Guy Kawasaki: The Top 10 Mistakes of Entrepreneurs

thank you all for coming tonight look at this crowd this is great um this is a fantastic event so we are very happy to introduce you my name is Alex Lola this is Slava Balter we are the co-chairs of the be plan competition UC Berkeley startup competition and we are very happy to present this event today just a few things about how we are planning it, first of all, this is our 15th anniversary of our plan here at UC Berkeley, pretty cool, yeah, and it's going to be an exciting competition, we've already signed up some really renowned mentors and judges from Silicon Valley and this year there are more than one hundred and sixty teams that participated and we have already selected the 39 teams that will go to the semifinals and very quickly.

Before we get to Guy Kawasaki, it's about where we are with the competition among the hundreds, like 60+ teams in DISA. This year, the 39 who entered are already getting bad, so they will start competing in the next ones. months and we are going to start iterating on the process and using some of the techniques. Potentially, many of them are here today learning some wisdom from the guy and trying to get to the process of what my idea means and how to carry it out. to a prototype in April, I'm really excited about some of the teams that have come out of the process this year and will continue to learn from them and continue to learn from some of the mentors that we have on board, so I wanted to do that as well.

Let's give a quick round of applause to the Leicester Center and Kirsten for organizing this event tonight some of the fabulous work, as well as the plan B executive committee, so if you get a chance to say hello to them, a quick round of applause for them too, tons of work and last but not least, the hard work of one of our executive members, Antonio Silva, has been working diligently and very hard to get Guy Kawasaki to come to campus and here we are, so Antonio comes on stage and I want to give a quick introduction. let it go, thanks, so introducing Guy Kawasaki is sometimes a bit absurd for a bunch of geeks like all of us.

He is very well known and will also be a semi-final judge for this year's plan V competition. The boy was born in Honolulu, Hawaii. He has a bachelor's degree in psychology from Stanford and an MBA from UCLA. He's been the Apple M fabulist since 1984, a term that Federalists marketing actually started with him. He's now an advisor to Google and Motorola, so it's an interesting change if we have time for questions that would be something I'd like to ask him. He is a professional writer, as you can see here, he has written more than a dozen books and he is going to tell us about the top 10

mistakes

of

entrepreneurs

.

I'd like to thank you. Guy Kawasaki for coming here today and welcome, oh, thank you very much, this room. I have very good feelings about this room because my son is a freshman here at Cal and yes, this is the room where during Cal Day we got the presentation. for Cal for Haas and so I have a very warm feeling about this place and I went to Stanford, but now I'm focused on Cal. Can I just say that? If any of you start companies and need an intern, my son is available and if you combine the The number of followers that my son and I have on social media is 5 million, I have four million nine hundred ninety thousand ninety-nine and he has thousand, so yeah, I'm very happy to be here and it will be a lot of fun.

I am going to present something about the top ten

mistakes

of

entrepreneurs

. Let me give you a little more about my experience. I worked for Apple from 1983 to 1987. I was Apple's software evangelist, so my job was to convince people to write software for the Mac. This meant I worked in the Macintosh division, which meant I worked for Steve Jobs, which which meant let's say he had a very interesting career. I wasn't an easy person to work with, but I definitely got the best results from people and that's how I learned. Much of it back then the Macintosh division was probably the largest collection of egomaniacs in California history.

We held that record until last year when Facebook broke it, but we held it for a good thirty years just to show you what bad people we were. Back then the company was the Apple and Mac Division, the Apple Division was shipping, you know, ships full of apples two at a time, making tons of money, the Macintosh division was still in R&D, so we were burning money , so if you looked at Apple's P&L, the P was Apple two and the L was Macintosh, and yet we wouldn't let people into the Macintosh division buildings, if you can imagine, and if any Once you become CEO, never let this happen when one part of your company can't go to the other part of the company. company that is not good for morale and especially after Apple, two people realized that they were paying for the building they were not being taken to, as you can imagine, that really pissed him off and logically they came up with a great joke I love to tell this great joke about the Mac division, which is about how many Macintosh division employees take the screw to light the light bulb.

The answer is: the Macintosh division employee holds the light bulb and waits for the universe to revolve around him. Microsoft's version of this joke and Microsoft's version is how many Microsoft employees does it take to screw in a light bulb and the answer is none because Bill Gates has declared darkness the new standard. I hear you're at the beginning of your career. I'm kind. Lately in my career I started in technology around 1983 and for about 25 or 30 years I watched high tech speakers and I'll tell you, with the rare exception of Steve Jobs, most high tech speakers have two notable qualities: First, they suck. . speakers and the second quality is that they talk a lot and that's a really ironic and dangerous combination because if your speech is short, it's fine and if your speech is long and you're great, it's fine, but if it's bad and it drags on, that en Being stupid and arrogant, you know, it's just not a good combination, so what I did at the beginning of my career was I adopted the top 10 format, so I always use a top 10 format for my speeches, but I must tell them that this is a speech.

