Guy Kawasaki: The Top 10 Mistakes of Entrepreneurs

thank you all for coming tonight look at this crowd this is great um this is a fantastic event then we're really happy to be introducing my name is Alex Lola this is Slava Balter we're the co-chairs of the be plan competition the UC Berkeley startup competition and we're really happy to present this event today just a few things about be planned how we're doing first of all this is our 15th anniversary of be plan here at UC Berkeley pretty great yeah and it's it's going to be an exciting competition already there's we have signed up some really recognized mentors and judges from Silicon Valley and this year there are over a hundred and sixty teams that entered and we have already selected the 39 teams that will go to semi finals and so quick brief before we get to Guy Kawasaki it's about where we stand with the competition out of the hundreds like 60 plus teams at DISA me this year the 39 that entered they're now getting bad already so they're going to start competing through the next few months and we're going to start iterating on the process and using some of the techniques potentially a lot of them are here today learning some wisdom from guy and trying to get to the process of what is my idea mean and how to actually bring it to a prototype in April so really excited about some of the teams that have come out of the process this year will continue to learn from them and they'll continue to learn from some of the mentors that we have on board so I wanted to also give a quick round of applause for the Leicester Center and Kirsten that for putting on this event tonight some of the fabulous work as well as the B plan executive committee so if you have a chance to say hi quick on applause for them as well tons of work and last but not least the hard work of one of our own executive members Antonio Silva he's been working diligently very hard to get Guy Kawasaki to come on campus and here we are so Antonio come on stage want to give a quick introduction we'll pass it off thank you and so presenting Guy Kawasaki is kind of sometimes nonsensical for a group of geeks like all of us he's very well known and he's also going to be a semifinal judge for this year's V plan competition guy was born in Honolulu Hawaii he has a BA from psychology from Stanford and an MBA from UCLA he's the Apple M fabulist since 1984 a term that in coin in Federalists marketing started with him he's now an advisor for Google and Motorola so that's an interesting shift if we have time for questions that it would be something I would like to ask he has he is a pro philic writer as you can see here has written for more than a dozen books and he's going to talk to us about top 10 mistakes of entrepreneurs I would like to say thank you Guy Kawasaki for coming here today and welcome oh thank you very very much this room I have very good feelings about this room because my son is a freshman here at Cal and yeah so this is this is the room where during Cal Day we got the pitch for Cal for Haas and so a very warm feeling about this place and I went to Stanford but I I focus now on Cal can I just say that so if any of you start companies and you need an intern my son is available and if you combine the number of followers that my son and I have on social media it's 5 million I have four million nine hundred ninety thousand and ninety nine and he has a thousand so yes I'm very happy to be here and it's gonna be a lot of fun I am going to present something about the top ten mistakes of entrepreneurs let me give you a little bit more about my background I work for Apple from 1983 to 1987 I was Apple software evangelist so it was my job to convince people to write Mac software this meant that I worked in the Macintosh division which meant that I work for Steve Jobs which meant that let's just say I had a very interesting career he was not an easy person to work for but he definitely got the best results out of people and so I learned a lot from him back then the Macintosh division was probably the largest collection of egomaniacs in the history of California we held that record until last year when Facebook broke it but we held it for a good thirty years just to show you what bad people we were back then the company was the Apple Division and the Mac the the Apple Division was shipping you know boatloads of apples twos making tons of money the Macintosh division was still in R&D so we were burning money so if you looked at the Apple P&L the P was Apple two and the L was Macintosh and yet we would not let people into the Macintosh division buildings if you can imagine and if you ever become CEO don't ever let this happen where one part of your company cannot go into the other part of the company that is not good for morale and then especially after the Apple two people figured out that they were paying for the building they weren't being led into as you can imagine that really pissed him off and quite logically so so they came up with a great joke I love to tell this great joke about about the Mac division which is how many Macintosh division employees take the screw to light bulb the answer is one the Macintosh division employee holds up the light bulb and expects the universe to revolve around him there's a Microsoft version of this joke and the Microsoft version is how many Microsoft employees does it take to screw in a light bulb and the answer is none because Bill Gates has declared darkness the new standard I hear you're early in your careers I'm kind of late in my career I started in technology at about 1983 and so for about 25 or 30 years I watched hi-tech speakers and I'll tell you with the rare exception of Steve Jobs most high tech speakers have two salient qualities first they suck speakers and the second quality is they go long and that is a really ironic and dangerous combination because if you suck in your speech is short it's okay and if your speech is long and you're great it's okay but if you suck and go long that's like be stupid and arrogant you know it's just not a good combination and so what I did early in my career is I embraced the top 10 format so I always use a top 10 format for my speeches but I have to tell you this is a speech I have never given before and so I just realized that I forgot to put numbers on my top ten points so but there are ten points tonight and the reason why I use the top 10 format is that in case you think I suck you know approximately how much longer I'll suck because I have 10 points for you so with no further ado if you let me talk about the mistakes of entrepreneurs I have been an entrepreneur I have worked for a fortune 500 company like Apple I have been a venture capitalist so I have funded companies I've been an advisor for many startups so I've sort of seen it from all sides the investor the entrepreneur the advisor and so this is really what I've picked up after 25 or 30 years of working in technology ok so and let's just say that I'm not known for subtlety so we're just going to cut to the chase ok because you should hear it straight from straight from the bottom line actually so number one mistake is many entrepreneurs make the mistake of taking a large market and multiplying it by 1% and saying how hard could that be conservatively speaking so we'll just walk through a hypothetical case 300 million Americans one in four owns a dog at seventy five million dogs each dog eats two cans of dog food per day that's 150 million cans of dog food per day how hard could it be to get a mere 1% of 150 million cans of dog food total addressable market that's one and a half million cans of dog food per day let's say you make $2 per can that's three million dollars a day and now you know dogs this is not like enterprise software dogs eat every day they don't take Saturday and Sunday off so this is 365 days a year we can't we could worst-case make three million dollars a day so conservatively speaking worst case with our Rockstar programmers we should do a billion dollars in the jeer I can't tell how many stories I've heard like that you take a large market you multiply by a small number and you say how hard could that be so there's two fundamental flaws with this first getting 1% of any market is not that easy number one and number two which sort of contradicts number one number two is no investor wants to hear that