Sequoia shares knowledge with Disrupt SF Battlefield rivals and Startup Alley Top Picks

Posted On Nov 3, 2019 By admin With Comments Off

Editor’s note: James Buckhouse is blueprint collaborator at Sequoia.

Last Tuesday, the teams competing in Startup Battlefield at Disrupt SF, as well as benefactors selected as Top Picks in Startup Alley, saw Sequoia Capital’s office in San Francisco for a discussion with spouses Jess Lee, Roelof Botha, Mike Vernal, Alfred Lin and James Buckhouse. The following is a partial transcript of the session, which was moderated by Buckhouse.

James Buckhouse: We partner from opinion to IPO and beyond, but it’s partnering at the idea stage that we adoration the most — that time when anything is possible. And it’s happened throughout Sequoia’s history. YouTube incubated in our power. Dropbox was an unreleased demo. Stripe didn’t have a single strand of code. Apple was just two dudes referred Steve. And so our favorite plaza to be is in the earliest moments.

We’re not here tonight to share with you lessons of our enormous wisdom on how fellowship structure ought to go. We’re here tonight to say that we understand how hard it is. And the three spouses that you’ve got here to talk with tonight — Roelof Botha, Jess Lee and Mike Vernal — are people who have actually been in the trenches improving fellowships themselves.

Client

James Buckhouse: Great corporations like Apple, Amazon and Zoom all have this one thing in common: patron preoccupation. That’s an easy thing to think about when you already have a billion customers, and you already have a bunch of coin. But what do you do when you’re at the pre-seed stage and you want to be customer-obsessed but you don’t even have a product hitherto, let alone any patrons? How do you even begin?

Jess Lee: I envision at the unusually earliest of stagecoaches, all that really things is commodity sell fit. A common blunder we see is that a benefactor is only haunted with the product, and then goes on to think,” I have my product. Let me extend find a market that works for this ,” when it should actually be the other way round. You should look at the market first, and then get to know the customers in that market by doing purchaser research.

There’s a great book by Erika Hall where she discusses how to ask the right questions to clients in order to really understand their pain items, their motivatings and the needs and requirements. That’s a trademark of some of very best corporations that we’ve seen, even at the earliest stages. They waste a great deal of meter talking to customers and understanding what they want. Something we at Sequoia like to recommend when we work with grain and pre-seed-stage firms is to actually take the time to write down a regulate of patron personas. Who are your prototypical or your archetypes of different types of customers? In the very early days, you might think,” I know the customer. I can remember this. I don’t need to write it down .” But as soon as you add one brand-new team member, who maybe isn’t as familiar with your client, a great deal of things get lost in translation.

For my firm Polyvore, which was in the women’s mode seat, I had a lot of technologists on my team who were men and didn’t understand women’s fashion very well. I would always beat my brain against the wall wondering why a feature they designed didn’t fairly make sense, and it’s because we did the personas exercise a little bit too late. It compiled me want we’d done it earlier. Once we had three very clear personas, I started to notice everything raced more smoothly. I determined, whether it was the sales team or the engineering team, parties started to clearly communicate the idea of what our purchaser really demanded. People represented better decisions at all levels. That’s why at Sequoia we ever encourage even our earliest-stage companies to write their patron experiment down immediately, practice before they think they need it.

Product

James Buckhouse: How does an early-stage startup make sure that they’re on the right move and house the liberty commodity?

Mike Vernal: The key thing to me is actually not being data-driven; it’s much more about being hypothesis-driven. The question is people “ve been thinking about” produce as artwork. But I actually think of product as is the equivalent sides art and science. And I review the science part of it, which is really important, especially at an early stage, is being clear about what your hypotheses are, what you think is going to work, why you think it’s going to work and genuinely sort of pressure-testing that on a logical position. And, if you are eligible, actually pressure-testing it with real data.

