Builder or Investor?

The summer before my junior year was one of the most impactful couple of months in my life. I had two internships that summer, one at a PE shop in Chicago and one at a medical device startup in New Hampshire. Chicago was the first time I ever really lived on my own. As a social extrovert, this was hard but, ultimately, really good for me. My summer in Chicago was a step function increase in my personal growth. I don’t think it is a coincidence that I met the woman who would go on to become my wife shortly after returning to school in the fall. I was finally mature enough for that kind of relationship, and my time in Chicago had a lot to do with that. 

If Chicago was an accelerant for personal growth, New Hampshire was a catalyst for significant professional development. 

I was working at a medical device company while also living with the CEO and his family. It was an intensive business boot camp. During the workweek, I did a rotation throughout the company working on a new project each week. Combined with daily 1v1s with departmental heads, the internship served as a fantastic introduction to the various dimensions of a technology business. 

Outside of work, the CEO had me do his P90X workouts with him every day before work at 5 am. This may sound early, but it was a luxury compared to the 4 am wake-up calls I had on the weekends for fishing. 

I learned a lot through this experience. I learned the importance of being able to speak just as easily with a dockhand as with a CEO. I learned what a world-class culture feels like and the impact of working at a mission-driven company. I learned that if you want to be truly successful, it is more important to be among the world’s best at something than what that something is. 

I think I learned as much out on the boat talking with the CEO as I did in the office. One conversation in particular sticks out. He told me, “at some point, every successful person has to decide whether they want to be a builder or an investor.” 

The concept of builder vs. investor has informed much of my career thus far. 

After school, I had the opportunity to work at an elite, global investment shop like The Carlyle Group. I got so much from that experience, but I knew pretty early that I wanted to try to find a way back into the startup world as my next step. I knew that I wanted to be part of building companies that make an impact through solving important problems, but I didn’t know the first thing about actually working at a startup. 

I thought through my potential options as follows: 

1. I could go try to work at a startup. 

2. I could go try to work at a big tech company. 

3. I could try to get into venture capital. 

My only tangible skills were financial management and analysis, so if I did pursue being an operator, it would have to be in some sort of financial analyst role. As positive as large swathes of my Carlyle experience had been, it had also made me realize that I didn’t want to be a cog in the wheel at another big company. Spending the previous two years working on billion-dollar oil & gas transactions also made me want to work with more nascent companies. 

So I actually saw my options as follows: 

1. Try to find a startup to join. It would have to be in a financial analyst role, which generally only more mature companies recruit. I would be buying a single lottery ticket, but it would really pay off if the company became super successful. 

2. Try to become a VC. I hoped to leverage my investor’s skill set to land a role at a seed-stage investing shop working with early-stage companies. Instead of a single lottery ticket, I rationalized that I would have visibility on a whole host of different startups. I would develop a broad view of what success looked like, which could inform whatever was next. 

I decided to pursue the VC path. My logic was that I could be a real growth partner to startups. I may not be doing the building myself, but I would be an integral part of that process as an investor. I thought I could be a builder through being an investor. 

And I was wrong. 

Now I don’t regret my choice. It worked out well for me. I thoroughly enjoyed my time as a VC. I learned a lot, built a ton of great relationships, and ultimately ended up here at Wharton, which had been my goal for as long as I could remember.

I didn’t make a wrong choice, but I can see that my logic was fundamentally flawed with hindsight. 

The reality is that VCs aren’t builders. They may think they are, and maybe as partners on boards, VCs are adjacent to the building process, but they aren’t builders. Not really. Especially not junior-level VCs. 

I had this deep desire to build something meaningful. To be part of creating something new that I could hang my hat on, point to, and say, “I did that.” And as much as I wished it could, I realize now that VC was never going to scratch that itch. 

I think a lot of junior and would-be VCs fall into this builder trap. They want to be a company builder, but they don’t have any sort of technical or operational background, so they pursue being a VC. The career provides access to startups has a sheen of sexiness (to its ultimate fault, I would argue).

After a couple of years, all the associates who wanted to be builders end up pretty disillusioned because they aren’t making the impact they had hoped they would.

What generally happens next is these aspiring builders leverage the network they have cultivated and their knowledge of startups to land an operating role at a company. Going from VC to operator isn't a bad route at all (at least I hope not because it is the one I am pursuing!). You will leave VC with a robust network in the space, a high-level view of what it takes to build a successful tech company, and the ability to evaluate what strong companies look like. 