you only are going to get 1% so in one sense you're saying 1% is easy but the investor is also hearing that you know they're predicting they can only get 1% of this market so you're betwixt in between so don't use this kind of logic okay don't take this large 300 million times 0.25 you know equals 150 I equals 75 times 2 equals 150 times 1 percent equals one and a half million it just doesn't work like that that's lie a mistake number one mistake number two sort of the flip side of this which is you scale too soon so this is how this goes so we go through the 1 percent right so conservatively speaking you should be selling a million and a half cans of dog food per day worst-case okay so now you think oh my god you know we're going to need at least three facilities to ship this and we're going to need colocation because our servers can never go down as these millions of dog owners come to our site and order dead cows in cans and so we need order processing we need fulfillment we need customer service so let's start ramping up because our Rockstar programmers who have never delivered a piece of software in their lives they are going to be on time okay and with our Rockstar marketing people in our Rockstar you know BMW cornflower-blue pierced ear business development vice-president he's going to deliver all the partnerships so we need to ramp up we need several locations we need colocation of servers we need customer service people and so what happens in the real world is of course your Rockstar programmers turned out to be total bozos right and so your software is late your website is late and the dogs no pun intended are not eating the food it just happens that not that many people want to buy dog food online so your software is late these these people are not buying your product but you've already ramped up you have several facilities you have all this automation built in you have customer service you have people you know in Bangalore just waiting to take those calls the people who need tech support for opening cans of dog food right so then what happens so then what you do is you have a board meeting and you tell the investors well we were wrong our programmers have hit some limits using Visual Basic that they didn't foresee and so so now now we really got it right now we're going to go to Python or we're going to go to PHP or maybe we'll go to MySQL but a Visual Basic just didn't work out okay so investors are used to hearing this that you're going to miss your first your first mark so of course they understand but then you say but you know what we've been really great at recruiting so we have this great IT staff with this great support staff we have this great fulfillment staff and those people are rock stars and so we know that our rock star team of programmers it's going to be a few months late but it would be a crying shame that we recruited all these great other support people to let them go now because in three months we're going to have to hire new people again and bring them into the company and train them again we have so much invested in these great rock star people that we shouldn't let them go and so what you do is you keep those people on board right because now you know you're going to ship in three months guess what three months come by and you don't ship again and now you have to go back to your board and you have to explain again well we're not shipping but we still have these great people we've invested we need to keep them because we will just have to hire people like them again and start from scratch so that's what happens scaling too soon I I in my career I have never seen a company die because it didn't scale fast enough for once in my life god help me I would love to have a problem where I advise or invest in a company that couldn't scale fast enough that would be as we say a high quality problem dear God give me this problem once in my career the company is growing too fast too many orders are coming in for dog food they cannot handle the volume please God give me that problem I know how to solve that problem ok usually what happens is you scale too fast in anticipation of a conservative 1% with the programs created by your Rockstar engineering staff it doesn't come true you're stuck with big overhead and you run out of money that's mistake number two mistake number three is an obsession with partnering ok let me tell you something partnering is partnering is there's only one thing that counts in a start-up its sales partnering is partnering means two organizations try to compensate for their weaknesses by partnering with another 2 plus 2 will equal 3 in this case partnerships mean nothing just I just don't get me started on this just you know what what what what entrepreneur should focus on is sales sales fixes everything you want to be left alone by your investors meet your numbers that's as simple as that nobody cares about partnering partnering is total you only use that word whenever you don't have sales ok partnering is number four number four I think a lot of entrepreneurs are focusing on the pitching process how do we pitch to raise money how do we win business plan contests how do we perfect our PowerPoint skills and I'll tell you something listen I can help you win a business plan context I can help you perfect your pitch no question but in the real world the key is not the pitch the key is the prototype if if someone gave me a choice of having a team come in with a great PowerPoint pitch or come in with a prototype that is working I would pick the working prototype all day long because in a few hours I can help most of you fix your pitch I cannot in a few hours help anybody fix their prototype prototyping is the key in a perfect world in this VC world it's changed completely now and it used to be that you try to raise money because you had to build a team to write software you needed a year you needed two million dollars you need something like that right but now if you think about it all the things you need for a tech startup they're free or cheap let's go down through the list you need infrastructure ok infrastructure today is free or cheap you use Rackspace you use Amazon Web Services you don't buy any servers anymore you don't buy buildings you don't lease buildings you use Amazon you use Rackspace thousand bucks you get a terabyte in the sky marketing before you have to throw parties yet the higher PR firms you have to do all this kind of stuff now you have Pinterest you have Twitter your Facebook you have Google Plus you have LinkedIn you have all these social media the marketing is free before you have to have commercial real estate you have to have a team physically in one place now many teams are virtual you don't need as much commercial real estate before you had to buy a license for SQL from Oracle now everything is open-source so if you go around this list everything is kind of free or cheap and so this is a completely different world and in this world you are expected to show up with a prototype not just a pitch a prototype because with twenty five or fifty thousand dollars which is you know money that you should be able to get from your parents from your credit cards shaking down people you know you should show up with a prototype it's completely different expectation and it works to your advantage because when you show up with the prototype you have significantly reduced one risk which is that you can actually deliver a product before with PowerPoint you had a much lower valuation because PowerPoint is total you're making stuff up for PowerPoint right so let me tell you I've been lied to so many times you could not possibly tell me a lie that I have not heard so the the PowerPoint which is fundamentally a lot of right but a prototype is not unless you're the person you're showing it is so stupid it doesn't understand that you're using mock-ups but then if the person is that stupid arguably you wouldn't want that person's money because that person is too stupid you don't want stupid money so is prototype prototype not pitch okay next lie next lie is if you are going to pitch the excuse me not next mistake this is called the Guy Kawasaki 10-20-30 rule of PowerPoint I hope that you will trust me on this the optimal number slides in a PowerPoint presentation is 10 10 you'd be lucky to get 10 thoughts across 10 cogent points