Be Kind. It Pays.

Be Kind

“Some of the best companies I’ve invested in were referred to me by founders I’ve rejected. “
-Anonymous Investor

I’ve been meeting with a lot of VCs lately. Not because I’m raising money mind you, but because I’m considering becoming one of them. And them, it turns, includes quite a range of personalities and attitudes.

The worst investors are the most transactional, the most focused on the deal, on the what you can do for me right now. In their minds, they see themselves as company pickers. They believe that their job is to find and choose the great companies. And if you’re not running a great company, you’re not interesting.

The best investors are the most focused on building long-term relationships with people. Yes, they too want to invest in great companies, but they know that the real challenge isn’t picking, it’s being picked. They ask not: “How do I find the great companies?”, but “How do I create a situation so that the best companies find me?”

Because when it comes down to it, the best entrepreneurs already have an idea of who they want to work with before they start pitching. They read blogs and books and Hacker News. They get advice from friends and advisors and mentors. They know.

The reason that relationships are so much more important than “deals” is that the ideas & the businesses in this business change faster than the people running them. That kid who was pitching a dumb idea yesterday very well may have learned an important lesson or two in the process of having that first idea fail, and tomorrow––who knows? Maybe she’ll be the next Travis Kalanick.

Or maybe she won’t.

But there’s a decent chance that she’ll know the next Travis Kalanick, that she’ll drink beer with him in the park and offer to intro him to her favorite investors. Cuz that’s how this ecosystem works. Maybe she didn’t succeed, but if she’s any good she has a sense for what success smells like (at least she thinks so) and she wants to be the woman who helped success achieve its ultimate destiny. She wants success to rub off on her, on her reputation. And so––selfishly––she helps the new kid on the block by making some key introductions. Because this was what was done for her 12 months prior. And so the virtuous, wonderful cycle that makes Silicon Valley tick continues.

In all this, a venture capitalist has but one hope––that the great deals arrive, somehow, on her radar, preferably in her inbox. She meets lots and lots of entrepreneurs, yet mostly says no.

Having been on the other side of this, I can say with great confidence that how you say “No” to someone matters quite a lot. This includes whether you actually say “No” at all, or instead leaving the person hanging and hoping in vain and frustration. If there’s no “yes” on the horizon, a firm and ideally thoughtful “no” is the next best thing. You’d be amazed at how many people simply go dark and stop responding!

I mean, fuck those guys. Have some respect for the entrepreneur on the other side of the table.

In the cruel, unforgiving world of entrepreneurship, a good, high-quality “No” is an act of kindness, an affirmation that you’re a peer and deserving of a response. It’s like being told that that one mirage you keep seeing on the desert horizon isn’t a lake after all, so focus your search for water elsewhere.

Selfishly, you should know that this kindness pays, that the entrepreneurs you treat well and impress with your demeanor will be keeping you in mind, touting your awesomeness to friends and later referring young hopefuls your way.

Just last week, I referred someone to a VC who told me “No” four years ago. Because I was impressed. And it stuck with me.

Note: This post was inspired by Ben Narasin @ TripePoint Ventures, George Zachary @ Charles River Ventures and Jon Callaghan @ True Ventures, among many others. 

Announcing Marketplace Talks: On-Stage Interviews With The World’s Best Marketplace Entrepreneuers

Marketplace Talks Meetup Group

I’m proud to announce my involvement in Marketplace Talks, the world’s #1 meetup for marketplace startups, entrepreneurs and investors

Once a month, I’ll interview a prominent marketplace entrepreneur (or investor) on-stage, in front of an assembled mass of other entrepreneurs, investors and startup people. I’ll do my best to dig into the business model, how it works, why it works and what didn’t (or isn’t) work.

Marketplace Talks is a forum dedicated to the challenges faced by marketplace builders. If that’s you, join Marketplace Talks now. The lessons you learn will be tactical, practical and inform how you think about building your own business. There will be no boring, stupid or insincere speakers––I promise! My goal is simply to help you learn more faster.

The first Marketplace Talk will feature Thumbtack CEO Marco Zappacosta, backed by $50MM from Sequoia Capital, and will focus on marketplace disintermediation and why the Thumbtack founders decided to NOT close the loop and instead let buyers and sellers transact outside of their platform, either via cash or PayPal. Disintermediation is a problem that every marketplace struggles with and I think Marco’s learnings will be useful.

