Jerry Kaplan

Supported by Greenhaven Road Capital, finding value off the beaten path.

Technology startups are hard, blah, blah, blah.

When I finished writing about failed startups, my overall impression was that technology startups were like running marathons. You could prepare, but like any novice, there was a lot to learn and only so much you could do. If that weren’t enough, you’d compete against seasoned veterans who knew all the tricks.

Bill Gurley suggested the book, Startup: A Silicon Valley Adventure by Jerry Kaplan as a type of training for entrepreneurs. It was a prescient book about technology companies.

Michael Lombardi said that once you get to the NFL you have to draw on whatever knowledge capital you have because there won’t be time to “get ahead” when there. So too for tech. entrepreneurs. What do you need to know?

You will never be ready for this. Leaving the hospital after my first daughter was born my initial thought was, ‘Wait. What? I just leave?’ It’s more difficult to leave IKEA than the hospital. But that’s a big part of an uphill life. You won’t ever be fully ready. Kaplan found this out right away.

“But after the meeting broke up, Mitchell (Kapor) took me aside, ‘Jerry, I’ve been thinking. Why don’t you try to do this project yourself? You’re a smart guy…’ I was shocked. I thought of myself as an engineer, not a CEO. Mitchell had a reputation as a deft manager and business strategist. ‘But I’ve never managed squat.’ ‘You think I had more experience when I founded Lotus? Just remember, political history is written by successful entrepreneurs. All you have to do is make a pile of money and everyone will think you’re a genius.’ He chuckledd and shrugged. ‘C’mon, I’ll introduce you to some VCs.'”

Jeff Bezos wrote in his 2017 annual letter to make decisions with 70% of the information you wish you had. In his book on Amazon, Brad Stone wrote:

“By the first weeks of 1996, revenues were growing 30 to 40 percent a month, a frenzied rate that undermined attempts at planning and required such a dizzying pace that employees later found gaps in their memory when they tried to recall this formative time. No one had any idea how to deal with that kind of growth, so they all made it up as they went along.”

Start before you’re ready, okay, what’s next. Well, issues quickly fall into things you can and can’t control areas. For things, you can’t control take your best guess and move on. For Kaplan, this was hardware, chips, and programming languages. He wrote:

“All computer products are hopelessly interdependent, stacked like faces carved in an endless technological totem pole…so resources are allocated on the basis of promises and reputation, not observable facts – like oceanfront condos sold on the strength of a developer’s rendering.”

For areas subject to more control, Kaplan took his time. Culture for example:

“Companies are not conscious in the human sense, but each one nonetheless has its own personality…The culture may be explicitly acknowledged as a credo or mission statement, but more often it exists as an unexpressed set of accepted procedures, practices, and behaviors that may at times be at variance with the professed goals. This underlying code is not visible in inventories or income statements, but it is the soul of the company.”

This soul is not “created by fiat, mandated, manufactured or bought.” It comes from the early employees, starting with the founder.

Culture is fractal. Whatever “shape” the founder is that’s the “shape” that will repeat. Ben Horowitz said, “culture is what people do when you don’t tell them what to do.” Get this right, said Pete Carroll and, “people will function at a higher level. They’ll come in earlier. They’ll stay later. They’ll be more on it. They’ll inspire those around them. That’s the subtle way of improving an organization.”

Okay; start before you feel ready, hire excellent people early on – what else? Ah yes, a warning about the elephant, Microsoft.

It’s striking how the beats to Kaplan’s song and dance are the same today. Microsoft was to Go as Instagram is to Snapchat. Kaplan wrote, “If we so much as threatened to sue, it would rain lawyers on our office like the plagues of Egypt.” Big companies aren’t as agile as smaller ones but they will bound after their prey to catch up.