I don't think this path is as good as jumping straight into an operating role at a future unicorn, but it probably has a lower variance. Worst comes to worst, you can always go and get your MBA and use that as a springboard onto the operating side of the table 😊.

You can't really make a wrong choice when deciding between being an operator and an investor, but I do think you can make a suboptimal one based on your ultimate aspiration. 

The number one piece of advice I have for folks interested in pursuing venture capital is to take the time to think about why they want to become a VC. Do they want to be a builder or an investor? 

With the benefit of hindsight, my recommendation is only to pursue being a venture capitalist early on in your career if you want to be an investor. 

If you want to be a builder long term and pursue VC as a path into that world, you'll get broad exposure, but you'll likely be frustrated with how little impact you make on companies (the extent to which VCs make a tangible impact on companies in general is a debate for another post). 

Instead, join a high-growth company. Optimize more for growth and sitting next to brilliant people. Optimize less for the particulars of your role. You can always get into VC down the road. Operating experience will only make you a better, more empathetic, and more credible investor.  

If you want to be an investor and want VC to be your asset class of choice, then great! You won’t make as much money as being a PE bro, but the companies you work with are about 1000x cooler, and you may even be able to invest in some companies that change the world. 

As with most things in life, there isn't one ideal path. The path you choose matters less than what you do while on it. 

But before deciding to jump into the VC rabbit hole, think about what you really want. 

Do you want to be a builder or an investor?

The answer will inform a lot. 

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Things are Looping Up

Life is about loops.

Sometimes it is easy to make the assumption that life is a series of discrete events and choices. We believe that life is like a stone skipping crisply across the surface of a lake. There is a singular point of contact and then we are just along for the ride until the next point of contact.

This assumption is incorrect.

Life is about loops. The iterative processes and actions that define our life, behavior, and businesses.

Things are rarely as simple as action and reaction. This may occur in science experiments that take place in a closed system. Life is more often a series of interconnected systems where the outcomes have some level of impact upon the next impact.

Think about driving. An action that seems like second nature to most of us is actually a complex loop involving multiple neural and physical systems. You are only able to drive because of the short feedback loops between these systems. Moving the steering wheel causes the car to change direction. This feedback is relatively quick and direct which allows your brain to either A) keep turning or B) stop turning.

A key lesson to be learned from driving and applied widely across our personal and professional lives is that a key to operating a system successfully is to keep feedback loops short and direct.

Shoulda, woulda, OODA

A lot of the modern thinking around loops and systems started by Air Force Colonel John Boyd. Boyd developed a concept called the OODA loop that is still widely utilized in military and business strategy today. It is a decision-making framework whereby decisions are made by constantly cycling through the loop of Observe Orient Decide Act. In aerial dogfighting between fighter jets, the fastest or most heavily armored plane is not who wins, it is the pilot who can react most quickly to changes in circumstances. Utilizing the OODA loop methodology, pilots can cycle through decision trees extremely quickly. Less focus is placed on making the correct decision as is focused on making decisions quickly, examining the results, re-orientating accordingly, and then taking action again.

Sound familiar?

OODA loops and the underlying theory that agility overcomes superior resources serve as the bedrock for modern business strategy and technological development. (For a great podcast and loops about in business, check out this episode of Invest Like The Best)

Why startups win

Agile software development and the lean startup movement are two examples of this kind of thinking. In both cases, the lengths of feedback loops are minimized and decision making is pushed as close to the customer as possible. Resources are front-loaded and experiments are run and re-run so that teams can get feedback quickly and make adjustments as necessary.

This is why startups can go toe to toe against massive incumbents and win. Usually, success isn't a case of simply throwing resources at a problem. Startups beat incumbents because they can act and react so much quicker. By the time that a large incumbent has gotten the ship turned in the right direction, the startup already has such a large headstart that it has captured the hearts and minds of the consumer.

Issues occur when feedback loops are too long. A prime example of this is diet and exercise. We all know eating healthy and exercising is good for us. So why don’t more of us do it? The answer is that the feedback loops are long with these activities. You may not see results from your effort for weeks or months. It is easy to get discouraged while the immediate gratification of Grandma’s chocolate cake is immediately available.

Now, this is a massive issue for my industry.

Why the long pace?