I had never given before and then I realized I forgot to put numbers in my top ten points, but tonight there are ten points and the reason I use the top 10 format is that, in case you think I'm a Yuck, you know approximately how. I'm going to suck much more because I have 10 points for you so without further ado if you let me talk about the mistakes of entrepreneurs I have been an entrepreneur I have worked for a Fortune 500 company like Apple I have been a venture capitalist so I have financed companies. I've been an advisor to a lot of startups, so I've seen it from all sides: the investor, the entrepreneur, the advisor, and this is really what I've learned after 25 or 30 years of working in tech.

Well, let's just say I'm not known for subtlety, so let's get to the point. Well, because you should hear it straight from the bottom, actually, the number one mistake is that many entrepreneurs make the mistake of Taking a large market and multiplying it by 1% and saying how difficult that could be, conservatively speaking, we'll just break it down. a hypothetical case. 300 million Americans, one in four have a dog. In seventy-five million dogs, each dog eats two cans of dog. food per day, that's 150 million cans of dog food per day, how difficult could it be to get just 1% of 150 million cans of dog food?

Total addressable market, that's a million and a half cans of dog food a day, let's say you make $2 a can that's three million dollars a day and you know, dogs, this is not like enterprise software, dogs eat every day, they don't take Saturdays and Sundays off, so this is 365 days a year, we can't, in the worst case, we could do three. million dollars a day, conservatively speaking, in the worst case scenario with our Rockstar programmers, we should spend a billion dollars on mockery. I can't tell you how many stories I've heard like you take a big market, you multiply it by a small number and you say how difficult that might be, then there are two fundamental flaws in that first getting 1% of any market is not that easy number one. and number two, which kind of contradicts number one, number two is that no investor wants to hear that you're only going to get 1% so in a sense you're saying that 1% is easy, but the investor also hears that you know that they are predicting that they will only be able to get 1% of this market, so you are somewhere in the middle, so don't use this kind of logic, okay, don't take this big 300 million for 0.25, you know, it's equals 150, I equals 75 times 2, equals 150 times 1 percent, equals a million and a half, it just doesn't work like that, that's a lie, mistake number one, mistake number two.

The other side of the coin is that you scale too early, that's how it works, so we go through the right 1 percent. Conservatively speaking, you should sell a million and a half cans of dog food a day, worst case scenario, okay, now do you think, Oh my God, you know we're going to need at least three facilities to ship this and we are going to need placement because our servers can never fail when these millions of dog owners come to our site and request dead cows? cans, so we need order processing, we need fulfillment, we need customer service, so let's start speeding up because our Rockstar programmers, who have never delivered software in their lives, will arrive on time, right, and with our people from Rockstar marketing in our Rockstar, you know, BMW's cornflower blue pierced-eared VP of Business Development, he's going to get all the partnerships done, so we need to accelerate, we need multiple locations, we need server placement, we need people of customer service and therefore what happens in the real world is of course, your Rockstar programmers turned out to be complete idiots, so your software is behind, your website is behind and the dogs (no game of words) they are not eating the food, it just happens that not many people want to buy dog ​​food online, so your software is late, these people are not buying your product, but you have already improved it.

It has several facilities. It has all this automation built in. It has customer service. He has people he knows in Bengaluru waiting to take those calls. People who need technology. support for opening dog food cans, so what happens? So what you do is have a board meeting and tell the investors that we were wrong. Our programmers have reached some limits when using Visual Basic that they did not anticipate, and so on. Now we really have it now, we're going to go to Python or we're going to go to PHP or maybe we're going to go to MySQL, but Visual Basic just didn't do well, from what investors are used to hearing. this is you're going to lose your first your first brand, so of course they understand it, but then you say, but you know, we've been really great at recruiting, so we have this great IT staff with this great support staff. .

The compliance staff and those people are rock stars, so we know that our team of rock star programmers will be a few months late, but it would be a shame if we recruited all these great support people to let them go now because in In three months we will have to hire new people again, bring them into the company and train them again. We've invested so much in these big rock stars that we shouldn't let them go, so what you do is you hold on. those people on board are right because now you know you're going to ship in three months, guess what three months go by and you don't ship again and now you have to go back to your board and you have to explain again, well, we.

We're not shipping, but we still have these great people that we've invested in, we need to keep them because we're just going to have to hire people like them again and start from scratch, so that's what happens when you scale up too soon. In my career, I have never seen a The company died because it didn't grow fast enough for once in my life. God help me. I'd love to have a problem where I advise or invest in a company that couldn't scale fast enough. That would be, as we say, a high quality problem. Dear God, give me this problem once in my career, the company is growing too fast.

Too many dog ​​food orders are coming in, they can't handle the volume. Please, God, give me that problem. I know how to solve that problem. Well, usually what happens is scale. too fast in anticipation of a conservative 1% with programs created by Rockstar engineering staff, it doesn't come true, you're stuck with big overhead and you run out of money, that's mistake number two, mistake number three is an obsession with associating, okay? let meto tell you something, associating is associating is just one thing that counts in a new company, its sales associating means associating means that two organizations try to compensate for their weaknesses by associating with 2 others plus 2 will equal 3 in this case associations mean nothing I just can't do it start with this alone you already know what the entrepreneur should focus on is sales sales fix everything you want your investors to leave you alone meet your numbers that's as simple as no one cares about partnering partnering is In total, just You use that word when you don't have sales.

