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Andreessen Horowitz

     “There are a bunch of aggressive, ivy-league educated, high IQ people working in Bentonville whose careers are going nowhere because they never learned how to connect with other people.” ­­­— Lee Scott, (now former) CEO of Walmart, circa 2008.

During my short tenure at Cisco, I attended a leadership offsite where Lee Scott was the featured speaker. I certainly knew of Walmart but had never heard of Lee Scott before this meeting. He humbly delivered a powerful hour-long speech on leadership ­­­— without notes or slides, as he paced the stage, hands in pockets. While I’ve heard a lot of leaders speak, I’ve never come away more impressed with how the delivery matched the content.

What struck me the most? That authenticity and humility lead to trust. Trust leads to approachability and open communications. And after listening to Lee for just an hour, he felt familiar and approachable.

Honest and fallible.

Lee definitely knew how to be authentic. For others, this may not come so easily.

At the core, coaching authenticity is complicated ­— some might say impossible. Telling someone to be authentic sounds pretty low calorie. Especially to a founder plowing through a list of product and operational goals. But it’s important. An approachable and authentic CEO is essential to fostering a high-performance, open communications culture.

About the clearest discussion I’ve seen on authenticity is a paragraph in Jack Welch’s book, “Winning”:

     “A person cannot make hard decisions, hold unpopular positions, or stand tall for what he believes unless he knows who he is and feels comfortable in his own skin. I am talking about self-confidence and conviction. These traits make a leader bold and decisive, which is absolutely critical in times where you must act quickly, often without complete information. Just as important, authenticity makes a leader likeable, for lack of a better word. Their realness comes across in the way they communicate and reach people on emotional level. Their words move them; their message touches something inside. When I was at GE, we would occasionally encounter a very successful executive who just could not be promoted to the next level. In the early days, we would struggle with our reasoning. The person demonstrated the right values and made the numbers, but usually his people did not connect with him. What was wrong? Finally, we figured out that these people always had a certain phoniness about them. They pretended to be something they were not ­­­— more in control, more upbeat, more savvy than they really were. They didn’t sweat. They didn’t cry. They squirmed in their own skin, playing a role of their own inventing. A leader in times of crisis can’t have an iota of fakeness in him. He has to know himself­­ ­— and like himself ­­­— so that he can be straight with the world, energize followers, and lead with the authority born of authenticity.”

He absolutely nails it.

The quote clearly illuminates the issue, though stops short of giving practical advice. I am often asked by founders and CEOs how to be more approachable or make a personal connection. And of course, while being authentic means something different to everyone — here are a few ways one could start:

Get self-aware. As I mentioned in a previous post (Treating the Dysfunctional CEO), all leaders need feedback. Having an understanding of how others perceive you — through a solid 360-review process — is the crucial first step towards being real. Learn and accept your foibles and faults. Poke fun and work on them out in the open. “I’ll try to keep this short, I know I can be long winded…” etc.

Talk about failures. Nothing helps make a leader more approachable than admitting your struggles, screw-ups and behind-the-scenes thinking on hard calls. If the leader makes this a priority, the whole company will be more open and methodical learning from failure. At IronPort, we used to go through exhaustive post-mortems: customer losses, engineering slips, and misplaced strategies.

Show up to socialize. Have a beer bust on Friday afternoons. Take a team to lunch. Drop in on a late-night networked video game war. (As a newbie, I was slaughtered pretty quickly). Especially if you are naturally an introvert, you must go out of your way to socialize with your team.

Embrace “professional intimacy.” I love this phrase. It describes a leader’s willingness to get personal and talk about life at home or their own career struggles. E.g. “My wife once threw my blackberry in the toilet… It’s essential to be able to balance home and work before it blows up.”

Nix multi-task listening. It’s one thing to ask someone what they are working on and another to really tune in, give them your full attention and ask follow up questions. I constantly see bad behavior with executives checking their watch or texts, or looking over a shoulder to see who else is in the room. That’s just phony crap.

Loosen up! This is really about speaking to others as though you really trust them with your thoughts vs. reverting to canned responses or the “company line.” Leaders that can explore the poles of an issue, in their own words and off the cuff with employees will gain real trust. This is especially true during all hands/company meetings.

