z on life

Let’s say you’re a brilliant hacker or any other breed of wild intelligence. You’re young, maybe high school, college, or shortly after, and show the potential to achieve enormous success and to make huge sums of money. You haven’t made it yet, though, so you haven’t hit a state of financial security and would obviously like to have more money than you do. You may need money to pay off college, or to quit worrying about paying the bills so you can focus on being entrepreneurial, or just want a bit more of a comfortable life now and pay it off later. So, if you’re in this scenario, would you sell life equity?

What exactly I mean by life equity is the following:

1. You find someone interested in your potential.
2. They give you X dollars up front.
3. You give them in return Y% of your earnings every year for life.

There’s lots of ways to do this like allocated the money in tranches subject to performance, a variable percentage of future earnings, etc. But let’s keep it simple. If a benefactor wanted to give you $1MM right now for 10% of all future money you made, would you do it? If not, what if it was 5% or even 2%? If yes, what if it was 20% or even 50%?

The pros:

1. You can stop worrying about baseline finances.
2. You can earn interest on the money you now have in the bank.
3. You can engage in ventures without seeking early external funding.
4. You can spend money to alleviate stress and increase professional performance.
5. You can get career help from your benefactor who has a vested interest in your success.
6. You can do things, go places, and help people you couldn’t before.

The cons:

1. If you’re really successful, you actually end up losing money on the deal.
2. Every year you have to think about how you traded a one-time gain for an annual loss.
3. If structured wrong, you may have incentive to do nothing after getting the money.
4. Being able to do anything you want is hugely distracting and a career detriment.
5. You are accountable to your benefactor for returning good money to him or her.
6. You now have a much weakened sense of urgency to go far in your career.

So would I do it? The truth is it depends on the numbers. A good deal is a good deal, and certainly money at different points in life has a different value, and for most people that utility curve is monotonically decreasing so money up front can be a rational choice. On the other hand, there is something special about making it on your own, not having things given to you, and having complete control. It should be the process of building success, not the financial reward itself, that is valuable in life. If you’re confident in yourself and have the basic necessities to live, I think the answer has to be no. So would I do it? Probably not, unless the deal was really good.

Cases where I think it does make sense:

1. The person is in abject poverty but shows huge potential. Even if it is just to pay for college, the money could make a huge difference.
2. The cash infusion can raise the expected career value of the person more than the annual percentage payment. This is like the minor league baseball player that recently wanted to do this very thing so he could practice instead of working two side jobs.
3. The person has a valid time-sensitive reason for needing money. Maybe it concerns the health or wellness of a family member or something else where the money loses its value sharply as time goes on.

But before the notion of ‘life equity’ could ever became a common financial product, there’s a couple things that need to be worked out:

1. How do you price such a risky and variable future cash flow?
2. Does equity lead to ‘voting rights’ for life decisions?
3. Is this purely financial? If not, how would intangible achievements (ie: Nobel Prizes) be split up?
4. What are the ramifications of people holding stock in others? Suddenly there can be a quantifiable benefit to favors and business relationships. Would this corrupt the flow of business dealings?

I am not sure this concept of life equity will ever exist above and beyond a few one-off cases. I have been told it has been tried in the past for very special scenarios and has not worked out (I don’t know when and where, but I am looking into that now). If it did, though, would you sell part of yourself? For how much and with what terms? It’s very interesting to think about. I’d love to hear some thoughts.

In the world of startups, everyone seems to have a different definition of ‘winning the game’ or ‘being successful’. With that said, I wanted to write about what I think winning is and is not.

To start, let’s talk about some popular ways to viewpoints on what it means to win that you hear in and around the startup crowd all the time:

1. Making something that millions of people use every day
2. Working with your friends, being comfortable, and having fun
3. Becoming Internet famous
4. Getting to a liquidity event
5. Being massively rich

To different extents, I disagree with every item above. Some of those are merely stepping-stones to real success, and some just have no place in the same sentence with the word ‘winning’.

Making something awesome that a lot of people use everyday is sometimes necessary but never sufficient in building a real business. Unless you can truly extract money from those users in a significant and sustainable way, I don’t see the point. Maybe the purpose of your work life is to just provide cool goods and services to the world. In that scenario, you’re really just running a charity event, in which case you need to acknowledge to yourself and others really what your true intentions are. But if the purpose of your work life is to build big companies, then focus on economic value by thinking about distribution, retention, monetization, strategy, relationships, and market before anything involving the word ‘cool’.

