Startup Land : the Zendesk adventure from Denmark to Silicon Valley to IPO

Many of my friends and colleagues tell me that video and movies are nowadays better than books for documenting real life. I still feel there is in books a depth I do not find anywhere else. A question of generations, probably. HBO’s Silicon Valley may be a funny and close-to-reality account of what high-tech entrepreneurship is but Startup Land is a great example of why I still prefer books. I did not find everything I was looking for – and I will give one example below – but I could feel the authenticity and even the emotion from Mikkel Svane’s account of what building a start-up and a product means. So let me share with you a few lessons from Startup Land.

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The motivation to start

“We felt that we needed to make a change before it was too late. We all know that people grow more risk-averse over time. As we start to have houses and mortgages, and kids and cars, and schools and institutions, we start to settle. We invest a lot of time in relationships with friends and neighbors, and making big moves becomes harder. We become less and less willing to just flush everything down the drain and start all over.” [Page 1]

No recipe

“Along the way, I’ll share the unconventional advice you learn only in the trenches. I am allergic to pat business advice that aims to give some formula for success. I’ve learned there is no formula for success; the world moves too fast for any formula to last, and people are far too creative—always iterating and finding a better way.” [Page 6]

About failure

In Silicon Valley there’s a lot of talk about failure—there’s almost a celebration of failure. People recite mantras about “failing fast,” and successful people are always ready to tell you what they learned from their failures, claiming they wouldn’t be where they are today without their previous spectacular mess-ups. To me, having experienced the disappointment that comes with failure, all this cheer is a little odd. The truth is, in my experience, failure is a terrible thing. Not being able to pay your bills is a terrible thing. Letting people go and disappointing them and their families is a terrible thing. Not delivering on your promises to customers who believed in you is a terrible thing. Sure, you learn from these ordeals, but there is nothing positive about the failure that led you there. I learned there is an important distinction between promoting a culture that doesn’t make people afraid of making and admitting mistakes, and having a culture that says failure is great. Failure is not something to be proud of. But failure is something you can recover from. [Pages 15-16]

There are other nice thoughts about “boring is beautiful” [page 23], “working from home” [page 34], “money isn’t only in your bank account, it’s also in your head” [page 35], and an “unconventional (possibly illegal) hiring checklist” [page 127]

I will quote Svane about investors [page 61]: “I learned an important lesson in this experience – one that influenced all of the investor decision we’ve made since then. There is a vast spectrum of investors. Professional investors are extremely aware of the fact that they will be successful only if everyone else is successful. Great investors have unique relationships with founders, and they are dedicated to growing the company the right way. Mediocre and bad investors work around founders, and the company end in disaster. The problem is, early on many startups have few options, and they have to deal with amateur investors who are shortsighted and concerned with optimizing their own position.” [and page 93]: “Good investors understand that the founding team often is what carries the spirit of a company and makes it what it is.”

And about growth [page 74]: “Even after the seed round with Christoph Janz, we were still looking for investors. If you’ve never been in a startup this may seem odd, but when you’re a startup founder you’re basically always fund-raising. Building a company costs money, and the faster you grow, the more cash it requires. Of course, that’s not the case for all startups – there are definitely examples of companies that have come a long way on their own positive cash flow – but the general rule is that if you optimize for profitability, you sacrifice growth. And for a startup, it’s all about growth.”

In May 2014, Zendesk went public and the team was so extatic, many pictures were tweeted! The company raised $100M at $8 per share. They had a secondary offering at $22.75 raising more than $160M for the company. In 2014, Zendesk revenue was $127M!… and its loss $67M.

Zendesk-IPO

There was one piece of information I never found neither in Startup Land nor in the IPO filings: Zendesk has three founders, Mikkel Svane, CEO and author of the book. Alexander Aghassipour, Chief Product Officer and Morten Primdahl, CTO. I am a fan of cap. tables (as you may know or can see here in Equity split in 305 high-tech start-ups with founders, employees and investors shares) and in particular studying how founders share equity at company foundation. But there is no information about Primdahl ‘s stock. I only have one explanation: On page 37, Svane writes: “the thing about money is, it’s happening in your head. Everyone processes it differently. Aghassipour adnSvane could live with no salary in the early days of Zendesk, but Primdahl could not. It’s possibly he had a salary against less stock. I would love to learn from Savne if I am right or wrong!

