Wednesday, August 30, 2006

Deep Thoughts from Andy Rachleff

My classmates Julio and Matt kicked off their excellent podcast, iinnovate, with an interview featuring Andy Rachleff, co-founder of Benchmark Capital and GSB professor. Benchmark is perhaps best known as the sole VC investor in eBay as well as a major investor in Webvan.

During the school year, I had an opportunity to attend a “meet the professor” dinner with Andy and a half dozen or so classmates. The dinner really stood out as one of the best learning experiences I’ve had at the GSB. Andy has a way of capturing complex business ideas and translating them in pithy, well-crystallized statements. After the dinner, there were about four of these concepts that I mulled over for weeks; the more I thought about them, the more sense they made. He covers some of them in his interview with Matt and Julio, but I thought I’d share.

Product-market fit is everything
According to Andy, the sole driver of a start-up company’s success is how well the product fits with the market need. Put in a different way, are you making the dog food that the dogs want to eat? If you get this right, you can afford to mess up everything else. The logical extension of this, according to Andy, is that execution doesn’t matter if you have the market fit in place. I’m not sure if I agree with that last statement though. It requires quite a bit of execution to develop the product, understand the customer need, re-engineer the product, communicate the value proposition, figure out the pricing, develop a distribution channel, and bring the product to market. When I prodded him on this, I think he classified all these activities as part of establishing the “product-market fit” and not as execution.

The Groucho Marx Principle
Groucho Marx famously said “I don’t want to belong to any club that will accept me as a member”. Ain’t that the truth! I think I’ve spent my whole life seeking entrance into clubs of all sorts only to find out they weren’t so hot once I got in. But I digress. Andy’s point was that VCs never want to invest in companies that actually want their money. If the company is truly great, most likely it doesn’t want or need the capital. Though we didn’t really get into it, I think he implied that the flip-side is true as well—beware of any venture capitalist that wants to give you money.

It’s great when a major company enters your market
This was a real eye-opener for me. Most companies live in fear that Microsoft and Google will enter their market and blow them out of the water a la Netscape. Andy’s insight, however, is that more often than not, the presence of the competitor validates the product-market and as a result, actually grows the total market size significantly. So, the start-up may have a smaller share of the market, but now the market is sizable and legitimate. Not only that, but the start-up company gets fantastic free publicity vis-a-vis the entrance of a Goliath company.

80/20 is the mark of a great entrepreneur
Finally, during the dinner conversation, someone asked Andy what was it about the great entrepreneurs that he backed that made them successful. Andy’s response was that they had great vision to see what are the hand full of things that will make or break the business. After they seized on those things, they spent all their time making sure they got them right. It could be something like the pricing model, the “last mile” distribution expense, or building the direct sales force. What’s equally important is realizing, “this other 80% of stuff is crap and I’m not going to spend anytime with this crap because it’s crap” (my own words, not Andy’s).

The dinner ended with me spilling an enchilda all over my pants--but that is a story for another post.

Monday, August 28, 2006

Notes from Australia

Greetings from down-under! After a 15 hour plane ride and a 3 hour trek in a kangaroo’s pouch (which was rather unpleasant and sticky as it turns out), I am in Australia. My trip to Australia is part business and part anthropologic study. On the latter’s account, I’ve been taking detailed notes on my observations from Australia and I thought I’d share them with you:

The Flight
This damn neck pillow is extremely uncomfortable. Perhaps this is the worst $12 I’ve ever spent. I don’t understand how people can sleep with this thing on. I fear this is going to a very long flight.

Arriving in Sydney
Well, here I am! My neck feels as if it’s been jabbed by a thousand daggers, but my spirit feels as if it’s been hugged by a thousand loving teddy bears! What a marvellous country—McDonalds and Starbucks as far as the eye can see. It’s somewhat disturbing though to see miles of uninterrupted beaches and undeveloped waterfront property. What has this crazy world come to?!

Settling In
Hum dee dum. After a few days in Sydney, I feel like a regular ole Australian. I’ve taken a new nickname (“Thorpedo”), bought some surfing-related t-shirts, and am currently practicing for an upcoming long-bow tournament. Put another shrimp on the barby, eh!

Anyhow, most of these observations will later be published in the Annals of Dingo Affairs, but I thought you might want a sneak peek!

Sunday, August 27, 2006

A Tricky Way to Get Web Traffic

Here's a zany idea for folks who want to attract some traffic to their websites.

As many of you know, there is a very popular news site called where users flag (they "digg" them) interesting news stories. The ones that get flagged/digged the most end up going to the front page where millions of visitors read the stories. While it is aimed at sort of a "democratization" of the news, the end result is that some interesting odd-ball articles and websites bubble to the top.

