Founder Friendly
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Here's a quote from the book after Ev was told he was out with a vicious quote from Fred:
Williams, stunned, picked up the phone and began dialing. Bijan Sabet was apologetic and insisted that they wanted to keep him on in a product-advisory role. According to several people at the company, Fred Wilson, however, said he thought Williams had always been a terrible C.E.O. “I never considered you a founder,” he said. “Jack founded Twitter.”
Other portfolio investments of Fred's have followed a similar pattern of having the original CEO pushed out once they get to a certain level of success.
And honestly, they should. Managing a company through 50, 100, 150, 500 and 1,000+ employee milestones requires very different leadership skillsets. There are very few founders who (1) understand this (2) are willing to party ways with their company (3) can navigate through each stage without help and (4) would pull a Zuck and surround themselves with more established/senior people (e.g. Sandberg) as they hit those milestones.
I'm all for young entrepreneurs challenging the status quo by thwarting an old guard of seemingly "old people" (a la Jack Barker), but this is one area that traditionally has a lot of "old people" simply because experience is incredible valuable to scaling companies.
I haven't read "The Hard Thing About Hard Things", but my understanding is that it basically touches upon all of the intricacies of how to navigate business challenges that typically more experienced senior individuals possess.
Your statement contradicts itself. He was not about to be fired, his legal standing guaranteed that could not occur. The investors and board fully understood the context the entire time, they invested knowing that it was Zuckerberg's kingdom. Besides, he was the board legally.
Please recall the entire context:
Thiel stated early and often (as Facebook's earliest investor) that he would stand behind Zuck retaining majority control. Based on this support there was no other option than to provide Zuck with all the support, mentorship and education he would need to scale along with FB.
Zuck had unflinching VC support :)
I'm not convinced. If you look at the big ones like Amazon, Facebook, Apple and Microsoft, they kept their founder until big except Apple where they kicked him out, went pretty much broke and then got him back and then recovered.
There are also many examples where the founder was kicked out and the company tanked but it would be hard to distinguish cause and effect there - maybe they were fired because the company was doomed. I find it hard to think of any where they achieved great success by firing the founder(s).
Managing a large company is a skillset but you can hire for or learn that.
Having the vision and drive to start and build a company is also a skillset, and one that's much harder to hire a replacement for.
By the way The Hard Thing suggests hiring experienced people to help the CEO, not replace them.
The ecosystem thrived and created dozens of major companies that made Twitter truly useful. The user numbers grew as well because those very same companies marketed their new and innovative solutions. Then Ev was fired. Dick was brought in and month of after month they lay waste to the ecosystem. Dozens of companies died and hundreds of millions of dollars in VC money was lost.
Why? Fred wanted to cash out with a lot of other VCs. They wanted to turn Twitter into a media company. Run up the revenue and go IPO to dump their shares. Sure, if Twitter went along with their founders vision it could have been much bigger over time but going that route didn't help Fred cash out his 100x return and report back to his LPs.
The reality is founders spend years even getting off the ground. The "board", represented by VCs, rarely add value to the operation and vision of the company. They invest because they believe in the vision. Make sure that reality is in writing so people like Fred don't stab you in the back so they can cash out early.
I agree it sucks that Twitter shafted its developers, but the LPs wanted to get paid. They don't get into VC to back charities. The VCs are just repping their LPs when they do this stuff.
This comes at the cost of what is good for the company. Using Facebook as an example, you would sell Facebook when Viacom wanted to buy it for 75MM. Great huge return for investors for such a young company. Can turn around and show your fund had a huge exit. Especially great for a seed fund but terrible for the founder and the employees. Luckily, Zuckerberg had control and could thwart investors desire for a quick sale. [1]
I am totally not against VCs making a return but what I am against is VCs forcing premature exits. We may never know what Twitter could have been if the ecosystem stayed in-tact and they figured out how to monetize the whole thing and kept the user growth trajectory in place.
[1] http://www.businessinsider.com/all-the-companies-that-ever-t...
If they had let the system continue, one of the clients could have gotten enough market share that they could have simply changed the backend to their own app, and none of the users would have batted an eye. Or Facebook could have bought up 2-3 of them quietly then forced Twitter to sell on the cheap.
It's easy to romanticize the wild-west period of Twitter's API being completely open for all use cases. However, it was, from a strategic perspective, extremely dangerous to the company's future - there's a reason why companies now know to build walled gardens.
For anyone wondering why parent uses "undone", "could have been much bigger", at a time that Twitter is a household name, the President tweets, people hold public conversations over Twitter, and list Twitter handles instead of their emails.[1]
It's because Twitter is "only" an $11.9 billion company by market cap, whereas Facebook is at $492B or 44 times bigger. I can't think of any other metric by which Twitter isn't a resounding success story.
[1] https://levels.io/hoodmaps/ - Very bottom "I don't use email so tweet me your questions."
Take Hollywood, for example: few things nowadays are as ever-present as motion pictures, but the total box office revenue for 2016 was around $11bn [1]. That's about 19 days worth of revenue for Apple, going by their last quarter [2].
Just because you see it everywhere, or everyone talks about it, doesn't necessarily mean that it's a huge moneymaker.
[1] http://www.hollywoodreporter.com/news/2016-box-office-record...
[2] https://www.apple.com/newsroom/2017/05/apple-reports-second-...
Seriously though, I think you're being totally unreasonable. :) $11 billion is huge revenue for movies. That's not chump change.
¹ https://www.forbes.com/sites/laurengensler/2016/05/26/global...
Twitter might be ubiquitous (a household name, as you said), but just like Iron Man, its popularity is not proportional to its financial success.
