Secrets of Sand Hill Road

I decided to read Secrets of Sand Hill Road after hearing an author interview on one of my favorite podcasts. The VC market can be so mysterious and this book helped bring clarity to many aspects of the startup fundraising process. Here are just a few of the many excerpts I highlighted along the way:

Most VCs assume that the product that is initially conceived of and pitched is not likely the product that will ultimately prevail.

Max Planck, German scientist, put it best by saying "Science advances one funeral at a time." Simply put, it's hard to get people to adopt new technologies.

Products are either vitamins (nice to have) or aspirins (need to have); VCs want to fund aspirins.

How much money should you raise? The answer is to raise as much money as you can that enables you to safely achieve the key milestones you will need for the next fund-raising.

If you allow yourself or a VC to overvalue the company at the current round, then you have just raised the stakes for what it will take to clear that valuation bar for the next round and get paid for the progress you have made.

VCs love infinite learners.

Companies are definitely staying private longer, resulting in more of the appreciation of startups going to those investors in the private markets, at the expense of those in the public markets.

[Beware of becoming] the most advanced dinosaur, where you may think you look differentiated relative to others but are at risk of being the last generation in the evolutionary chain...


The importance of curiosity

Curiosity. It's the single most important characteristic I look for when interviewing someone. Does that mean I don't care about experience, character, etc.? Of course I do, but I believe a high level of curiosity is what distinguishes the top performers from the rest of the team.

That's why I was intrigued when reading this article from MIT Sloan Management Review. Yes, it feels overly academic at times, but it hits on the critical points. I also love a couple of phrases used in it. First, "incurably curious." Yes! That's what we need more of. Second, "catalytic learning capability", which sounds like part of your car's exhaust system.

How incurably curious are you? How about your team? There are countless indicators to show where someone is on this scale and I think a few of them are (1) being a voracious reader, (2) always asking "why?", and (3) being a great listener who's willing to alter their stance on a topic as they learn more.

Don't underestimate the importance of that third point, btw. Some would interpret that as a flip-flopper but I think it shows you're open-minded, not set in your ways and willing to learn.


Loonshots, by Safi Bahcall

Several smart people I follow have talked about reading a book called Loonshots, by Safi Bahcall, so I figured I better have a look. It's a great read that's loaded with interesting stories and provocative perspectives.

I still have about 60 pages to go but I've already learned about how radar was almost completely overlooked as a breakthrough technology, why Pan Am is no more and how Polaroid met its demise. You might think you already know most, if not all, of these stories but I promise you the author presents new information you probably never previously heard or considered.

The most intriguing part of the book is where he talks about The Moses Trap:

[The Moses Trap is] when ideas advance only at the pleasure of a holy leader -- rather than the balanced exchange of ideas and feedback between soldiers in the field and creatives at the bench selecting loonshots on merit -- that is exactly when teams and companies get trapped. The leader raises his staff and parts the seas to make way for the chosen loonshot. The dangerous virtuous cycle spins faster and faster: loonshot feeds franchise feeds bigger, faster, more. The all-powerful leader begins acting for love of loonshots rather than strength of strategy. And then the wheel turns one too many times.

Bahcall distinguishes between what he refers to as P-type and S-type loonshots. The former is product-based whereas the latter is strategy-based. The S-types are similar to the examples Clay Christensen refers to in my favorite business book, The Innovator's Dilemma, which is probably another reason why I've thoroughly enjoyed Loonshots.


When is a failed business model worth revisiting?

One answer is when you apply it in a completely different business segment. Thanks to my new favorite business podcast, Snacks Daily, I learned that the MoviePass all-you-can-watch model, which is circling the drain, is being embraced by the NY Mets in a new subscription campaign offering standing-room-only (SRO) access to almost every home game.

That's brilliant. Why? For most MLB teams, revenue is not just about filling seats but also selling high-margin concessions. MoviePass is failing partially because the theaters are beholden to the movie studios. Bring the model to an entirely new business and it could flourish. In this case, there's almost no incremental cost in admitting a few thousand additional fans to the game; the same number of gate attendants are probably still required whether attendance is 20K or 23K. The likelihood of cannibalizing higher-priced seat tickets seems low so it looks like a smart way to bring more fans to the game as well as make money off over-priced sodas, hotdogs, hats, etc.

It's interesting to think about other failed business models which might have potential in new categories. I expect other teams to follow the Mets' lead, even beyond MLB. Although many of those SRO fans will probably end up sneaking into an empty seat, is that really a bad thing? Empty seats are an embarrassment on a TV broadcast and this model should help reduce the number of vacancies, even though that's not the primary stated mission. It might also lead to more casual fans stopping by, taking in a few innings after dinner or before doing something else in the area. Very cool.


What are your adjacent business opportunities?

More often than not, the best growth and disruption opportunities can be found in some of the most unexpected places. We get so hung up studying our direct competitors that we completely lose sight of a potential marketplace newcomer who isn't just out to protect the status quo. I find it's best to look beyond your obvious competitors and consider what's going on in adjacent markets. I recently had an opportunity to do just that and it resulted in me advocating and leading the due diligence for an equity stake in a very exciting startup.

This particular startup, Biblezon, produces Android-powered tablets with models for adults and children. One of the cooler aspects of the latter is that there's no browser on the device, so you can safely give it to a child and never worry that they'll end up on an inappropriate website.

Our company isn't in the hardware business but we do produce a lot of content every year and we have a rich, deep backlist of timeless material. Biblezon and their tablets represent an entirely new distribution channel, one that we can help develop. We're only in the very early stages of this partnership but I'm excited to see how we can work together, as adjacent businesses, to extend the reach of both organizations in the years ahead.

Biblezon is definitely an adjacent business for me but it's not the only one I'm currently exploring strategic alliances and financial investments with. I'm fortunate to work in an organization where we recognize the fact that plenty of innovation and disruption happens outside our four walls. That's why it's so critical to look beyond the usual list of competitors for inspiration.

What would a short list of adjacent businesses look like in your segment and what are you doing to explore ways of working with them?