or mid-cap company. But wealthy people and firms have the resources and vendors (lawyers, accountants, lobbyists, communications execs) to walk back the lie, airbrush it, and negotiate down the penalty. The culprits here are not the firms, or government (the go-to blameables), but our citizenry. Our society prompts elected officials to engage in gross idolatry for the innovation class, at the expense of everyone else. The current algebra of penalties reflects this sycophancy. A penalty only discourages bad behavior when:
Our groupie citizenry has not provided the cloud cover to punish bad behavior — demanded the algebra (penalties) that discourage it.
We need to get our heads out of our asses. If a firm can get to $475B in value (Amazon) while paying almost no income or sales tax, we aren’t going to be able to fund soldiers, teachers, or firemen. If a firm can defy a court order to let authorities examine the contents of their products (Apple), we’ve decided brands know better than our government. Should we then ask Apple to bomb airstrips in Syria and build our airports? If Google can command 90%+ share of the most lucrative market in media in the EU (search), and not be regulated, then who will retrain all the media execs venturing to Cannes next week, who’ll soon be out of work? Note: we can all discuss this at Google’s YouTube Beach at Cannes.
These are amazing firms that do a great deal of good. However, they aren’t concerned with the condition of our souls and will not take care of the elderly. Without market controls, regulators, and a citizenry that demands lawmakers grow a pair, we barrel toward a dystopia where firms, not the public, make the rules. We may already be there.
My colleague NYU Associate Professor of Marketing Adam Alter has written a powerful book: Irresistible. The book helps firms develop crack-like products, while providing parents with guidelines for the relationship between your kids and their screens. There are several tools for making your product addictive, such as giving the user the ability to set goals, incorporating a social element, and presenting unresolved questions (cliffhangers). But the real skag is intermittent, unpredictable rewards. The slot machine is the correct metaphor. Like most important things in life, it’s best explained by an episode from Rod Serling’s The Twilight Zone, which aired on CBS in the 60s.
In episode 28, “A Nice Place to Visit,” a criminal finds himself in heaven, where he can never lose. So he gets bored — when winning means nothing, he realizes he’s actually in hell. Winning may boost dopamine, but only when losing is a constant.
At home with my kids, I’ve been losing a lot lately. I commute from Florida to NYC for work and increasingly, when I come home, my kids don’t even look up from the dinner table. My oldest often asks Alexa rather than his dad. Most overtures, questions, comments, observations go to mom.
But there still are the intermittent rewards that have me hooked on the whole kids thing. Two nice hits of dopamine this week:
— We’re in London and have the boys in soccer camp (when in Rome). Walking through Hyde Park, I was charged with fetching my youngest when he spotted me and shouted to the other six-year-olds on the field, “There’s my dad, look how big he is!” Pretty sure he meant it in a good way. He then ran over to me and, uncharacteristically, jumped into my extended arms.
— We were watching Monster Jam the other night, and my nine-year-old began stroking my head. He likes the way it feels after I’ve shaved it (go figure). Unsolicited affection from your children is about as close to the definition of authentic there is — no motive, no planning, no agenda … just raw, instinctive affection.
I aim to have a lot, like a shit-ton, of dopamine coursing through my brain the rest of my life. I’ve been writing down things people I love do that give me exceptional reward — a fun exercise. I plan to share my list with some of them and ask them to do more of those things. I’ve added two to the list. I want my youngest to enter the room and announce, “There’s my dad, look how big he is.” And I want my oldest to stroke my head.
Life is so rich,
Scott
2017-06-03 00:07:56
Microsoft changed the world with Windows; Apple began its march to a trillion-dollar market cap opening stores, and Facebook took off with photos. Amazon’s killer app? User reviews. Transparency, courtesy of Amazon (and Trip Advisor and Google), has put power in the hands of the consumer and created immense stakeholder value. The margin brands command, as they have been jiujitsu-like diligence for consumers, has been emasculated by, among other things, the collective body of user reviews conducting your diligence for you. Why defer to the brand, when you can defer to millions of people like you who share their collective experience with the product in question?
I’ve raised close to $1B (VC, PE, hedge funds) for firms I’ve started and other projects, and below are my user reviews of venture capitalists / angels.
Prophet Brand Strategy
What: Brand strategy consultancy I founded in 1992 (second year in grad school)
What happened: Sold in 2002
M2 — Danish VC
As the .com era hit full monty / froth / throttle, many organizations and VC firms were created that should have remained nonexistent. M2, a Danish VC firm, raised capital to acquire minority stakes in firms servicing the .com economy, and then take the holding company public. If it sounds like it makes no sense, trust your instincts. M2 was an off-off-Broadway VC firm. M2’s shares in Prophet ended up in receivership of a Danish court .