Get good at speaking. As a CEO, if you are a nervous public speaker, you need to practice. Find a coach, do some videotaping and/or try Toastmasters. The goal is to have a marathoner’s heartbeat when speaking to a crowd so as to be natural and comfortable.

And finally: embrace different views.  Encourage employees to challenge your decisions and approach. Let everyone know that you are not perfect, you don’t always have the best answer, and sometimes they have better answers.  In some cases, you will get good ideas too. You are obviously the decision maker but embracing different views will improve openness. (Thanks to Yoram at Maxta for this suggestion!)

I leave you with two examples:

Alec Baldwin’s parody of a GE exec on “30 Rock” comes to mind. Yet for all that’s been said, good and bad, about GE…the company does actually have an enduring, high-performing culture for a reason.

And secondly, from what I understand, Herb Kelleher of Southwest Airlines, is the embodiment of an authentic leader. He would fly around and hold informal meetings with groups of employees that would yield all kinds of new innovations.

It’s leaders like Herb and the execs at GE, whom employees actually trust – that inspire ideas, pushback, and foster tremendous loyalty.

I have so much respect for people who fought online criminals for eBay and PayPal. There hasn’t been a set of websites more highly targeted by cybercriminals and fraudsters.  The founders of Silver Tail, Mike Eynon and Laura Mather, were colleagues on the anti-fraud team at eBay/PayPal for three years and had a front row seat to the newest attack techniques and the most beguiling exploits. It stands to reason that the team pioneering security and anti-fraud techniques at the tip of the spear would come up with a breakthrough technology. This was the genesis of Silver Tail.

After testing with customers, it was clear that Mike and Laura were on to something special but desperately needed help to scale. The product needed many refinements and it was clear that they should bring in a seasoned executive to help them with sales, marketing, and building a team. Enter Tim Eades as their new CEO and partner. Tim had been a longtime sales and marketing executive at IBM and a CEO at Everyone.net. His aggressive, take-no-prisoners competitiveness, indomitable work ethic, and remarkable ability to enroll customers and recruits made him the perfect fit.

When Andreessen Horowitz first started looking at Silver Tail, they had just been named to the Gartner Magic Quadrant (MQ) as the furthest out on the “Visionary” or “X” axis. This MQ position fairly reflected the stage of the company and the founders’ technical breakthrough.

Source: Gartner (February 2011)

On the “Y” axis however, which measures “Execution,” Silver Tail was still in its infancy. They had a total of 15 customers using the product, with only a few paying, and the rest in beta. That said, customers were not on the fence with how they felt about it: “We’ve never seen anything like it!” and “They are charging too little…”

So, they had a proven technology and a few rabidly fanatical customers. At this point, the company’s future was going to revolve around it executing flawlessly to win the market. And they did that and more. The team’s accomplishments are exemplified by the most recent (May 2012) Gartner MQ:

Source: Gartner (May 2012)

It’s the story of how the team, driven by Tim, deployed the product, acquired customers, scaled the company, and accelerated into a tornado in merely 18 months:

  • Almost two thirds of the top US banks have deployed the product or are in the process of deploying.
  • A skeleton crew of 12 expanded to a global team of nearly 100, including top notch teams in Federal and European markets.
  • Three new, world-class executives joined the team to lead product and marketing, engineering and finance. Each one built a remarkable team of rock stars.
  • An irreverent, open-communication, and high-performing culture helped attract and retain top talent.
  • Huge success in ecommerce.
  • Customer responsiveness became a true market differentiator as the team overemphasized quality and support. In fact, existing customer referrals are Silver Tail’ s largest source of new leads.
  • The company was cash flow positive in the first half of their 2012 fiscal year.

This “hockey stick” ramp reflects the disruptive nature of Silver Tail’s Web Session Intelligence technology and the rapidly shifting frame of reference currently underway in the security space. Analyzing “snapshots in time” of network traffic and deploying “signatures” is not keeping up with the innovation of hackers and cybercriminals.

Silver Tail’s success in the market did not go unnoticed. We are announcing today that Silver Tail has signed a definitive agreement to be acquired by EMC/RSA. From the very beginning, Tim and the founders had a vision of helping to eliminate fraud and deploying their technology as widely as possible. With EMC’s worldwide presence and resources, they will achieve these goals much faster and integrate into a broader set of security and anti-fraud technologies.