across okay the the the time you should be able to give those 10 slides in is 20 minutes it's 10 20 30 rule now you may ask well why would you limit yourself to 20 minutes when you have a one-hour meeting well probably not in this audience but in most audiences roughly 95% of the world is still using Windows and so that 95% of the world they need 40 minutes to make their laptop work with the projector okay so it's the whole world if the whole world was using Macintosh the rule would be ten sixty thirty okay but it's not true so it's ten slides twenty minutes and then the ideal font size is 30 points or larger if you use eight ten or twelve you're going to be tempted to put too much text then you're going to read the text and one slide into the presentation your audience will figure out this bozo is reading his slides this bozo is reading verbatim I can read silently to myself faster than this bozo can read them to me I will just read ahead okay so if you remember nothing else from this presentation then in the business plan context ten slides you know do they even have 20 minutes do they even have ten slides even better in the real world ten slides twenty minutes thirty point font a good rule of thumb for the font size is figure out who the oldest person is in the audience divide his or her age by two sixty-year-old VC / - 3050 or VC / - you know 25 someday you may be pitching a 16 year old VC that day god bless you use the 8.5 but until that day ten slides twenty minutes thirty point five next lie the next mistake of entrepreneurs is they believe that they should do things serially which is to do things one at a time first you raise money then you build a team then you write the software then you ship then you collect okay that's a serial world the serial world in entrepreneurship does not exist unfair as it may seem if you are an entrepreneur you are going to have to be raising money writing software prototyping selling recruiting and collecting money all at the same time it is all these paths moving down the road at the same time it is not a serial process it is a parallel process you need to understand that's how the world works that it is all about moving multiple things down the road in a perfect world I grant you it would be nice if all you could do was focus on money and then all you have to do is focus on hiring and then all you have to do is focus on programming and then all you have to do is focus on selling and then all you have to do is focus on collecting that is not the real world the real world is you have to do all that at once next mistake many many entrepreneurs believe that as long as they and their buddies own 51% of the company they are in control of the company because they believe in board meetings things come down to a vote and 51% wins I have never seen anything come down to a vote in a board meeting it's either everybody wants to do it or nobody wants to do it and the fact that you retain 51% of the company may make you feel better and make you think you are in control of that company but the truth is that the moment you take outside money you have lost control of the company okay it never comes down to vote 51 to 49 this is not the US Senate okay god help us there's no such thing as a filibuster in a in a venture capital board meeting but the this is an illusion the moment you take outside money you have a moral ethical and financial obligation to the outside money if you cannot deal with that don't take outside money 51% is an illusion of control the next thing is that you believe that patents equals defensibility the ideal number of times you should use the P word in your presentation is one we have filed patents that's it if you say it twice we have filed patents and it is going to create a defensible position for us that's - you're wrong patents realistically will not help you if you are acquired someday yes the acquiring company will love that you have patents that's a good reason to do it another probably the most compelling reason to file for patents as a start-up is that it will make your parents proud that they can say that my daughter or my son has a patent - her name - his name that is worth something okay but if you believe that you patented something and that's going to make you defensible you are deluding yourself because it takes about five or six years to file this patent and get it done and then let's suppose you do this you file it you get it done and let's say Microsoft steps all over your patent so now you have to ask yourself do you have the time and the money to out litigate Microsoft and the answer to that is no you don't you never will now every once in a while you hear to this great story that some file compression utility company in Calabasas California has won a 60 million dollar suit against Microsoft okay you will hear that but you know what getting infringed and suing Microsoft successfully is not a fundable business model okay and the reason why there's headlines when Microsoft loses a lawsuit like that is because it hardly ever happens if it happened every day it would not be used and then they never follow up that story to see if the thing was appealed and if the little company in Calabasas California ever really collected the 60 million dollars okay so file the path and god bless you you know but don't think that it makes you defensible and for sure for sure don't tell a sophisticated investor that the reason why we are defensible is because we filed a patent because ASA fist in fact that's a very good test if when you say that the investor laughs and rolls his or her eyes that's a smart investor if the investor says yeah that's true walk out of that room okay that person is an idiot patents do not I hope there's no patent lawyers in here now I would say the exception to that is probably biotech where you can patent a drug okay but you know if if you believe that you can patent a method to sell dog food online using crowd-sourced referrals let's just say that you know I wish I could short privately-held companies next mistake is to hire in your own image you know what if you're an engineering person you need to balance off or balance out your engineering prowess so an engineering person should hire a sales person a sales person should hire an engineering person many times companies like to all hire the same kind of people and when that happens you'll have glaring weaknesses you're totally engineering or you're totally sales or you're totally biz dev you need to hire people who complement your skills fundamentally what you need in a start-up is you need someone to make it you need someone to sell it and you need someone to collect it you need those three people ok I didn't mention biz dev I didn't mention anything else I'm saying make it sell it and collect it that's what you need and so the danger is that you know if you're a sales and marketing oriented guy you hire sales and marketing oriented people but you really need to balance off all the talents in a company so remember I make it sell it and collect it you need all three skills the next mistake is befriending your venture capitalists the way this works is you get funded by a VC and the day that they say yes or the day the check clears you say wow you know I heard VCS or but not this one this one really understands what we're doing this one really likes us this one said that he's never seen a team as good as ours and this one said that he's going to stick with us and this one said that he had such confidence in our ability having hired all these Visual Basic programmers that basically he's going to leave us alone you know we're not one of his problem portfolio companies we're one of the most promising and you know what he also said that they don't invest in technologies they don't invest in markets they invest in people they invest in people and they invested in us so no matter how much we screw up because they invested in people they're going to like us and they're going to give us more chances to get us get it right because they invested in us not the prototype we showed not the market forecasts we showed none of that people they're our best friends they said that they'll always be available call them anytime pick up the phone they'll even come in and roll up their sleeves and work with us because they're investing in people they're my friends I mean