Various SF Angels
Hamid Moghadam (CEO, Prologis), Paul Stephens (Co-Founder, Robertson Stephens), Tully Friedman (Co-Founder, Friedman Fleischer & Lowe), Bob Swanson (Co-Founder, Genentech), Warren Hellman (Co-Founder, Hellman & Friedman) — invested in one or more of my startups.
By the time I was 10, my dad lived out of state, and I didn’t have a lot of adult male influences in my life. These men were great role models for someone coming of professional age. Tully is the youngest thinker I know, fascinated with new ideas. He never threw his weight around but also wasn’t afraid to get angry. Hamid is the biggest brain in real estate and had great perspective, always ready to laugh and invest in the relationship. Paul Stephens is who you want to be when you grow up, a handsome maverick who started an investment bank in his early thirties. He would drop everything when his wife or boys called.
Bob Swanson was assigned, as part of YPO, to be my mentor and would shadow me, sitting in meetings observing my leadership (or lack thereof) when I was CEO of Prophet. He would then sit me down and, thoughtfully and gently, tell me what an ass I was being. Bob was diagnosed with a glioblastoma and died later that year. Warren Hellman was the most universally respected person I’ve known. Humble, strong, direct, civic minded, and spiritual. I would meet with Warren once a quarter just to get advice, and he invested in Prophet. When I sold Prophet, I was so focused on getting liquidity for myself and the other co-founders, that I didn’t bother to ensure Warren got his investment out. I realized this, and called Warren to apologize. He told me not to worry about it. However, soon after, he stopped meeting with me. It’s haunted me that I never got to make things right, or that he thought ill of me before he passed. I really fucked up here.
Self Review: Started something unique, and sustainable — 400 employees today. Also, knew when to leave.
Red Envelope
What: Multichannel retailer founded in 1998
What happened: NASDAQ IPO in 2002, Chapter 11 in 2008
SV Angel: Ron Conway
Ron is likely the most famous angel investor in the Valley. SV Angel is more of an ETF / index fund than a VC, as Ron invests broadly across the ecosystem. In exchange for participation in an early round, the entrepreneur gets access to tier-1 VCs and a host of other firms / players in business. Ron always asked the same two questions: “Can we invest?” and “How can we help?” Ron is the uncle every firm wants: nice to be around, irrationally passionate about your success, and constantly introducing you to his successful friends. Every startup in the Valley has DNA that can be traced to Ron, and these are good genes.
Sequoia Capital: Michael Moritz (Chairman) — Sequoia was Red Envelope’s lead investor; Mike was chairman for several years
Sequoia Capital is the most successful firm in venture capital, dominating the asset class like no other firm in its respective sector. Sequoia has backed firms that have a public market value of $1.4T (GDP of Australia). Sitting alone on the iron throne of Westeros is Sequoia Chairman Michael Moritz, who has backed firms including Google, Yahoo, and PayPal. Michael has amassed a $3B+ fortune and in 2013 was appointed Knight Commander of the Order of the British Empire. Since then, he has donated tens of millions to philanthropic organizations. Once Sequoia agreed to lead the round, we had people falling over themselves to invest.
Working with Sequoia and Sir Michael was the worst experience of my professional career. Some lowlights:
— 18 months after the investment, our CEO, who had four young boys, wanted to gracefully hand the reins to someone else. Michael refused to take the dilution of additional options to get a new CEO and demanded the other shareholders pay for a new CEO, as Sequoia had “invested in a company with a CEO.”
— When the dot.bomb crisis hit, and the firm needed capital, the CEO would line up new financing, only to have Mike state he would not participate (queering the round as if your lead sits out you are toast) unless the founders forfeited equity. I believe every time Mike entered the boardroom, he would look around and think “who can I fuck (out of their equity)?” It was easy for him — he was a master of the universe, and other directors would sit in board meetings trying to figure out what Mike wanted and how to get there first.
— Mike often tried to unload Sequoia’s refuse on Red Envelope (remember Miadora?). Both my co-founder and a former CEO put in writing (something you don’t do in a digital age) their belief that Mike was conspiring with the CTO (we’d hired from Sequoia-backed WebVan) to use Red Envelope as a dumping ground for the failed products of Sequoia portfolio firms.
— After nominating an alternative slate of directors, the board, chaired by Mike, commissioned Kroll, with company funds, to dig up dirt on me. Former girlfriends and work colleagues began receiving calls from a Kroll associate who’d identify themselves (“I’m with Kroll”) and ask questions about me. If this sounds bad, it gets worse. Kroll was clearly not trying to find information (the calls lasted 15 seconds), but intimidate me. I was going through a divorce, trying to secure a position on the faculty at NYU, and had a billionaire using the funds of the company I had started to fund mob-like behavior.
