Startup Myth: Will Someone Steal Your Idea?

I recently was speaking with someone who mentioned that they had an idea for a healthcare/nutraceutical startup. It sounded like a reasonable idea, targeting a niche that was underserved. At the end of the conversion she said, “OK, well don’t tell anyone about this idea!”

I was amused to hear her say that about a healthcare idea. I used to get that in the tech startup world all the time. Since I’m writing a book about Startup Myths, I thought I’d write about this one, since it’s probably one of the most common myths about startups: If I tell someone my idea, they will copy it.

The corollary of this myth is that before a prospective entrepreneur tells you their idea, they will pull out an NDA they want you to sign before they tell you what it is. This is often known as the “unsolicited NDA”.

Let’s get this out of the way right now: Nothing makes you look more like an amateur in the world of startups than the unsolicited NDA. In Silicon Valley, most (if not all) professional venture capital investors and angel investors won’t sign NDAs. Period. 

I know you think your idea is worth a million bucks. But the truth is that investors are bombarded with ideas for startups. Getting a million dollar idea for a startup isn’t very hard. What’s hard is building a startup to be successful day in and day out. I remember back in the dot.com days thinking that measuring the links from sites was a better way to measure and index websites. So what. I didn’t write a paper on it, I never prototyped it, I didn’t start a company to do that, but Segie and Larry did and they started Google did. Good for them!

Often, the unsolicited NDA will come from someone outside of Silicon Valley - Los Angeles being a good example. Now, I suppose there are some very limited set of companies perhaps that have a ground-breaking patent that hasn’t been filed yet where there might a legitimate reason for an NDA, but only if they are going to be filling you in on the details of the patent. Similarly, there are some unscrupulous folks in Hollywood that might steal your “high concept” (here’s a multi-million dollar high concept idea for you Independence Day meets Dolphins … oh wait, that was Star Trek IV, except with Humpback Whales!)

But the reality is, if someone simply overhears your idea, it’s highly unlikely that they’re going to go and build it themselves. Doing a startup is hard. Let me rephrase that. Doing a successful startup is very hard. It takes years of your life with very little pay and often no appreciation. Why would you do that with someone else’s idea or dram?

Moreover, in the tech startup world, unless you pitch your idea to people who are knowledgable about the industry as well as to investors and customers, you won’t get the feedback you need to refine your idea. Rarely are startups successful with the very first product — there is usually an iteration that happens before honing in on the “killer product” or “application” of a particular new technology or platform.

Let’s use an analogy — I often hear the same thing from people who are thinking of writing a book. They don’t want to tell their idea because they are afraid someone else will run with it. I was at a writing workshop that Reid Tracy, the president of Hay House (one of the most prominent mind/body/spirit publishers), was presenting at, and he tried to disavow the attendees of this notion. He said that as a potential author, you have to tell people about your idea to get feedback and refine the pitch if you ever want to get published.

He also said that 20% of success in modern publishing is about writing of the book and 80% is about marketing the book. Let me rephrase that: 1% is the idea of the book, 19% is about the writing of the book, and the other 80% is about the marketing of the book.

Similarly in startups, while the idea is important, validation of the idea by presenting it to the right people is an extremely important part of the process. Also, even if two people have the same idea they may build very different products. Continuing the analogy, suppose you had overheard J.K.Rowling say she’s going to write a book about a “13 year old boy who learns he’s a wizard and goes to a wizarding school”. Would you have written the Harry Potter books? Probably not. I would have written a very different book even if I’d had the same “basic idea”.

There is one area that’s worth mentioning here, which applies to book writing as well as tech startups. What happens if you tell everyone your idea and they think you are crazy or stupid or that it’s just a bad idea?

It’s possible to get discouraged. This is where you have to use your intuition and discernment. Many people have started companies with products or needs that weren’t there yet in the market. First of all, is there feedback valid? Secondly, are you betting that the market will change in the future to make their feedback invalid?

These questions aren’t easy and they require a bit of “fortune-telling”. That said, if you are telling your idea to the right people you will get more valid feedback than invalid, and this can only help you to improve your product or (more importantly) your go to market concept.

But, I’ll write more about “pivoting” in another myth-related blog post.

For now, relax. And stop worrying about someone stealing your idea (it’s only 1% of success). Worry more about how you are going to build a product first (the other 19%), and then about how you are going to get your product to market and make it successful (the other other 80%)!

Waking Up In the Middle of the Night - Stress Relief for Entrepreneurs: Watch Star Trek and do Yoga

Recently, I was having lunch with an entrepreneur friend, who was back in Silicon Valley from Russia, and we were discussing the recently released Russian edition of my book, Zen Entrepreneurship, which he had seen with its Russian title,  Biznes v poze lotosa, which  translates roughly to “business in the lotus position”.

At some point in the conversation, he asked me what techniques – meditation, Yoga or otherwise I might recommend for him, because he found himself “waking up in the middle of the night” worrying about his business.  His business issues were even making their way into his dreams, he said.  Was there some way to prevent this?

My first reaction was of recognition. This has happened to me often, and I’ve heard many other entrepreneurs say the same thing over the years. it occurred to me that this must be very common for most business owners — whether you’re self employed, running a small business, or running a startup that has raised millions of dollars.
It is very hard to “disconnect” from the business, particularly during stressful times. In fact, it might be more surprising if you are running a startup and not worrying about the startup in the middle of the night. This article is about some of the causes and ways to deal with entrepreneurial stress, from both western and eastern perspectives.