I I think I'll take up golf and start playing golf with them you know let me tell you something nice shirt up there I like that shirt yeah VCS and investors are not your friends I'm not saying you should hate them okay but I am saying that it is a business they are in the business of making money they are not in the business of making friends angel investors maybe but venture capitalists are not in the business of making friends they would rather hate you as a CEO but see you go public and make them rich okay don't believe that they're your friends don't try to become their friend just make your forecasts okay that's all that they really care about and and I've seen time and time again where the CEO really believes so here here here's here's like what happens so you raise money you miss your first ship date the board knows you're going to ship miss your first ship date because everybody does that everybody does that but you know they invested in you so they still support you you miss your second date and now they say well you know you really have to be careful we're going to give you another five million bucks but now you know we're really going to hold you accountable then you have one more meeting and to your utter surprise they're saying we want you to step aside and you say but last month you said you're going to stick with us because you still believe in us what happened in the last 30 days and the VC will say well you know every Monday I was going to our partner meeting and every Monday I was telling you Molly they slipped but they look really promising they have rock stars you know they won percent of all these dogs eating food you know how hard could that be so I kept telling this story Monday after Monday after Monday and then finally we had this partner off-site and I just got tired of defending you guys and I just you know it's not worth my bandwidth because my time and my mental faculties are so important so we're going to take you as a loser company in our portfolio we're going to take this other loser company in our portfolio and we're going to sell your assets to the other loser company and we're going to declare victory that you were acquired so everybody is happy except you have to step aside you are now god and then the CEO goes home in a state of shock and he says frickin VC you know last month they love me this month they don't love me they're throwing me out I don't understand what happened you know we own 51% we're going to take it to a vote yeah right so okay again I'm not I don't want you to think of full of anger okay but I just I don't don't try to befriend your VC the key to managing a VC or any investor is to just meet your projections okay meet your projections my advice to you is that you set projections that you are 80% confident you'll make 80% that's the minimum confidence you should have 80% god bless you if you do a hundred percent you will make history because you're the first person who met your forecast if you do 120 percent you're a god or a goddess not to be sexist so you need to under promise and over deliver under-promise and over-deliver okay just now you might ask well what happens if our realistic projection doesn't make the company interesting enough to get funded like what's the bottom end and that is a real problem and I will tell you that you know venture capital is not for everybody that venture capital is playing a game every venture kappa sois us to fund the next google right so lots of companies are just thrown out of that that there's no way that a new chain of restaurants is likely to be the next Google it could be the next McDonald's don't get me wrong but the likelihood is very low it's unlikely that a consulting practice is the next Google or that a web design company is the next Google there's some things that are just not applicable for venture capital there's only several thousand deals happen for venture capital per year of the millions of companies that start so don't set yourself up for failure they're looking for the next Google they will settle for a hundred million dollar exit but they want the next Google that's the game you've decided to play okay so don't befriend your VC and then the last one is don't assume that VCS truly can add value at any given moment a VC is on 5 to 10 boards of directors they are also looking at companies every day they are very very busy people they are there a touch ADHD there's certainly egocentric it's very difficult for most VCS to separate causation and correlation right that you know they invested in a certain company and it did so well that it must have been them who made that company succeed be interesting to ask the CEO what his or her version of that success story is so you know a VC can pick up the phone and introduce you can send an email to introduce you can help you recruit but you shouldn't think that they're going to do a lot of heavy lifting fundamentally what you want from a VC is money and you want two or three hours a month of their bandwidth that's about it should be happy with that if you get that you're doing well and the irony is that the more successful you are the more bandwidth you'll get which is kind of unfortunate because the less successful the more you might have needed the help but you know what happens with these things is the venture capital game is a game of hindsight so what you do is you invest in 20 companies one or two become successful you know maybe it's a mega success but let's just say it's a moderate success and so you you have invested in 20 companies let's say one is successful so people ask you about the one company and you say I knew that was a good team I knew there was rock stars I know they were in a great market millions of dogs more dogs coming out every day I knew this was a good business model that we were going to disintermediate this very inefficient way of getting dead cows into cans to dogs right why was there a pet food store in the middle so stupid the pet food store is grabbing 25% margin what value did that pet food store add yet to get in your car drive to the pet food store find a parking space go into the pet food store and then what it's dead cows in cans did you do any point-of-purchase analysis did you do any taste tests no they added no value so it was so obvious that of course there had to be a better way to buy dead cows and cans so I knew that I knew the team was rock stars I knew it a great business model I knew there was a great market so I invested in that company then asked the VC so why what about the Webvan that you invested and put four hundred million dollars in so people could buy broccoli online why did you invest in Webvan why did you invest in Webvan and the VC will tell you my partners did that deal I told them that was a stupid idea not nearly the potential of selling dead cows in cans to the seventy-five million Americans who own dogs it's a very retroactive business I'm not saying that all VCS are like this I'm telling you have realistic expectations of venture capital it's a mistake that many many entrepreneurs make and so believe it or not that's 11 mistakes that entrepreneurs make because I believe in over delivering so so with that questions yeah thank you okay it's my con for any questions by the way I'm step up to the mics because we are having a video recording so if you do have any good questions for a guy please step on up so guy I sure AM your faculty here at Haas in entrepreneurship and my question is we hear a lot about Lean Startup and our Lean Startup and I want to hear your take on that and are you seeing more companies actually following that path yeah and and and are you actually working with a company that that is doing that well well in a sense well first of all I love the concept of a Lean Startup my experience is that too much money is worse than too little because when you have too much money you start thinking in very sloppy ways do you start thinking we need to scale you start thinking well they gave us five million dollars they didn't give it to us to collect one percent interest as a CD they gave it to us to invest so we need to invest we need to invest in thousand dollar Herman Miller chairs so that our rock star customer service people have comfortable seating arrangements and so and and you know we have to have a we have to have a roll out party because we need