Life by Ben

Hammer & Nails

One of my first posts was written in response to a challenge in which my friend Morris dared me to sit down and freewrite the first thing that came to mind about something random, like a hammer and nails.  The result was ehhh at best.  More than anything, it was a good exercise in improv.

Last week, that post came full circle during an event at the University of Florida where Neil deGrasse Tyson (famous astrophysicist) spoke for an astounding 3.5 hours - with no break! During one of his tangents, Tyson referenced a quote by Abraham Maslow

If all you have is a hammer, everything looks like a nail

Funny coincidence.

Saving and Savoring

I'm subscribed to a blog belonging to another Ben, Ben Casnocha.

Today, Ben had a great quote of the day as his post:

“If the world were merely seductive, that would be easy. If it were merely challenging, that would be no problem. But I arise in the morning torn between a desire to improve (or save) the world and a desire to enjoy (or savor) the world. This makes it hard to plan the day.” – E.B. White

I agree, although the quote captures the sentiment in black and white terms. 

I prefer to live my life by the 'everything in moderation' rule.  Applying that concept to the quote above means trying to both save the world and savor it, every single day.

If nothing else, what a great goal to have.

Value and Bubbles

On the first day of my Finance class in college the professor posed the question to the class, "what is the function of management in a company?"

After about 5 minutes of unsuccessful guesses from the class, the professor gave us the 'answer'... the function of management is to create value for the shareholders.  In Finance, shareholder value is a purely quantitative metric, so the idea of value creation is a function of financial statements and in the world of Finance they take it a step further and quantify it every way you can imagine: stock market charts and M&A (mergers & acquisitions) activity is rooted in value and even more importantly, the perception of value.

Business takes place when both parties perceive it as a good deal. 

Later in college, I wrote a comprehensive research paper on the events leading to the financial meltdown in late 2008.  Since everything in that paper had to be cited appropriately, I actually needed to dig into page after page of information to get to the root of the problem.  When it was all said and done, I was left with an overwhelming understanding of value and how crazy things get when there's too large a gap between inherent value and perceived value.

The industry term for that gap between inherent value and perceived value is called a bubble.

Major economic downturns often take place in the aftermath of a bubble bursting.  That is to say, right after the market has finally realized it was placing too high a value on something.

So how can we make sure we create actual value and not perceived value?

It comes down to maximizing the number of win/win transactions and minimizing the number of zero-sum transactions.

Zero-Sum games are situations in which one player's gains are balanced by another player's losses.

 There's no point in deliberately creating zero-sum outcomes.  Listening to the other party's needs and being honest about your own needs lends itself to ethical (and efficient) business.  Another professor of mine loved a gem of a concept with our class

Business takes place at the speed of trust

The United States has established itself as one of the most trust-worthy business ecosystems in the World.  I'm not saying everyone is honest, but it's sure easy to verify in a few phone calls whether someone is a hard-worker who doesn't take shortcuts or a faker trying to make a quick buck.

We need more of the first, over time I'm confident we'll see less of the second.

Riding Waves

I was never a surfer but I like to use the analogy of surfing when thinking of dealing with inspiration.

Inspiration comes in waves.  It doesn't stay forever and it's important to catch it with good timing. 

The key with catching the waves of inspiration is two fold

(1) If I didn't catch any waves today, tomorrow is a new day

(2) I'll never catch any waves if I don't show up

That said, everything is rolling along with the company pretty well.  We're riding a very good wave right now after a brief period of quiet.  We're going to continue riding it and once it subsides (it always does) all we can do is keep showing up and hoping for the best.  The waves always come back.

Ride on.

 

On Investments

A company (just like any other organization) should always try to live up to its full potential.  Often times, in order to reach that potential, funding is needed.  And almost always, one needs to ask for the funding by stating what issues the funds will address and how you'll go about resolving these issues (i.e. there's a demand for lemonade in the neighborhood and I'll invest $100 if you can supply the lemonade to meet that demand).

It's interesting how every organization has very specific funding needs to serve its purpose; $1,000 for Walmart really doesn't go as far as $1,000 for a local grocery store owner.

In high school, our National Honor Society had a budget of $500 for increasing involvement in the local community.

Early in college, I ran the social life of my fraternity with a budget of $5k and allocated an amount twice that size as part of my responsibility as recruitment chair. 

Later in college, I allocated $100k to working with police and event professionals under my stint as Gator Growl Director of Security. My senior year, our team raised $20k to produce one of the biggest TEDx conferences in the world.

I'm not bringing these up to list accomplishments (let's be honest- none of these really matter in the "real world").  I am, however, demonstrating my point- different organizations have different resources to meet different goals and serve different functions.  Companies are no different.

At my previous job, I was exposed to this idea in the form of venture capital (VC) funding rounds for companies in the tech sector.  I was amazed by the various sizes of the funding rounds and the timeline of the rounds. 