What:    Marketplace Disintermediation with Thumbtack CEO Marco Zappacosta
When:    Thursday, August 14th @ 6pm
Where:    500 Startups – SF in SOMA

Sign Me Up. I Love Marketplaces!

 

Morality is a Luxury Good

Hobbesian State of Nature

War is an act of violence intended to compel our opponent to fulfill our will. 
-Carl Von Clausewitz

Morality is a luxury good.

War is fundamentally amoral. There is nothing a threatened society won’t do, especially when cornered. The violence of war has no natural limit, no logical upward bound.

And in case you thought we Americans are better than all that, just know that our biggest weapons, our nuclear arms are pointed at cities, not military bases. We deter our enemies by threatening them with genocidal war. We are no better than Israel or Hamas; we are only stronger, safer and more secure.

This state of relative safety that we enjoy today is the reward for a century’s worth of genocide, ethnic cleansing and theft against the native Americans. The natives we didn’t kill we put in concentration camps, where they remain today in slightly modified form.

Our security is the lucre of the crimes of our forefathers, the byproduct of a decisive victory against those whose homes we stole. Neither Israel nor Palestine enjoy such safety. Remember this when you condemn and pass judgement on either of the warring parties.

Take sides. But don’t lie to yourself.

To Commerce! To Freedom! To the Open Internet!

Paul revere wants to save net neutrality

I sent this letter to the Federal Communication Commission just a few minutes ago. I encourage you to do something similar. Also, feel free to discuss this post on Hacker News.

From: Matt Mireles
Date: Mon, Jul 14, 2014 at 12:25 PM
Subject: Save the Open Internet. For Freedom.
To: openinternet@fcc.gov

Hello,

My name is Matt Mireles and I would like to tell you my story.

I’m an internet entrepreneur. I started my first company in October 2008, 3 weeks after the Lehman collapse and about 4 months after graduating from college. During the first year and a half of the company’s existence, I was broke and working a side job as a 911 paramedic to pay the bills. The company was very fragile and almost anything could have killed it.

In a post net-neutrality world that req’d paying fees to Comcast and Time-Warner, I might have quit before I ever got the company off the ground.In 2010 & 2011, we ended up raising $1.1MM from Google and other investors and building a workforce of 45,000 people spread across the globe before selling the company in 2012. I have started two more companies since then.

Please keep net neutrality alive. There are thousands and thousands of would be me’s out there. We owe it to them and to the future of our country.

To commerce! To freedom! To the open internet!

-Matt Mireles

The New Fast Food – The Rise of the Delivery-Only, Mobile-First Restaurant Chain

sprig logo

I was trying to understand why food startups are so hot when I ran across the following two charts.

goog-cmg

In the image, you’ll notice that I circled a line labeled “P/E.” In the language of finance, P/E is short for “price-to-earnings ratio,” which is the relative value of a company’s stock price to its profitability (aka earnings). When a company enjoys a high stock price yet barely turns a profit––like Amazon––it shows in the P/E ratio.

This typically happens when investors think the company will grow and reap huge profits down the road at some later date (or that someone else will pay an even higher price later on). Generally speaking, having a high P/E ratio means that investors like you and believe that you have a bright future.

The average P/E ratio on the major stock markets indices is 15. Google’s P/E ratio is 30. Chipotle’s P/E ratio is 56. Said another way: Chipotle’s profits are worth more than Google’s.

Mind. Blown.

Which brings me to the original inspiration for this post: Sprig.

Gagan Biyani, the founder of Sprig, is a friend of mine. Sometime last year we caught up and he told me about a new food delivery startup he was working on. They’d make the food themselves, he explained, and deliver it too — really fast.

Oof, I thought. Not a bad idea, but sounds like a tough sell to the capital markets. Lots of upfront cost, little relative profit, no clear customer lock-in or network effect. How would they ever join the 10x revenue club?

Since that conversation, Sprig has gone on to raise over $10 million from Greylock and others. Immediately, the floodgates opened: SpoonRocket raised $10 million.Munchery raised $28 million. Capital has literally flooded the food space, but I still didn’t get it. Why? What were the VCs seeing that I wasn’t?

At first glance, these companies reminded me of Postmates, which I classify as a premium service targeting a niche audience of wealthy urbanites willing to pay a 30 percent premium to have food delivered. How big could these businesses get, really, especially outside of the SF bubble? What the hell were investors thinking?