to make a statement and so if you didn't have money you would not have such stupid conversations okay so too much money is worse than too little when you have too little you really have to think hard you have to do guerilla things you have to you know you have to host your website on the UC Berkeley server and not tell anybody here I mean you need to do stuff like that that's just the way it is you know don't feel bad you can always endow a chair later right now do what it takes yeah so I heartily endorse that and as I went through my dialog of marketing three tools or open source virtual team so you don't need commercial real straight on my working you know I mean that's why Y Combinator is so interesting for 25 grand you can do a lot of damage and arguably if you cannot do a lot of damage with 25 grand maybe you're not such a great entrepreneur so if it you know if it takes you two million dollars today to get to a prototype now of course we're not talking biotech we're not talking you know I'm obviously talking about a certain kind of startup that's a good test that you need too much money so I love the concept of lean startup yes yes so I I started an incubator last year it's called a go to startup house it's residential incubator and there we have speakers coming in here in Berkeley and so one of the guys was called Alex man and he's doing a company called clicktime and he owns the company with his brother and and they also did something called man consulting so they were able to fund with the consulting yeah with the consulting and then of course lot disputes with his brother but they were throughout after like four years so now twelve thirteen years later he's getting like two calls from VCS every week wanting to invest in in his company okay but he did tell this one story where they were getting this competitor I was VC funded and he it was like devastated he thought that this is it now they will click them thing it's going to be out competed by obvious VC money but in eighteen months there wasn't they weren't able to get a new round of funding and I just had to shut that so he's in a very good position right now and but you don't hear much of these stories and that's oh there was a start-up here here like a week ago and there was a company called guidebook and they've been able do you really need to you need to embrace the 10-20-30 rule so since you're in the freakin Transamerica Tower this elevator I'm off the elevator I'm gone I'm in a cab going to Union Square already okay so continue yeah yeah so I'm adding my Alex's to save way to shop for groceries tonight it's open 24 hours keep on going so the Alex man he started in the nineties when like in town was brand new but guidebook they started like a year ago and now there are 20 employees and they've been able to grow this organically and they have so much cash now that they have to double their their employee rate and still all this without VC funding but again I don't hear much of these stories and I've been studying entrepreneurship for your question for 15 years so my question is I hope he's not in your contest cuz I can tell you right now he's not getting past the semi finals yeah okay yeah I'm doing a pitch day entrepreneurship so it this is kinda like problem you know but basically my question is do you hear a lot of stories where companies grow organically and are successful and come well Jesus I'd like to pay you for what you just did cuz you just you just choose everything I said tonight I you know III think that the organic mean way is the way to go you you are it's a harder way to go it is you know when you do it that way you have to prototype because you need to sell right you don't you know you're not just doing powerpoints slides you have to sell something nobody buys a PowerPoint slide so I think that is very good and I you know I if you look at if you look at something like Microsoft or Apple you know they didn't start off with venture capital they started off with two guys in a garage two gals in a garage and they built something that they wanted to use they did it organically they didn't go and raise millions of dollars they didn't do PowerPoint and so I think a lot of these things that start organically it really serves the need and it takes off and one day your Microsoft or Apple and I love that story I think it's the core Sequoia ever comes to speak to you like Michael Moritz I think he'll tell you that the richest vein for Sequoia Capital has been to engineering students building the product that they want to use which is very different than you know a group of people who saw some kind of Jupiter or IDC or IDG or McKinsey or Accenture report about the market forecast and design decided that because the McKinsey report said that the pet food business would be a five billion dollar business we should have a pet food online store so I love the organic path okay thank you yes hi I'm not sure how much this question applies to this talk but I work for Lawrence Berkeley National Lab and there's talk of perhaps starting a non-profit you know a company to educate you know the youth and Richmond say like intercity educate the what a public health education and youth education to promote that and we be interested in it be a non-profit wouldn't be selling anything right so would you have any recommendations of you know how we could sort of would it be people companies that would be interested in funding that starting spec that venture capitalists or even angel investors I would say you know they are trying to increase their financial returns as opposed to do good if they do good it may be by accident it may be a natural outcome I mean if you build the most successful solar panel company in the history of mankind you will arguably do good you'll reduce the carbon footprint of homes but they did it because they wanted to sell a boatload of solar panels right so I if I understand your question correctly it is not going to be very successful for you to go to professional venture capitalists to try to raise money for a not-for-profit if that's what you're asking the way you should do that is what you want is you want rich people who have made money through various means to give you the money for philanthropic reasons but it's not an investment so it's very different yeah yeah you answer my question something I'm sorry you answered it okay okay thing one for one yeah yes yes I'm seeing a trend you know if you ask another 15-minute question I'm gonna shut you down well you actually had a 20-minute presentation I want to give him well no my name is a mecha co-founding an incubator slask accelerator program called sparked ups out of the South Bay and I wanted to see what the increased rise of incubating accelerator programs also what those not given any upfront investment what is your take on them also with them disrupting the VC world I thought you might take on the inky buns on the rise of incubator and accelerator programs and also your thoughts on them disrupt ok so I have I really have mixed emotions about those because I love I love visiting them I love the energy I love the you know sort of banding together that we're all in this I love the sort of shared space huddling together for warmth you know sharing expertise sharing Xerox machines sharing Trixie the front desk receptionist I I love or it could be Biff doesn't have to be a woman so so I love that aspect but um having said that I think that you know just because you have free space and you have shared resources that doesn't necessarily make you more successful that to me you know the most important thing is the prototype and if it advances your prototype then I would be all for it but just hanging around other people in shared space is fun ping pong table all the good stuff but that doesn't necessarily increase the chances of your success so the key is keep coming back to that it's the prototype and build a freaking good prototype and get to market which is one of the beauties of not having a lot of money because if you don't have a lot of money you cannot dick around making a lot of crappy prototypes you have to get it right which is a good outcome of not having money okay you also mentioned about VCS or the false perception of entrepreneurs thinking that VCS can add value to their companies yes in most instances these accelerating computer