Please join me in congratulating Tim, Laura, Mike and the rest of the incredible Silver Tail team in marrying the ultimate peanut butter-and-chocolate combo: A breakthrough technology innovation with near-flawless execution!

I would also like to thank my partners, Mark Cranney, Jeff Stump and the entire a16z team for all of their extra effort with Silver Tail – it made a meaningful difference…

I often get asked about what’s the best path to becoming a successful entrepreneur: “Should I go try and start a company now? Or go to grad school? How about working at a large tech company for a few years?”

I spent five years at a large technology company, two years at business school and then two years in consulting before I went to a startup. Even with that experience, I still believe I was too green to jump right in and start a company. It’s not that those experiences weren’t valuable­­­—it’s just that the most valuable learnings for successfully running a startup come from actually working at a well-run startup. I’d go even further to assert that the startup should be based in Silicon Valley and backed by venture capital.

You could just start a company without any startup experience, sure, but you will have a significantly higher chance of success if you already know how to navigate a startup’s unique challenges, including: raising money, changing product direction, and cultivating a culture. These are hard things to learn on the job and you may have only one shot at the crucial “friends and family” round to get you started.

Why a Silicon Valley, VC-backed startup? If you just graduated college, you probably haven’t developed the experience or instincts to judge whether a startup has a great team, a differentiated product or is going after a large enough market. While certainly not perfect, the VCs have done a lot of this important vetting for you, and their decision to invest can be considered a boost of credibility and resources for the company. Also, within each technology region, there is a dense network of specialized talent, financiers, and service organizations (e.g. legal, PR, recruiting) that form a startup ecosystem. Silicon Valley is by far the largest ecosystem and therefore holds the most potential job opportunities and the strongest network.

What about grad school or establishing a foundation at a large company? It comes down to relevance. The responsibilities, roles, contacts, context, culture, communications, risks and instincts you need to develop to eventually run a successful startup are best found at a startup.

If you’re trying to prepare yourself for entrepreneurship— the same two to four years at a startup isn’t even comparable to the equivalent time spent in school or a large company. There’s probably five to ten times more learnings and relevance at the startup.

The next step involves finding the right startup to join. As it turns out, I moved out to Palo Alto from Boston in 1996 with virtually no connections or contacts and over $100,000 in school loans from business school. A few things I did are surprisingly still relevant today:

  • Prepare for a long haul. You’ll need to move out here without a job while most of your friends have jobs locked up well before graduation. If you don’t have enough savings, you may need to get a part-time job while you job hunt. If this step makes you nervous at all, you may want to reconsider the entrepreneurial job choice. 🙂
  • Research.  Start by downloading the last four venture capital surveys from the San Jose Mercury News website. These PDFs summarize the last year of companies that have been funded by VCs. Included are the company name, amount raised, VC involved and headquarters city. This is a great list to start with because all of these companies have recently raised capital and are therefore likely in hiring mode. Build a spreadsheet, start researching and then rank these companies by your level of interest. Go to the VC websites, check all the online publications (e.g. AllThingsD, TechCrunch, etc.), and look up the company name URLs. While you are on the VC websites, you should look through all of the companies on their “portfolio” tab to see if any should be added to your list.
  • Focus. There are many different types of startups and many different jobs within a startup. If you can code, there will be obvious roles within engineering, sales engineering or quality assurance. If coding isn’t for you, you’ll need to figure out the best entry-level role to position yourself. Perhaps in customer care, product management, finance, inside sales, or business development. It will also help to choose between the type of startup: enterprise or consumer. The more you begin to focus, the more credible you’ll become as you deep dive into the differences between the roles and the way the different companies go to market. You’ll want to be as knowledgeable as possible before you start networking.
  • Make a target list. After doing all this research, narrow it down to 20-30 target companies and make a market map or web of every possible link to the company—names of the investors, management team, PR firms—every potential connection (I’m thinking similar to an FBI board targeting a mafia family, but not quite that creepy). Your best chance of getting an interview is if you have a “warm” referral into the company (i.e. someone you’ve met who can refer you to someone inside the company whom they already know). That’s the goal. Continue to research the companies, the roles, the competitors, and the market so that you start sounding like you know what you’re talking about.
  • Start networking. I pulled out the Harvard Business School alumni directory, the University of Florida alumni directory, and the McKinsey alumni directory. I sent emails to guys 15 years older than me with “Hey Steve, I’m a fellow Florida grad, blah, blah, blah, can we have coffee?” I went to every meet-up that had the word “Stanford” in it. Before I knew it, one coffee led to another and after a while I started asking smarter questions and got stronger referrals.