For Kaplan it was Microsoft but it’s any big company really. Amazon, Google, Faceflix, etc, ad Infinium. There will always be some giant that can swoop in at any moment and cut you off. Once issue Kaplan faced was developers who had been softly encouraged to not write code for him. ‘We’d love to help, but…”

Brian Chesky found this out when starting Airbnb. His advice to future entrepreneurs was to fly as low as possible for as long as possible but once you were discovered to grow as fast as possible. One possible path is to have a Disruptive Innovation as Clayton Christensen defines it.

Alright; start before you are ready, hire excellent people, be ready to fight the Seattle Elephant. Are we sure this is a good idea?

Kaplan’s father asked him this. “‘I can’t believe you quit a real job to go do this. They’ll skin you alive if you can’t pay the money back.’ He spoke in an urgent whisper, leaning in as though to warn me…(but)…The individual is legally insulated from personal disaster, a circumstance that encourages risky projects like GO.”

His father didn’t understand that in systems like the United States Technology Sector, Kaplan had a limited downside. Better yet, Kaplan had “Star Wars Convexity“. Chris Cole wrote that George Lucas traded short-term payoffs for long-term ones when he traded salary for rights. That’s what Kaplan did too. Rather than a normal job with normal rewards Kaplan took an abnormal job with abnormal rewards.

Whew, back on track. At least we have the opportunity for a big payday and contributions to something meaningful in return for what, at this point, seems like a rather dubious project. If you’d like a happy ending, stop reading now.

What does it feel like to run a company, raise money every six months, try to out-design Apple, out penetrate Microsoft, and convince IBM not to screw you? It feels like having cancer.

“It struck me that this must be what it’s like to have an incurable cancer. You wake up every morning wondering if it’s a dream. Then you remember: there’s something horrible that is slowly killing you, and you’re helpless to do anything about it. So you go on acting a normal life as though it makes a difference…I felt a larger obligation to the team: the only decent thing was to do what was best for them, not for me…I now understood what it meant to be an adult.”

In another part of the book, Kaplan writes that running the company is like going to the top of a tall building and jumping off with the supplies – thanks to the latest fundraising round – for a parachute. If they can assemble it on the way down they get the reward of trying it again.

Of course, it doesn’t seem that difficult. When you test parachute assembly in the office it only took a few minutes. The engineers computed that it took seven minutes to fall the length of the building and special wingsuits were designed to combat cross winds and birds. The team is trained for RDPA (rapid descent parachute assembly) daily. NBD.

Planning like this helps but only to the point of being generally accurate. Too much precision comes from too many assumptions. Kaplan wrote:

“The formal techniques for decision analysis that business schools teach are fool’s gold, a vain and misguided attempt to systemize the chaotic. The mere existence of these methods betrays a darker truth: we harbor a desperate desire to believe that the world is ultimately predictable. But anyone who has managed a startup knows that predictability is an illusion.”

Later in the book he put it this way:

“As a five-year-old I watched a story about Africa and saw the animals running around but then went to the zoo and saw them laying around.
Sitting in the briefing rooms of AT&T thirty-five years later, watching staffers project spreadsheets, graphs, and slides from their portable computers onto the large screen monitors, I realized that computers mislead managers just as television misleads kids. Fed a steady diet of numbers and charts from the comfort of their conference room chairs, senior executives experience only a desiccated version of the powerful forces that shape and grow their organizations. Mistaking these two-dimensional reflections for reality, they shadowboxed their way through complex decisions, unwittingly jostled in one direction or another by self-interested emissaries, who can spin a tale of threat and opportunity as skillfully as any Hollywood screenwriter.”

Numbers are not the real world.

For a variety of reasons, Kaplan’s startup didn’t make it. It was time for layoffs. “‘Remember that people are likely to be pissed,’ Bill (Campbell) said, For the most part, they just wanted to talk.” People often just want this. One big part of our How to Negotiate Well post was about listening.

We’ll end this post with the start of the book:

“The last of the obsolete personal computers, engineers’ cubicles, and other debris of a corporate shipwreck was finally liquidated, sold piecemeal to a crowd of hopeful entrepreneurs.”

Thanks for reading,
Mike

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