programs don't give you as much money but may have different value ads so at what point does non financial kind of overtake you know larger investments at what point does non financial overtake larger investments wow that's that is so much of a case-by-case basis you know I hated not that I have hesitated to generalize tonight but it's it's some I don't know how to answer that question I mean you know someone like Paul Graham and Y Combinator you know he may just in a five-minute conversation may add so much value to your company that fundamentally changes your company whereas you could be in another incubator where you know the blind lead the dumb and you know just hanging around there for years you won't gain anything so it really it's just it's kind of just a crapshoot but you know again I mean it just keeps coming back get a prototype and put it out there because either the dogs eat it or they don't I mean that's that's the key that's the key data point okay thank you okay yes hi my name is Romy I'm a full-time MBA student okay and you mentioned before that one to two out of every portfolio of 20 companies yes actually succeeds yeah looking back is there any characteristics or things that you can highlight if there are that really make those stand out like those teams is there any or is it just too perhaps you well first of all you know in a rare moment of humility let me say I'm not exactly proven as a VC because I haven't so you could take everything I say you know guy you're wrong so you could make the case you do everything opposite of what I just said you might be successful I well I think when most people look back on their successes they will say that they quote knew that it was a good team okay the problem is that you really have to ask well if you knew that one was a good team and that's why you invested in it why did you invest in the 19 other losers because at the time you squeeze the trigger you knew they were good too unless you were purposely investing in losers right so it's not rational so at the time you squeeze the trigger all twenty you thought they were winners otherwise it wouldn't have squeezed the trigger so why is it that one succeeded a 19 failed and it's not as easy as saying well I knew that team would succeed cause what about the other 19 so I you know as I get older and older I have come to believe that it's better to be lucky than smart so you know because you know just imagine from a VCS perspective these are some of the pitch pitches you would have heard right so we're PhD students at Stanford and we're in this computer science class and we're working on this new search engine that measures you know inbound links at that point there were five search engines did the world need a sixth search engine called Google hmm maybe not right or my buddy and I we want to have a business model where we need infinite server space in the sky with infinite bandwidth so people can upload their videos that they stole okay and what's going to make our company tip is when people start dropping Mentos into diet cokes okay raise your hand who would invest in YouTube okay none of you right okay so we're going to enable people to send 140 character text messages oh what a concept have you heard of chat have you heard of email have you heard of text messages but you want to send tweets and what's your business model well we don't know but you know lots of people lots of people want to tell everybody on the internet that their cat rolled over you know if just it's just 1% of the cat owners use Twitter to tell the Internet that their cattle Dover you realize how many tweets that would be per day and so if you look at these things so so you know you have to sort of go back in time so at that moment you know you you had you could invest in Twitter you could invest in Webvan you know like lots of broccoli is sold in all those people need broccoli they don't want to drive to Safeway imagine if you could just go online and order broccoli we just get 1% of the broccoli sold in America you realize how big that would be right and so at any point at the point that you have to squeeze the trigger Wow I I squeeze the trigger wrong many times my false negatives and false positives I I think if you're honest you just have to say you got lucky now clearly kleiner perkins in Sequoia gets lucky all the time so they must know something but Wow I'm gonna sneeze one second bless you allergic to cow went to Stanford yeah so so I'm is very difficult to say but you if you look at trends I read I really think it's the two guys in a garage engineering background building the product that they want to use you know another another sort of retroactive story was my girlfriend wanted to sell her PEZ dispenser collection online so I started eBay great story total story Pierre wanted to make in a perfect market online but it's a great retroactive story so you know if you're successful man you can you can just reinvent history right all the time you could just interpret history anywhere you want and if you fail well nobody's heard of you so it doesn't matter so and that's how you have nothing but upside right so yeah I wish I could tell you I you you need to get another speaker to tell you that because I cannot okay yes Oh we'll go back up there hi my name is Anne Wong and thanks for a good talking otherwise my mother foreign student from Korea and trying to start up here North herself yeah but just in case we get nuked I want to know when I try to like turtle here I found this quite hard for foreigners like for I just tough and I have no connection here so can you give me any special comment or device for foreign entrepreneur um you know I have to admit that I think that acoustics for this is built for the audience not the speaker so I could not understand your question can somebody I'll do I have any advice for foreign entrepreneurs in the u.s. you know I I actually think that you have an advantage as a foreign entrepreneur in America because I think one of the richest veins for investing in particular using the Sequoia theory is two engineers who are first or second generation American and if you look at it you know like Andy Grove from Hungary Sergey from Russia look at all the Indian entrepreneurs that built this valley all first or second generation and I think that um that poverty is a very motivating force and so if you gave me a choice of investing in a start-up where the CEO is the fifth generation American you know his great great great great grandfather came over in the Mayflower started the largest I don't know you know farming supply store in Connecticut built that up built that up billionaire and this person's name is you know Jonathan Sebastian the third and and father has endowed a chair at Yale and Dartmouth and coincidentally he went to Yale and Dartmouth total trust fund baby and now sees that while there are 75 million dogs in America on versus you know versus ash meat who one generation ago his parents were in Bangalore and you know they put him through IIT and he came over here or his parents they caught the last helicopter out of South Vietnam and they landed in Sacramento and so his mother became a maid and his father started running a liquor store and they saved everything they could and put you know their son through Sonoma State and and that kind of thing and I would invest in the immigrant all day long all day long because if you just look at the history of entrepreneurship it's poor people who made big companies it's not fifth-generation trust fund babies so I think you know as wanna get me started in politics but if I were the president United States god help us if first of all McIntosh would be a standard computer if I were president I would say we should make the most flexible visa program in the world alright basically I would say if you want to come to America we have the greatest education system in the world Cal is not ranked ahead of Stanford as of yesterday so you come to the United States you get the best education you will be in a legal system where it might be flawed but it is not criminal you don't have to pay people off to get permits you don't have to pay people off to get your money out of the bank you don't have to pay people off you know there's a common law system here and you don't have to fear for your life you don't have to worry about the Mafia