I cannot overemphasize the importance of preparation and persistence throughout the process. It took me four hard months of preparation, research, focus, list-making and networking until August, 1996, when I received a warm referral into a little, 12-person startup named Hotmail. It ended up being the best job experience of my life and I was completely hooked.

Procter & Gamble, the $185 billion market-cap consumer products juggernaut, has a tried and true method for developing new products: extensive consumer research, including surveys and focus groups, product testing, name testing, ad/slogan/copy testing, iterate product design, line up manufacturing capacity and then, finally, concluding with in-store merchandising, final branding and ad buys for launch. Their “big bang” approach shoots out a new product globally with the hopes of propelling it to over $1 billion in sales in the first few years. This process usually takes about 18 to 24 months and results in about a 50 percent success rate for new products. That said, for every smashing success like Swiffer and Febreze, there are an equal number of expensive, high profile flameouts. Does anyone remember Dryel, the at-home dry cleaning solution? How about the Fit Fruit and Vegetable Wash? They were just some of the multi-million dollar write-offs.

P&G’s development process actually reminds me of how we used to develop on-premise enterprise software: long 18- to 24-month cycles, a handful of beta testers—almost like a focus group—and then a big launch to manufacturing and worldwide sales channels. The hit products were huge, but there were also many high-profile flops—for example, Groove Networks.

But things have changed so dramatically in software development… The rise of open source has ramped up productivity as thousands of people contribute features and bug fixes. Short, agile development cycles incorporate customer feedback and allow developers to iterate in weeks versus months. Finally, SaaS distribution models allow for more direct feedback as developers can now see every interaction the end users have with the software. Taken together, software is getting to market sooner, at a lower cost and with a much higher success rate at launch.

Is it possible that many of these learnings from software development can be applied to real-world consumer product development?

That’s exactly what Quirky has figured out and why they have the potential to disrupt the entire P&G business model. Ben Kaufman, Quirky’s founder and CEO, had the vision to democratize product development. He assembled a team of professionals across design, merchandising, legal, manufacturing and marketing to work with a worldwide community of participants who collaborate on every aspect of product development. The community contributes ideas, names and slogans, pricing input, marketing tips, manufacturability suggestions and will soon be able to offer in-store merchandising help.

So why do thousands of people help Quirky make products? They get paid! One of the more popular products, Pivot Power, a completely redesigned, flexible power strip, will pay nearly $500,000 to its inventor and another $500,000-600,000 to the more than 700 contributors who helped bring the product to life, including the person who came up with the “Flex Your Power” slogan. And that’s just this year’s expected earnings for one product! The inventor and influencers will make significantly more in the future: 10 percent of wholesale revenue and 30 percent of online/direct revenue. Now that’s a real incentive!

Is it possible that the collective brainpower of thousands of people can be more successful than the experts at P&G? We believe that Quirky has cracked this code and that’s why we are announcing today that Andreessen Horowitz has led Quirky’s $68 million expansion round. Here’s why we’ve invested:

  • Ben Kaufman is the epitome of what we call “founder-market fit”. At his previous company, Mophie, a maker of iPhone accessories, Ben ran into all of the problems small inventors have getting their ideas to market. It was through his real-world struggle with prototyping, manufacturing and merchandising through retailers that Ben decided there had to be a better way for everyone.
  • The vast majority of Quirky products require an investment of less than $50,000 along with one to four designers/engineers working with the community. As such, every single product that Quirky has launched to date is profitable—there have been no duds.
  • The average time from when a Quirky product idea is submitted to when the product appears on a store shelf is a remarkable 120 days. Quirky develops prototypes with a 3-D printer to quickly iterate designs and the crowd-sourced feedback de-risks the products before they hit the retail shelves.
  • References with Quirky’s network of major retailers (e.g. Target, Fab.com, Bed Bath and Beyond, etc.) were absolutely glowing. They love the newness, speed and innovation that allow Quirky products to command price premiums and more favorable in-store displays.
  • Quirky’s fast-paced culture attracts the world’s best consumer product designers. Each designer is typically working on five to 10 projects at a time, across a wide range of product types. If you want to build a large portfolio in a short time, you wouldn’t want to work anywhere else.
  • Quirky is testing a unique scan-based trading model that would leverage the community to manage in-store displays, merchandising and inventory management. This is a completely new innovation that has their retail partners excited: “Quirky is moving 10 times faster than their competition.”