Venture Capital is notorious for having extremely long feedback loops. Those startups that are successful enough to have a positive outcome will often spend 5 to 10 years getting there. And this trend is only elongating as companies are staying private for longer. As such, it will take an EXTREMELY long time to figure out whether your decision to invest in one company or another was the right one. Because the feedback loops are so long, it makes it almost impossible to alter your strategy and adjust.

So how do you deal with these long feedback loops? That is the challenge. Here are some ideas I have come up with.

1) Focus on building a repeatable process

Ahh the classic Erik Berg Process suggestion. You knew it was coming. I’m a big process guy. What can I say? When feedback loops are long, the importance of having a good, repeatable process is magnified. Notice what I said. Simply having a process isn’t enough. First, it has to be a good process. Having a bad process is worse than having no process at all because it will likely either reinforce poor decisions or give you false-confidence about your decisions. Second, it has to be a repeatable process. Your perfect process will do you no good unless it is flexible enough to be applied across different opportunities. It also will do you no good if the process is so cumbersome and painful that you struggle to get other stakeholders, entrepreneurs in my case, to get through it. Having a bad process in venture opens you up for MASSIVE issues. You may find yourself with a due diligence process that is so painfully slow and cumbersome, you aren’t flexible enough to be opportunistic on good deals and, even worse, you may experience adverse selection bias as the best entrepreneurs are unwilling to put up with jumping through your hoops.

What does that good process look like in Venture? Unfortunately, there isn’t a one-size-fits-all solution. What works with one segment or geography may not work for another. But it is something that you should spend significant time and energy being thoughtful about. Don’t do things just to tick a box on your checklist, be purposeful and make sure every step in your process drives tangible value for either you or the entrepreneur (ideally both).

2) Document your decisions

With long feedback loops, it is almost impossible to remember the set of facts or thoughts around a decision months or years later. This makes documentation of the utmost importance. If you won’t know whether a decision was successful or not until years later, you need to have enough documentation to be able to come back to it and review what was going through your mind at the time and how that mapped against how things eventually would play out. Were your assumptions correct? Did you anticipate all the exogenous threats? Was your understanding of internal dynamics accurate in hindsight?

You won’t be able to ask yourself the right questions, much less answer them, unless you are documenting decisions effectively. Note that this does NOT mean that you need to write a novel recounting the most minute aspects of every decision. Remember what I said about having an efficient process? This is definitely a case where more does not equal better. How does the saying go? “It was too hard to write you a letter on one page so I wrote it on four.” As in all other aspects of communication, decision documentation should strive for clarity and conciseness. It is better to write one accurate and poignant page than it is to write twelve that are not. (This is also true in blogging and something that I am desperately trying to get better at.)

3) Audit yourself

Hey, remember when I said that it was important to document your decisions? Believe it or not, that is very much predicated on your willingness to go back and actually look back at your decisions. It is amazing how few people and firms do this. More often the self-analysis only goes as far as: “Decision right = skill. Decision wrong = bad luck”.

Have the courage to look in the mirror at all your mistakes. Go back and try to understand where your head was at the time. Use your clear and concise documentation to figure out where you went wrong and how you can react better in the future. The reasons people don’t do this are two-fold. One, people are lazy and this takes time. Sorry, you are just going to have to suck this one up if you ever want to improve. Two, people don’t like admitting they were at fault for their errors. This intellectual humility is what sets the best from the rest.

4) Measure using an intermittent proxy

If you won’t know if something is successful for a long time, try to find indicators with which to orientate yourself even before something is fully baked. Look at the exercise example I used previously. If you focus on how you look in the mirror, it will be extremely hard to stay motivated. If you instead focus on the energy you feel after a workout or the weights/reps you were able to lift, you will have a much easier time staying motivated. You will see progress all along the way instead of only once you reach your destination.

William at Frontline Ventures has an excellent article detailing how he and the Frontline team utilized the intermittent proxy measure of future financings to measure a company’s success. It isn’t a perfect measure (just ask WeWork), but it was good enough to give a directional indication of whether they were on the same track or not. Based on the data they gathered, they realized that they were missing out on deals because their process was too slow. Accordingly, they adjusted their process to be more nimble so they wouldn’t continue to fall into this pitfall.

Staying in the Loop

Life is about loops.

Observe.

Orientate.

Decide.

Act.

Move nimbly and purposefully. Make sure to pick your head up often enough to adjust your direction as necessary. Design good processes that you can repeat scalably and effectively.

Remember: David beat Goliath.

Speed wins and to be fast you need to be able to design tight feedback loops.