you don't have to those come to America and start a great company I would do I would I can solve the housing crisis if I were Obama I would say all right so this is the deal if you buy a house that cost more than half a million dollars in America you are now a citizen of the United States you know our housing problem would disappear in one day because all these rich people from all over the world they see our son our daughter can be a citizen of the United States by oh my house that would that would fix the housing problem right and and then you know like my strategy would be instead of using drones let's use the visa system okay and so what we will do is if you want to come to America to study and work and start a company we will give you a visa come on down and because we want to create a brain drain we want all the countries of the world to be pissed off at America not for killing them but for draining their best people we want the best people from every country to come to America start your company create jobs do all that kind of great stuff move back send the money back we don't care but just come to America mark is the land of opportunity I think man because if you look at all the great companies its immigrants that do it and so I think you know this is this is like Ross Perot well if we have you know people from Mexico comma cars are going to take American jobs I don't think so man those those are the hungry people they're the aggressive people they're intelligent people sure bring them all down like I'm third-generation Japanese American you know like what would have happened if they sit here no more Japanese Americans with Japanese Americans you're taking away the maid jobs and the gardener jobs you know no more mr. Miyagi we want Americans to do the yard work right I would not be here right I would like be working Starbucks in Hiroshima right now so yes I don't don't get me started on this I really I think we should create a reverse brain drain she's just suck the brightest people around the world you could have a test you know just give everybody the SATs if you get 2,400 on your SATs you know you get a visa in one day you get 2,000 it takes six months you get 1500 you know stay in Russia what else you want to know yes great guy thank you so much for your time my name is Anthony Beldar I'm a first year MBA student here I wonder if you have advice for prototyping and industries that have higher capital expenditure requirements consumer products or biotechnology stuff where the infrastructure for creation is not free like in tech wait say this again you want what do you have advice on prototyping in industries that require a higher capital expenditure or the infrastructure is not in place yeah that's kind of where my whole pitch for prototyping breaks down huh my advice would be change industry yeah I mean that is that is a flaw in what I'm saying that you know it's hard to build a quick prototype of a new kind of mini nuclear you know power plant right but you know I might I guess just okay so you can't build a prototype of a you know your funding for your new neighborhood nuclear power plant but I mean the message is you just got to you got to have something tangible to show people more tangible than PowerPoint whatever you can do I mean point to a similar company in France that has neighborhood nuclear power plants I mean do something but don't just talk about you know the 300 million Americans alone 75 million dogs you have to do something more tangible it there's the expectation in this lean startup world where most resources are free or cheap these days that you show up with more than PowerPoint before I forget do any of you speak Hungarian in this audience that's too bad because I just got the Hungarian version of my book and I don't know what to do is that so if any of you know anybody who speaks Hungarian I think it's Hungarian please help yourself to this book I also I brought some of my art of the starts which is the book that I wrote about how to start company so I have this many here I don't know how we're going to give them out people who asked the shortest question maybe so that and then one more pitch my most recent book is the book called ape which is why I singled out that guy wearing the ape shirt up there and ape is a book that explains how to write a book and so if any of you are interested in how to write a book I grab one of these cards because this is an innovation in the book business so this card these cards on the back have a place where you scratch off a specific redemption code so you go to a website you get this number you type it in and then you can download the eBook version of this so the the for an author this is probably 200 cards if I were to bring 200 books you know they would be stacked this tall I would never do that so this is a way that I can fulfill orders this is a much better way to do this so if you're interested in a book about self-publishing this is my latest book called ape and help yourself I do this for my love of kale that I am because last two questions okay hey guys last three three okay nobody else come up oh yeah I would vote for you any day if I could I'm a first-generation immigrant from Vietnam and this is my question for you so we didn't get into B plan I was trying so hard for four or five months to get funding from angels yeah so when is the time for you to give up give up pivot or just find something else well that is that is a difficult question because you know the what is in a sense it's what's worse giving up too quick or staying too long right and there is no simple answer to that you know you they're allegorical stories about how you know Fred Smith was on his last payroll he went to Las Vegas and he made ten grand and he say Federal Express right but you never hear the people who didn't make ten grand in Las Vegas and missed their last check and you know went out of business you don't hear about those so well this is for one thing how old are you 23 okay so you know it's not like you're at the end of your life yet right I hope so so you 23 years old and you try to raise money for six months I mean you know you got lots of time pal I mean you know I would don't sweat it don't do anything stupid don't kill yourself you know don't delay is Asian kind of crap if you know you gotta commit how I envisioned yeah don't sweat it are your parents here or still in Vietnam out there in Vietnam and are there running liquor stores or the you know election no actually my parents premier my parents are not the poorest people why I don't want to ask them for money for some reason yeah well you know they're they're like you're so proud that you're at Cal right they don't yes so now they're so proud that you're at Cal you know they would probably really happy if you went into dentistry or medical or a lawyer marry a nice Vietnamese girl you know maybe maybe if you file for a patent they would be happy oh you know you know what I mean I got I got to tell you so like obviously I'm Asian I went to Stanford I graduated in three and a half years and I have to tell you one of my biggest regrets in life is that I was I was this frickin driven Asian right so you know you gotta like take as many courses as you can I go to summer school cuz you know you want to you're in a rush to get out there and work then you get out and you work and you find out you got to work for bozos for the next 60 years of your life right and so I would encourage all of you undergrad or grad that you live off your parents as long as you know my son is not in the room anymore I think he inherited that perspective but you know because like your parents right and they're like you know it think you're working hard and they're so proud of you they're telling all their relatives you know if our son is at the fifth best university in America well that's what the ranking says I you know what do you have for my life you saying Harvard so so you know they're so proud they're telling all their friends and all that and you know I've been to Vietnam man there's a lot of scooters in Vitt now you get 1% of those scooters you so I guess this is a long way of me telling you to you know don't sweat it I mean just it just flow listen I thought T another store so I'm full of stories so after I graduated from Stanford the next year I entered law school at UC Davis