The really hard thing about startups

I’ve often said that startups are hard, but this doesn’t mean that they are hard work. The thing that makes startups hard is not the amount of hours you have to put in — it’s that you really can’t avoid “taking your work” home with you.
This seems to be true whether your startup is suffering from not having enough money (like many bootstrapped startups) or if you’ve raised millions of dollars in VC or angel funds. In the case of CEOs who have investors, there’s nothing like the sobering realization that they put all that money into you with a certain set of expectations, and those expectations are not being met (since most startups have over optimistic business plans, most startups don’t make their initial numbers).
Even startups that succeed will often flail around for a while before they hit their second (or third) wind. It’s during times like these that stress that’s been building up little by little can suddenly start to feel like an un-liftable weight on your shoulders.
This is compounded by what I call the “self-confidence problem”. Entrepreneurs tend to be people who believe in their own capabilities — and that might have been true in school, where how much they learned was usually a function of how many hours they put in, or even in their previous job, where they were evaluated for a promotion based on their own contributions in relation to other employees.
If something requires hard work, figures the would-be entrepreneur, I can handle that. This usually leads to the belief that working harder can make you more successful. That might be true generally, but when it comes to startups in particular, while putting in long hours is usually necessary, it’s also not sufficient for success. The thing that can be frustrating for so many entrepreneurs is that, sometimes whether a startup succeeds or not is not always under their direct control.
There are plenty of startups where the founders work their tails off, but that don’t make it. There are a million things that can go wrong — you could hit the market too early (or too late), funding which was easy to come by in a boom market suddenly dries up and you find your ship aground prematurely. On the flip side, I’ve seen successful entrepreneurs who had great successful exits because the market was hot, but whose companies would have otherwise failed as stand-alone entities had they come even a year earlier or a year later.

Why Startups are Harder than MIT: What Could Go Wrong

To solidify this point, I’d say that I worked much harder in terms of number of hours spent when I was a student at MIT than I did at most of my startups. Pulling all nighters, usually because a problems set was due the next morning, or cramming for exams, was common-place. The thing is, even though I was working hard, I don’t think I was ever as stressed out at MIT as I have been in my various startups. OK, I might not always have gotten straight A’s, but I knew that as long as I put in the time, I could get a decent grade.
In a startup, rarely is the result a simple matter of how hard you work (or surprisingly, how much money you spend). Things always have a way of going differently than you expect. If you are the founder/CEO this usually means you’re waking up int he middle of the night worried about some thing or another that either has gone wrong, or could go wrong
What could go wrong? Plenty.
Your first major customer cancels an order. The round of funding you were counting on doesn’t come through. Apple (or Facebook or Google) kicks you out of the app store, which was responsible for 100% of your sales. A co-founder has already vested their stock and suddenly quits. A recently hired, much anticipated, star hire isn’t what you expected, or maybe a long-time super-valuable employee decides to leave for a competitor. You miss your projections, not by a little bit, but by more than a million dollars! Or maybe, a recently-fired employee sneaks into your office and steals your laptop, a fact you only know because the police came in and got the surveillance footage from your landlord, and you have to decide whether to press charges.
Yes all of those things have happened. And that’s just in startups that I have personally been involved with. I’m sure there’s a whole world of startups out there with problems that I’ve never encountered.
Whew! No wonder it’s hard not to be stressed out as an entrepreneur.

Brad Feld’s First Rule: You aren’t alone.

I was recently interviewing well known entrepreneur-turned VC Brad Feld for my upcoming book, Startup Myths, and I asked him what advice he’d have for entrepreneurs going through stressful times.  His first piece of advice was to remember that you are not alone.  Many, many people are going through the same thing with their startups, though they are not out talking about it.

Brad was one of the first in the startup/VC community to talk about depression and the role it’s played in his career.  I’ve seen that many entrepreneurs may find themselves sliding into “mini-depressions” when they’re trudging along and come across intractable problems that they just can’t or don’t want to deal with anymore. (if you haven’t read his blog, it’s at www.feld.com and worth a read).

Remembering you are not alone is a great first step.

This reminded me that when I was doing my very first startup in Cambridge, MA, we had a local group of CEOs of local startups that met every so often — I think it was once a month or so. I used to joke that this was “my CEO therapy” group.
The thing was, being able to talk about the things that were going wrong with a group of people who understand and are going through similar things can be therapeutic in and of itself.
I have to admit, sometimes I would come away feeling much better about my current crisis because someone in the group inevitably would be going through something much worse. For example, I remember once I worried about only have runway for a few months of salary left, when I realized that one of the other members of the group didn’t have enough money to make payroll this month!
This wasn’t some startup version of schadenfreude– rather it was the first step to putting things in perspective, which can lead to taking your own problems in stride and realizing that rarely is it “the end of the world”, even if it seems like it right now.
If you don’t have a support group like this, informally or formally, it might be worth looking into joining or creating one. I’m on my fifth startup, and you’d think by now I wouldn’t need other entrepreneurs who are going through similar things to commiserate with. You’d be wrong.
Can’t you just talk to you co founders, investors, or advisors?
Yes and no. I’ve found that even though investors, advisors, and co-founders can be sympathetic, they often don’t understand the stress that a founder/CEO is going through at the moment. Sometimes the thing that you really need to vent or complain about, the thing that’s causing you all this stress, is your investors, your advisor, or even your co-founder!