A good board can’t save a bad company, but a bad board can mess up a good one. Red Envelope’s board (myself included) was awful.
Weston Presidio — Series C round, Red Envelope
Former Montgomery Securities guys from the consumer banking group who had started a fund. Weston had domain expertise (actually knew our business) and were benign but ineffective — we didn’t leverage their expertise.
Mousse Partners: Charles Heilbronn — one of the many subsequent rounds at Red Envelope
In my next life, I’m coming back as Charles. Charles is in the running for the most interesting man in the world. He’s handsome, funny, French, and had the good judgement to be born into the family that owns Chanel. Charles wasn’t terribly effective, but he was benign, which puts him in the top quartile of VCs.
Madison Dearborn — yet another round at Red Envelope
Madison threatened to block our IPO unless we bought their shares pre-IPO, holding the firm hostage, as we needed to raise money, and the window in the public markets was closing. We found out later that a woman they put on the board (can’t remember her name) used to dial into board calls with Madison partners listening in, without our knowledge.
Self Review: Took lemons, turned them into lemonade, and then cyanide. Was in over my head and contributed to an environment of burning the village to save it. Fuck…
Brand Farm
What: NY-based consumer c-com incubator, founded in 1999
What happened: Over before it started (we closed round in December 1999 and then … Shit. Got. Real.)
Maveron — VC firm founded by Howard Schultz and Dan Levitan
Dan was more my rabbi than investor. He would come to NYC, and we’d take long walks and discuss companies, relationships, and spirituality. I don’t know if Dan is a good VC (who knows what would have happened in a different year), but it was obvious he’s a good person.
Goldman Sachs — you know who Goldman is
Should not have been in the VC business. Benign / supportive.
L2
What: Subscription business intelligence firm, founded in 2010
What happened: Sold in 2017
General Catalyst — VC firm considered to be the best VC east of Mississippi; Larry Bohn and Paul Sagan were the partners from GC
Lennon and McCartney of VC. Larry has unique insight into the intersection of capital allocation and value creation, and Paul has the management cred and insight of Jack Welch, minus all the chainsaw stuff. The first board meeting (post-investment), I / we blew the quarter (not the news you want in your first board meeting of a portfolio firm), and their reaction was “It is what it is… How can we help?” They enforced needed discipline on the firm and pushed the limits of our comfort zone around investments in growth, which paid off in spades. There was some bullshit, grabby behavior during the sales process, but they backed down. In addition, GC (and the other independent director, Todd Benson) set up a meeting to go through a list of employees and ensure everyone would win (get paid) if the deal closed. General Catalyst demonstrated behavior I’ve never seen from a VC during daylight hours — generosity.
Self Review: Started / built something unique and (hopefully) sustainable. Common and preferred did (really) well. Finally.
— Venture capitalists are a key part of the ecosystem that makes the US unique and prosperous. Only in America is there this much cheap fuel to get small businesses off the ground and to occasionally birth a giant.
— Recognizing ROI in venture is so difficult that VCs are incented to play hardball to get as much equity for as little as possible … whenever and however. They don’t partner with entrepreneurs as much as coexist with them, until they sense weakness, and then eat you.
— A tier-1 VC’s brand can help you close a round, but there’s little enterprise value. It’s about the guy (and they are all guys) you’ll be working with. They all have staff that work on their portfolio companies and host CEO days. This is overhead and noise to justify, to limited partners, their 2/20 fees.
— VCs will disparage what I’ve said here, as persistent dearth of transparency and asymmetry of information continues to benefit them.
— I’ve struggled, my entire career, discerning the difference between being right and being effective. When raising capital, invest in establishing a rapport with your new partners to create some level of mutual goodwill so border skirmishes don’t escalate to war.
— I hope entrepreneurs, similar to the 27,144 people who have (in an open forum) reviewed the Amazon Echo Dot, will provide authentic user experiences about their VC.
— When, as an entrepreneur, you begin hearing things like “Take care of your investors,” “Focus on your long-term reputation in the Valley,” or “You need to do the right thing” — that’s code for “We (VC) are about to screw you.” Don’t be afraid to say no. Your obligation is to the common shareholders (employees and you), not the preferred. Your VC is already rich and has several chips (bets) on several numbers.
— Don’t be afraid to be “unreasonable” (term VCs use when founders defend themselves or their employees). If you are going to piss people off (make enemies), ensure they are powerful, as it’s more interesting and restores some balance to the universe. They can’t eat you, and warnings of not being able to raise money, again, are bullshit. Capital worships at the altar of perceived / potential returns, full stop.
