Toys are not really as innocent as they look. Toys and games are preludes to serious ideas — Charles Eames
My friend Ivan wrote a post today on how companies mismanage 10x employees, and more broadly on how people should be judged on the output of their work not the hours they put in.My thinking on judging employees solely on output moved 180 degrees after actually trying to act on it.
This is one of those ideas that sounds great in the individual case, but often causes a very negative chain of events. Let me at through what I’ve seen happen, and then the one exception to the rule.
My first experience with 10x employees was a CTO at a high growth startup in the late 90s called internetsoccer.com. The CTO could have a huge impact even in short spurts, the kind of person that could spend an hour and make breakthroughs that would last weeks.
He also had some personal issues he was working through, so he wasn’t around the office all that much. His conversations with his team, and with the rest of us as executives, was that he was having equal or more positive impact in his 20 hours a week than other people were in their 60 hours. And at first we all agreed, it felt like the meritocratic thing to do.
The thing we forgot was that the what you are building in a startup is culture, not code.
The first problem is that 10x more people think that they are 10xers than actually are. Soon enough I was having conversations with engineers about how they better not work 20 hours because they just weren’t that good. Others suddenly started leaving early because they had “finished their tasks for the day” (how you are ever finished in a startup is beyond me). Others would have a particularly big breakthrough on a given week, and so their instinct would be to take the rest of the week off versus doubling down.
Somehow, slowly, what felt like a decision about meritocracy turned into two things:
1. It caused people to think about their output on a task/project level instead of the good of the company — ironically accelerating a kind of “big company” thinking way too early in a startups life. One of the wonderful things about a startup is that time period when everyone cares about the whole outcome not just their task. It’s more satisfying for everyone to not be a cog in the machine trying to work through your “x required outputs per person per man week.”
2. It caused lots of conversations about people’s relative worth that was corrosive and negative. 10x is very subjective term and trying to compensate for it with hours worked instead of other ways (ie more equity) led to a bunch of unhelpful conversations.
I have seen this repeated, in various forms, at almost every startup I’ve worked at - with one exception. At Zynga there was an engineer, Chris Roberson, who worked remotely. He is 10x, an amazing engineer as well as communicator. I have no idea if he only worked 20 hours a week or 80, and frankly I don’t care because he did amazing, impactful work. And of course being out of the office meant he was compensated not based on his hours, but his output.
The transition from full-time onsite to offsite is not uncommon for 10xers. I would recommend this only if you have already determined the person is 10x and it is a rare exception. As an exception it can actually work really well, but as a matter of habit it becomes problematic.
Setting the precedence that your value is solely the code written or UI created is a critical underestimation of the your value. Communication and alignment is at least 50% of the job in an early stage startups. This is very different from an ongoing small business, such as 37 Signals, which is largely maintenance. At a startup, you are growing so aggressively and pushing so hard that allowing for the communication so you can move together as a single unit for as long as possible is the challenge. Once you lose that, you basically lose your startup agility advantage.
Ultimately your value to a business is not just the code you write, it is what you contribute to the culture, team, and company. So I encourage 10xers to be around to enable and help others on the team, and if they are truly unhappy then perhaps move to a part time, offsite relationship over time.
A lot of VCs are cold on investing in gaming right now, as Kim-Mai covered on Techcrunch yesterday. Most investors say the problem is Zynga’s stock price, and the hits-driven nature of the business, but this is a short-sighted view.
The real problem with investing in games isn’t the hit-driven nature, it’s that there are very few founders aiming for real disruption. Few companies are trying to reinvent the act of making games, or utilize entirely new distribution channels, or in general take a bold new step forward that will create a sustainable advantage.
I support that some founders want to just build wonderful content, and I look forward to playing those games just as I like to watch HBO. But those are not venture capital bets. Those companies have used publishers or game specific funding vehicles or bootstrapping to get going and create the wonderful content we all fall in love with. And they still will.
That’s not the only company to start though. This is the most disruptive time I can think of in games, with changes in: the role of a publisher, a new generation of consoles, the rise of tablet gaming, the lowering cost of producing a game, crowdfunding, service-based games, analytics, and new interfaces like Oculus, Myo, Xbox One, and Leap.
In general, when the rules of the business are static it favors the big guys. And this is a trying time to be a big guy in the industry precisely because so much is in flux. The opportunity for audacious visions is quite high right now. As a founder, if I was starting a gaming company right now that would be my threshold. As an investor it’s what I try to encourage.
I’m not sure that a lot of the investment community is looking for that disruption, since most have just written off gaming. But we should encourage it instead of painting the whole gaming market with a broad brush. It’s not enough just to start another free to play gaming company. That’s like deciding to make another photo app without any internal belief as to why you, your team, or anyone else should believe this is going to be the one that makes a huge difference.