One of Jess’s techniques, which I think is great, is the notion of fake doors. If you want to know whether something’s actually going to hum in the market, whether people are going to care about it, build a landing page for it. Build a sign-up button for it. Run a cluster of ads for it. Experiment a cluster of different commerce transcript and see if people actually require the produce. I’ve seen a assortment of companies use that is something that immense effect.

I think that in general the mistakes parties stir with commodity is, one, being too imaginative and not scientific fairly about things. And then two, to Jess’s point, the essential points before you have a product is finding product market fit. Usually, witnessing commodity marketplace fit in a category is a function of two or three important things. Determining those important things and testing them to get purity around that first, then designing the full product, is space better than just starting with a masterpiece, and then slowly painting over and over the classic until you get to something that is great.

James Buckhouse: For endeavor companionships, Roelof, can you talk a little bit about the Marketings Ready Product and Templeton compression approach?

Roelof Botha: If you go to our website and sought for Sequoia Sales Ready Product or Templeton, you’ll find very useful content that we put together. The revelation came from one of very best rulers that we’ve worked with, in a range of business, who suggested to not just go for an MVP, a Minimal Viable Product, if you’re building an enterprise company, but what he termed a Sales Ready Product, an SRP.

The difference is that a Minimal Viable Product merely get over the obstacle but doesn’t convince your patron to jump out of their accommodates to buy your make. When we invested in Cisco in the late 1980 s, the first produce they sent had so many defects it didn’t work. But the concoction solved such an important need for the customer that they came back to Cisco and asked if they could fix it since they needed the concoction to work so badly because there was a fundamental problem in trying two networks at the time. And that to me was a Sales Ready Product. You’ve got something that, even if it’s not perfect, truly solves your customer’s ache point.

And so to condense the whole theory behind this: Spend a little bit more time, probably another three months, maybe another four, five months, from when you would otherwise carry an MVP to ship an SRP. The reason it matters for an enterprise company is that your sales group will be so much more effective. Your auctions unit will ramp up a curve much more steeply and you’ll get auctions momentum much, much faster if you sell an SRP.

Culture

James Buckhouse: I’m going to do something a little unexpected now and call on Alfred in the back. Could you talk a little bit about what it was like at Airbnb, where they started with culture very early on?

Alfred Lin: Brian, Joe and Nate came and saw Zappos, where we offered tours, to see what the culture was all about( Alfred was COO of Zappos ). At Zappos, we started writing down our core values a little late, when we were at about 300 people. And I told Brian, Joe and Nate that that was too late.

After that junket, they went back and wrote down their core values, before hiring their first employee. They knew that they had to create a brand-new list. Home-sharing was not something that beings actually was just thinking about. And so they needed people who were willing to champion the mission. And that was one of the first core values that they wrote down.

James Buckhouse: Oftentimes, beings think that culture is the thing you do later on, once your business has grown large and suddenly you have a lot of beings. But that’s not true. Culture problems a lot more than parties recollect. And it matters earlier than people recall. Jess, can you talk about your framework on core values?

Jess Lee: This is something we spend a lot of epoch on with seed and pre-seed corporations, who conceive,” Oh, I already know my culture. I’ll wait to write it down last-minute .” But it’s important to get it right up front. We encourage people to not pick too many core values. Generally, you demand a structure that’s a core value and the behaviours you want that exemplify that core values. And most importantly, you are required to a narration. You need some famous anecdote or example from inside the company that really fetches the core values to life.

To use Airbnb as two examples, one of its core values is to be a cereal entrepreneur. The reason it’s cereal with a “C” is because at the time, Airbnb was running out of money. They weren’t sure they had product market fit, but they went to the Democratic National Convention to try the Airbnb idea when they were down to the wire in terms of money. In fiat to only get the word out about the business they obligated boxes of cereal that said ” Obama-Os” and” Captain McCain.” It’s a good example of rolling up your sleeves and doing whatever it takes to get your business launched. Somehow, they actually managed to generate revenue that they put back into the business. The genuinely memorable part of that is the cereal anecdote. Whatever it might be at your fellowship, make sure that the myth lives on. That’s really what accompanieds culture to life. It’s not just the importance itself.