Western perspectives and Physiological effects of Stress

When I started to think about techniques that could help my Russian friend, I realized that we all have very different ways of getting and dealing with stress. Exercise, everyone will tell you, almost always helps with stress. I agree, but by itself it may not be enough.
There’s a good explanation of the western chemical viewpoint of momentary, flight or fight stress vs. the kind of chronic stress that entrepreneurs live with, in another article I read recently by entrepreneur Hana Abaza (https://medium.com/@HanaAbaza/stress-startups-and-survival-94c48ec921f2).
Since the human body is designed to deal with a stressful situation like a saber-tooth tiger, the chemicals that the body secretes during stressful times are meant to last as long as the “flight or fight” response lasts. Either you get away and survive or you stay and fight the tiger.
Abaza stresses that being in charge of a startup is more like “chronic” stress, and the physiological issues that it can cause. Coincidentally, she also talks about waking up in the middle of the night during her own startup experience 3 or 4 times a week.

A Yogic View of Stress

Being a mystical as well as practical kind of guy, I believe it’s worth looking beyond just the chemicals to see how we get stressed out and what happens in our mind, body and our energy fields.
It’s pretty easy to see that each person is different and holds their stress differently, resulting in different physiological symptoms. Two people going through the same situation have a very different reaction to how “stressed out” they are.
As an example, I mentioned that I wasn’t really that stressed out at MIT as a student, but some other students took it very differently. Suddenly, not being the smartest person in the room hit at the very core of the valedictorian personality they’d built up over their entire lives up to that point — and this caused more than its fair share of angst, depression and worse.
Wilhelm Reich, who along with Carl Jung was one of Freud’s most esteemed disciples, believed that we hold accumulated stress in the fascia — the connective tissues in between our muscles and our bones. He came up with a therapy that involved learning to breathe as a way to “release” this accumulated stress, which had dramatic physiological results in many of his patients, and many consider him the the grandfather of body-oriented psychotherapy.
Surprisingly, this view coincides very well with the Yogic/Eastern view. From a Yogic point of view, this has to do with our individual personalities, our habitual thought-forms, our karmic tendencies. As we build up stress, we create and hold onto little deformations into our energy fields, called samskaras, which accumulate around our body in previously transparent sheaths called khosas.
Finding ways to relieve that psychological/energetic holding not only reduces stress, it lets go of some of the karmic traces we’ve accumulated, clearing up our energy field and our ability to see the situation clearly. I like to use the analogy of a muddy windshield — it blocks your view of what’s really happening. The clearer it gets, the more easily you can see what’s happening around you, and your role in it, and sometimes that’s enough to give us the perspective to get un-stressed.
In the Buddhist point of view, the ability to let go of all that is locked up in our minds (and by extension our bodies) is what eventually leads to enlightenment.
These samskaras are caused by our “grasping” and “aversion” — reactions we have to the situations we find ourselves in. As we hold these thoughts in both our mind and bodies, we have muddied up our system, leading to a lack of sleep and even dreaming about our problems. One reason we use the term “sleep like a baby”, is that babies haven’t accumulated enough “stress” or “samskaras” to disturb their sleep (at least in this lifetime).
In Tibetan Buddhist traditions, there are two kinds of karma: the “big karma” which might involve bad deeds like killing someone or cheating someone, and “little karma”, which are things that have made their way into our minds which we have a had a strong reaction to — exactly what causes the samskaras in Yogic traditions.
To resolve the “big karma” might require lifetimes of work. However, it’s the little “karmic traces” make their way into our dreams, particularly the ones that seem to be regurgitating things we had been worried about all day. So how do you release some of these karmic traces and reduce some of the stress?

Some Tips and Techniques From My Own Experience

My own personal mantra when I am stressed out in a startup is “Watch Star Trek, Walk by the Bay, and Do Yoga”.  These aren’t meant to be actual techniques (you might hate Star Trek, not live near the Bay, and find Yoga to be ridiculous), but rather three different ways that I approach dealing with stress.