The world will certainly use more photo apps, and play more games. But the lasting impact will be those who build content on a technology, a platform, or a method that is differentiated. Valve, EA, Pixar, Disney, Zynga, all reached scale not just because they created great content, but because they shaped the landscape in a new way that gave them leverage as they grew. (How they performed once they achieved scale is another post)
The beauty is that if you truly disrupt then it will also make others believe, and all the funding and scale and high valuations and other things you want to happen have the opportunity to happen. But it starts with a founders desire to mold the world into some future vision they have of it. That feels like a venture worth backing.
When people talk about changes in computing over the last 40 years, the discussion usually focuses on two things: 1) computational power (Moore’s Law) or 2) the growth of network effects (Metcalfe’s Law). But just as pivotal have been the big leaps forward in interfaces.
The mouse was once a new kind of input device, and it became the catalyst for the creation of the modern graphical user interface. More recently, multi-touch technology was used by Apple to reinvent the smartphone market. Today we are in the hobbiest days of wearable and contextual computing, struggling with how we are going to interface with these new devices, whether they are glasses, watches, or something we have yet to see.
The team at Thalmic Labs have been working on exactly this problem, and they’ve come up with something quite remarkable. Their first product, the Myo, feels like a light armband. It allows you to interface with other computer devices in a natural and seamless way, combining inertial sensors with a unique muscle recognition engine — but just as importantly it does so in an easy-to-use manner. Here’s a video showing it in action:
Steve Jobs famously said, “In consumer electronics companies, they don’t understand the software parts of it. And so they can’t really innovate because design is how it works, not just what makes it work.”
Despite all the press it has received and the millions of dollars in pre-orders, the Myo is still in its early stages of development. The team knows it faces not just hardware challenges, but also challenges in software and greater ease of use. The introduction of multi-touch came to the public fully formed with the iPhone, accompanied by applications like Calendar and Mail that were custom built for it. With the Myo, that process is going be done in the public eye with new applications being developed by the team, key partners, and a growing developer community.
And so I’m excited to announce that Spark Capital is leading a $14.5m A-round in Thalmic Labs along with our friends at Intel Capital, Formation 8 and First Round Capital. The founding team members at Thalmic Labs — Stephen, Aaron, and Matt — are the kind of people I dream of getting a chance to work with. A young, phenomenally smart, band of folks determined to change the world of computing. We believe that new interfaces — like the Myo — can create new platforms, and that wearable computing is one simple interface away from reaching the mainstream.
After all the talk of VCs vs. Founders.
This is the kind of relationship we’re all hoping to build with the founders we back.
Congratulations to all involved.
the story of a startup always wants to be told in broad, antiseptic strokes about VCs, founders, A-rounds, “traction,” valuations, “value add” and a bunch of other ways that we try to normalize the whole company building process.
at the end it is just about human relationships and the things they create.
My friend and colleague Siqi Chen, never afraid to question the status quo, wrote a comment questioning the wisdom of “not pricing a round of financing too high”:
“Whenever I hear advice about pricing a round too high for the next round, I can’t help but think: well, if the choice (ceteris paribus) is between
a) doing what is effectively a down round preemptively when I don’t have to, by underpricing my current round in this market vs
b) accepting the market price along with some risk of taking a down round in the future, if I don’t hit my milestones,
why would I ever choose b)?”
Mark Suster then responded with a good post about the psychology of down rounds on fundraising, best summed up as, “a down round is even more complicated than having no demand for your investment round.”
That is true, but we also shouldn’t ignore the psychological impact on the team should a down round actually get done.
If you’ve ever been part of a public company with a collapsing stock price you’ve got an idea of what this does. Skeptics on the team start to win arguments, especially when the founders aren’t in the room. It can be quite hard to keep trust with the team, especially since you’ve now shown poor judgement as a leader by guiding the team to this down round. That can feel doubly worse if it was a self inflicted wound caused because you over-optimized on price previously.
And although I made the analogy to a public company stock price, in practice it is much worse than that because you are by definition in a much more vulnerable state. Sure, the team may believe in your long term vision, but that is balanced against their calculus about whether it is actually going to happen. And you just added a whole lot of doubt to that.
In worst case scenarios I’ve spoken to founders who have nicely growing companies, but have a team that has become suddenly demoralized despite their success because of the down round they just were backed into.
Imagine you are coaching a basketball team and you are always saying, “we are going undefeated the next 10 games no matter what!” then you may have set an audacious goal but keeping people’s faith is going to be tough over the long term. And winning eight games suddenly feels like failure when it may have been great. The best founders, and coaches, take it one game at a time, continually building one brick on top of the other.
Managing the psychology of success has a massive impact on everything from ability to hire, to fundraising, to retaining talent, to team cohesion, to ability to do bizdev deals.
It’s worth keeping in mind that it is a balance between price, dilution, capital, investors, founders, and team. As with most things, nothing is free so just be certain you understand what you are giving up if you are pushing one part of this equation abnormally high.
Bitcoin could basically be thought of as the Internet, applied to Money — Let’s Cut Through the Bitcoin Hype: A Hacker-Entrepreneur’s Take - Dan Kaminsky - Wired Opinion