As I thought about it more, I realized that while Postmates and Caviar are services on top of restaurants, Sprig, Munchery and SpoonRocket are restaurants. Really, they’re the new fast food chains.

Like a Chipotle, these new fast food chains operate commercial kitchens, pay a chef to design their menu and hire low-skilled minions to mass-produce the actual food dishes. Unlike a Chipotle, these new fast food chains can lease out cheap real commercial real estate in out of the way, low-cost locations. Not only do the new fast food chains pay less per square foot of real estatec, they also need a fewer locations and thus less real estate in absolute terms. How many locations does SpoonRocket need to feed all of San Francisco? Three… maybe? Then think of Burger King — how many locations would they need to serve an equivalent volume of customers? Fifteen? Twenty?

And finally, instead of someone upselling you fries with that, the new fast food chains seal the deal with nice photography and a well-designed mobile app. Not bad efficiency.

Yet for the money they save on cashiers, the new fast food chains introduce a new, countervailing cost: human delivery agents. And with fuel costs being driven up by the rise of China’s middle class, delivery ain’t cheap — Sprig pays their SF delivery workers $16 an hour.

Software is eating food.

From an operations perspective, the relative costs of these inputs — real estate, food prep, delivery — are going to determine how profitable the new fast food chains are. The pressure to increase efficiency and drive down the costs in these companies will be great. For the workers on the other side of the iPhone app, the old industrial logic of low-pay-for-low-skill will apply just as it ever has, especially as more of the intelligence and skill becomes centralized in the form of software and the buffeting effect of venture capital goes away in five years or so when these companies mature.

Due to their vertically integrated operations, these companies can reimagine the entire value chain from the vantage point of software. They can apply A/B testing and innovative startup thinking to not just their website or mobile apps, but the entire food production and cooking process. Here, in the unglamorous backend of operations, is where the profits will be won or lost.

By way of comparison, the publicly traded stocks of the old fast food companies are kicking ass. In terms of P/E ratios, McDonald’s shares are doing better than Apple’sStarbucks is beating the pants off of Facebook and nipping on the buds of Amazon.

How big can these businesses get? In a word, huge. By market cap, McDonald’s is a $100 billion business — that’s two-thirds of an Amazon. At $19 billion, Chipotle is worth a whole WhatsApp. Hell, Taco Bell’s parent company is almost worth one-and-a-half Twitters.

US Food Spending - at home vs outside of home

Whither the next unicorn(s)? Food. Trillions of dollars of consumption are quite literally in play.

U.S. consumers spend $6,130 a year on food (~10 percent of all spending, depending how you slice it). And a dollar of Chipotle’s profit is worth more than a dollar of Google’s.

There will many winners. Unlike social networks or online marketplaces, there’s no winner-take-all dynamic in the food world. Homebrew’s Satya Patel summed up the typical VC mindset in his own explanation of why Homebrew is avoiding the food space, writing: “Many markets have room for more than one “winner” but very few have room for more than two or three.” Satya is wrong about food.

Food is a market like the Internet is a market — it’s too big to be to considered just one “market.” There’s high-end, low-end, middle of the road, Mexican, Sushi, Thai, Burgers, etc. The list goes on and on forever. Witness Jack in the Box ($2.4 billion), Panera Bread ($4 billion), Starbucks ($58 billion), Burger King ($9.4 billion), and more. The list of billion-dollar restaurant chains goes on and on, addressing all manner of market segments. Practically speaking, people don’t want to eat the same thing every day, thus supplier diversity is natural, organic and inevitable. And so it will be with the new fast-food chains who disrupt the old.

The food opportunity is so big because people need to eat three times a day. And unlike casual social interaction — here’s looking at you, Facebook — people happily pay for food. Counted in terms of DAUs, the number of  potential daily active users for these companies is in the billions.

A thundering herd of food unicorns is assembling itself on the horizon. Prepare yourself. It’s not a fad. It’s not over yet. And you’re not too late.

This is just the beginning.

This post originally appeared in TechCrunch.

Farewell to All That

“Each time you crest the rise in front of you, it just makes it clear the size of the even larger hill that looms beyond it. It goes on for a long time.” -Marc Randolph, Founder/CEO Netflix

****

After six years in the saddle as an entrepreneur, I’ve decided to hang up my hat and get a job.