Ok, partnering is number four. The number four. I think a lot of entrepreneurs are focusing on the pitch process. How do we present proposals to raise money? How do we win business plan competitions? How do we perfect? our PowerPoint skills and I'll tell you what listen, I can help you gain business plan context. I can help you perfect your speech, no doubt, but in the real world the key is not the speech, the key is the prototype, if someone would give it to me. I have the option of having a team come with a great PowerPoint proposal or come with a working prototype.

I would choose the all-day working prototype because in a few hours I can help most of you fix your proposal. I can't do a few. hours help anyone fix their prototype, prototyping is the key to a perfect world in this VC world it has completely changed now and it used to be that you were trying to raise money because you had to build a team to write software, you needed a year, you needed Two million dollars, you need something like that, right? but now, if you think about it, all the things you need for a tech startup are free or cheap, let's go through the list of infrastructure you need.

Ok, the current infrastructure is free or cheap. You use Rackspace. You use Amazon Web Services. No. You don't buy servers anymore, you don't buy buildings anymore, you don't rent buildings, you use Amazon, you use Rackspace, a thousand dollars, you get a terabyte in the sky, marketing before you have to throw parties, but the highest PR companies you have to do all this kind. of things now you have Pinterest you have Twitter your Facebook you have Google Plus you have LinkedIn you have all these social networks marketing is free before you have to have commercial real estate you have to have a team physically in one place now there are many virtual teams, you don't need so many assets commercial roots before you had to buy a license for SQL from Oracle, now everything is open source so if you check this list everything is free or cheap so this is a completely different world. and in this world you are expected to show up with a prototype, not just a presentation, a prototype because with twenty five or fifty thousand dollars you know money you should be able to get from your parents with your credit cards by extorting people you know.

I know you have to show up with a prototype, it's a completely different expectation and it works in your favor because when you show up with the prototype you have significantly reduced a risk, which is that you can actually deliver a product, before with PowerPoint you had a much lower rating. Because PowerPoint is total, you're making things up for PowerPoint, so let me tell you, I've been lied to so many times that you couldn't tell me a lie that I haven't heard, so PowerPoint, which is fundamentally a lot of truth, but a prototype It's not unless you're the person you're showing, they're so stupid that they don't understand that you're using mockups, but if the person is that stupid you arguably wouldn't want that person's money. because that person is too stupid, you don't want stupid money, so, it's prototype, prototype, not launch, okay, the next lie, the next lie is if you are going to launch, excuse me, not the next mistake, this is called the rule by Guy Kawasaki 10-20-30.

PowerPoint I hope you trust me on this. The optimal number of slides in a PowerPoint presentation is 10. 10. You would be lucky to get 10 ideas into 10 compelling points. Okay, the time when you should be able to present those 10 slides. It's 20 minutes, it's the 10 20 30 rule Now you may wonder why you would limit yourself to 20 minutes when you have an hour-long meeting. Probably not in this audience, but in most audiences, about 95% of the world still uses Windows and then 95% of the world needs 40 minutes to get their laptop to work with the projector, okay, then that's it the world, if everyone was using Macintosh, the rule would be ten sixty thirty, okay, but that's not true, so it's ten slides and twenty minutes. and then the ideal font size is 30 points or more, if you use eight, ten or twelve, you will be tempted to put too much text, then you will read the text and one slide in the presentation your audience will notice. this idiot is reading his slides this idiot is reading word for word I can read silently to myself faster than this idiot can read them to me I'll just read ahead, okay, so if you don't remember anything else from this presentation, In the context of the business plan you have ten slides.

Do you even have 20 minutes? Do they even have ten slides? Even better in the real world. Ten slides. Twenty minutes. Thirty point font. A good rule of thumb for font size is to find out who the oldest person in the audience is and divide it up. age for two sixty year old VC / - 3050 or VC / - you know 25 someday you can be launching a 16 year old VC that day God bless you use the 8.5 but until that day ten slides twenty minutes thirty point five next lie The next Entrepreneurs' mistake is that they believe they should do things serially, that is, do things one at a time, first you raise money, then you build a team, then you write the software, then you ship and then you get paid, okay, that It is a serial world.

The world of entrepreneurship does not exist, as unfair as it may seem, if you are an entrepreneur, you will have to raise money, write software, create prototypes, sell, recruit and collect money, all at the same time, it is all these paths that advance the Same time. It's not a serial process, it's a parallel process, you have to understand that this is how the world works, that it's about moving multiple things along the way in a perfect world. I assure you, it would be nice if all you could do was concentrate. in money and then all you have to do is focus on hiring and then all you have to do is focus on scheduling and then all you have to do is focus on selling and then all you have to do is focus on getting paid , that's not the real world the real world is that you have to do all that at once the next mistake many businessmen believe that as long as they and their friends own 51% of the company, they will have control of the company because they believe in the board meetings, everything comes down to a vote and 51% victory.