Life is so rich,
Scott
2017-05-26 23:29:05
The markets are a remarkable thing. No one person or firm (theoretically) controls them, and they have lifelike features, but aren’t even machines, much less organic. However, they are a raw reflection of our emotions and actions without makeup. Hold up a mirror to hundreds of millions of people, and the collective reflection can be seen in the real estate, art, coffee, and stock markets.
The market also looks sectors in the eyes and provides unadulterated feedback. Right now, the markets are telling Amazon, rubbing up against $1000/share, “God, you’re hot,” and the rest of retail, “I think you’re dying.” Things are bad in retail — share performance signals the market has decided many / most are going away.
— Stagnant middle-class wages. The greatest source of good in history, the American middle class, was hit so hard it still hasn’t gotten on its feet.
— People are spending more on experiences vs. stuff.
— A retailer in Seattle is doing really well.
— There are too many stores.
Ok, yeah we get it … we (retail) are fucked. So what’s a girl (retail) to do? Some thoughts:[1]
Retool messaging to the street
Store sales is the metric retailers lead with, and they will move up again in … 2025, after 20 percent of the supply (stores) goes away. Until then, retailers that derive more than 30% of their business online (and there are a lot of them) need to refer to that channel as their core business. As such, their core business is growing double digits, and their primary source of marketing, brick and mortar, sometimes makes money and is getting cheaper, as power shifts from landlords to tenants for the first time in ten years.
Double down on growth & Amazon-immune categories
— Sephora stores in JC Penney have (sort of) kept the retailer relevant, and drive foot traffic. They also, last week, announced they were introducing a B2B unit to sell mattresses and linens to hotels.
— While Macy’s announced it was closing 68 of its 730 stores in January, at the same time they announced 50 new Blue Mercury doors in the next 24 months. In 2016 they opened four pilot concepts, 18 store-in-stores, and 24 freestanding doors.
— Home Depot has focused its fulfillment capabilities on products with non-favorable ship to weight ratios (80% of Home Depot SKUs weigh more than five pounds), playing offense against Amazon.
Organic intelligence — invest in in-store customer service
— You know, humans.
— Best Buy blue shirts, Sephora Cast, Home Depot’s golden aprons.
— Net-a-Porter has embraced messaging, as that’s increasingly how people communicate, and bots are lame.
Omnichannel through a shareholder lens
— Investments in buy online pickup in store, in-store inventory, and flexible returns make sense but have to have pass a strategic filter.
— For instance Nordstrom found it better to enable free returns, as when they pushed “return in store” they found there was a 2-3 week lag, which in many cases led to the product being already discounted or on clearance. The increase in basket size from getting the consumer in store didn’t offset the pricing challenges of getting the inventory so much later.
Narrow vs. broad
Play to Amazon’s weaknesses by curating selection vs. endless aisle assortment. Wayfair has more than 8M SKUs online vs. Home Depot’s 700,000. As Wayfair and Amazon continue to double down on endless aisle, Home Depot has narrowed SKU selection.
Need for Speed: Supply Chain
Supply chain ninjas have been more disruptive than Amazon. There has been $27.8B in value transfer in apparel from department stores to online pureplays, mostly Amazon, since 2005. Over that same period, H&M and Zara added $28.2B in incremental global revenue.
Consumers appear to view online platforms as more authentic than department stores. Asos and Farfetch are much stronger on Instagram than traditional department stores. When Fast Fashion puts a buy button on Instagram, engagement increases. When a traditional department store does, engagement decreases. Everything is moving to fast, relevant, and (see point 1) fast.
Partnerships
Brands and retailers are mostly in this together. When Panzer tanks rolled into Czechoslovakia and Poland, the British, Americans, and Russians became less allergic to partnership. There’s a tendency for traditional retailers to go aggressively at online media opps and paid merchandising to offset traditional shopper marketing dollars that were going in store. Most aren’t doing this thoughtfully, more like throwing spaghetti up against a wall and see what sticks — which pisses off brands.
Target and P&G are a model for cooperation in the face of the real enemy. When Amazon started drop-shipping from P&G’s warehouses, Target got angry. The reality is if Target had those capabilities, P&G would have presented the same opportunity. Retailers need to more tightly integrate their supply chain with key brand partners and think about flexible / integrated inventory sourcing models.
Cruel Truth
The cruel truth of capitalism is each firm has finite capital. In the case of most retailers it’s increasingly finite as their stocks plummet. The cheap capital equation of intelligence x receptors is not in most traditional retailers’ favor. To be good or great at everything is to be truly great at nothing and to compromise trying to get there. Decide where you’ll be best in class, and where you’ll be just good enough (e.g., fulfillment). Walmart’s move to end ShippingPass, their Prime copycat for $49/year, this year is evidence of this. Instead Walmart lowered free shipping minimums.