•        Taking walks in Nature.  There’s a little park in Mountain View, just down the road from my office, and only yards away from Google, that always helps me to deal with stressful situations.  It’s called Shoreline and there are paths that are near the San Francisco Bay, and when I’m walking I can see the mountains to the west (green, tree covered), the water of the bay, and the mountains to the east (which look more like the desert).  There is also a nice breeze coming in from the bay (OK it’s not always nice- sometimes it stinks lol).   The thing is, there’s something about gazing at mountains and feeling a breeze going through your body and energy field that has the effect of “loosening up” the things that you are holding – mentally, emotionally, and in your body.  What I’ve noticed is that even if I’m holding a lot of stuff in at the beginning of the walk, by the end my body is more relaxed and I’ve let go of some of the things that are bothering me.  You can find a place like this in your neighborhood.
•       Watching Star Trek.  This usually gets a laugh when I tell people about it.  The truth is, that  I find we all have certain types of fiction that not only “take us away” from where we are, but somehow feed our soul.  For me it’s usually certain kinds of science fiction or fantasy.  For you it may be Sex and the City or Reality TV!  Well maybe not Reality TV, but you get the general idea.  Find something that you can watch that “feeds your soul”.   For me, watching Star Trek brings back memories of childhood and anticipation of great things in the future, and somehow links to something deep in my soul – maybe because I’m an explorer at heart.  Whatever it is, take an hour every day to watch an episode of a TV show that does it for you or read something that takes you into this kind of feeling. 
•       Doing Yoga.  I’ve already mentioned Yoga. In fact, the original point of Yoga was to start to dissolve some of the samskaras that we are holding. Too often, in the west, Yoga and exercise are considered the same thing.  I had one Yoga teacher tell me that I'd probably be sore the next day.   She was right. I was not only sore the whole next day, which might work for some people, but didn’t work for me- that's not the kind of Yoga that helps me to release stress.  The key is to find Yoga which an allow you to do stretching and to release, a kind of meditation for the body which allows you to gently release the samskaras building up in your body and mind and energy field.  You’re not training to be a boxer or a weightlifter or a football player!  If your Yoga isn’t doing it for you, I’d be happy to recommend some DVDs or books that have the kind of Yoga.
•       Meditation.  There are many studies showing that regular meditation has health benefits and leads to stress relief.  There are many different techniques of meditation, but at the heart you are trying to calm the mind and the tumultuous thoughts that we are all caught in the middle of. I think of us as one of those snow-globes that has been shaken up, thoughts are flying every which way and it’s difficult to see. A short meditation can do wonders for letting the snow settle down and get a clear view of what's happening. 
•       Use Your Work As Meditation.  Being mindful at work can have wonders for not only your concentration but on your level of stress. Rather than worrying about “making payroll next month” (which may be a real problem that you have to deal with), when you are writing some code or doing a spreadsheet or having a meeting, focus your mind and attention on the task at hand.  I call this “using your work as meditation”.   Your mind will inevitably wander.  You bring it back. This is just like meditating but it is more about keeping your mind on what you are doing.  If you do this right, you won’t be thinking about the million things that “could go wrong” if your startup runs out of money next month.  You’ll be thinking about whatever task you are focused on. 
•        Breathing exercises.  There are many breathing exercises that can help you to release that which we are holding – i.e. that which is causing us stress.  If you are finding yourself unable to sleep, doing a slow breathing exercise is a great way to get back to sleep – almost any rhythmical breathing exercise can work.  Here’s a simple one I learned recently:  breath in fully (even to places that you don’t normally breath into) expanding your lungs as much as you can, then breathe out fully, much longer than you normally would.  Repeat 10 times.  After 10 times, hold your breath for 20 seconds.  Then start the 10 breath cycle again. If you’re like me, somewhere in the 10 breaths, you’ll lose count of which breath you are on and end up asleep.  There are of course many different types of breathing exercises – breath of fire (not recommended for falling asleep), alternate nostril breathing, etc.
•      Get a Massage.  Since stress is being held in the body, it's amazing how great you can feel after having some body work done.  This doesn't make your stress go away, but it does let you realize that there's something beyond the stress, so that when you start to feel it again, it ends up being a little less "all-encompassing".   

From an eastern point of view, stress isn’t purely a chemical thing, it is the result of our thoughts, emotions, and new “reactions” adding onto the accumulation of samskaras we have in the past (our “karmic traces”).   

Sometimes I like to think of being an entrepreneur as karma+  plan - i.e. we are accelerating our reactions and building up karmic traces with every stressful situation and our reactions to it, which is why we so often end up dreaming about our business problems.  This is why I believe entrepreneurs need techniques like Yoga and meditation even more than most people, because the stress that builds up  can make our lives hell and being off your game can have much more immediate consequences for an entrepreneur who's running a startup.

So, the next time you find yourself stressed out, take a deep breath. Remember you are not alone, and there are other startup CEOs going through what you’re going through. Then, do your own version of my personal mantra: Take a walk by the bay, watch Star Trek, or do Yoga!

The Hobbit and Silicon Valley: Beware of VCs who get Dragon Sickness

I recently watched part 3 of the Hobbit, the final portion of Peter Jackson’s adaptation of Tolkien’s beloved book.  While there are many aspects of the Hobbit I could write about (it's one of my favorite books of all time), I’d like to explore one that caught my eye and applies particularly in Startup-Land:  Dragon Sickness.

I’ve often compared embarking on a startup journey to be a mythical adventure, not unlike those of Bilbo Baggins and his dwarvish companions. Though startup adventures usually last longer than Bilbo’s journey (which was a mere 13 months!), there are a lot of valid comparisons to be made.  

Like many mythical adventures, startup journeys are fraught with peril; each twist and turn can have life-changing implications; they bring out odd traveling companions and bedfellows (not to mention enemies and advisors); and there is often a seemingly unattainable golden treasure somewhere near the end of the quest!  More importantly, startup adventures can push you out of your comfort zone, and as Bilbo so aptly complains in an earlier part of the Hobbit, adventures can “make you late for dinner”! 

In a previous entry, Gandalf the Venture Capitalist, I focused on some of the positive aspects of having an investor/advisor who is wise like Gandalf with you on your journey.  Having the right investors, particularly those who have personal qualities like Gandalf can be very helpful on the startup journey, and get you out of many a scrape.

In this entry, I’d like to explore the opposite: when an investor turns out to be someone who’s extremely selfish, difficult to work with, valuing money above all else, and causes great difficulty on the startup journey.   

While you can easily get rid of an unhelpful advisor or employee, it’s not so easy to get rid of an unhelpful investor, particularly if they are a VC.  Moreover, many investments in Silicon Valley begin with convertible notes, which have their own special characteristics and once you’ve entered into them with an investor, you may be stuck with that investor until the end of the journey.

