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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Entrepreneurs Math: (.9)^10 = 1

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I had a wonderful time interviewing Larry Gold last night at Entrepreneurs Unplugged. Larry is a special guy and someone I learn from every time I’m with him. Among the many great stories he told, including a doozy about the time he was a sophomore at Yale, he had a powerful one about how entrepreneurs assess potential outcomes. It resulted in a fun version of entrepreneurial math.

Envision a scenario where you there are 10 separate things you need to do to have a successful outcome. Each one has a 90% probability of success. What’s the probability that you will achieve a successful outcome?

I struggled with 6.041: Probabilistic Systems Analysis and Applied Probability (the probability course I took as an undergraduate) – it was one of those courses where I felt like I was a week behind for the entire semester. I did better in 15.075: Statistical Thinking and Data Analysis - maybe I was a little older, it was a little easier than 6.041, or I was more interested because I liked the professor better. If you are having trouble with a quick answer, both courses are available to you on MIT OpenCourseWare.

Back to the question. If you guessed around 35% you are correct. It’s actually 34.87%, which is (.9)^10. Now, by using the word separate, I’m implying 10 independent events, but this is the nuanced joy of theory versus practice.

Larry pointed out with glee that regardless, entrepreneurs believe when they start down the path of doing these 10 things there will be a successful outcome. Hence entrepreneurs math is (.9)^10 = 1.

Whether you agree with the math or not, it’s a great anecdote. So many things that we try as entrepreneurs and investors fail. We never make an investment thinking “this isn’t going to work”; we always invest thinking “this will work.” I don’t know any entrepreneurs who started their business thinking “this will fail” or even “this only has a 35% chance of working out.”

This shit is hard. And it’s low probability. Even if you have an ultimately successful outcome, many of the things you are going to try along the way are going to fail. But to do them, you’ve got to believe they are going to work. You’ve got to enter into the illusion that (.9)^10 = 1.

Sometimes You Have To Roll A Hard Six

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Techstars is rolling out a short video program with some of the entrepreneurs and mentors favorite quotes. I recorded a few of them recently – my first one is up.

I’m a huge Battlestar Galactica fan and think Commander William Adama has amazing leadership lessons for any entrepreneur. If you don’t know what “rolling the hard six” is, it’s a classic example of a high risk / high reward scenario. Per Urban Dictionary:

“Rolling a hard six has a probability of about 3% whereas rolling six by any other combination has about a 14% chance. A hard six pays 7 to 1 whereas a regular six pays only 7 to 6″

I’m not a craps player, but I love the metaphor. As an entrepreneur, you often have to combine luck with the right call at the right time. You can make the right call and be unlucky, or you can make the wrong call and be lucky. But when you find yourself in a jam, you often need to make the right call AND be lucky.

My imitation of Adama is pretty lame however.

Business Love

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“Passion is temporary. It doesn’t last long. Love is enduring. And that’s the important thing. If we all had love in our lives to the degree that we should, it would be much happier.”
— UCLA Anderson | John Wooden Global Leadership Award ceremony (May 21, 2009)

Last night I had dinner with my partners and our significant others. It was a wonderful evening with the three people I work most closely with, the people they love, and the most important person on the planet to me.

Earlier this year I had dinner with Jamey Sperans, one of our investors. Late into the night we talked about a variety of things at an outdoor restaurant in Philly under the heat lamps as a chilly spring night unfolded. Much of the conversation was personal, as in addition to being one of our largest investors, Jamey has become an incredibly close friend. I was struggling with my depression so we talked some about that, but that merely served as a launch point for a deeper conversation.

In that discussion, we talked about the concept of “Business Love.” For a long time, I’ve talked about “business intimacy” – it’s the relationship I try to develop with the entrepreneurs I fund and the people who I work with. It’s a level of emotional engagement that is much deeper than “friendship” or “respect”, is not easily developed, and can be quickly lost if one party isn’t interested in investing the energy or violates a fundamental principle such as trust or honesty.

Jamey and I agreed that “business love” was more profound and significant than “business intimacy.” We discussed the concept of business love in the context of Foundry Group with the unambiguous agreement that the four of us (Ryan, Seth, Jason, and I) have a “business love” relationship.