If you wanted web traffic, in theory, you could try to get your friends to "digg" your website so it would be seen by millions of people. The problem with this, however, is Digg has a very efficient and large community of users who digg articles. You would literally need 1000's of people to digg your site to make a blip on the website.

However, a few weeks ago, converted its format to be a copycat of Digg. Netscape is a huge but declining portal (I guess from the days when people used netscape browsers) with millions of visitors per day. However, they have very few "diggers" who flag articles. In fact, all you need is a couple of dozen people to flag your site/blog to make it on the main page and get exposed to millions. It's a temporary anomaly that their readership is disproporationately large compared to the number of people who influence what makes the main page. My guess is you could pretty easily influence what shows up on

So, if you're doing something interesting, why start a compaign to get it posted on

Thursday, August 17, 2006

Remember That You Like Pants

Dear Readers,

Tomorrow I shall ride my kangaroo off into the glorious sunset. That is to say, I'll be going to Australia for the next 5-weeks on a secret mission to preserve the global economic order. If all goes to plan, by the time I return, the SP 500 will have risen from 1300 to 1400. If I fail, however, we may plunge into a prolonged global recession. In retrospect, the downside risk of this mission hardly seemly commensurate with the potential upside.

Let me leave you with some tidbits of wisdom to abide by in my physical absence from the continent. First, beware of ner-do-wells who compel you to admit that you "hate pants". Second, remain neutral in the event of a war between England and France. Finally, tend to the children, for they are our future.

My next blog will be posted from the other side of the world, which is a miracle of technology that still blows my mind.

Your humble servant,


Friday, August 04, 2006

Waking Up is Hard to Do

The fascinating thing about the capitalist system is it compels billions of people to wake up each day and go to a job that most likely they find unpleasant. Achieving this level of coordination is a feat no short of remarkable. I feel so sleepy and crummy every morning when I wake up, yet some how I’ll pitch up for work, even if I know I’ll spend the day valuing plain-vanilla coconut derivatives. Tom Wolfe, in Bonfire of the Vanities, captures perfectly how I feel when my alarm sounds in the morning:

The telephone blasted Peter Fallow awake inside an egg with the shell peeled away and only the membranous sac holding it intact. Ah! The membranous sac was his head, and the right side of his head was on the pillow, and the yolk was as heavy as mercury, and it rolled like mercury, and it was pressing down on his right temple and his right eye and his right ear. If he tried to get up to answer the telephone, the yolk, the mercury, the poisoned mass, would shift and roll and rupture the sac, and his brains would fall out.

There are a variety of reasons that motivate people to wake up and go to work, but the end result is stunning—people make things and people stay out of a trouble. On the first point, the entirety of human progress over the last 300 years [or at least improvements in standards of living] can be attributed to productivity gains that have compounded over time. People show up in the morning, maybe a bit disheveled and sleepy, but eventually, after a few cups of coffee, they do something. They improve some code, find a new way to make a product, or if they’re extremely ambitious, write a blog. Over time, these modest improvements compound upon each other in a staggering way. If 300 years ago, you started with $100 in capital and every year just improved it somehow by about 5%, you’d have $225 MM today. If interspersed every 50 years was some sort of productivity revolution (like computers, factories, transportation), before then settling into steady 5% growth, you’d have $1.9 BN today. So if over the course of they year, you just make thing 5% better than last, you’re doing sweet!

The other notable feat of capitalism is that it keeps people occupied. If you’re working 95 hours a week as an investment banker, frankly, you don’t have time to throw Molotov cocktails at your foes. Imagine how pissed your boss would be if you didn’t have the document ready for a client meeting because you had gotten in a fracas with some ethnic rivals. He’d have a frickin’ aneurism!

Boss: Rohin, we’re meeting with Procter & Gamble in 30 minutes to discuss the Gillette acquisition. Is the document ready?

Rohin: Well, no, not so much really. I was hoping maybe you could just “talk to” the main points instead of presenting the slides.

Boss: [face reddening] What do you mean?

Rohin: Well there are no slides really. I was working on the pitch last night and I went out to pick up some sushi for dinner that I planned to eat back at my desk. As I was walking back to the office, I saw [insert rival ethnic group here] folks milling about in front of a Starbucks. I was filled with an uncontrollable rage and started throwing sushi at them. Piece by piece, I flung sushi at them for hours. I even hit one of them in the eye with wasabi! This fellow may have had the last laugh though as he poured a non-fat latte on my Thomas Pink shirt—the dry cleaning bill will not be pretty.

As much as the boss may have sympathized with my cause, I just cost him $7 MM in income this year if we had won the business. That's a house in Westchester with a pool!

So my solution to solving all ethnic and political conflicts – give them jobs as investment bankers or possibly as management consultants or coconut arbitrageurs.