Believe it or not, I’ve seen investors (VCs) in Silicon Valley contract something that looks a lot like the “Dragon Sickness” in the recent film.  

In the film, the leader of the company of dwarves that Bilbo is traveling with, Thorin Oakenshield, falls prey to this sickness when the company finally achieves the quest they set out on: to reclaim their homeland in the Lonely Mountain, and more importantly the gold and jewels that it contains.  Their main obstacle is of course, the Dragon Smaug, who is a selfish but formidable figure and who has claimed the treasure for his own.

When Thorin finally achieves the Quest, in many ways because of the contributions of others (Bard from Laketown actually kills the dragon, and Bilbo Baggins rescues and saves the life of Thorin and the company more than once!), he starts to see things differently.  He starts to see himself as “entitled” to the gold, and won’t part with any of the treasure, in the process, forgetting every promise he had ever made to people along the way.

It’s called “Dragon Sickness”  because, as Bilbo tells us in the prologue, “…for dragons covet gold with a dark and fierce desire …”   And it leads to a certain kind of self-centered madness.  As the first the dragon say and later Thorin finds himself echoing:  “I will not part with a single gold coin.”   

It's usually typified by someone whose only goal is to “possess as much of the treasure as possible” without any context or caring how their relationship with others are impacted can fall pray to this sickness, just as Thorin does when he finally takes over the gold. In Thorin's case, it was his relationship with his companions, the residents of Lake-town, and even the elves.

Let’s summarize revisit what happened to Thorin and see if this might apply to anyone we know in Silicon Valley:  Achieve a treasure, largely through the efforts of others, claim as much of it for yourself as possible, and refuse to give up any part of it, ignoring previous agreements about sharing.

While some entrepreneurs definitely fall prey to dragon sickness themselves (I may do another entry on this another time), I personally have seen it more with investors in Silicon Valley than in founders.  They often forget whatever agreements were made in the past and decide to find a way to maximize their “take” right at the end.  

Since I moved to Silicon Valley in 2007, I have seen this first-hand several times, usually when a company is about to be sold.  I’ve had VCs say they want more of the gold than they are currently entitled to and want the founders to take less.  Of course, they don’t say it that way, like a sneaky, experienced dragon they speak in sweet tones and make it seem like what they’re proposing is “the right thing to do” even though it benefits just them and hurts others.

Moreover, while a company is not a zero sum game at the beginning, when a purchase price has been negotiated to sell a company, it does suddenly become a zero sum game – i.e. each dollar that goes to someone else, doesn’t go to you.  

They often, though not always, imply that they won’t go along with the sale unless they are "satisfied".  Now, many investors have vetoes over selling the company, and while VCs don’t like to use vetoes explicitly, investors can cause plenty of harm when a sale is happening.  This is doubly true if the company is being sold, or even if the company is not doing well and is about to run out of money, and needs to raise money quickly at whatever valuation it can get.

I had one entrepreneur tell me that he thought that what the VC was doing was basically extortion. While I wouldn’t call it that, I would say that someone whose only desire is “purely financial” or "purely transactional" will do whatever they can to make sure they get “as much gold as possible”, no matter what.

There are of course many ways that a bad investor can be destructive to a startup, but this is one of the most frustrating ways.  It’s like a serpent that you've let into your house, which starts to eat the company and the team from the inside.  This usually happens in two instances: when the company is doing really well financially (and everyone is getting greedy), and when the company is not doing well and the company needs to either do a fire-sale or raise money quickly.

This is why it’s important for entrepreneurs to vet investors in the same way that VCs vet entrepreneurs.  Many entrepreneurs are so happy to be getting “money” that they don’t consider the ramifications of who they’re bringing into their adventure.

I’ve often said that it’s pretty easy to tell if a co-founder that you don’t know well is easy to work with in a place like Silicon Valley.  Because people here usually start multiple companies, you just see if that person’s co-founders started another company with them. If they did, then that person is probably relatively easy to work with (or at least acts reasonably when things get tough).   Of course, if their co-founders didn’t start another company with them, it doesn’t absolutely mean they are hard to work with, but it’s a pretty good indication.

Similarly, you can do the same kind of research on VCs by interviewing founders of companies they have invested in before.  Of course, you have to interview more than one – preferably one whose company was financially successful and one whose company failed – you will probably learn much more about the investor from the failed company than you will from the successful one! Each situation provides a ripe environment for the dragon to come out, even when they seem entirely reasonable and on your side when you’re getting your financing.

So, how can you spot an investor who’s likely to fall prey to “Dragon Sickness” well before you get to these stages?  It’s not easy, but here are things to look for in both your own company and others founders experience with investors.