Offline retail and product development are well overdue for innovation and Quirky is the most exciting new retail concept we’ve seen since the Apple store opened over a decade ago! I’m thrilled to be joining Quirky’s board of directors and look forward to helping Ben and the company expand dramatically.

I’d like to thank my partner, Connie Chan, for being such a passionate advocate for Quirky. If not for her early interest and dogged pursuit, we surely would have missed the innovative magic happening under the hood.

We are delighted to announce that the six General Partners of Andreessen Horowitz, with our families, are all committing to donate at least half of all income from our venture capital careers to philanthropic causes during our lifetimes.

The reason is simple.  We are fortunate to work with some of the best entrepreneurs and technologists in the world, and in the process help create great and valuable companies.  That activity, done well over decades, can generate a lot of money that can then be productively deployed philanthropically back into the society that makes it all possible.  We love participating in this process, and we hope that our philanthropy can, over time, help make the world a better place.

As an initial catalyst, we are making an immediate group donation of $1 million to a set of six vital Silicon Valley-related nonprofit organizations.  Those causes, and their respective sponsors, are:

Ben and Felicia Horowitz: Via Services
Jeff and Karen Jordan: Ecumenical Hunger Program
John O’Farrell and Gloria Principe: Second Harvest Food Bank
Marc and Laura Andreessen: Fresh Lifelines for Youth
Peter and Martha Levine: Canopy
Scott and Pamela Weiss: The Shelter Network

Signed,

Ben, Jeff, John, Marc, Peter, and Scott

“Necessity, who is the mother of invention”
—Plato, The Republic

As we evaluate investment opportunities, we like to dive deep into an entrepreneur’s background and story… What did he study in school? What were his important life choices or challenges? When did he demonstrate courage? How did he come up with the need for creating the company? We typically spend the first 20 minutes of a one-hour pitch meeting asking questions that draw out personalities and motivations.

Some of the most compelling company formation stories stem from a quest to solve an intractable problem that the entrepreneur has encountered personally. Like finding a place to sleep when all the hotels were booked (Airbnb), stopping fraud at eBay (Silver Tail Systems), or the frustrations associated with transferring files (Box).

Daniel Mattes has one of these compelling stories. Daniel was formerly the CEO and founder of Jajah, the main competitor to Skype in the Voice over IP (VoIP) market. Of all the challenges Daniel faced when building Jajah, the one that stood out as the most vexing was combating online fraud. As it turns out, VoIP services, online travel sites, online gambling and virtual goods economies—primarily games—have incredibly high fraud rates. Since hotel vouchers, VoIP minutes and gaming credits require no physical shipment or delivery address, they can be easily transferred around the world as currency. Unfortunately, the situation has gotten so bad that many of these companies will decline credit card numbers from an entire country. Let’s take Afghanistan as an example: Fraudsters use stolen credit cards to create thousands of Skype accounts with $100 credits and then have street teams that sell them for $20 apiece at coffee shops and airports.

The credit card companies are well aware of this problem and end up charging these digital goods companies higher rates and make them liable for all chargebacks. As Daniel recounted the battle to me, you could feel his desperation: “Everything I did to combat fraud resulted in significantly lower revenue. I knew every additional verification, screen and decline path was frustrating and trapping millions of legitimate customers.” Couldn’t there be an easier way to tell apart the people who were holding real cards from the fraudsters? The credit card companies know a really simple way: seeing the actual card. So-called “card present” rates are five times cheaper than typing in a credit card on a website for the reason that if someone steals your credit card number, they can use it for years, but if they steal your actual card, then you usually cancel it immediately.