Moore passed away this week. Born to a policeman, he joined the Royal Army at 18 and rose to captain. The oldest actor to play Bond (seven films), and knighted by Queen Elizabeth ll for his philanthropic work, Sir Roger Moore made the most of his 89 years.
Life is so rich,
Scott
A nice story about Roger Moore:
As a seven-year-old in about 1983, in the days before first-class lounges at airports, I was with my grandad at the Nice Airport and saw Roger Moore sitting at the departure gate, reading a paper. I told my granddad I’d just seen James Bond and asked if we could go over so I could get his autograph. My grandad had no idea who James Bond or Roger Moore were, so we walked over and he popped me in front of Roger Moore, with the words “My grandson says you’re famous. Can you sign this?”
As charming as you’d expect, Roger asks my name and duly signs the back of my plane ticket, a fulsome note full of best wishes. I’m ecstatic, but as we head back to our seats, I glance down at the signature. It’s hard to decipher it, but it definitely doesn’t say “James Bond.” My grandad looks at it, half figures out it says “Roger Moore” — I have absolutely no idea who that is, and my hearts sinks. I tell my grandad he’s signed it wrong, that he’s put someone else’s name — so my grandad heads back to Roger Moore, holding the ticket that he’s only just signed.
I remember staying by our seats and my grandad saying, “He says you’ve signed the wrong name. He says your name is James Bond.” Roger Moore’s face crinkled up with realisation and he beckoned me over. When I was by his knee, he leant over, looked from side to side, raised an eyebrow, and in a hushed voice said to me, “I have to sign my name as ‘Roger Moore’ because otherwise … Blofeld might find out I was here.” He asked me not to tell anyone that I’d just seen James Bond, and he thanked me for keeping his secret. I went back to our seats, my nerves absolutely jangling with delight. My grandad asked me if he’d signed “James Bond.” No, I said. I’d got it wrong. I was working with James Bond now.
1 Courtesy Maureen Mullen and L2 Retail team
2017-05-19 22:17:53
SoHo is mobbed by purple ghosts — 22-year-olds in NYU caps and gowns. Close in tow are typically a man and woman who look similar, but older and heavier, beaming with pride. Commencement season is nice, even hopeful. This moment is more rewarding for the heavier versions of you (your parents), as your graduation is testament to their success (getting you to and through college). They can check the last evolutionary box they’re responsible for … other than dying (ughhh, that sounded awful).
— I live with my mother in an upper-lower-middle-class home
— I have a great job offer from Morgan Stanley in NYC
— The sooner I’m out of here, the sooner you can let in someone more deserving
I asked four profs (and there were more I could have asked, as I graduated with a 2.27 GPA). Three had the same reaction: they looked at me with disgust, then resignation, signed the form, and asked me to leave their office. No robe and very little pomp and circumstance.
I decided to pursue investment banking. The motivation for a career in investment banking was my fraternity roommate desperately wanted to be in IB and couldn’t land an offer. So, I decided if he wanted it, I would get it. Also, I believed more women would have sex with me if I was an investment banker.
I accepted an offer with Morgan Stanley, as I heard they didn’t check grade transcripts, and no drug test. They fortunately never asked me, during the interview process, what investment banking was, as … I. Had. No. Fucking. Idea.
My second graduation, MBA from Berkeley, was more rewarding, as I had gotten my act together and earned it, or something. But it was an insecure time … as it is for a lot of kids. A 26-year-old male is still very much a kid. I had a sick parent and turned down an offer from a consulting firm so I could start my own (wait for it) consulting firm. The ballast in my life was my girlfriend, who provided emotional and financial security, as she had a real job. We lived in a $285/month apartment in Oakland, and we were happy, but that’s another post.
Anyway, as you’ve spent the last four, or more, years learning to make your own decisions, let me now join the chorus of people who use graduation as a chance to talk about themselves, in the third person, with vaseline smeared over the filter they want you to view their past through.
Don’t Follow Your Passion
People who speak at universities, especially at commencement, who tell you to follow your passion — or my favorite, “never give up” — are already rich. And most got there by starting waste treatment plants after failing at five other ventures — that is, they knew when to give up. Your job is to find something you’re good at, and after ten thousand hours of practice, get great at it. The emotional and economic rewards that accompany being great at something will make you passionate about whatever “it” is. Nobody starts their career passionate about tax law. But great tax lawyers are passionate about colleagues who admire them, creating economic security for their families, and dating / marrying someone more impressive than them.