Once a month we have a full-day offsite. We try to keep our process to an absolute minimum, so we have lunch together on Monday’s and a once a month offsite. The rest of our interactions are continuous and real-time, including almost all of our investment decisions.

Yesterday’s offsite was a perfect example of business love. We spent the day sitting around Jason’s dining room table (the general location of our offsite), got calibrated on a few things that are new initiatives of ours including FG Angels, a new treat coming out next week from us, and a new project we are launching in January. We talked about a few deeper, long range things we want to get right, especially in the context of several of our very successful investments. And we argued about some stuff that we disagreed on in an effort to both understand the data and get aligned.

It was awesome and one of my favorite days of the month. When we split up around 3pm (we end when we are finished) I had a permagrin on my face. I walked home and spent a few hours grinding through email. I went to a meeting and then picked up Amy to head back to Jason’s for dinner. We had an amazing dinner as a group to end the day.

I woke up this morning thinking about business love. I remembered my conversation with Jamey. I recalled that Jo Tango had written a post on business love a while ago and went back and looked it up. I’m guessing that Jamey was the LP in the post that Jo is referring to, since the principles of business love, that Jo refers to, are exactly what we talked about.

  • Members of those firms really respect and like each other. They’re very tight. In fact, they love each other
  • They have a sense of mission. They want to make money, but that’s not the most important driving force
  • How they treat each other spills over to how they treat their entrepreneurs and investors

The process of creating and building new companies from nothing is hard. It’s incredibly rewarding when it’s successful, but the process can be an excruciating, chaotic, and messy. There are moments of extreme stress. Failure is always lurking in the background. Working alongside people you truly love makes a huge difference, at least for me.

Get Your FAAAC On!

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Last week, in the midst of Denver Startup Week, we had a full day Foundry Group Exec conference. Ben Deda from FullContact convened about 100 execs from our 60 or so portfolio companies for the day. We had seven topics of one hour each, led by a different set of execs. The result was an incredible range of discussions across an amazing group of people.

One of the attendees was Jeff Malek, the CTO of  BigDoor. Jeff is super passionate about what he does and mixes humor with intensity with math. Following is something from Jeff to kick you in the ass this morning and get you charged up. 

Last year I put together a slide deck for what the FAAAC was all about.  Amongst other things, it describes a start-upper’s most valuable core attributes: fire, ability, agility, adaptability, and clear, concise communication skills.

FAAAC

A couple of months later FAKEGRIMLOCK published his incendiary work BE ON FIRE.  As I read this wonderful post, I got very positively charged up. I thought : what the FAAAC is up there, with FAKEGRIMLOCK?  Yes, it seemed to me: it is totally up there with FAKEGRIMLOCK!

AWESOME.

Was I somehow channeling the King of Awesome? Could I be some sort of supernatural vessel, carrying the same caliber of limbic wisdom as the great, giant robot dinosaur?  After asking around, the consensus was “probably not”.  Someone even mentioned that I might be confusing “vessel” with “vassal”.

Still, I felt compelled to reach out to Brad  and pointed out this cosmic parallel.  Brad asked if I’d like to write a guest post.  I thought, “hmmm…lucky FAAAC opportunity…” and began a mental draft immediately, in tandem with other P0 efforts I had in the works at the time (e.g. sharding our database systems).

One year and fourteen pounds of irony later, I’ve completed my assertion of reasonable ridiculosity for the FAAAC.

Behold, the Fire in the FAAAC Proportionality Theorem:

Fire_in_the_FAAAC_proportionality_theorem

Which can be read per line thusly:

  1. There’s a unit of awesomeness comprising fire, ability, agility, adaptability, and good communication
  2. A good start-upper exhibits unusually high, varying degrees of each trait.
  3. An impressive academic pedigree doesn’t predict startup awesomeness (although it’s always impressive)
  4. Fire is the most important aspect of them all, composing up to 80% of all the awesome.  Fire can drive learning (ability), help you duck punches (agility), and get you off the ground when you’re hit (adaptability).  This is all just paraphrasing what Edison said about perspiration, and what FAKEGRIMLOCK drew about bears, bombs and arrows.
  5. If fire is compensating for lower levels of the other traits, then to be a great start-upper you’ll need a proportionally large sense of humor to get you through acerbic code reviews, failed biz-dev deals, and communication breakdowns.
  6. That’s what the FAAAC fire has to do with anything and everything.