I've never seen anything come down to a vote at a board meeting; either everyone wants to do it or no one wants to do it and the fact that you keep 51% of the company may make you feel better. and make you think that you have control of that company, but the truth is that the moment you take outside money, you lose control of the company. Well, it never comes down to voting 51 to 49. This is not the US Senate. Well, God help us. There is no such thing as a filibuster in a VC board meeting, but this is an illusion.

The moment you take external money, you have a moral, ethical and financial obligation to external money. If you can't deal with that, don't accept outside money. 51% is an illusion of control. The next thing is that you think patents equal defense. The ideal number of times you should use the P-word in your presentation is "We have filed patents." That's it, if you say it twice, "We've filed patents" and it's going to create a defensible position for us, that's it: you're wrong, patents realistically won't help you if you're ever acquired, yeah, a The acquiring company will love that you have patents, that's a good reason to do it, another probably the most compelling reason. applying for patents as a new company is that your parents will be proud to be able to say that my daughter or my son has a patent - their name - their name that is worth something, that's fine, but if you think that you patented something and that will make you defensible, you you're kidding yourself because it takes about five or six years to file this patent and complete it and then let's say you do this, you file it, you get it and let's say Microsoft intervenes in your entire patent, so now you have to ask yourself if you have the time and the money to litigate against Microsoft and the answer is no, you will never have it.

Every once in a while you hear this big story that some file compression utility company in Calabasas, California won a $60 million lawsuit against Microsoft, okay, you'll hear that, but you know that being infringed and suing Microsoft successfully It's not a bankable business model, and the reason you get headlines when Microsoft loses a lawsuit like that is because it almost never happens, if it happened every day it wouldn't be used, and then they never follow up on that story to see if the thing was appealed and if the small company in Calabasas, California, ever really raised the $60 million, that's fine, so lead the way and God.

God bless you, but don't think that makes you defensible, and certainly don't tell a sophisticated investor that the reason we're defensible is because we filed a patent because the ASA fist is, in fact, very good evidence. If when you say the investor laughs and rolls his eyes, that's a smart investor if the investor says yes, that's true, get out of that room, okay, that person is an idiot, patents, no. I hope there are no patent attorneys here now, I would say. The exception to this is probably biotechnology, where you can patent a drug, but you know, if you think you can patent a method of selling dog food online using crowd-sourced references, let's say you know you wish you could sell privately.

The next mistake of retained companies is hiring in their own image. Knows? If you are an engineer, you need to balance or balance your engineering skills, so an engineer must hire a salesperson. A seller must hire an engineer. Sometimes companies like to hire the same type of people and when that happens, you will have glaring weaknesses: you're totally an engineer or you're totally sales or you're totally a business developer. You need to hire people who fundamentally complement your skills. what you need in a new company is you need someone to do it, you need someone to sell it and you need someone to pick it up, you need those three people, ok, I didn't mention biz dev, I didn't mention anything else, I'm say: do it, sell it and collect it, that's what you need, so the danger is that you know if you're a sales and marketing oriented guy, you hire sales and marketing oriented people, but you really need to balance all the talents of a company.

So remember, I make him sell it and pick it up. You need all three skills. The next mistake is to become friends with your venture capitalists. The way this works is you get funded by a VC and the day they say yes or the day the check clears, you say wow! you know, I heard VCS or but not this one, this one really understands what we're doing, this one really likes us, this one said he's never seen a team as good as ours and this one said he's going to stay with us and this one. One said that he was so confident in our ability after hiring all these Visual Basic programmers that he would basically leave us alone.

You know we're not one of the companies in his problematic portfolio, we're one of the most promising ones and you know what he. He also said that they don't invest in technologies, they don't invest in markets, they invest in people, they invest in people and they invested in us, so no matter how much we make mistakes, because they invested in people, they will like us. and they are going to give us more opportunities to do it well because they invested in us, not in the prototype that we showed, nor in the market forecasts that we showed, in any of those people, they are our best friends, they said they always will be. available, call them anytime, pick up the phone, they'll even come, roll up their sleeves and work with us because they're investing in people, they're my friends, I mean, I think I'll start playing golf and I'll start playing golf with them, you know, let me tell you something, nice shirt, I like that shirt, yes, VCS and investors are not your friends.

I'm not saying you should hate them, that's fine, but I'm saying it's a business they're in the business of doing. money, they are not in the business of making friends, angel investors maybe, but venture capitalists are not in the business of making friends, they would rather hate you as a CEO, but to see you go public and make them rich, that's fine, don't think that are your friends don't try to become their friends just make your predictions that's all they really care about and I've seen time and time again where the CEOreally believe, so here, here, here's what happens, so you raise money. you miss your first ship date, the board knows you're going to ship, you miss your first ship date because everyone does that, everyone does that, but you know they invested in you so they still support you, you miss your second date and Now they say, well, you know.