Boring Is Sexy
Careers are asset classes. If a sector becomes overinvested with human capital, the returns on those efforts are suppressed. If you want to work at Vogue, produce movies, or open a restaurant, you need to ensure you receive a great deal of psychic income, as the returns on your efforts (distinct of well-publicized exceptions) will be, on a risk-adjusted bases, awful. I try to avoid investing in anything that sounds remotely cool. I didn’t buy BlackBook magazine, and didn’t invest in a downtown members-only club focused on music. If, on the other hand, the business, and issue the business addresses, sounds so boring you want to put a gun in your mouth, then … bingo, I’ll invest. I recently spoke at the JP Morgan Alternative Investment Summit, where the bank hosts 300 of the wealthiest families in the world. There are some who own media properties and the national airline, but most killed it in iron / ore smelting, insurance, and the like.
Get to a City
Two-thirds of economic growth over the next 50 years will be in super-cities. Even if you aren’t Tom Brady, your game will improve being on the field with him. Big cities are the NFL, and you will get in better shape, or learn fast you just shouldn’t be in the NFL. Opportunity is a function of density. Get to a place that’s crowded with success.
Mate
Whom you have kids with is the most important decision you will make. Building a life with someone and raising kids with a competent partner is (very) rewarding. There is no “one” person. You need to get to a market where there are thousands, specifically where the odds are stacked in your favor — more of the opposite sex and liquidity (a lot of opportunities to meet potential mates). On a balanced score-card of character / success / looks everyone is somewhere between a 1 and 10. Put yourself in a city where you can add a couple points. In NYC and Miami, my male friends who are 5s get to date 7s, and in Boston and SF it’s reversed (can’t wait for the hate mail from women in SF and Boston).
Strength
We are hunter-gatherers and are happiest when in motion and surrounded by others. A decent proxy for your success will be your ratio of sweating to watching others sweat (watching sports on tv). It’s not about being skinny or ripped, but committing to being strong physically and mentally. The trait most common in CEOs is they exercise regularly. Walking into any conference room and believing that, if shit got real, you could kill and eat the others gives you an edge and confidence (note: don’t do this).
You’ll be less prone to depression, think more clearly, sleep better, and broaden your pool of potential mates. On a regular basis, at work, demonstrate both your physical and mental strength — your grit. Work an 80-hour week, be the calm one in face of stress, attack a big problem with sheer brute force and energy. People will notice. At Morgan Stanley, the analysts pulled all-nighters weekly, and it didn’t kill us, but made us stronger. This approach to work, however, as you get older, can in fact kill you. So, do it now.
The Myth
There are people who are successful professionally while managing a food blog, volunteering at the animal shelter, and mastering ballroom dance. Assume you are not one of those people. Balance, in my view, is largely a myth when establishing your career. The slope of the trajectory for your career is (unfairly) set the first five years post-graduation. If you want the trajectory to be steep, you’ll need to burn a lot of fuel. The world is not yours for the taking, but for the trying. Try hard, really hard.
I have a lot of balance now. It’s a function of the lack thereof in my twenties and thirties. Other than business school, from 22 to 34, I remember work and not much else. The world does not belong to the big, but to the fast. You want to cover more ground in less time than your peers. This is partially talent, but mostly endurance. My lack of balance as a young professional cost me my marriage, my hair, and arguably my twenties. And it was worth it.
The Adult in the Room
Your role vis-à-vis your parents will reverse. They become the child, and you the parent. It usually happens organically. However, graduation is a decent time to expedite the transition. Your actions need to begin saying to your parents “I got this,” as you become a source of solutions vs. stress. It shocks me how many people are the adult in the room, until they get around their parents and regress to being whiny children expecting the parents to solve their problems. The most rewarding things in life are rooted in instinct. We give a lot of airtime to how rewarding it is to raise kids. What gets less attention is how rewarding it is to help take care of your parents. Start now.
This is your moment. Enjoy it … for at least 24-48 hours. Then get to working, mating, and raising.
Life is so rich,
Scott
2017-05-12 21:56:34
As VR, 3D printing, and wearables become the pet rocks of the internet age — cute, but no value — we turn to the technology that will shake the ground below those of us who make our living building and selling brands … voice. My kids got me into Alexa, and it has substantially eroded my standing with my boys.
Like. I. Fucking. Needed. That.
Brands are shorthand for a set of associations that consumers use for guidance toward the right product. CPG brands have spent billions and decades building brand via messaging, packaging, placement (eye level), price, creative, endcaps, etc. The internet loses much of this, since the impact of zeroes and ones is no match for atoms, and much of the design and feel of the product loses dimension, specifically from three to two (dimensions). As a result, the internet has become a channel to harvest, rather than build, brands.