Before I started working, I had the following view of investment: company A raises $1 million from investor X.  Company A proceeds to either (1) turn that $1 million into $100 million and it's a big success or (2) Company A crashes and burns and the investor never sees a dime.

As it turns out, this is not exactly how it goes.

The real-life way this plays out is Company A raises $1 million from investor X.  Company A begins using that $1 million in a way that creates value.  Creating value means increasing the valuation of the company.  For example:

• Day 1: Investor X invests $1 million for 20% of the company = valuation of $5 million
• Day 365: Investor Y invests $1 million for 5% of the company = valuation of $20 million

Therefore, I realized that sophisticated investors don't expect (although they would prefer it) their first investment to take the company to IPO.  They realize there are steps involved in building a company and reaching a certain scale, so their investment essentially says, "let's get started.  We're here for the ride."

Another thing I learned is that there is a tiered hierarchy of investment rounds which goes in the following order from early to late (disclaimer: every startup has a unique way of approaching these, I'm just pointing out the full, traditional range of equity rounds)

• Early Angel Funding (aka The 3 F's... friends, family, and fools)- gets you started
• Late Angel Funding- this takes you from starting to going

^ These are considered "seed rounds" and typically range from $250k to $2 million

• Series A Round- The first round from institutional investors (although some VCs focus only on seed stage in which case they will invest earlier) and usually ranges between $2-$15 million. The purpose of this round is to fully launch the product and begin marketing to reach customers.  Given the investment amount in Series A, you're likely to see the VC appoint a board member to support management and supervise the investment.
• Series B Round- The second round from VCs. This round comes after the company has proven customers are interested in the product and the company has proven it has the ability to execute the marketing and operating aspects.  The company needs more money to grow, and therefore this round can easily consist of amounts north of $10mm.
• Series C through Z- Further growth capital
• Initial Public Offering- the holy grail of Silicon Valley and arguably one of the least productive goals in the world, since there's no evidence that being publicly traded increases profitability in any way.  
• Follow-On Offering- After a company goes public it sometimes chooses to issue more shares to the public. 

Along any of the above steps, an investment can come from larger, late-stage investors known as Private Equity (PE) shops.  These firms normally have a niche they like sticking to: early-stage, growth-capital, late-stage, leveraged-buyouts.  VCs are considered a sub-sector of PE shops.

It's really a fascinating field, let me know if I missed anything or if you'd like to share your experience with investors and funding.

First 3 business lessons so far

It's been over a month now since I quit my job, packed up my life in San Francisco and relocated back to South Florida to co-found a business.

Our big idea is looking better than ever and we've gathered awesome feedback from those close to us as well as from knowledgable people we've met through those close to us.

In addition to the reassuring conversations we've had with people in the industries we are entering (tech/retail/fashion), the media pieces that have been coming to our attention have been confirming our major assumptions for the business in a way that is almost suspiciously encouraging.

That said, we've also learned a few lessons so far which I hope you might find helpful

1. Success is measured by the number of yes's you get

• We realized early on that for us to succeed we'll need employees, designers, and investors to say "yes, I'd like to work with you"
• We'll also need customers to say "yes, I'd like to buy your product"
• Simple, but nobody ever put it that way in school

2. There's energy well-spent and energy poorly-spent

• There are 300 million people in the U.S. If each of them got only a minute-long pitch, we'd be spending >570 years just pitching people. That's not even doing "work"! (Did the quick math on my iPhone... hope that's correct)
• The solution is to selectively choose a handful of people every week (for me the upper limit number is currently 2/day) who are each worth spending the energy required to engage in a real discussion of the concept; otherwise we'll wear ourselves out
• Note: we've found an hour to be the best length of a pitch/meeting. Not too short and not too long.

3. It's a race, but more so a marathon than a sprint

• We want to be the first to market with our business model, but not a moment too early
• It makes sense for companies which are purely tech companies to get a beta out there as early as humanly possible, gather feedback, then improve and iterate. The costs of this are lower.
• Our business doesn't have the luxury of a full blown launch for the sake of immediate iteration. We're gearing up for a launch that will reflect everything we need to know, and putting all the pieces in place takes time.

So yeah, that's all I got for now, hope it's helpful!

Passion Revisited

Throughout this recent development, I've been thinking, "how does everything I learned about passion actually fit into the decision to go try starting this company?"  It's very obvious to me (and the people I tell) that I'm passionate about the move and the idea, but that's not exactly alligned with the conventional "follow your passion" model. I'll explain.

You see, the traditional "follow your passion" model is phrased in a way that I always understood to mean that early in life we form interests/habits which will ultimately be the things we should do as a living.  That way, you'll never hate your work.  And I agree with that, to the extent that you want to be a happy employee.  And there's nothing wrong with that.