You really have to be careful, we will give you another five million dollars, but now you know that we will really hold you accountable, so you have one more meeting and to your complete surprise, they tell you that we want you to take a step. aside and you say, but last month you said you would stay with us because you still believe in us, what happened in the last 30 days and the VC will say, well, you know, every Monday I went to our partner meeting and everyone on Monday. I was telling you, Molly, they made a mistake, but they look very promising, they have rock stars, you know, they won the percentage of all these dogs eating food, you know how hard that can be, so I kept telling this story Monday after Monday after Monday and finally we had This partner is off site and I'm tired of defending you guys and you know you're not worth my bandwidth because my time and mental faculties are very important so we'll take you as a losing company in our portfolio.

We're going to take this other losing company in our portfolio and we're going to sell your assets to the other losing company and we're going to declare victory that you were acquired so everyone is happy except you have to step aside. now God and then the CEO goes home in shock and says damn VC, you know, last month they love me, this month they don't love me, they're kicking me out. I don't understand what happened, you know, we own it. 51% we are going to put it to a vote, yes, of course, so that's good again. No, I don't want you to think full of anger, that's fine, but just no, I'm not trying to make friends with your VC.

The key to managing a VC or any investor is simply meeting your projections. Okay, meet your projections. My advice to you is to set projections where you are 80% sure you will get 80%. That is the minimum trust you should have. 80%. God bless you. You, if you do it one hundred percent, you will make history because you are the first person who met your If you make a 120 percent prediction, you are a god or a goddess, you should not be sexist, so you should promise less and deliver more , promise less and deliver more. Well, right now you might be wondering what happens if our realistic projection doesn't. make the company interesting enough to get funded, like what's the low end and that's a real problem and I'll tell you that you know venture capital is not for everyone, venture capital is a game, every kappa company allows us to finance the next Google. true, many companies just get kicked out of it, there is no way a new restaurant chain is the next Google, it could be the next McDonald's, don't get me wrong, but the probability is very low, it is unlikely that a practice of consulting is the next Google or that a web design company is the next Google there are some things that just don't apply to venture capital there are only several thousand deals for venture capital per year from the millions of companies that start up, so that doesn't state you're set up for failure, they're looking for the next Google, they'll settle for a hundred million dollar exit, but they want the next Google, that's the game you've decided to play, okay, so don't make friends of your VC and then the last one is Don't assume that VCS can really add value at any given time.

A VC is on between 5 and 10 boards of directors. They also look at companies every day. They are very, very busy people. They have a touch of ADHD. They are certainly egocentric. It is very difficult. For most VCS to separate causality and correlation, it is true that they know that they invested in a certain company and it did so well that they must have been the ones who made that company successful. It would be interesting to ask the CEO what his version of that success story is. so you know a VC can pick up the phone and introduce you, you can send an email to introduce yourself, you can help you recruit, but you shouldn't think that they are going to do a lot of heavy lifting, fundamentally what you want from a VC is money and you want two or three hours a month of your bandwidth, that's all, you should be happy with that if you understand that you are doing well and the irony is that the more successful you are, the more bandwidth you will get, which is nice.

Unfortunate because the less successful the more help you might have needed, but you know, the thing about these things is that the venture capital game is a hindsight game, so what you do is you invest in 20 companies, one or two They're successful, you know? It's a mega success, but let's say it's a moderate success, so you've invested in 20 companies, let's say one is successful, then people ask you about that company and you say: I knew it was a good team. I knew there were rock stars. I know they were in a big market, millions more dogs came out every day.

You knew this was a good business model, that we were going to disintermediate this very inefficient way of getting dead cows into dog cans, right? Why was there a pet food? store in the middle, so stupid that the pet food store is taking a 25% margin, what value did that pet food store still add to get in your car, drive to the pet food store, find a parking spot, walk into the pet food store and then, what's dead? cows in cans Did you do any analysis at the point of purchase? Did you do any taste tests? No, they didn't add any value, so it was so obvious that of course there had to be a better way to buy dead cows and cans, so I knew I knew the team was made up of rock stars.

I knew it was a great business model. I knew there was a big market, so I invested in that company and then asked the VC. So why about the Webvan that he invested in and put four hundred million dollars into so people could buy? broccoli online why did you invest in Webvan? Why did you invest in Webvan? and the venture capitalist will tell you that my partners made that deal. I told them it was a stupid idea, not even the potential of selling dead cows in cans to seventy-five million Americans. who owns dogs is a very retroactive business, I am not saying that all VCS are like that, I am telling them to have realistic expectations of venture capital, it is a mistake that many many entrepreneurs make and, believe it or not, there are 11 mistakes they make The entrepreneurs. because I believe in giving too much away, so with those questions, yeah, thank you, okay, that's my handicap for any questions, by the way, I'm getting close to the microphones because we're recording a video, so if you have any good questions for a guy .

Please go ahead, boy. I'm sure I'm your faculty here at Haas in entrepreneurship and my question is we hear a lot about Lean Startup and our Lean Startup and I want to hear your opinion on that and do you see more companies actually going that route? Yeah, and are you really working with a company that's doing really well in some sense? Well, first of all, I love the concept of Lean Startup. My experience is that too much money is worse than too little, because when you have too much. a lot of money you start to think very carelessly you start to think that we need to scale up you start to think well they gave us five million dollars they didn't give it to us to collect one percent interest like a CD they gave it to us to invest so we have to invest , we have to invest in thousands of dollar Herman Miller chairs so that our star customer service staff have comfortable seats and therefore they know that we have to have a launch party because we need to make a statement and if you didn't have money we wouldn't you would have such stupid conversations.