•       Look for investors who are looking for an advantage over everyone else.  I’ve seen some investors who not only want to invest, but they want a better deal than the other investors they are investing alongside them.   Now, don’t get me wrong, if an investor is doing services for you beyond just the money, it might make sense to give them more (perhaps warrants or just pay them for their services).  But when an investor, at each juncture, co investing with others, tries to get advantages over the other investors in his round, asking for rights they don’t have, that’s a sure sign that they may turn out to be slimy when push comes to server.
•      Every discussion is like a zero-sum game.  When startups first get going, they are not a zero sum game.  That's why it makes sense to take investors in the first place, by giving up shares of the company, you are theoretically expanding the pie for everyone. When every part of the negotiation to do a deal feels like they are playing a zero sum game - not willing to give in to anything, you're starting to see their personality seep out.  If they are like this when there's plenty for everyone, what will they act like upon a sale of the company, where it really does start to look like a zero-sum game?
•  Doing what’s right for them vs. what’s right for the company.  I’ve seen many investors push companies to do deals that are right for them but not right for the company.   On the flipside, I think having board members who are on other boards in the same industry can be extremely helpful, but the key is whether they “insist” on doing things their way even if it doesn’t make sense from the founders and other investors perspective.  It’s more about the way they do this – again speaking in sweet tongues and making it seem like something is “best” for the company when it’s actually “best” for them.
•  Not Participating.  If a VC Fund puts in money at the beginning, or while the company is doing well, but are unwilling to support the company in any way financially when the company is not doing well, this is a sure sign that they will be a tough investor to work with and will try to manipulate events so that they get “more out” than their fair share by withholding consent.  Like a "fair-weather" friend, the a "fair-weather investor is the worst kind to have.  Now, VCs have obligations to their general and limited partners, so they can't always put in more money when they personally want to without their partners consent.  But any serious VC Fund, which has set aside money for follow ons, should be willing to put in their pro-rata into subsequent rounds, even if  they aren't investing a lot. When VCs don't do this, it scares off new investors and actually hurts the company's chances of raising more money.  The new investors start to think, there must be something seriously wrong with the company.
•   Beware of well-known investors with big egos.  Sometimes, an investor, because of their firm or reputation is known as a "big wig" and has developed a big ego.  There’s of course nothing wrong with bringing in well-known investors, it is often a benefit to your company, but sometimes their reputation and how much money they’ve made in the past belie the specifics of how they acted behind closed doors.  Most hollywood stars, for example, are nothing like their public personas in private.  Many comedians aren't funny and many super-likable TV stars are not really nice guys behind the scenes.  The same is true with VCs.

In the film the Hobbit, to help break through Thorin’s Dragon Sickness, Bilbo, the "junior member" of the company,  does something to try to get Thorin to do what’s right for the Quest and to others that Thorin had made promises to.  He willfully gives up most of his share of the treasure!

I’ve often had investors ask founders to take less than their percentage of the company so that they could have “more”.  Usually this comes out of pure greed, which is pretty common in Silicon Valley investors (and even in some entrepreneurs).  But it also comes from ego, which is sometimes even more common.

Luckily, I and other entrepreneurs have seen situations where, like Bilbo, some founders are willing to give up a chunk of their piece of the treasure upon a sale, in order to make rogue investor or founder to go along with a sale that the founders wanted to do.   They are doing it not as a reward to the investor, but for the greater good - they want a deal to get done and no longer want to work with the investor inflected with dragon-sickness, so they're willing to give up something to make it happen.  This isn't necessarily a sign of weakness (though dragon-sickness infected people might think so) - it's being practical and thinking of others as much as yourself.

So, when talking to investors, do your own due diligence on them. Find founders of companies that they do not recommend you talk to, you can usually get to them through friends of friends.  

The real question you need to ask yourself is: are you getting a Gandalf, or are you inviting Dragon Sickness into your little startup?  I’ve had both, and it’s much more fun to have Gandalf!

Stanford Business, #11, Glad To Be Here...

Last week marked the first full moon on campus since the term officially started. For the Sloans at the Stanford GSB, this means we’ll have been here two months next week. As usual, we had a jam-packed week.

Glad to be Negotiating?

A few weeks ago we saw videos of the Blue Angels starting (and ending) their briefing and de-briefing sessions with these words “Glad to Be here”. The members of the Sloan GSB class have taken them to heart, often starting meetings (or even emails) with: “Glad to be here”.

Ok maybe sometimes it’s said with a knowing smile and little bit of gritting of teeth, especially when we learn that we have even more reading to do for our classes, while we have midterms rapidly approaching.

We’re now entering our “busy” period: this week, every single evening after our normal classes finish, we have our 5-session intensive negotiations class from 5:15pm to 8:15pm. Which leaves us with plenty of time to study for our midterms, doesn’t it? Did someone mention something about a speed-reading course? That would be useful right about now…

For me, I’m just glad that it’s at 5 pm in the evening (which I can make) and not 5 in the morning (which I probably wouldn’t make it to).



Two Parties, Who Wins?
Even before our intense negotiations class started, we got a taste by doing a negotiation exercise last Friday in our OB (“Organizational Behavior”) class. This exercise was called a “two-party multi-issue negotiation”).

For each pair of students, one of us played the part of a proprietor of a family-owned Latin American food processing company; the other became a representative of a big international conglomerate that was going to acquire the company.

Points (“payouts”) were awarded to each side depending on how well they negotiated their position on each of the four issues we had to deal with: 1) amount of cash paid up front vs. paid later, 2) years of non-compete that the entrepreneur will have after the acquisition, 3) number of family members of the entrepreneur that would still be employed after the acquisition, and 4) which party would take on potential liability. Each issue had its own payoff structure, and we weren’t allowed to see the other party’s payoffs.

When I told an engineering friend of mine about our OB class recently and the exercises we do, she asked why we were just “playing games” every day in business school rather than studying!
I can assure all of my engineering friends that these games are actually serious academic exercises designed to teach us well-researched techniques. That they are also fun is beside the point!