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Click on picture to enlarge

FT’s Top European Tech. Entrepreneurs

Following my article posted on June 25, entitled Europe and Start-ups : should we worry? Or is there hope? Here is a more detailed analysis of the FT’s Top 50 tech. entrepreneurs. First, you may want to do a quiz: do you know them from their pictures?

FT Top 50 Europe

Before I give you the full list (ranking is from left to right and top to bottom), here are some interesting statistics (I think).

FT Top 50 Europe Stats

The countries are not really surprising whereas the huge presence of Index Ventures, compared to Atomico or even Accel was. American funds, including the best ones, are all around. Interesting too. So how many entrepreneurs did you know…

FT Top 50 Europe List
(click on picture to enlarge – additional sources : Crunchbase and SEC)

Europe and Start-ups : should we worry? Or is there hope?

I just read two articles (thanks Kevin and Deborah :-) !) about high-tech entrepreneurship in Europe. One is optimistic, the other one less so… The Financial Times just published a special report about Europe’s top 50 tech entrepreneurs and it includes Watch out Silicon Valley by Skype’s co-founder Niklas Zennström. The new York Times published A Fearless Culture Fuels U.S. Tech Giants. You might not be surprised but I mostly agreed with the American point of view. So let me begin with the pessimistic analysis…

Here’s a stark comparison: In the United States, three of the top 10 companies by market capitalization are technology companies founded in the last half-century: Apple, Microsoft and Google. In Europe, there are none among the top 10 and when it comes to remedies: “They all want a Silicon Valley,” [said] Jacob Kirkegaard, a Danish economist […] “But none of them can match the scale and focus on the new and truly innovative technologies you have in the United States. Europe and the rest of the world are playing catch-up, to the great frustration of policy makers there. The article adds: “while there are always individual exceptions to sweeping generalities about Europeans and Americans, the major barriers were cultural.” […] “Fail fast, fail often” is a Silicon Valley mantra, and the freedom to innovate is inextricably linked to the freedom to fail. In Europe, failure carries a much greater stigma than it does in the United States. […] None of this will be easy to change, even assuming Europeans want change.

Zennström is much more optimistic and I would love to agree with him… “Just as a nimble start-up can defeat a large incumbent, turning its focus and speed to its advantage, so too are we seeing that in some respects European entrepreneurs actually have an edge. The first of these advantages is highly visible: the extraordinary development of Europe’s tech hubs.” He mentions here Helsinki for mobile gaming and London for finance. He sees a second reason why Silicon Valley might be less needed. “When we founded Skype, our aim was never to build the best peer-to-peer communication service in Sweden. Likewise, Daniel Ek and Martin Lorentzon did not set out to build Sweden’s best music service with Spotify, nor did Riccardo Zacconi and his co-founders at King aim to build amazing games for Swedes to play with. Without the luxury of a huge domestic market, we were forced to think internationally from day one — to solve global problems, to work across borders, and to move fast in doing so.” […] “In short, we are seeing the emergence of a remarkable cohort of new businesses: start-ups that begin in some of the world’s smallest domestic markets but are able, thanks to their highly international approach, to reach global scale in record time. In time, I believe, this will be as significant a trend as the historic concentration of innovation in Silicon Valley, and will play a major role in the European economy for decades to come.”

I feel like I read the same analysis from fifteen or twenty years…Just have a look, even if more recent, at Europe vs. USA: growth in IT and Biotech Only time will tell us who best analyzed the situation.

HBO’s Silicon Valley – end of Season 2 : dead or alive?