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Pink Dragons, Serendipity Vehicles, and Mentos

When I was a kid one of my all time favorite things to do on friday nights was to have a movie night (who am I kidding, that is still one of my favorite things to do). My mom and I would go to Blockbuster to pick out a movie or two and then we would skip next store to Papa Murphy’s to pick up some pizza (I will contend till my dying breath Papa Murphy’s is by far the most underrated pizza on the planet. So good). One of the movies I distinctly remember watching during multiple movie nights was Serendipity The Pink Dragon. Serendipity was a pink sea dragon who lived on a magical island with all of her friends learning life lessons about friendship. I have no idea why we ever picked this particular movie out, but I do remember watching it more than once (to this day, my go to nickname for a Lapras in any Pokemon game is Serendipity).

I was reminded of Serendipity the pink dragon while listening to this interview from Sara Dietschy with Nik Sharma and David Perell. This episode is definitely worth listening to. They cover a lot of ground from influencer marketing to direct-to-consumer brands to their own stories and how they got where they are today. As part of this last part, they spoke about the role that serendipity had in each of their lives. They drew a line in the sand between serendipity and luck. Luck is something good that just happens to you. Serendipity is something good that happens to you because your hard work and patience put you in a position where it could happen to you. I love this distinction.

If you talk to anyone with a modicum of success in life, the vast majority can point to a handful of “lucky” events where they caught a break or were given a chance to take on a project they were woefully underqualified for. Rare, however, is the successful person who had this happen to them while watching Netflix and eating cheetos on a Thursday afternoon.

Luck is a factor in everyone’s story. What differs is how prepared people are to take advantage of the situation when the dice start rolling their way.

That is where Serendipity Vehicles come in.

Serendipity Vehicles are a concept coined by David Perell in this post. He talks about purposefully building structures that increase the likelihood of both serendipitous things happening to you as well as increasing the chances that you are able to take advantage of them when they occur. Serendipity vehicles can range from simple structures like attending a dinner party to more much more complex things like writing books.

This blog is one of my serendipity vehicles. Twitter is another. Both require relatively minimal, but consistent, effort to maintain. Both have lead to significant outsized opportunities far and above what I would’ve ever expected.

Now all of this talk of lifestyle design may sound complicated, but I think the most important thing is simply the way you approach it. I think the best way to think about designing your serendipity vehicles is to make yourself into a Mentos. Mentos are a type of spherical candy that are sold all across the world. To be perfectly honest, I think they are pretty average. What is not average are the explosive effects they have when combined with any sort of carbonated beverage (but especially Diet Coke). There is a whole lot of science behind why this happens, but the short of it is that even though Mentos looks like smooth spheres, on a microscopic level their surfaces are very rough. This increased surface area acts environments where bubbles can form, launching soda up into the air. The key is the surface area.

You can make your life resemble Mentos by increasing your surface area so you have a lot of different places where serendipity bubbles can form.

Say yes to thing even if they are outside your comfort zone.

Cultivate curiosity in a broad range of subjects and areas.

Go out of your way to go to new places and meet new people.

Jump at opportunities even if the timing is not always ideal.

Create excuses to talk with interesting people.

Provide value to people instead of just asks.

At the end of the day, your goal should be to have as many areas in your life where serendipity can form as possible The challenge is to recognize serendipity and then make sure you are able to take advantage of it.

This advice is equally true for both individuals and startups.

Well designed startups are a lot like giant serendipity vehicles. A lot of work goes into designing them so that they are in a position to shoot for the stars as soon as a serendipitous customer connection or technological development breaks their way. As a founder you need to balance the need to stay focused on what you are building with providing yourself as much surface area as possible in order to take advantage of connections with investors, talent, customers, etc.

I can’t tell you what the right balance for that is. You will need to figure that out for yourself. But I can tell you what the wrong balances are. There are two.

1) Ignoring any thought of the outside world to focus solely on your business.

2) Ignoring your business to focus solely on hoping something happens in the outside world.

Everything in between is fair game.

No matter where you land on the spectrum between focusing your time and energy on building your business and increasing your surface area to optimize for serendipity, there is one lever that you can pull to maximize your chances for success.

Burning responsibly.

Responsibly managing your burn rate as a startup is one of the most important things you do as a founder. Burn too fast and you won’t get enough at bats to have something serendipitous happen for your business, no matter how much you optimize for it.

As an individual and as a business, design your life so that you can take advantage of serendipity when it comes knocking at your door.

That is how you and your company achieve success.