and I went to law school for two weeks and I could not stand law school I just hated Law School basically back then anyway basically law school was they tell you that you're a piece of and they're going to remake you and I had a real fragile ego at that point in my life hard to imagine but I had a real fragile ego so I just could not handle the concept that they were going to remake me because I was a piece of so I left law school after two weeks and that's you know that's the first time I quit something in my life and I thought I thought this was the frickin end of the world right so asian-american quitting Law School oh my god you know like I thought also there's like you know 20 generations of Kawasaki they're like working in rice paddies and you're cleaning the homes of white people and they're doing all this and so finally you know one of you breaks through and you get into law school and you stay there for two weeks and then quit right so like bringing shame upon the Kawasaki name for the next 20 generations going forward yes what is it suicide what should I do you know should I run away from home so I call up my father say you know dad I just hate it I can't I gotta quit and so I thought he's gonna like disown me right or you know whatever right and he tells me that's okay as long as you make something of your life that's like well why do how did you force me to go to law school why did you tell me that before you forced me to law school so anyway that's a long story to tell you the blacks thank you okay you hi first of all I want to thank you this has been a great informative and very entertaining time so my question is what superior mac or pc well that is a dumbass question okay so the reason why I say so I could get that book so now it's my real question that's a strategy play good question you said the shortest question gets the block right that's like you know you go up to the Pope and say well what's better Catholicism or you know what right that's not that wasn't the real question though so my name is Roy I'm a founder of an education startup and so this question pertains to the earth not a short question no no that was a joke I was just trying to get the book I didn't say multiple questions okay well this is this is the main one this pertains to your lesson about the 51% yeah will in control of a company so right now we're I'm starting an education startup and I'm trying to bootstrap it as much as possible well I understand that's the ideal situation what is a reasonable amount or what is the maximum amount of equity you might be willing to share or you know give to VCS with a reasonable expectation that you can maintain control well as I said there is no reasonable expectation of maintaining control the moment you take an outside investor you are kind of fiduciary working for that investor whether it's you know 1% or 51% you just just get that it's not exactly true but it is a better model to be thinking that way that you're losing control but on the other hand you know you're really not losing control you are getting capital to make it a bigger pie that's what you truly do is so also you should disavow yourself of the concept that you are giving part of your company to the VC okay you're not giving part of your company you are selling part of your company it is an arm's length transaction you're not doing them a favor any more than they're doing you a favor it's a mutually beneficial arm's length transaction okay so so having said that you know generally speaking you try to sell about 20 to 30 percent of your company per round so then then you know the question becomes well how much is your company worth and so if your company is worth 4 million pre-money and you raise 2 million so now it's 6 million post so 2/6 is 1/3 so you throw about 33% of your company for 2 million you know that kind of about right and if you're if you're selling 40 or 50 percent of your company you're deluding yourself too much if you try to only sell 10 percent of your company most VCS will not be interested because it's not lucrative enough for them so oh it's it's kind of in that range ok ok last question hi my name is daniel i'm undergraduate here at house just reentering um grew up in a family with both entrepreneurs as a mom and dad being second generation American um you're making me cry haha so having the knowing that my parents have always driven me to be innovative and push the next edge and believing in like making a solid product that's going to last and something that you would want that somebody else would benefit yeah I have and I built prototypes that are working prototypes with patents I had a problem where somebody had stolen these would ego lit they stole the patents from me yeah what the prototype is still workable ok on the I'm trying if I don't they steal a patent from you they copied what you did to copy what I did ok but I have the originals ok when's the best time to introduce this to my venture capitalists no no no not that not that they stole the not that they stole the patents they seen these prototypes and they are workable when's the best time to introduce these patents and these products to the market when you see there's other viable solutions on the market but you know my advice is that you should always deliver bad news early yeah and so you know it's a very good acid test of how much the VC really believes in you if you tell them this and they say okay forget it I you know I just think that if you are transparent and honest from the get-go it just takes less mental energy to maintain that I have come to the conclusion that when you lie it takes too much energy to lie because when you start lying you need to keep track of what lies you told because you need to be consistent with your lives whereas if you tell the truth and there's only one truth you don't have to remember which a version of the truth you told there is only one version so I would be honest and if if the VC or the investors are truly believers in your company then first of all they would probably become stronger believers because they now know that you have the integrity to deliver bad news which is a very very useful thing integrity is a very useful thing and arguably if they just punt and turn around and run away you know they didn't really believe in you anyway so yeah I think earlier is better I would also make the case that even if someone copied your idea the the way that a company becomes defensible is the first company to scale as opposed to the first company to file the patent yeah so I think even in a race the race is to scale to build a successful company as opposed to you know that the reason why we're defensible is a patent it is there are many I would rather have a company with a prototype that is not patentable that has thousands of people using the service and joining everyday then something that is rock-solid airtight patents that no one is using absolutely you know just you want you want something the dogs are already eating the food yeah yeah cuz I've seen I seen the need for this product nobody else had this product I built the product built a working prototype people have seen it and then I patented and then they copy the patent but I still have their original prototype well I'll tell you another perspective on this which is if if simply seeing your product and copying it renders you non defensible then you didn't have a good enough product anyway it should take more than seeing the product and copying it to make you vulnerable to that yeah you should take more if that's all it is if just hearing what your idea is I'm going to sell dog food online but I'll tell you that as a non-disclosure you're a loser because that's just not even if you had a path in for selling dog food online yeah that's just not defensible it doesn't matter so it's the first to scale first to succeed and that's what makes it successful well I guess I better start packing a lot of dead cows and yeah plan and the UC Berkeley student body I want to thank you guys for the time to come with us and have a conversation all right thank you very much take care

Channel: Berkeley Haas

Views: 1,095,012

Rating: 4.8691607 out of 5

Keywords: Business, b-school, business school, haas, uc berkeley, haas school of business

Id: HHjgK6p4nrw

Length: 83min 58sec (5038 seconds)

Published: Mon Mar 11 2013