You may prefer the nerds to the lawyers in the last episodes of Silicon Valley’s Season 2. One of the nice wise quotes of our nerd is “we are going to fail by succeeding”, whereas lawyers just try to use the confusion about our hero’s girlfriend status.

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And what about our brilliant MBA explaining that taking care of cables in a garage start-up is “intoxicating”, is “magical”… whereas making money in a big company would have just been boring, and that in any case, he can find a job the next day if necessary. Isn’t this what real life is about?

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Of course we still have these strange apps…

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Of course, there will be the final great Hollywood-like scene…

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And of course a conclusion preparing us for Season 3!

Should universities get rich with their spin-offs?

The issue is discussed in the June 2015 issue of Horizons, the research magazine of the Swiss National Science Foundation, to which I was asked to participate.

Dozens of startups are launched every year in Switzerland to commercialize the results scientific research funded in large part by the State. Should universities that have supported them become rich in case of commercial success?

Yes, says the politician Jean-François Steiert.
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Over the last twenty years, about a thousand companies, mostly small, contributed to the success of Switzerland. The majority of them are successful, although investors, inclined to take risks, are rare in Switzerland as compared for example to the United States. Most of the time the spin-offs are supported by taxpayer money, in terms of infrastructure, social networks, scholarships or coaching services. The objective of this kind of public investment is primarily to encourage employment and research.

With the support from public funds, these innovations generate through sales or patents significant benefits in the order of tens or hundreds of millions of francs. The public, as an investor, must be able to require a portion of those profits. Not to allow the State or the universities to get rich, but to reinvest these funds in fostering the next generation of researchers.

At a time when the Confederation and the cantons implement programs of savings due to exaggerated tax cuts, additional funds must be generated in this way and support young researchers in the economic development of their innovations.

“The public, as an investor, must be able to require a portion of the profit.” Jean-François Steiert

When the sale of patents is concerned, it is not a question of aiming for the maximum return, nor of making profits with a unique key. Universities need flexibility to optimize the return. On the one hand, we need the creation and management of start-ups to remain attractive. On the other, one must reinvest adequately in the next generation of researchers.

What is lacking today is transparency. If universities want to maintain the confidence of the taxpayer, they must declare how much money is generated by their successful startups. This information, they owe it to the taxpayer who, rightly, wants to know if her money is well invested in research, a key area for Switzerland.

Jean-François Steiert (PS) is a member of the National Council since 2007 and member of the Commission for Science, Education and Culture.

No replies Hervé Lebret, manager of an EPFL investment fund.
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When Marc Andreessen launched Netscape in 1993, one of the first Web browsers, the 22-year old American chose to start from scratch rather than sign a license with the University of Illinois, the conditions of which he considered abusive. Instead, Stanford University had less tensed relations with the founders of Google, taking a modest 2% stake (which become $336 million six years later at the company IPO). The same university asked nothing to Yahoo! as it considered that the founders had developed the web ite on their spare time. A few years later, one of the founders of Yahoo! made a gift of $ 70 million to Stanford – whereas Andreessen does not want to hear anything about his alma mater.

These examples show how the relationships between universities and corporations can worsen when they do not share the same perception of the value of a knowledge transfer. The latter is often free when it comes to education; but when it comes to entrepreneurship, the overwhelming majority of people think it should not be. Nevertheless, an indirect return already exists: first in the form of taxes and, more importantly, through the hundreds of thousands of jobs created by start-ups. Their value is ultimately much higher than the tens of millions of dollars reported each year by the best American universities from their licenses.

“Abusive conditions can discourage the entrepreneur even before she starts.” Hervé Lebret

How then to define a fair retribution for universities? The subject is sensitive, but poorly understood, partly because of a lack of transparency from the different actors. In 2013, I published an analysis of the terms of public licenses from thirty startups [1]. It shows that universities hold on average a 10% equity stake at the creation of the start-up, which is diluted to 1-2% after the first financing rounds.

It is impossible to know in advance the commercial potential of a technology. We must first ensure that it is not penalized by excessive license terms. Abusive conditions can discourage the entrepreneur even before she starts and discourage investors. And thus kill the goose in the bud.