However, all these weapons of brand … all of them go away with voice. No packaging, no logos, no price even. The foreshadowing of the death of brand, at the hand of voice, can be seen in search queries. Fewer and fewer contain a brand prefix or modifier.
At L2 we’ve been running tests (barking commands at Alexa) to glean insight into the Seattle firm’s strategy. Some findings:
1. It’s clear that Amazon wants to drive commerce through Alexa, as they are offering a lower price, on many products, if ordered via voice vs. click.
2. In key categories like batteries, Alexa will suggest Amazon Basics, their private label, and play dumb about other choices (“Sorry, that’s all I found!”) when there are several other brands on amazon.com.
Retailers often leverage their power and custody of the consumer to swap out brands for their own private label. That’s nothing new. Only we’ve never seen any retailer this good at it. Google is Genghis to Alexa’s Khan in the war on brand, conspiring with 400M consumers, armed with infinite capital provided by fanatical investors, to starch the margin from brands and deliver it back to the consumer.
Death, for brands, has a name … Alexa.
Mother’s Day, a (very) brief history:
Ann Jarvis was a peace activist who cared for wounded soldiers on both sides of the American Civil War. Her daughter, Anna Jarvis, wanted to honor her mother by continuing the work she started and to set aside a day to honor all mothers because she believed that they were “the person who has done more for you than anyone in the world”.[1]
Sylvia
My mom, Sylvia Galloway, slept in the London tube as a little girl, as her house had been damaged by the Luftwaffe. At 13 she was pulled out of school to work for a tailor to help support her family. At 15 she lost her parents, and her two younger sisters were placed in an orphanage. At 19 she spent 15£ for a nine-day passage, on a steamship, to the New World. She was a secretary, which in sixties and seventies America could support an upper-lower-middle-class life. She raised me on her own. Note: not a sob story, we had a nice life.
— When I was eight, I’d get nosebleeds in the middle of the night. We’re talking blood-spraying-from-your-face type of bloody noses. This is one of the reasons I never tried cocaine, but that’s another post. My mom would hold a cold compress to my nose, and read math problems to calm me, until the blood coagulated, sometimes hours later.
— When I was 15 my mom, home from work, would honk her horn as she entered the garage below our apartment complex, signaling for me to come down and practice, on inclines in the massive garage, how to drive a stick shift.
— On my 16th birthday she drove up in a four-year-old BMW 320i and gave me the keys to her eight-year-old lime green Opel Manta. She put the keys in my hands, rested her hands (up) on my shoulders and said, “You’re a handsome young man [I wasn’t] who owns his own car.” I’ve bought, and been given, a lot of nice things. This stands alone as the most joyous moment I’ve registered from an inanimate object.
— At 39, I was going through my mom’s last will and testament. She had affixed Post-its, with handwritten notes, all over the document. Two stood out: “You have always been a huge source of pride for me” and “Be a good citizen.”
My mom smoked for three decades and was on the pill in the sixties and seventies, a recipe for breast cancer, which struck when she was 56. Twelve years and two recurrences later, the cancer metastasized in her stomach, and she died six months later. One of my greatest disappointments is she never got to meet my boys. Some of that sadness abates watching my boys with their mother who, among a million other things, calms our oldest boy when he, too, now gets bloody noses.
Our youngest son’s name is Nolan Sylvia Galloway, and he has my mom’s laugh. She would have liked that.
Life is so rich,
Scott
2017-05-05 21:51:29
Apple has pulled off the near-impossible in the world of business. Their genius alchemy of design, brand, and vertical integration (stores) has brought together flavors never seen in the same dish — a premium-priced product and a low-cost producer.
Among the electorate and elected officials, we have a gross idolatry of innovators. Amazon paid no sales tax until recently. We hope that big firms will reinvest their cash hoards and drive the economy. Many new-economy firms (Amazon) do this, but most instead have registered record levels of profits and cash while the country and students rack up record debt. Apple has cash in excess of the GDP of Denmark, the Russian stock market, and the market cap of Boeing, Airbus, and Nike combined. At some point, does Apple have an obligation to spend its cash? If yes, then how?
My suggestion: Apple should launch the world’s largest tuition-free university.
The education market is ripe, and I mean falling-off-the-tree ripe, to be disrupted. A sector’s vulnerability is a function of price increases relative to inflation and the underlying increases in productivity and innovation. The reason tech continues to eat more of the world’s GDP is a gestalt that says we need to make a much better product, and lower price. Education, on the other hand, has largely remained the same for 50 years and has increased prices faster than cable, and even healthcare.