Well, too much money is worse than too little. When you have very little, you really have to think a lot, you have to do guerrilla things. I know you have to host your website on UC Berkeley's server and not tell anyone here. I mean, you need to do things like that, that's just how it is. You know, don't feel bad, you can always grant a chair later right now. it is needed yes, so I support it wholeheartedly and as I was going through my dialogue about marketing, three tools or an open source virtual team, so you don't need real advertising directly in my work, you know, I mean, that's why Y Combinator is so interesting for 25 thousand dollars. you can do a lot of damage and arguably if you can't do a lot of damage with 25 grand maybe you're not much of an entrepreneur, so if you know if it's going to take you two million dollars today to get to a prototype now, of course.

We're not talking about biotech, we're not talking about, you know, I'm obviously talking about a certain type of startup that is good proof that you need too much money, so I love the concept of a lean startup. Yeah, so I started an incubator. Last year it's called a startup house, it's a residential incubator and we have speakers that come here in Berkeley, so one of the guys was named Alex Man and he's doing a company called Clicktime and he owns the company with his brother and they too. he did something called men's consulting so they could finance with the consulting, yes, with the consulting and then of course a lot of disputes with his brother, but they broke up after four years, so now, twelve and thirteen years later, he receives two VCS calls every week. he wanted to invest in his company, okay, but he told this story where they were getting this competitor.

I was funded by VC and he was devastated, he thought this is it, now they will click on it, which is going to be surpassed by the competition. Obviously there's venture capital money, but in eighteen months there wasn't, they couldn't get a new round of funding and I had to close that, so he's in a very good position right now, but you don't hear a lot of these stories. and that's, oh, there was a new company here like a week ago and there was a company called guide and they've been able to. Do you really need it?

You should adopt the 10-20-30 rule, so since you're in the damn Transamerica Tower this elevator I'm out of the elevator I'm gone I'm in a taxi going to Union Square okay now so move on yeah yeah so I'll add my Alex's to save time for grocery shopping tonight it's open 24 hours The hours go on so the man Alex that started in the 90's when I was in town was new but they started about a year ago and now there are 20 employees and they've been able to grow this organically and have a lot of cash. now that they have to double the rate of their employees and still without venture capital funding, but again, I don't hear many of these stories and I have been studying entrepreneurship for your question for 15 years, so my question is: I hope not be in your contest because I can tell you right now that it won't make it past the semi-finals, yeah, okay, yeah, I'm doing an entrepreneurship pitch day, so this is a problem, you know?

But basically my question is: do you hear a lot of stories where companies grow organically and succeed and do well Jesus, I would like to pay you for what you just did because you just choose everything I said tonight. You know. I think the bad organic way is the way to go. a harder way to do it is when you do it that way you have to create a prototype because you need to sell well, you don't know, you're not just making PowerPoint slides, you have to sell something, nobody buys a PowerPoint slide, so I think that's very cool and if you look at something like Microsoft or Apple you know that they didn't start with venture capital, they started with two guys in a garage, two girls in a garage and they built something that they wanted to use, they did it organically, they didn't. they raised millions of dollars, they didn't make PowerPoint, so I think a lot of these things that start organically really fill the need and take off and one day you're Microsoft or Apple and I love that story.

I think it's the core. Sequoia ever comes to talk to you like Michael Moritz. I think he'll tell you that Sequoia Capital's richest vein has been engineering students building the product I want to use, which is very different from what you know, a group of people who saw some kind of Jupiter or IDC report or IDG or McKinsey or Accenture on market forecasting and design decided that because the McKinsey report said that the pet food business would be a five billion dollar business, we should have an online pet food store, so I love the organic path okay thanks yes hi I'm not sure how much this question applies to this talk but I work for Lawrence Berkeley National Laboratory and there is talk of maybe starting. a non-profit organization, you know a company to educate, you know the youth and Richmond says, like interurban education, what public health education and youth education to promote that and we are interestedIf it is a non-profit organization, it would not be selling anything well.

So would you have any recommendations? Do you know how we could? They would be people, companies that would be interested in financing that initial specification, venture capitalists or even angel investors. I would say they know they are trying to increase their financial returns instead of doing good if they do good it may be by accident it may be a natural result I mean if you build the most successful solar panel company in the history of mankind, You could say that you will do good, reduce the carbon footprint of households, but they did it because they wanted to sell a lot of solar panels, so, if I understand your question correctly, it will not be very successful for you to turn to professional venture capitalists to try to raise money for a nonprofit organization. that's what you're asking, the way you should do it, that's what you want, you want rich people who have made money through various means to give you the money for philanthropic reasons, but it's not an investment, so it's very different, yes, yes, you answer my question something, I'm sorry you answered, okay, okay, one by one, yes, yes, I'm seeing a trend, you know, if you ask another 15 minute question, I'll shut you down , well, you actually had a 20 minute presentation.