[1] http://bit.ly/lebrstart

Hervé Lebret is a member of the Vice President for Innovation and Technology Transfer at EPFL and manager of the Innogrants, an innovation fund from EPFL in Lausanne.

Peter Thiel – Zero to One (part 2)

I just finished Zero to One and here are a few more comments, less about entrepreneurship than about social issues. Whatever the reputation of Thiel in Silicon Valley as a possible Libertarian, there were a couple of topics he addresses very convincingly. He is not a pure Contrarian. He disagrees with mainstream fashion in a very serious manner. Here are a couple of examples:

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– The machine will not replace humankind
Yes computers have made impressive progress in the recent decades, but not to the point of replacing mankind. He shows very convincingly through the cases of Paypal and Palantir [pages 144-148] that computers cannot solve automatically tough issues but are only (excellent and critical) complements to human beings. Even the Google experiment of recognizing cats “seems impressive – until you remember that an average four-year-old can do it flawlessly” [page 143]. He finishes his chapter about Man and Machine this way: “But even if strong AI is a real possibility rather than an imponderable mystery, it won’t happen anytime soon: replacement by computers is a worry for the 22nd century. Indefinite fears about the far future shouldn’t stop us from making definite plans today. Luddites claim that we shouldn’t build the computers that might replace people someday; crazed futurists argue that we should. These two positions are mutually exclusive but they are not exhaustive: there is room in between for sane people to build a vastly better world in the decades ahead. As we find new ways to use computers, they won’t just get better at the kinds of things people already do: they’ll help us to do what was previously unimaginable” [pages 150-151]. You will not be surprised I prefer this to Kurweil views.

– Greentech was a bubble and it was obvious from day 1.
I was always puzzled with greentech/cleantech. Why are people so excited about the promise to solve an important problem when we do not have any solution. Thiel is far tougher. First he shows the obvious: it was a bubble.

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Then he analyzes this industry through his “zero to one” arguments.
“Most cleantech companies crashed because they neglected one or more of the seven questions that every business must answer:
– Engineering: can you create a breakthrough technology instead of incremental improvements?
– Timing: is now the right time to start your particular business?
– Monopoly: are you starting with a big share of a small market?
– People: do you have the right team?
– Distribution: do you have a way to not just create but deliver your product?
– Durability: will your market position be defensible 10 and 20 years into the future?
– Secret: have you identified a unique opportunity that others don’t see?
If you do not have answers to these questions, you’ll run into lots of “bad luck” and your business will fail. If you nail all seven, you’ll master fortune and succeed. Even getting five or six correct might work. But the striking thing about the cleantech bubble was that people were starting companies with zero good answers – and that meant hoping for a miracle”
[page 154]. What’s next? Fintech?

Peter Thiel – Zero to One

I am reading Thiel‘s Zero to One. And after a compilation of his class notes last year, here are a few more comments. His book is as good as his notes but some readers may be puzzled. It’s not a book about how to build start-ups. (For this read Horowitz or Blank) “This book offers no formula for success. The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative. Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.” [Page 2]

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Thiel is a strong believer in exceptional achievements, in innovation just like in art or science. “The entrepreneurs who stuck with Silicon Valley learned four big lessons from the dot-com crash that still guide business thinking today:
1. Make incremental advances
2. Stay lean and flexible
3. Improve on the competition
4. Focus on products, not sales.
These lessons have become dogma in the startup world. (…) And yet the opposite principles are probably more correct:
1. It is better to risk boldness than trivaility
2. A bad plan is better than no plan
3. Competitive markets destroy profits
4. Sales matters just as much as product.

[Pages 20-21]

There is one point where I disagree with Thiel. Though I tend to be convinced by his argument that monopoly is good and competition is bad – read Thiel with care for the subtlety of his arguments – I do not think he is right when he writes [page 33]: “Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate”. I prefer Levine and Boldrin. Now I do believe that established players are displaced by new players – not competitors – who innovate when the champions who have become dinosaurs stop being creative.