The results ranged from shark-like (one party walked away with the store) to moderate (both sides ended up with about the same number of points). We quickly learned who the sharks and the pushovers were in the class (though that’s likely to change rapidly in the new negotiations class).

You might be thinking that this scenario is a little contrived. After all, in the real world, there aren’t any explicit points awarded for negotiating issues. But by being so explicit with the payoffs, it was possible for both parties to review each other’s payoff schedule after the exercise was done.

It was eye-opening. We realized (too late) that some issues were more important to the entrepreneur and not important at all to the conglomerate (Damn! You mean I could’ve negotiated more and the other side would have given in?). Some worked the other way around. And some were, rather counter-intuitively, such that both parties actually wanted the same outcome!

Turns out that by understanding the other side’s priorities, both parties could have gotten higher payoffs rather than negotiating each issue as if it was a zero-sum game.

How to do that? In a multi-issue negotiation, you can simply ask the other side to rank the issues by importance. You’d be surprised how many people are willing to answer that question since it’s innocuous enough.

To my chagrin, I didn’t ask this to my partner in the exercise, and he didn’t ask me, so we ended up with a run of the mill 50/50 compromise. Acceptable but as our modeling professor would say, sub-optimal.

Study Trip to the Valley

This week, we had our first Study Trip, to prominent Silicon Valley Companies. Study Trips are sort of like field trips in elementary school, except they’re for b- school students and we don’t get to go to any museums.

We visited three companies on our trip this week: LinkedIn, Google, and DCM. Our bus left at 8:30 am sharp (Yes, I made it on-time, believe it or not!) and drove all the way to Mountain View (where the first two companies are located) and then back to Palo Alto on Sand Hill Road where the third (a venture capital firm) is located. So what was it like?

LinkedIn. Our first meeting was with the CEO of LinkedIn, a well known business/resume/social networking company: Dan Nye. He told us a little bit about the history of the company. It was started by a number of founders, including one of the founders of PayPal (Reid). Dan was at an enterprise software company before taking over as CEO of LinkedIn, and he spoke about the differences in running a high-profile web 2.0 company vs. his previous jobs. Unlike some companies where the founders left when professional management, at LinkedIn the founders still work closely with the CEO, which has made it a great experience.

Dan wasn’t present at the founding of LinkedIn, but he did tell us one obligatory Silicon Valley “startup” story – on the first day he joined LinkedIn, they were still in an old office in Palo Alto with a leaky roof and there was no one to call for maintenance so they had buckets set up to catch the water. Needless to say, they don’t have that problem today – their offices are quite plusch in a class A building in Mountain View just down the road from Google..

As an interesting aside, he mentioned that his brother worked for Bain Capital in Boston – turns out I pitched my last company to his brother a few years ago with my last company. They didn’t fund us, but as I remember, they gave us some pretty good feedback and advice…small world.

Google. The second company we visited was Google. I would really like to tell you what we saw and heard at Google, but they made us sign an NDA so I can’t tell ya nothin.

HINT: Both of the speakers were women, and both were among the first 20 hires at Google (no we did not meet with Larry or Sergei, the founders). One of the speakers, who spoke about innovation in general and how they innovate at Google in particular, looked a lot like, and spoke like the woman in this video (though the woman we saw had the presence of an in-command corporate VP, rather than the uber-geek presence in this video):
http://www.youtube.com/watch?v=soYKFWqVVzg&feature=related.

Kidding aside, the talk about innovation was actually pretty inspirational, and the stories of how Google iterated from just search towards its final model of "search, see ads, click, and ka-ching!" was pretty interesting.

We also got to eat lunch at the much-vaunted Google café, and even saw Spaceship One, which one of the Google founders bought after it won the X-prize in 2004. Google also added its own version of this prize, which involves giving $30 million to anyone who can launch a satellite to the moon and send a signal back.


DCM. In some way, this was the most interesting of the three stops for me. We met with David Chao, Cofounder and General Partner of this well-known leading Venture Capital firm. He told us how he started to invest in China and Japan in the nineties when people thought he was crazy for doing that and not investing in dot coms. He told us his thoughts about leadership, which seemed to be the result of a lot of professional reflection and self-awareness (something I have to admit I don’t see a lot of with Venture Capitalists; Wonder why that is?).

He said that to be a leader (especially an innovative one), it means that at some point you are going to get lonely. There is always that point when you are out front, going to have to be out front at some point, by yourself, when people are not following you. Eventually (after one day, one month, a year, or 10 years) people will eventually catch on. It can be quite lonely during that time.

He also talked to us about how he used his intuition to help guide decisions. As an example, he mentioned how an entrepreneur once showed him a spreadsheet that listed all the factors they were looking for in a VC. He said that probably wasn’t the right way – you had to go with your gut feeling of who you’d work best with. He also talked about “signs” – little things in the environments that inspire you in some way to follow a course of action. It could be a song you overheard on the radio, or some conversation you overhear that speaks to you. I found this intriguing enough since I had never a VC talk in these terms before. I believe that intuition is the most overlooked factor in making professional decisions which define an innovator and have started writing a book on it. Stay tuned for that.

Full Moon Over Stanford
In my brief year here, I’ve vowed to try to keep up with some of the undergraduate traditions at Stanford. This can be difficult, since graduate students are explicitly not invited to said undergrad traditions. And Sloans are even older than your typical graduate student. A few weeks ago I witnessed the “Band Run” (see earlier post on that). One of my friends who attended Stanford Undergrad, thinks it’s hilarious that I’m trying to re-live her freshman year. For the record, I’m only observing the undergrad traditions, not trying to be a freshman again!