I want to tell you, well no, my name is a mecha co-founder of a slask incubator accelerator program called Sparked Ups from South Bay and I wanted to see what the biggest rise of incubation accelerator programs is and also what those who They have not been given any initial investment. What's your take on them too with them disrupting the VC world? I thought you might deal with the ink buns on the rise of incubator and accelerator programs and also your thoughts on them interrupt, ok, so I really have mixed emotions about them because I love them.

I love visiting them I love the energy I love the kind of you know we come together, we're all in this. I love the kind of shared space that huddles together for warmth, you know, sharing experience, sharing Xerox machines, sharing Trixie, the front desk receptionist. I love it. or it could be that Biff doesn't have to be a woman, so I love that aspect, but having said that, I think you know that just because you have free space and you've shared resources that doesn't necessarily make you more successful. For me, you know the most important thing is the prototype and if you make progress on your prototype then I'd be all for it, but just being with other people in a shared space is fun.

A ping pong table. Everything is good, but that doesn't necessarily increase the chances of success, so the key is to rethink what the prototype is and build an incredibly good prototype and get it to market, which is one of the beauties of not having a lot of money because if You don't have a lot of money you can't waste time making a lot of shitty prototypes, you have to do it right, which is a good result of not having money, okay? You also mentioned about VCS or the false perception of entrepreneurs who think that VCS can add value to their companies, yes, in most cases.

These acceleration computer programs don't make you as much money, but they may have ads of different value, so at what point does non-financial trump larger investments? At what point does non-financial trump larger investments? Wow, that's right. It's a lot of case by case, you know, I hated, not that I hesitated to generalize tonight, but it's just something I don't know how to answer that question. I mean, you know someone like Paul Graham and Y Combinator, you know that just a five-minute conversation can add so much value to your company that it fundamentally changes it, whereas you might be in another incubator where you know the blind lead the fools and knows that staying there for years will gain nothing. so it's really just kind of a game of chance, but you know, I mean, keep coming back, take a prototype and put it out there because dogs will either eat it or not, I mean, that's the key, that's the key. data point okay thanks okay yeah hi my name is Romy I'm a full time MBA student okay and you mentioned before that one or two out of every portfolio of 20 companies yeah they really are successful yeah looking back, are there any features or things that you can highlight if there's something that really makes them stand out, like those teams, is there any or is it just too much?

Maybe, first of all, you know, in a rare moment of humility, let me tell you that I'm not exactly proven as a VC because I haven't, so you could accept everything I tell you, you know, boy, you're wrong so you can present the case, you do the complete opposite of what I just said, you could be successful. Well, I think when most people look back and remember their successes. they will say that they quote I knew it was a good team okay the problem is that you really have to ask well if you knew that one was a good team and that's why you invested in it why you invested in the other 19 losers because at the moment you pressed the button trigger, you knew they were good too, unless you were deliberately investing in losers, so it's not rational, so the moment you pulled the trigger, the twenty you thought were winners, otherwise I wouldn't have pulled the trigger, because?

Is it that one succeeded and 19 failed and it's not as easy as saying well, I knew that team would succeed because what about the other 19? So, you know, as I've gotten older, I've come to believe that it's better to be lucky than smart, so you know, because you know, imagine from a VCS perspective, these are some of the speeches that you would have heard right, so We are PhD students at Stanford and we are in this computer science class and we are working on this new search engine that measures inbound links, at that time there were five search engines, did the world need a sixth search engine called Google?

Hmm, maybe that's not right, or my friend and I want to have a business model where we need infinite server space in the sky with infinite bandwidth so people can upload their stolen videos, okay? We're going to allow people to send 140 character text messages. Oh what a concept, have you heard of chat? Have you heard of email? Have you heard of texting but want to tweet and what is your business model? Well, we don't know, but you know. A lot of people, a lot of people, want to tell everyone on the Internet that their cat turned around.

You know, if only 1% of cat owners used Twitter to tell the Internet that their cat was Dover, you realize how many tweets that would be per day. And if you look at these things, you know that you have to go back in time so that at that moment you know that you had. You could invest in Twitter. You could invest in Webvan. You know, they sell a lot of broccoli everywhere. Those people need broccoli and don't want to drive to Safeway. Imagine if you could go online and order broccoli. We will only get 1% of the broccoli sold in the United States. that you have to pull the trigger Wow, I pull the trigger wrong many times my false negatives and false positives.

I think if you're honest you just have to say you were lucky. Now clearly, Kleiner Perkins at Sequoia gets lucky all the time, so they must do it. I know something, but wow, I'm going to sneeze for a second, bless you, allergic to cow, I went to Stanford, yeah, so, it's really hard to say, but if you look at the trends I read, I really think it's both guys in one. engineering workshop. background on creating the product they want to use, you know another, another kind of throwback story: My girlfriend wanted to sell her collection of PEZ dispensers online, so I started on eBay.

Great story, total story. Pierre wanted to make a perfect online marketplace, but it's a big throwback. story so you know that if you're successful, man, you can, you can just reinvent the story all the time, you can interpret the story wherever you want and if you fail, no one's ever heard of you, so it doesn't matter, that's how you got nothing else than the other way around, so yeah, I wish I could tell you. You need another speaker to tell you because I can't, okay, yeah. Oh, we'll go back there. Hello, my name is Anne Wong and otherwise thank you for speaking well.