It may seem like I’m just pointing at the clear connecting lines between myself, Brad , Edison, and FAKEGRIMLOCK.  Fishing lines, maybe even.

But seriously, we have a rigorous process at our startup that tests new job candidates for these traits, making it easy to determine whether they should be leveled-up to the next interview stage.   It involves running through our sprint process on a compressed timeline, working with a hypothetical customer, in a typical solution space.  After 30 minutes a ruleset is produced in English, and supporting code is produced within an hour.  The whole point is to determine whether the candidate is someone we could work with, and whether they have fire, agility, adaptability, ability, and good communication.   I don’t care if someone can figure out why manhole covers are round.  I want to know how well they’re going to perform in the context of our team, and our business.  The best candidates rock these qualities out, just like the most successful entrepreneurs I’ve met do the same.

Dilbert on Cultural Fit

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I’ve written before about hiring for cultural fit, and about the importance of prioritizing cultural fit over competence when hiring at startups. I started thinking about it again when I saw this Dilbert comic, because it pokes fun at the culture of startups and their propensity only to hire people who fit into them. But what are we talking about when we talk about cultural fit, anyway?

You’re probably familiar with some of the stereotypes around startup culture (free massages and dry cleaning, craft beer, cool art on the walls and dogs at the office, pulling all-nighters to ship on time) and the kinds of people who work at startups (according to Dilbert, “self-conscious hipster” types with “an earring and headphones.”) Stereotypes like these give you a picture of what startup culture might look like to an outsider, but they don’t reflect the intrinsic values that define startup cultures.

Gnip CEO Chris Moody explains this distinction really well when he talks about values vs. vibe. He defines values as “the guiding principles or code-of-conduct” that inform a company’s daily operations, whereas vibe is “the emotional side of the company … highly influenced by outside factors.” To figure out whether an aspect of your startup culture is a value, he says, try asking yourself these questions:

-      Is this aspect of the company important to our long-term success?

-      Does this aspect need to be maintained forever and is it sustainable?

-      Does this aspect apply to all areas of the company and to all employees?

-      Will establishing this aspect help us make important decisions in the future?

So, for example: riding your fixi to the office or playing foosball between coding sessions are vibes. Treating people with respect or being passionate about your work? Those are values.

Your company values should be clear, accessible, and pervasive – take, for example, Zappos’ 10 core values. Having clearly defined values is important because they drive your company culture, not the other way around. It’s also important when you’re hiring for cultural fit, because without clear company values you run the risk of making poor hiring decisions: hiring people because they look or act or talk like you, and not hiring people because they don’t.

Here’s an example: Businessweek says hiring managers are now asking candidates questions like, What’s your favorite movie? Or, What’s the last book you read for fun? If you’re asking interview questions like these at your startup, you need to make sure you’re screening for values and not for vibe. Just sharing your love of The Big Lebowski doesn’t make someone a good cultural fit for your company: in fact, it’s often the people who give unexpected answers who end up being your company’s most creative problem-solvers.

I chair the board of directors for the National Center for Women & IT (NCWIT), whose Entrepreneurial Alliance works with startups to help them recruit and retain more women in tech roles. There’s strong ROI for including more women on technical teams: women improve collective intelligence, make startups more capital-efficient, and bring the perspectives of half the population. But if you’re a “dude brew” startup, you may not even know why you don’t hire more technical women, and you might need help from NCWIT removing gender bias from its portfolio companies’ job ads.

Gnip recently told NCWIT that they added three women to its engineering team. They credited this in part because the VP of Engineering, Greg Greenstreet, attended every local women-in-tech networking event, recruited on campus, and talked to as many female candidates as possible. But fundamentally they succeeded in hiring more women because, like Etsy, they made diversity a value. Gnip assigned strategy, money, and resources to their recruiting efforts, and factored diversity into evaluations of cultural fit.

Every startup is going to have a company culture, by design or by default, so you might as well design yours with values that attract and keep the best possible talent. Once you’ve distinguished between your values and your vibe, hiring for cultural fit won’t just be easier; it will give you better – and likely more diverse – employees.

If you’re interested in more information about joining NCWIT’s group of startups, let me know.

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