One of the more famous (infamous?) traditions is Full Moon On The Quad, referred to by the student body affectionately as “FMOTQ” (yes Stanford students like acronyms, as does the faculty).

This long enduring Stanford tradition, started probably a hundred years ago, was historically a way for Senior boys to welcome the Freshman girls by giving them a rose and getting back a kiss on the cheek. Since then it has evolved (devolved?), becoming a way for undergrads to cut loose and get over their inhibitions at midnight by making out with other students when they are relatively new to campus.

A few business school students sneaked into the Quad to see what was happening around 11:30 pm. There wasn’t much happening, though there was clearly some anticipation in the air. Bands were playing on a make-shift stage, with groups of students dancing a little and otherwise enjoying being with friends. But no kissing.

I asked some undergrad girls nearby about what was going on – both of them, one of them a senior, one a sophomore (both of whom looked like they might have been straight A students in high school) said that they’d attended FMOTQ each of the previous years but hadn’t kissed anyone. They looked a little nervous about the whole thing but seemed determined to get over their trepidation this year!

By midnight, there still wasn’t much happening. There was one dorky looking guy walking around with roses handing them out to undergrad girls, who smiled sweetly but as far as I could tell, he wasn’t getting anything in return; the girls would take the rose and wander closer to their girlfriends, who were typically dancing next to some of the frat boys, who were clearly not handing out roses but were obnoxiously bragging about how they were going to kiss more girls that night than they had the previous years.

After 12;30, things started to change, slowly. A small portion of the student body was mingling and bumping into each other in the middle of the well-decorated and grandiose Stanford Main Quad, eyeing each other to decide who would get a kiss and who wouldn’t.

By about 1am, things had changed radically. Let’s just say that there was an even smaller subset of students (mostly undergrads with a few shady grad students who sneaked in, I’m sure) out on the floor, doing some serious making out with their fellow students.

At some point, I don’t remember exactly when, the nudists arrived (yes, there’s a group of about 80 nudists at Stanford who I’m told run around campus naked on special occasions like this one). They didn’t actually look like they were naked, since they were covered with body paint that in the middle of the night looked like it could have been clothes. Plus it gets really cold in Palo Alto after midnight, so it would be really stupid to run around campus with no clothes on, or so I thought. When one bumped by me, I took a closer look. Yup, they were definitely naked…no doubt about it.

Now who would have thought Stanford students, among the most academically minded geeks in high school, would be out kissing random strangers on the Quad under the first full moon of the school year? Krutos.

We left shortly thereafter, but I’m sure that for the ambitiously minded, the party continued well into the night! No, I didn’t participate, but as I walked back with some of my classmates I was clearly thinking maybe, just maybe, it might have been more fun to be an undergrad at Stanford than at MIT!

What’s Your Type?
Speaking of a totally different type, on Friday, we had as part of our leadership series, the MBTI personality test and workshop, which stands for Myers Briggs Someting Something. It’s basically a personality test, where you answer questions (used to be on paper during the time of two people named Myers and Briggs; now they’re online) about your preferences in life.
Here are some examples (not real questions, just what I remember being on the test):
Do you like to have your schedule planned out to the minute or do you like to wing it?
Are you flexible with time or do you like to have everything planned out?
Do you get annoyed with people who are flexible with time or do are you like them?

The eventual goal of the test is to classify you into various quadrants of the MBTI graph (are you introverted or extroverted? Are you more likely to be thinking or feeling? Are you perceptive or intuitive?).

The workshop started at 8 am on Friday after a very busy week. Needless to say, since I thought it was an optional workshop, I missed it.

Honestly, I have never been a big fan of categorizing people into buckets, since in my humble opinion, each person has very unique characteristics and doesn’t always fit nicely into one bucket or another. Throughout high school and even college, there are some people who, believe it or not, would classify me as clearly introverted, while others would have clearly said I was extroverted. So, which am I? An E or an I? To quote our accounting professor, It Depends.

Categorizing reminds me a bot of Astrology (I’m a Sagittarius, what’s your sign?) or numerical types in the Enneagram (I’m a 3, what number are you?). Now there are certainly people who swear by these categories, and maybe they’re right. I just tend to have an initial skeptical reaction to them (though I’m willing to be convinced).

By about 10 am that Friday, I was facing the by-now familiar Engineer’s Dilemma – do I go to the workshop, having missed the first half, or do I just wait until it’s over? I decided to get some work done and show up to the next item in our jam-packed schedule – a brown-bag lunch during which some classmates were making presentations, followed by our OB class all afternoon.

Turns out that my MBTI type was “ENTP”, a fact which the teacher shared with the class. Apparently, people in this category, as far as I’m told, are very flexible with time and may even occasionally show up late to things.

The teacher was looking for an example of someone in this category and (as I’m told) called my name. I wasn’t there. A fluke?

Since I wasn’t there, she went to the next name of a classmate whose answers to the test also fit him into the ENTP category. Characteristically, it turns out he wasn’t there either! Only 50% of the four people in this category had bothered to show up for the workshop… which proved to be instructive in its own right.

Hmmm… that's a pretty big coincidence. Maybe there is something to this MBTI thing after all…


SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB and definately not by any of my fellow Fellows