My mother is a foreign student from Korea and she is trying to start here in the North, yes, but in case they attack us with nuclear weapons, I want to know when I try to like turtles here. I found this quite difficult for foreigners, because I am simply difficult and have no connection. Here, then, can you give me any comments or special devices for a foreign businessman? You know, I have to admit that I think the acoustics for this are designed for the audience, not the speaker, so I couldn't understand your question, can anyone help me?

Do I have any advice for foreign entrepreneurs in the U.S. You know, I actually think you have an advantage as a foreign entrepreneur in the United States because I think one of the richest veins to invest in, particularly using the Sequoia theory, are two engineers who are first or second generation Americans and if you look at it, you know. like Andy Grove from Hungary Sergey from Russia looks at all the Indian entrepreneurs who built this valley, all first or second generation, and I think poverty is a very motivating force, so if you gave me the option to invest in a startup where the CEO is the fifth generation American, you know, his great-great-grandfather came on the Mayflower and founded the largest farm supply store, I don't know, you know, in Connecticut, built that, built that multimillionaire and this person's name It's, you know.

Jonathan Sebastian, the third, and his father have endowed a professorship at Yale and Dartmouth and, coincidentally, he went to the Yale and Dartmouth total trust fund, baby, and now he sees that while there are 75 million dogs in the United States, versus You know, versus ash meat from a generation ago. his parents were in Bangalore and you know they put him through IIT and he came here or his parents took the last helicopter out of South Vietnam and landed in Sacramento so his mother became a maid and his father started managing a liquor store. and they saved everything they could and they sent their son across Sonoma State and that kind of thing and I would invest in the immigrant all day, all day, because if you just look at the history of entrepreneurship, it's the poor that are that they triumphed. companies are not fifth generation trust fund babies, so I think you know, I want to get into politics, but if I were the president of the United States, God help us, if first of all McIntosh would be a standard computer, yeah If I were president, I would say I should create the most flexible visa program in the world.

Basically, I would say that if you want to come to the United States, we have the best education system in the world. Cal is not ahead of Stanford as of yesterday, so if you come to the United States, you get the best education you will have in a legal system where it may be flawed but it is not criminal. You don't have to pay people to get permits. You don't have to pay people to get your money out of the bank. You don't have to bribe people, you know there's a common law system here and you don't have to fear for your life, you don't have to worry about the mafia, you don't have to come to America and start a big company that would.

I can solve the housing crisis if I were Obama. I'd say it's okay. So here's the deal. If you buy a house that cost more than half a million dollars in the United States, you are now a citizen of the United States. America knows that our housing problem would disappear in a day because all these rich people around the world see that our son, our daughter, can be a citizen of the United States, oh my house, that would solve the housing problem properly and Then You know my strategy would be, instead of using drones, let's use the visa system.

So what we will do is if you want to come to the United States to study and work and start a company, we will give you a visa, come and because we want to create a brain drain, we want every country in the world to be angry with the United States, not to kill them but to exhaust their best people, we want the best people from all countries to come to the United States, start their company, create jobs. all that kind of wonderful stuff come back, send the money back, we don't care, but just come to America.

Mark is the land of opportunity, I think, man, because if you look at all the big companies, it's the immigrants that do it, and I think you I know this is like Ross Perot, well, if we had it, you know people from Mexico, the coma cars are going to take American jobs, I don't think so, man, those are the hungry people, they are the aggressive people, they are intelligent people, for sure. Take them all down like you're a third generation Japanese American. You know, what would have happened if they sat here. There are no longer Japanese Americans with Japanese Americans.

Miyagi, we want Americans to do their yard work right. You wouldn't be here, would you? I'd like to work at Starbucks in Hiroshima right now, so yeah,a company becomes defensible is the first company to scale, as opposed to the first company to file the patent, yes, so I think even in a race, the race is to climb to build a successful company, rather than knowing that the The reason why we are defensible is a patent. There are many. I would rather have a company with a prototype that is not patentable and has thousands of people using the service and joining every day, than something that is solid, with airtight patents that no one is using at all.

You know, just what you want, what you want. something that dogs are already eating the food, yes, yes, because I have seen, I have seen the need for this product, no one else had this product, I built the product, I built a working prototype, people saw it and then I patented it and then they copied the patent, but I still have their original prototype, well I'll tell you another perspective on this, which is if simply looking at their product and copying it makes it indefensible, then you didn't have a good enough product anyway, it should take more to see the product. and copy it to make yourself vulnerable to it, yes you should take more if that's all.

If I just listen to what your idea is, I will sell dog food online, but I will tell you this as confidentiality. a loser because that's not like that even if you had a path to selling dog food online yeah that's just not defensible it doesn't matter so it's first to scale first to succeed and that's what makes it successful. I guess I better start packing. lots of dead cows and yes, plan and the UC Berkeley student body. I want to thank you all for taking the time to come with us and have a conversation. It's okay, thank you very much, take care.