A degree from a good school is the ticket to a better life, and this ticket is given almost exclusively to exceptional kids from low- and middle-income US households, and all kids from wealthy US and foreign households. Eighty-eight percent of kids from US households in the top-income quintile will attend college, and only eight percent from the lowest. We are leaving the unremarkable, and unwealthy — most people — behind in a civilization that is now more Hunger Games than civil.
Apple could change this. With a brand rooted in education, and a cash hoard to purchase Khan Academy’s and physical campuses (the future of education will be a mix of off- and on-line), Apple could break the cartel that masquerades as a social good but is really a caste system.
The focus should be creativity — design, humanities, art, journalism, etc. As the world rushes to STEM, the future belongs to the creative class, who can envision form, function, and people as something more — beautiful and inspiring. I believe the correlation between a nation’s focus on STEM and growth is tenuous at best. We in the US lament our lack of focus on the sciences. On the contrary, I believe it’s one of the reasons we have performed better than any major economy, other than China, over the last 30 years.
creativity
noun
science
noun
Do the most successful firms in the world (Amazon, Apple, Facebook, and Google) owe their success to imagination and original ideas, or to an organized body of knowledge? The founders are more creative than scientific, methinks.
A key component would be flipping the business model in education, eliminating tuition, and charging recruiters, as students are broke and the firms recruiting them are flush. A viable alternative to the caste system (US universities) would deflate the culprit of massive debt on young people: tenure. We have a second year at business school so we can charge kids $120K, vs. $60K, to subsidize social welfare for the overeducated (tenure). I believe my colleagues at NYU Stern are, on balance, one of the premier faculties in the world. However, a lot of our teaching is mediocre, and the majority of research irrelevant. But with tenure, there’s nothing we can do but raise tuition.
Harvard could foster the same disruption by taking their $37B endowment, cancelling tuition, and quintupling the size of their class — they can afford to do this. However, they suffer from the same sickness all of us academics are infected with: the pursuit of prestige over social good. We brag how it’s become near impossible to gain admission to our school. This, in my view, is like a homeless shelter taking pride in how many people it turns away.
Apple has a chance to really dent the universe. They have the cash, the brand, the skills, and a market begging for them. Or … they could just make a better phone.
In high school I ran for sophomore, junior, and senior class president. I lost all three times. Based on this track record, it was obvious I should run for student body president. I did, and I (wait for it) lost. I was also cut from the baseball and basketball teams. I was rejected by UCLA and, believing I wasn’t going to college, began an apprenticeship learning how to install shelving. I could make $15, maybe $18/hour, which felt like a damn good living. I decided to write another letter to UCLA admissions and told them the truth: I am a native son of California, raised by a single immigrant mother who is a secretary, and if you don’t let me in I am going to be installing shelving the rest of my life. They admitted me nine days before classes started. I remember my mom and I going to Junior’s Deli on Sepulveda to celebrate. She told me that, as the first person to attend college on either side of the family, I could now “do anything.”
I applied to several MBA programs and was rejected by Stanford, Indiana, Wharton, Duke, UT Austin, and Kellogg. I was admitted by UCLA and Berkeley Haas with the same narrative I pitched to UCLA the first time: “I’m an unremarkable kid, but I’m your (California’s) unremarkable kid.”
In business school I ran for class president, and lost. Since graduating from business school, I have started 9 businesses. Most have failed.
The Most Important Decision
The most important decision you’ll make is who you have kids with. Who you marry is meaningful, who you have kids with is profound. Raising kids with someone who is kind, competent, and you enjoy being with is a series of joyous moments smothered in comfort and reward. Raising kids with someone you don’t like, or isn’t competent, is moments of joy smothered in anxiety and disappointment. Everyone who knows us would agree my boys’ mother is, on most dimensions, more impressive than me. This has been the case with most / all women I’ve had relationships with. The ability to punch above your weight class in the ring of mating is your willingness to endure rejection.
Raleigh
I enjoy alcohol, but it’s also served a useful evolutionary purpose, as it’s dramatically increased my potential pool of mates. In social situations, “alcamahol” has been kevlar against rejection. I’m a better version of myself after a couple drinks: funnier, more affectionate, confident, engaged, nicer… better. (Can’t wait for the judge-mail on this one.) I remember being at the pool at the Raleigh Hotel in South Beach and seeing a woman I was incredibly drawn to. I committed myself to speaking to her before I left, and immediately (not proud of this) ordered a drink. Asking a VC for money is nothing compared to approaching a woman midday in a beach chair, sitting with another woman and a guy, and opening. I tell my students nothing wonderful, I’m talking really fantastic, will happen without taking a risk and subjecting yourself to rejection. Serendipity is a function of courage.
My willingness to endure rejection from universities, peers, investors, and women has been hugely rewarding.
My oldest son’s middle name is Raleigh.
Life is so rich,
Scott