James Buckhouse: Roelof, can you talk a little bit about the culture at PayPal in the early days?

Roelof Botha: There are a couple of aspects in that. One is this idea of intercept versus slope. For those of you that are love of math or discipline, it comes naturally, but sometimes you get to hire people who have a high intercept. They have a lot of experience. In our occasion, we needed to hire people who knew a great deal about financial services, since we are as the early, young squad didn’t. You hire parties with intercept, but then you demand beings with descent. People who are going to learn very quickly. And at the end of the day, part of what drew PayPal successful was that we had a good descent and we learned particularly, very quickly.

Our culture was very hard-working. We faced a little bit of a crunch in June of 2000. We’d heightened a knot of money during the dot-com era, and then we were sitting with seven months of runway and no income, burning $10 million a few months. It was a “you’re all-in” culture. Management fits were on Saturdays, because that’s the kind of sacrifice we were going to make as a team to get to the other side. Culture was really important to the success of the company. We had a strong bond between us as squad members because we were in the trenches. We had to figure out how to make this business work when the curious were against us and the press had given up on us.

Most parties on the outside are going to think that you’re going to neglect. Expect that. Don’t be surprised by that. Draw strength from that, and rally your squad around your lawsuit. You should ignore that kind of feedback.

Leader

James Buckhouse: How do you see a strong founding team?

Roelof Botha: My favorite, especially with companionships at the seed stagecoach, is to have no slithers and to have a conversation with you about your business. What I find compelling is, the more I excavate, the more excited I get, because your depth of insight, of understanding the problem that you’re trying to solve, testifies itself. There are a lot of people who start companionships for the incorrect concludes, and they have very superficial learning. So as soon as you start to pressure test it, it’s clear that there’s no depth.

The founders who are the best are the ones that are so motivated to solve the problem they’re working on, they’ve researched everything. You would have found a simpler solution to the problem if you have been able, and you didn’t. That induced you to start this busines. As I ask you questions, one only has this profundity of acquaintance. You’ve really thought about it so many levels deep. Those founders are the ones that keep coming up with new ideas, and that’s why their impersonators don’t do so well. We see this in our manufacture. You come up with a great idea, TechCrunch writes about it, everybody various regions of the world reads about it and now you’ve got 15 contestants in other countries extending after what you’re doing. But guess what? They didn’t have the relevant recommendations, you did. Since you had the original feeling, you’ve thought about it more deeply and you can iterate faster than they can.

James Buckhouse: Jess, how about you? What do you “ve been looking for” to distinguish a strong founding team?

Jess Lee: I do agree, and I remember different investors look for very different things. There is probably a thought of founder/ investor fit to a certain extent. For me, I specially appreciate a distinct insight and depth of known of that purchaser and that market. But on top of that, the other thing I think about is gumption. I think that being a founder is so hard. I felt like I was on the struggle bus the part day. Either we weren’t doing well, which was a struggle, or we were doing really well and then we were in a state of hyper-growth, and that’s also really hard. Your racket changes underneath you every six months. Because even if you’re successful, everything that used to work for you as the CEO or benefactor is now broken because your team is now 50 beings instead of 10.

What is it driving you, to either solve this problem or only driving you in general? Because it’s just not easy, and kinfolks who give up too easily or came into this because they contemplated being a founder was going to be really cool, it’s not that cool all the time, so I “ve been looking for” that. Sometimes it shows up in the form being certainly mission-driven, and “youve had” some burning desire to solve the problem. Sometimes it’s just that you’ve been underestimated your entirety life and you’re really mad about it, and you want to prove yourself. “Theres a lot” of different ways to suss out grit, but that’s one large-hearted thing that I look for.

