I - Writing and the Startup Landscape
On the process of writing High Growth Handbook: The book started as a series of blog posts on questions that Elad and his friends faced with their own companies. “Repetition and consistency” helped him build a body of work subconsciously over time. “Once every n posts you’ll have something really good, but it takes many good posts to build up a corpus.”
What changed after Stripe Press published the collection as a book? “One thing that really surprised me is that once you have a physical book, people start treating your writing very differently, like it suddenly has a level of seriousness that, if it was a website, people wouldn’t have treated the same.”
On the changes in the startup landscape:
1- Founders no longer hire external executive CEOs. “When Facebook hired Sheryl Sanberg as COO instead of CEO, there was a really big shift in how VC and founder communities thought about companies.”
2- Companies are staying private longer. The mid-to-late stage private market functions like a small public market in providing liquidity. For comparison, Amazon had IPO’d after two years in business at approximately a $500-800M valuation; Yahoo was in the same range. Things started to shift after the dotcom bubble collapsed, when Sarbanes Oxley made it harder to go public and later-stage/founder friendly capital started to emerge from funds like DST. (Interesting note: DST’s round with FB was actually a down round, but no one ever talks about that now— “down rounds are treated as terrible events, though they are just another financing event.”)
3- Megafunds have had ripple effects, including inflated valuations, huge rounds, and overcapitalization for certain companies.
On developing product building skills: Work on great products. New grads should ask, "where are there really interesting things being built in a repeated way at scale?" Those are the places to best learn the discipline of being a product manager or building products—which is different from side projects and experimentation.
And if you’re a founder, hire experts. “Bill Gates in the early Microsoft days was notorious for hiring in COOs who he’d learn from—he’d replace them every 24-48 months to then learn from the next person at the next scale.”
On “bad growth”: There are two kinds of “bad growth” — (A) growth engines attached to products that aren’t working, and (B) viral loops that drop users onto products they don’t care about, with high churn.
In contrast, he said, “the companies with the rawest product-market fit are ones where the product, despite being broken, has so many people trying to use it that the market pulls the product out of the company. Twitter, when I was there, was a great example—the site was falling over, it was barely usable because it was always down, but the market need was so strong.
One sign of raw product-market fit is when something has grown despite itself. That’s when you know you need to build out the basic engine to keep scaling.”
On angel investing: Emphasize product market, team quality, and ethics. “Does a product fit the market and [is the team] building something interesting relative to it?...I've seen really great people [get crushed] in terrible markets.”
Great products are definitionally non-obvious, “things that are weird or feel small, have a new technology breakthrough, or where the market seems crowded but no one’s actually doing it well,” as was the case with Dropbox, Box, or Stripe.
II - How to think about career & making an impact
Elad emphasized that there are many different ways individuals and companies can have impact—from grassroots social entrepreneurship to working in big tech—and urged people to “turn down the judgement” and find the path that best suits their skills and interests. Most importantly, he advised, “find people who are optimistic, smart, and focus on doing good work.”
Don’t overinterpret what is “good” vs. “bad” work: “When I started Color Genomics, which was initially focused on breast and ovarian cancer risk, people would call me and ask, ‘Isn’t it great that you’re finally working on something meaningful?’
Before this, I’d worked at Twitter, which was part of the Arab Spring, or Google, which had provided enormous transparency and access to information...I always found that kind of statement very odd. Working on cancer was incredibly rewarding and important, but that doesn’t mean the other things were not.”
There are many ways an individual can have social impact: “Some of the people [who have] the biggest social impact either build a platform, join a platform, or make a ton of money and then invest it into social change. All those forms are legitimate; the path is an individual choice.
You can start a very mission-driven company like Stripe, which participates in climate change and a variety of relevant issues. You could [join] Tesla or SpaceX which is clearly on a mission. Or you could [do] great work at [a company], amass wealth, and then donate that wealth to things that are important societally.”
Sometimes mission & work go hand in hand; otherwise, there are other ways to express social impact. If you’re very successful at building an internal ops tool, you might build the “platform, skills, and network to go and do really important things that you care about.”
...And there are many ways for a company to have impact, too: “Color was mission-driven from day 1...but there are other companies that don’t start off as mission-driven, or start off as a hybrid. Google’s initial mission statement was to organize the world’s information and to make it accessible and useful…
Climate change is [an area] where I’m seeing a lot of people coming out of companies like Stripe really trying to contribute the skillsets they’ve developed over time.”
Contributing to technological progress can yield dramatic results: "In the early 2000s, a lot of people spoke about the digital divide...[MIT was] going to build a $100 computer, because they were worried that people would get left behind... Then, smartphones came around and it was ‘game over.’
The market doesn’t always solve these problems, but contributing to technological progress [can dramatically cut costs] in multiple areas, and that tends to benefit the people who are the poorest in the world, in some cases in a disproportionate manner. I think people often forget that [technology drives cost down] and areas that are largely unaffected by technology so far—education, healthcare, real estate—are ballooning cost and hurting people."
Bottom line: Find a group that uplifts and challenges you: Elad expressed concern at “the degree to which cynicism has become pervasive around what technology can do to help people”:
“There was a young founder, 21 or 22 years old, who I was once helping out. At a dinner party...he said he wanted to start a company to help others. Someone at the party started laughing and said, ‘That’s so stupid—you sound like someone out of [the show] Silicon Valley.’
[I told him] to find new friends! Hang out with people who actually believe in building things for others that are helpful for the world...You’re not going to do a moon landing if somebody constantly tells you about how hard the physics are, or says ‘why would you go to the moon’?”
III - Present & Future
What interesting non-obvious markets have developed in the next few months?
Social products: “There's a generational opportunity [in social products]...people are stuck at home and more hesitant to go and see people in person. This is a moment in time where you can try a lot of these things. Clubhouse [is] an example.”
Vertical SaaS/remote work: “The penetration of distributed work was quite low, [but now is] something everybody is forced to do...Things like Zoom obviously benefit, but there are probably half a dozen other products to build...the non-obvious thing is what to build— what's the permutation that'll work?
People have been trying some of these things for years; I've funded a number of companies that have failed that focused on remote work 2-3 years ago and couldn’t get the strong adoption they can now.”
Elad’s personal goals for the next decade: Family, society, and contributing locally to the tech community. “There was a really strong ethos of giving back when I showed up. When I moved out here, I slept on a friend of a friend’s couch for the first month or two...people just helped each other. I was lucky to fall in with a good group of people; I want to keep contributing to that trend.”
IV: A Question for Us
What's the coming social product of the next 1-3 years? “Between WebRTC and people getting stuck at home, I've been spending a lot of time on niche social products and different websites and university programs...little bits and pieces of interestingness are starting to emerge. Stay tuned in the next few weeks for an experimental project Elad is building with a friend!
To learn more from Elad, sign up for his startup series.
RSVP for upcoming Highlighter Live town halls at www.highlighter.com/discover.