However, my entrepreneur-minded friends and I share some traits that whether for the best or the worst prevent us from wanting a job; we're just not wired that way.  We're driven by the same "attractor" that drives people who wants stable work, but our reward centers are not even tickled in a cubicle.  To us, a day spent working on someone else's materials is a day wasted not working on our own materials.  So what is the passion that drives entrepreneurs if not a hobby/interest?

I think it's a passion for building things.  If you've ever looked at your boardgame collection and chosen the 1,000 piece puzzle over the 100 piece puzzle, you know the feeling.  It's a sense of wanting to undertake a project you know will be highly challenging and might not even work- but you're going to be on your toes the whole time and if/when you do finish it, it will all have been worth it.

The creative spirit is one and the same in artists, designers, entrepreneurs, architects, etc.  We all want to build something we're proud of.  And if other people like it too, that's quite a bonus.

Walking Away from Six Figures

Today I quit my job as an investment banking analyst.  Between my internship at the office two summers ago and my tenure since graduating from college, I worked there for a total of eight months.  Not chump change when you work an average of 80 hours a week.  Some may even say I gained 16 months of experience in half the time.  Either way, I worked.  A lot.

And why would I leave such a fun industry you may ask?  Well...

Nine months ago my friend and I had a revolutionary idea for starting a business in the fashion industry, likely inspired by the awesome HBO show (which was surprisingly cancelled ahead of its time) How to Make it In America.  We were very serious about it, but after a couple months of intense discussion, we decided to table the idea until we had some more experience to go out and build it.

Fast forward nine months.  We've added a Founder to the team.  We're older.  We still love the idea.  We have an investment lined up. The question became not whether we should do it, but rather why the hell not?  I weighed out the options and realized this was a win-win for me.

So I jumped.

I'll be here in San Francisco, happily unemployed, for another week.  I arrive in Miami, FL next Monday ready to start the next chapter of my life as a first-time entrepreneur.  I want to make all the mistakes and make them as soon as possible.  It's like learning a foreign language as a kid- there's no better time to do it and you don't need any previous experience.

There are no promises for the success of this business but you know what?  There are no guarantees with anything in life.  I'm ready to see what comes now.

Never been more hungry and more foolish.

I'm back.

House of Cards

The other day I was talking to a friend about an idea he had for a new project that could turn into a business, potentially, maybe down the road.  My friend is a musician and the project would revolve around music, but he values my view on things related to business so he bounced the idea off me for my opinion.  I gave him some pointers and helped him think about the big picture about where it could go.  I got him so pumped up that he wanted to hang up so that he could write down everything coming to him before he forgot it.  I got a big thank you from him later that day.

That happens to me with a lot of my close friends and family.  And I don't think it's a coincidence. 

I'm a positive person to those people who I care about.  I help them conceptualize things and give them my 2 cents on decisions they're making.  I don't always know the answer but if you ask me for my opinion or share good news with me, I assume it's because you think you'll like what you find on my end of the conversation.  I'm fortunate enough to recognize that and love rising to the occasion.

And then sometimes I want to share good news with people or ask for their opinion.  Seeing that I'm a big fan of face to face interaction, and I spend 80 hours a week in my office, I started sharing the news and asking questions of those in my office.  It took me a few months, but I'm realizing that's a mistake.

Bringing my personal life into the office and expecting to find the same kind of support and love that I find with family and close friends was pretty naive of me.  It's not their fault, though, and I still enjoy them and respect them as coworkers.  I'm learning to manage the work/life balance and the sad truth is that most people won't be happy for me when something good happens to me. 

If A=A, all is well.  If I bold one A, now it's no longer equal to the regular A and that upsets the regular A.

Those people are weak cards.  And they don't support a strong house of cards. So I discard them. 

I want to be a solid, reliable card for people.  I'm a big believer in karma so I know it will come back one way or another.  I give because I know I'll receive in return.  Some might call that selfish but what's the alternative?  Give, give, give?  Before you know know it, you'll have nothing left to give.  Giving and receiving over a lifetime goes a lot farther than only giving for a year.

So here's my challenge for you:  Assuming you want to be better people - stronger cards - I challenge you to pay attention to the way you react when they break news to you or ask you for your opinion.  Notice it, think about it, and ask yourself, "if I was that person, would I consider myself to be a strong card?"

Deep down, are you happy for them or do you find yourself inexplicably jealous?

No matter the answer, it's never too late to change. 

There are 52 cards for a reason :)

Would you eat the apple?

One theory on our creation goes as follows: God created Adam and from Adam God created Eve. Adam and Eve lived in the Garden of Eden, naked and blissfully ignorant, until a snake tempted Eve to eat the fruit of knowledge. Adam and Eve then clothed themselves, pissing off God, resulting in eternal banishment from Eden.

I like stories. But even more, I like hearing other people's takeaway from stories. So my question for you is simple.

Would you eat the forbidden fruit, even if the implications were banishment from Eden?

How much does truth really matter- to you?