Two weeks ago, the first wire hit our bank account––EasyFridge‘s first investment! I was excited at first. It felt good, validating and all that. After a few days, however, a different thought occupied me: “Am I ready to do this for the next five years?” 

 If you’ve never started a company before, this is a question you need to ask yourself.

For me, the answer was “definitely not.”

I’m tired. I took just two weeks off after the SpeakerText acquisition closed. In retrospect, that was a mistake. I should have taken more time, have made an honest effort to charge my batteries. But I didn’t. And now I’m paying the price.

As a result, I decided to return the capital to our investors (100 cents on the dollar) and move on.

Now I’m looking for a job.

Ill-Be-Back

Knowing When to Flip.

push button to exit

Magazines take your photo. Venture Capitalists offer to invest over email.  Billionaires smoke weed in your living room. No one doubts you.

Like this post? Discuss it on Hacker News

Your company is hot. You are hot. And it feels awesome.

To struggle for months, to dream for years––and then to have the world’s attention. It feels like success. It feels like you’re living the dream. 

But is it?

In that moment, the hardest thing in the world to do is to keep your head, to stay grounded to the reality of your shitty, mismanaged, high churn, unknown CAC, low LTV, money losing company.

Hubris is the easiest sin. I’ve seen it so many times, in myself and others.

Google offered TaskRabbit a hefty sum to power Google Shopping Express. They said no, we’re building the “gig economy.” Whither TaskRabbit now? Management churn, layoffs and a $40M liquidation preference, that’s where.

Google tried to buy Path $150M. They said no, we’re going to be the next Facebook. Now they sell e-stickers in Asia and can hardly raise a Series C.

And yet, in the moment of decision, the future is unknown and unknowable.

Being a founder, a CEO, is fucking hard. You could have made all the wrong choices––hired the wrong team, invested in the wrong technology, picked a terrible business model––and yet if you sell  for the right price at the right time, it doesn’t matter, you won. Indisputably.

The question is: When is the right time to flip?

Answering that question requires a profound level of self-awareness on the part of the entrepreneur and the management team. You have to see through all the press, all the ego-gratifying pomp and circumstances to see your own inner strengths and weaknesses. If your business is fundamentally weak and overvalued by the market, sell. If not, stay the course, take the big VC money. Go hard.

Selling your company requires acknowledging a strategic inner weakness.

Think about that. It’s easy to do when you’re running out of cash and ignored by the press, but how many entrepreneurs can truly see themselves thus–naked in the mirror– during that moment of glory?

***

This post is dedicated to Tony Faddel & the team at Nest, who flipped a niche product with grand plans and a decades long replacement cycle into an epic $3.2B all cash sale to Google. Congratulations, you played the game better than I could ever hope.

Like this post? Follow me on twitter at @mattmireles and discuss it on Hacker News

[fblike]

Humility the Hard Way

Japanese generals humbled

So much of the best advice is impossible to hear when you are first starting out. Success feels within our grasp, just a sprint or two away. We’re in too much of a hurry to listen.

Failure slows you down. The pain of failure forces you to stop. Failure creates the context where one can truly listen and absorb advice from the grizzled veterans around us. I think the technical term is humility.

If you learned this lesson the hard way, don’t worry, you are not alone.

If you haven’t, consider slowing down for a moment and taking the easier path. There may be no answers outside of those that you create for yourself, but there is still much to be learned.

Japanese generals humbled

Race, Ethnicity & Silicon Valley

Ray Mireles

Silicon Valley favors the brash and the brilliant. If you have a pedigree and a network (e.g. if you studied Computer Science at Stanford), the bar

is lower. People will doubt you less. The corollary to this, of course, is that the more of a nobody you are, the harder it is and the higher self-esteem and courage it will take for you to succeed.

Courage is in short supply… everywhere.

A startup is a scary, lonely endeavor. It takes either desperation or an unreasonably big ego to make it work.

Imbalances of power are a feature of the human condition. Much like your forefathers (and even more so your foremothers), the odds are against you

Go forth with determination, grit your teeth and get ready to kick some ass.

my dad, a scrappy mofo if there ever was one.The man in the photo is my old man. Born in 1929, he picked cotton by hand as a child, laid railroad tracks as a teenager, survived the zoot suit riots in East LA, joined the Air Force, played lothario in Oakland and then paid his way through UCLA as a pipeline construction worker. He earned a PhD and retired as a professor. He was given little, he accomplished much, he inspires me still. 