Getting to work with your friends with flexible hours and a low key work environment is great if you want to be a lifestyle business. If you are a disciple of the work-to-live philosophy, then that’s all fine and dandy. By all means, emulate the four-hour workweek. But if you want to build empires like Gates, Jobs, Ellison, Brin and Page, Dell, Bezos, etc, you will never get there if you maintain this type of philosophy. If you want to be funded by Sequoia, KP, Accel and that elite crowd, you’ll never get there in this mindset. When you’re in the office, the more blurry the line between friends and coworkers, between fun and business, between goals and leisure, the worse off you will be.

Becoming Internet famous is a really funny goal that many people have but few will admit. At the end of the day, famousness stands for very little expect maybe a fulfilling feeling inside to someone who needs that. Can you imagine coming to your board and saying “Well we missed earnings and we’re going to have to liquidate at a loss on all of your investments, but at least now people know who I am when I walk down the street.” That sounds absurd and is absurd. If fame comes with the process of being a successful businessperson, then that is what it is. But if you seek out fame for the purpose of fame itself, you actually stand to have less of a chance of succeeding because you will make irrational decisions and spend too much time and effort worrying about the wrong things.

Getting to a liquidity event can be a huge win, but the concept of ‘exiting’ in and of itself is not. Many times startups push forth and push forth and push forth because they just don’t want to die. Amen to not dying, but what is the goal of what you’re doing? Is the point to not fail? Is the point to prove that you were right after all and that “this can work”? Do you need to see the company ‘exit’, even if it is a tiny sum of money with years of handcuffs, just so you can think you “didn’t waste that time” in your life? Does exiting make it somehow worthwhile, even if you could have made more money over those few years working at Google or building new and better startups? Hey, if you’re going to hit it huge and explode with a 10-figure market cap, by all means exit and buy a Ferrari. But if you’re on the other end of the spectrum, are you really being rational, or are you hanging on to the concept of ‘not failing’ instead of focusing effort on a new massive success that could be up for the taking?

Being massively rich, in a self-made way, has correlation with “having won” but does not for sure indicate causality. After all people do get lucky, are benefited by serendipitous events, or find themselves in the right place at the right time. But in the end, most of these people still earned it. In my mind, though, these people have won a battle, not the war. I feel like the key to winning the war is in a process and not in any one result. It’s those people who have built up a methodology, a framework, and a desire to do it again and again and to do it huge. These are the Marc Andreessens of the world. The other side of this coin involves all the people I mentioned earlier Gates, Jobs, etc who have really focused on one company and taken it all the way for many, many years. Instead of doing it again and again, these people are all about extending it further and further. It’s the not the money, it’s the push to always be looking up even after you have the ability to be comfortable for the rest of your life.

So then what is ‘winning’ to me? Here’s a couple definitions or elements that seem much closer to what I would be comfortable with:

• Going from 0 to multi-billion dollar IPOs and beyond
• Putting yourself in a position to work with the best people
• Doing in aggregate what the fewest other people have been able to do

IPOs and huge exits are a good, tangible way to look at things. Money as a scorecard is fine, because virtually everyone who’s at the very top of that scorecard has earned it, either via sustained hard work or a huge string of success after success. Analogously in the non-startup world, you could argue that running a key division of a company or managing a huge fund and growing the earnings or worth by a large multiplier is just as good. I completely agree. There are lots of tangible ways to win.

Being able to work with the best people is an indicator of success. It means that every day, you get to experience the joy of pushing out the most creative, strategic, business-savvy ideas at the fastest possible rate. You get to solve problems that other teams can’t possibly imagine solving. If you think of life in terms of how many interesting experiences you get to have, working with great people can make that number explode. Every minute of every day can be incredible. While others can pay to go anywhere in the world, drive fast cars, and even go to the moon, you can’t pay to work with the best. Sure you can sometimes just set up the economics so that they make sense, but if really good people don’t respect you and see you as a winner, they won’t want to bet some portion of their career on you. If you can get to this point where the best want to be around you, you are on your way to a win.