Thiel does not believe in luck. “You are not a lottery ticket” and I agree that you can minimize uncertainty by carefully planning and probably by adapting too. He still quotes [page 59] Buffett who considers himself “a member of the lucky sperm club and a winner of the ovarian lottery”. He also quotes Bezos with his “incredible planetary alignment” (which has not much to do with luck either). According to Thiel. success is never accidental.

I also like his piece about founders: “Bad decisions made early on – if you choose the wrong partners or hire the wrong people, for example – are very hard to correct after they are made. It may take a crisis on the order of bankruptcy before anybody will even try to correct them. As a founder your first job is to get the first things right, because you cannot build a great company on a flawed foundation. When you start something, the first and most crucial decision you make is whom to start it with. Choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce. Optimism abounds at the start of every relationship. It’s unromantic to think soberly about what could go wrong, so people don’t. But if the founders develop irreconcilable differences, the company becomes the victim.” [page 108]

I will finish for now with sales: “In engineering a solution either works or fails. [Sales is different]. This strikes engineers as trivial if not fundamentally dishonest. They know they own jobs are hard so when they look at salespeople laughing on the phone with a customer or going to two-hour lunches, they suspect that no real work is being done. If anything, people overestimate the relative difficulty of science and engineering, because the challenges of those fields are obvious. What nerds miss is that it takes hard work to makes sales look easy. Sales is hidden. All salesmen are actors: their priority is persuasion, not sincerity. That’s why the word “salesman” can be a slur and the used car dealer is our archetype of shadiness. But we react negatively to awkward, obvious salesmen – that is, the bad ones. There’s a wide range of sales ability: there are many gradations between novices, experts and masters. […] Like acting, sales works best when hidden. This explains why almost everyone whose job involves distribution – whether they’re in sales, marketing, or advertising – has a job title that has nothing to do with those things: account executive, bus. dev, but also investment banker, politician. There’s a reason for these re-descriptions: none of us wants to be reminded when we’re being sold. […] The engineer’s grail is a product great enough that “it sells itself”. But anyone who would actually say this about a real product must be lying: either he’s delusional (lying to himself) or he’s selling something (and thereby contradicting himself). […] It’s better to think of distribution as something essential to the design of your product. If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business – no matter how good the product.” [Pages 128-130] And if you do not like it said this way, watch HBO’s Silicon Valley episode 15… I may come with more comments when I am finished with this great book.

Street Art, Space Invaders and Mirrors in Pully

The recent weeks have been fun for me relatively to Street Art. First I found a really beautiful mirror in Pully. I have now found more than 40 places with about 50 mosaics.

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Second I accidentally found two Space Invaders in Tokyo. Quite nice too! I finished compiling the Tokyo Space Invaders and have pictures for most of the 138 which have been put there..)

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(tk_093)

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(tk_104)

Finally, I finished my crazy work of compiling all Parisian ones. I have counted 1’139 works until now (May 2015). Crazy probably but fun… you can find the full compilation in my post about Space Invaders in Paris.

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(pa_1139)

HBO’s Silicon Valley – Episode 15: it’s about business, stupid!

I could have quoted Peter Thiel with his “it’s customer stupid!” but I will be back soon with Thiel. You will learn also about it in episode 15. You will also (re)discover some of Silicon Valley bad habits: “Gentlemen of the Hooli board… and Lady”
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and learn again about failure.
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In Silicon Valley, “failure is pre-greatness”. You will also learn about former billionaires and the kind of car doors they have or do not.

The only think I need to add: competition is heating up dangerously.

HBO’s Silicon Valley – episode 14 : David vs. Goliath, not a myth in Silicon Valley…

The war is near. Its about Hooli’s Nucleus vs. Pied Piper’s compression technology. And big companies with huge resources do not necessarily deliver even if they are scary.
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Still our heroes are building their business. They do their SWOT analysis…
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Well all activities can have unplanned…
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and nasty consequences… A third soldier between David and Goliath?
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