& who can say for sure if what was written in Hatching Twitter is correct?
Everyone on HN is SO sceptical of everything, & then as soon as something negative is written about a VC you jump on them like a pack of hyenas.
The stakeholders are - the employees! The customers! The suppliers! The community!
He makes it sound like that anarcho-syndicalist commune in Monty Python and the Holy Grail.
I guess it slipped his mind to mention - the VCs! The LPs! The LPs looking for their exponential unicorn returns within ten years.
Benchmark is alluded to, and Benchmark has a long history now where you can look into their machinations on boards - Uber. Twitter. Epinions.
An LP is an LP. VCs have a few decorative ones for PR, but ultimately the LPs are just the LPs - the real ones.
There are those who work and create wealth. There are also those that do not work - like LPs. Rentiers who expropriate surplus labor time from those of us who do work. Since the dawn of civilization there has been a tug of war between those who do work and those rentiers who do not. This is yet another occurrence of the tug of that rope from one side to the other. Today it is Uber, but it has been a host of other companies before, and if they have the ability they will be pulling the rug out from those who built the company again in the future.
Wilson's doggerel here is a transparent apology for what is ultimately rentier parasitism. Parasitism on those of us who work by those who do not.
It as been successfully done at Valve
http://hbhblog.blogspot.pt/2013/03/valve-steam-anarcho-syndi...
http://www.econtalk.org/archives/2013/02/varoufakis_on_v.htm...
The pendulum swung too far with and things started going wrong. When things go wrong in founder controlled company, things can go really wrong. Uber is the poster child.
The question is how VCs can take back some control without being painted as founder hostile. You can see that happening with Benchmark. I am impressed that USV is speaking up. It is easy to hide in the shadows.
[0] http://www.businessinsider.com/how-ciscos-founders-were-oust...
Also I think Google did bring in adults: notably Eric Schmidt.
VC 'industry?' Please Fred, VC's don't produce anything. It's very charitable to call the class of people with access to money and the desire to lend it out under very favorable terms to company founders an industry.
VCs are founder-friendly until they have to side with the company.
VCs are company-friendly until they have to side with their LPs.
I learnt this lesson after getting kicked out of my company by VCs from NY (the story is not dramatically different than what Fred did at Twitter). My VCs always pretended to be incredibly supportive, but when we found ourselves in a tough spot, I saw the really ugly side of the VCs (making baseless threats to get the founders off the board, telling porkies to other investors to sullying the founders repuation, etc etc). In my experience, the east coast VCs are the worst - they play a lot more games / most of these guys are banker types. Most of them have never built a company before and have no clue what it takes to really build a successful startup (sorry, just because you sit on a board doesn't mean you understand the hard work, tears, daily ups and downs, personal sacrifice it takes to build a business).... These people know how to schmooze, and then stab you in the back if they don't get what they want....
Investors have 1 goal - maximize their ROI. They are your friend as long as they think they are getting the maximum return they can get. If you are an entrepreneur and you believe anything else, you are waiting to be screwed. As an entrepreneur, it's your job to protect yourself.
If you are an entrepreneur reading this, take the following advice from someone who got f by people like Fred.
1. Read Brad Feld's book "Venture Deals" before you take money from any investors. Make sure you know every single terminology in the term sheet (this is where the wolf in the sheep's clothing reference is really true - VCs will screw you over if you don't understand the term sheet).
2. Hire an exec coach or a successful entrepreneur who has seen the ups & downs on your advisory board - someone you trust completely (Never trust your board member to be this person - no matter what anyone says). The advisor and the exec coach are your 1st phone calls - they are fully aligned with, unlike VCs. IA good exec coach can really help if you are dealing with tough board situations. f you are part of YC, you always have that support.
3. If you are a valley based company, avoid all east coast VCs if you can. They are all made from the same dirty cloth.
4. Maintain board control as long as you can.
5. Try to negotiate and get a final say on the independent board seat (often hard to get).
6. Learn how to manage your board - this is probably the most important advice. You need to know how to play the game, so that in tough times you have enough support to keep your job. If you don't have a board control, then try to build allies - perhaps build a strong relationship with 1-2 board members that will support you when others are trying to screw (which they will!).
At the end of the day, it's all about leverage - as soon as you are about to get your first board member, think how you build leverage. There is nothing wrong in taking money from VCs, you need them, and they need you. But if you get into the relationship knowing this is not about friendship/relationship - it's just business, and when it comes to money, people act in all kinds of ways, you will not be under delusion. You will protect yourself from day one. Good luck!
Couldn't agree more with you. There is one VC who echoes these very sentiments. Vinod Khosla never hires someone in his firm (especially those that sit on startups' boards) if they have not been entrepreneurs. When he does hire non-entrepreneurs, they don't sit on boards and within 2-3 years they're expected to go out there and do/join a start up before they can be allowed back at KV.
His logic being that, one cannot truly empathize with what an entrepreneur is going through without having started a business of their own or being at a start up during its infancy.
There are issues with founders, employees and VCs, where each invest in "the company" with an expectation of different payoff schedules, and each is not at all looking out for the best interests of the others.
So this is really a fight for the high ground - who gets to set payoff schedules: the founder, or the VC? Who gets to set strategic direction? And who's just along for the ride? [Note that the employee is not really in the running here, and that since they aren't allowed to set any rules, they should be as ruthless in extracting value (pay, career development & benefits) from companies as VCs and founders would be in extracting & securing their payoffs.]
In the end, these people aren't your friends, and any friendliness is simply another form of currency, which they can chose to invalidate at any time. Like Benchmark Bucks.