The last is my personal favorite: measuring the size of your win by how many people have been able to carry out what it is that you did. We as people naturally seek to be different and new things excite us. We love to do what others can’t, not to evoke jealously, but because it is has core appeal. Professional athletes are one a million, same with movie stars, senators, and the like. Being a top of the top businessperson is more on the order of one in a hundred million. Striving for that is exciting, not because you get famous, but because getting there means you solved the most difficult and dynamic problems the world has to offer. Think about your aggregate level of accomplishment and what percentage of the world is at or above it? Chances are, that number is large. How can you get it down an order of magnitude, or how about five orders of magnitude?

Notice I have left out anything besides work. Nothing was stated in here about life, family, friends, fun, none of it, except how it was bad to mix lifestyle and work. The enjoyment of life outside of work as completely and wholly necessary, but it is an even more macro question of balance between the career-facing facts stated here and the elements of fun, happiness, and personal enjoyment elsewhere. What do I mean? You will be on some trajectory to win at some magnitude in the professional sense, and depending on what that is, you will have some portion of time to spend on the rest. The end goal of life on the whole might still be happiness, but the key is deciding how big you will win professionally, how much happiness that generates for you, and how much you will need to seek from other sources such as personal enjoyment of friends, family, leisure, and so forth.

So what should all of this mean to you? Really, it should mean nothing. This is how I look at things, but everyone is different. Winning as defined here isn’t for everyone, and I think it is awesome that not everyone goes down that path. I will say, though, that when I meet people, I am always curious how much they really want to win and win big. The ones who want it bad are the kind of people I enjoy working with.

Very recently I moved from Pittsburgh, PA to sunny San Francisco, CA. I’ve only been here a few weeks for real now, but the differences in the city are pretty obvious. I wanted to share my thoughts on how you would make Pittsburgh into San Francisco:

1. Increase property values by 500% 
2. Add slides and hot tubs to the nightclubs 
3. Stop everyone from caring about their NFL team
4. Turn 1 in every 4 people into Facebook app developers

It’s pretty unlikely this will happen any time soon, and obviously this is somewhat less than serious. But in reality, from the perspective of an entrepreneur, what does Pittsburgh need that San Francisco already has? The following are four items that are for real.

•  A wealth of capital (financial + social)

This is completely straightforward. There’s more money in a top tech fund here than all of Pittsburgh combined, and the concentration of talent and knowledge is simply astounding. Of course, the venture community in Pittsburgh has likely hit a carrying capacity for the amount of deal flow, so it’s not like simply adding more money fixes the problem (imagine a logistic growth curve math problem where you add more wolves but keep the number of sheep fixed). This is a standard chicken and the egg problem that has to be attacked from both angles.

•  Open, cutting-edge idea flow

Entrepreneurs in the bay don’t see success as a zero sum game and are willing to share strategies for success. Especially in the space of viral and user acquisition plays, we’ve seen a number of big wins in the recent years building and manipulating a core of techniques shared by a number of great entrepreneurs. Successes can coexist, and by being open and accepting this, the bay area has created a self-fulfilling loop of staying ahead of the rest of the world with some of the best information flow I have ever seen. Too much secrecy is dangerous.

• Building for the long-run

We’re going through a process of hiring right now, and it is interesting to think of things not just in terms of skills, but much more so in terms of trust and long-term relationships. When you’re in a small pond, you’re willing to bet on skills because you need to get the job done. When you’re in a big pond, you need to be on trust and long-term value because the payback of these seemingly softer things greatly outweighs any feature or any component of a product that a hire will get you in the next 6-12 months. At the end of the day you’re betting on the people more so than the tangible thing they can immediately provide you. A good question to ask yourself is ‘would you unconditionally work with any and/or all members of your core team again?’ Entrepreneurs should bet on themselves and their teammates to succeed in whatever, even if the current venture fails miserably.

•  Stars that have serious gravity

Pittsburgh needs to make very visible a set top-notch entrepreneurs who others badly want to work for. Simple jobs are great, but at the end of the day a job boils down to a corporate position P with skill needs A, B, C that provides salary X and Y stock options. Long-term career growth is much more than money today and a resume line item tomorrow. Would you rather work at Microsoft, or be Bill Gates’s right-hand-man? What if the latter meant half the pay? I would argue that in many startups, you can work with truly awesome people and not even sacrifice those other elements. The question is, are these people visible? And does the common person know what that relationship will do for their career? Better yet, does the diamond in the rough fledgling entrepreneur know who these people are that can jump start his or her career? Just some thoughts…more to come…