If you like this post, please discuss it on Hacker News — unless you’re a regular HN follower of mine, in which case please don’t vote this article up, as the HN mod says I’m getting upvotes from the same people and the system applies a penalty.

How to Negotiate Price Without Being a Jerk

If you’ve never done it before, price negotiations are easy to fuck up, especially when you need to have a non-adversarial long-term relationship with the guy on the other side of the table. Think:

  • Employee Salaries
  • Venture Capital Valuations

In either case, you want your employer or VC to not hate you after the fact, and vice versa. For some perspective, I’ve fucked this up royally more than once. Like, laugh out loud it’s so absurd and embarrassing kind of fuck up. Here’s the story:

It was the summer of 2010. My 3 SpeakerText co-founders and I were living together in a 2 bedroom apartment in Pittsburgh. We had $900 in the bank and rent paid for a full month and a half. In other words, we were on top of the world, but pretty goddamn close to the edge. But, being the resourceful entrepreneur I am, I had 3 angel investors lined up to put in ~$50k, which felt like an ungodly amount of money at the time.  Here’s a word-for-word excerpt from the email negotiations (emphasis carried from the original).

Investor: Last question I think- have you guys formed Board of Directors yet? Advisor is cool, but would be interesting and valuable to be the independent board member (usually at this stage, 2 founders + 1 independent on board). Not asking for more shares, just slightly different status.
Idiotic Younger Me: Seriously?? Yes. I am the board. And no, I will not add you as a director. There is absolutely no way in hell that is going to happen at this stage in the game. Whoever told you that you should get a board seat for a $10k investment needs to put down the crack pipe. Having an outside director at this point would be completely, outrageously inappropriate. Put. The. Crack. Pipe. Down.

Yes, I actually wrote that. And yes, I too still cringe in disbelief while reading the words.

Truth is, the investor was just trying to be helpful, but in the heat of the moment, I interpreted his well-intended ask as an act of malicious overreach while company was vulnerable.

But here’s the thing: Shit happens in business and in life. Emotions run high––not because people are stupid, but because the outcome matters! It’s perfectly normal for you to feel outraged or offended when someone makes you a lowball offer. And sometimes displaying strong emotion can be tactically useful.

But please, keep a cool head. If you’re gonna fly off the handle, do it for strategic reasons. Don’t take things personally. The game itself is antagonistic. Don’t hate the players on the other side. You will have to work with them when the dust settles. Remember that.

The other thing to remember: It’s easy for either side in a negotiation to misconstrue helpfulness, confusion or even rational self-interest as an act of malice when it’s not. Email compounds this. Face-to-face interaction lessens it.

Bad things happen when you demonize the other side.

Oh yeah, about that investor: Shortly after hitting send, my co-founders “helped” me realize the error / face-palm of my ways. The next day, I flew to Boston to meet him, apologized my ass off, drank a beer with the man and subsequently collected our first $10,000 check. No board seat was given. We went on to raise $1,100,000 from over a dozen investors, including Google, before selling to a competitor in Q3 2012.

It wasn’t my first or only fuck up, nor will it likely be my last, but the episode did teach me to check myself when things get heated.

Email is bad. Strong feelings are normal. Keep your head.

***

With that as a pre-amble, here’s my tactical advice for price negotiations in the context of a salary:

  1. Avoid email if you can, as email tends to add a more aggressive/adversarial tone than either party intends.
  2. Be respectful. Demonstrate excitement about the job and the people. Never bad mouth or shit talk the offer or the people.

If you have to do email, then maybe say something like:

Hi Potential Bossman/Investor,

Thanks for your offer. I’m extremely excited about XYZ and the opportunity it represents. After meeting the team and digging into the details, I want to say ‘yes.’ My only concern is the price.

If you can increase the  offer to $N+Y, then getting on board becomes an easy decision for me. If not, I will have to think about it some more. I’m also open to hearing other creative suggestions.

Your thoughts?

Sincerely & Respectfully,
-Guy Who Wants A Better Price

***

Please learn from my mistakes. I made them so you don’t have to. Too many people learn the hard way.

 If you liked this post, please vote for it on Hacker News

Caveat: If you’re dealing with a sharky asshole on the otherside, do yourself a favor and try to find someone who’s not a sharky asshole to work with. Life is just too short. If you’ve got no other options or you don’t need (or want) to maintain a collaborative relationship after the negotiations are over, then go ahead and be a sharky asshole.