One thing I too like to see, that is not a must-have but I find terribly obliging, is if you’re a good storyteller. I is of the view that at the end of the day you have to convince your family that you’re not crazy for quitting your job to pursue this thing. You’ve got to convince early employees to join you when you can’t pay them any money. You’ve got to convince early-stage seed investors to take a chance on you and give you money when there is nothing there more. And you’ve got to convince customers. Being able to tell a good story, both making something complicated and making it announced simple, as well as being able to influence and talk about why your approach is interesting and different , not only better than the opponents. I look for that as well. I think that’s important.

One region where I do disagree with Roelof is that I do prefer to see moves. I think it showcases your storytelling ability. I look at a lot of buyer companies and your attention to design and item is also an interesting thing that you can suss out with slides.

James Buckhouse: How about you, Mike?

Mike Vernal: If you can’t describe the business in a minute or two, then you need to keep iterating. Some bad fits end up as the following: Someone will come in with 40 slips and want to convey all of the knowledge in the 40 slides in excruciating detail.

I think a couple of things. One is, many investors look at a lot of corporations the working day long so they are to be able to actually are all aware of your room than you might think. Then two, whether it was necessary to 40 minutes to explain the business, commerce and all of these other things, then for an investor meeting that might work because you have that time scheduled, but for the random engineer you assemble at a party who you want to get excited about meeting your firm, that’s going to be really hard.

The best lurch is when I’m two minutes in and I’m like,” I get the business. This is super interesting. Let’s ask all these questions.” The tough ones are 40 minutes of being talked at, where there is no real interaction.

Capital strategies

James Buckhouse: All kinds of business need different types of capital approaches. How do you all “ve been thinking about” how benefactors ought to think about their approach for uppercase?

Jess Lee: It’s really important considered in three things: First, what is the actual cash you need for your business? If you’re a pure software business you don’t usually need as much as if you’re building hardware or you’re making physical goods.

Second, what is the valuation that actually obligates feel? True valuation, when you become a public firm, when you do M& A, is actually a function of your free cash flow, or a several of your income, so simply being able to understand in the long, long-term what is a likely five, 10 -year-out valuation, and then realise sure you don’t overshoot that just because you can. That’s another first principle.

The third thing is owned. Doing the math, if you don’t need to raise a great deal of coin, if you don’t need to raise as many rounds, at the end of the day when ideally your companionship is acquired for hundreds of millions of dollars, or billions of dollars, or you IPO, what is your ownership at that moment? We have founders like Dropbox, that when they extended public, Drew and Arash owned roughly 40% of the company. So you have to think — would you very have 40% of a $10 billion busines, or would you rather have 2% of a $20 billion busines? That ownership at the end of the day is really important. So you have to think about those three things, which is a that complicated equation.

It really hit home for me when my fellowship, Polyvore, went through the M& A process and it unexpectedly punched me that all the acquirers were not using funny VC math. They were looking at our cash flow and the several of income. Luckily, we hadn’t heightened that much money, as I’d wanted to keep as much ownership as possible. I was optimizing for owned for the team. Because of that, we actually had a really nice outcome, where everybody started money because we hadn’t over-raised since we didn’t need to. We were a pure software-based, capital-efficient kind of company, but I guess not sufficient benefactors think about that from first principles, starting from the early days. They time look at who’s raising what, and how much they could possibly get. They want to maximize that, when in reality, it’s not actually the right way to think about it.

Roelof Botha: When you raise money, you’re recruiting a partner. I see too many companies, peculiarly seed-stage fellowships, build the mistake of accepting funding from whoever shows up, when that’s probably the most expensive equity you’ll ever sell in your business. You are capable of be selling it to people that are not going to be there six months or six years from now, helping you close a candidate, helping you wrestle with an important strategic decision or helping you refine your business modeling. Those people aren’t going to be there, so it’s a recruiting decision. Take it severely. It’s also important to check their cites. Your investor is going to do citations on you. Why aren’t you doing notes on them?