What if there was a technology that could eliminate the fraud AND increase these companies’ revenue? That’s exactly what Daniel’s new company, Jumio, has solved.  Here’s how it works: Jumio’s flagship product, Netswipe, uses a PC webcam or a smartphone video camera to identify, read and process the actual credit card.  Instead of typing in your card details, you hold the card in front of the camera and the software analyzes the encrypted video stream to read the numbers and identify the logos. It can also tell the difference between a plastic card and a paper copy. All of Jumio’s customers have experienced nearly zero fraud and have actually increased their total revenues after implementation.

We are announcing today that Andreessen Horowitz has completed Jumio’s Series B financing totaling $25.5 million. Here’s why we invested:

  • Daniel Mattes is an impressive and determined serial entrepreneur with a track record of attracting top talent and making great products.
  • The company secured strong patents and intellectual property protection up front.
  • During our reference calls, we heard sentiments along the lines of, “This is wonderfully elegant and Apple-esque. You just hold up the card and the transaction is done!”
  • The customer uptake has been spectacular: The company is on track to exceed a $100 million run rate this year.
  • One of my partners, Jeff Jordan (formerly the president of Paypal), exclaimed after meeting with Jumio, “I’m pounding the table on this one—I think it will be as revolutionary to online payments as PayPal!”
  • In addition to the Netswipe product line, Jumio is launching NetVerify, a solution that uses the same video streaming technology to verify IDs such as passports and driver’s licenses.

As part of the financing, I am thrilled to be joining Jumio’s board of directors and our entire team is looking forward to helping Jumio and Daniel win the market!

As data storage costs plummet, the world is storing data that would be impractical to keep just a few years ago. Think video camera feeds, web logs and GPS tracking information. We used to throw away or sample this data, but now we can store and explore it. In the network forensics market, for example, Solera Systems will store a history—a la Tivo—of all of a company’s network traffic. If the company is hacked, then they can actually recreate what happened. But cheaper and denser disks are only part of the solution. The rest of the answer comes from new approaches to harnessing this data as the last generation database and business intelligence (BI) solutions fail at the Big Data scale.

Internet companies saw this problem coming and invested in their own solutions. Google built MapReduce for its internal use to store and analyze data at massive scale. Hadoop then emerged from the open source community and is now used by Yahoo, Facebook, and eBay, and is spreading into leading finance and telco companies.

But even as Hadoop is fast becoming the de-facto data management platform for Big Data, it remains a low-level infrastructure tool incapable of being helped by traditional BI products – which can’t scale effectively – and isn’t intuitive enough for the average business user.

Our newest investment, Platfora, is aiming to overcome these issues. Here’s why we’re so excited about the company:

  • Incredibly strong founding team. Platfora founder and CEO Ben Werther was the head of product at Greenplum where he witnessed firsthand customer frustrations with analyzing Big Data (read more from Ben here). He has hired an amazing technical team with strong domain experience in Big Data and analytics.
  • As Hadoop gains adoption, it will need a robust BI platform that can make it accessible to the mainstream. The legacy BI vendors don’t have the product architecture for Hadoop or Big Data and we believe this opens the door for a new franchise to be built.
  • One barrier to Hadoop adoption is the difficulty of getting at the data. Platfora makes it easy for business users to leverage Big Data, and this may dramatically accelerate Hadoop adoption to the benefit of the whole ecosystem.
  • The team has a heavy user interface and user experience ethos. They are hiring a consumer-esque UI/UX team and partnered with Cooper, a well-known strategic user experience design firm, at the outset.

Platfora’s breakthrough is a combination of server technology, user experience innovation and data science. Read more here about how the platform works with existing Hadoop clusters to generate easy-to-understand dashboards, reports and insights.

We’re excited at Andreessen Horowitz to lead a $5.68 million Series A financing for Platfora, based in Palo Alto, Calif. Also investing in the round is In-Q-Tel, the independent strategic investment firm that identifies innovative technology solutions to support the missions of the U.S. intelligence community. While Platfora is primarily focused on commercial customers, U.S. intelligence agencies can benefit greatly from the power of Hadoop and IQT sees enormous need for the product that Platfora is building.

I am excited to be joining the Platfora board and can’t wait to help Ben and his team build a huge business.