Building the Company you Wouldn’t Sell

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Zach Klein Do Lecture

Zach Klein started and then sold his company Vimeo when he was 23. He starts his story by outlining a plan to make something cool to solve all his upcoming (financial) problems in one summer. He was 17. So he locked himself in his room for a whole summer to come up with the biggest idea he could.

With a first attempt at an improbable business behind him, Zach joined some friends in a startup. They moved to California, and swept in the spirit of possibility of the age came up with an idea of a video sharing site. The team grew to 70 people without getting any funding.

After two short years, Klein and his partners sold the company. He says that is exactly what they built the company for. This became a way of thinking circa 2000-2001. As Collins wrote in his seminal article at Fast Company:

Built to Flip. An intriguing idea: No need to build a company, much less one with enduring value. Today, it’s enough to pull together a good story, to implement the rough draft of an idea, and — presto! — instant wealth.

No need to bother with the time-honored method of most self-made millionaires: to create substantial value by working diligently over an extended period. In the built-to-flip world, the notion of investing persistent effort in order to build a great company seems, well, quaint, unnecessary — even stupid.

Built to Flip was a juxtaposition to Collin’s research documented in the book he co-authored, Built to Last. Klein’s experience was consistent with the idea that starting a company includes having an exit strategy. The hook in Collin’s article is the experience of a young entrepreneur in Silicon Valley:

“I developed our business model on the idea of creating an enduring, great company — just as you taught us to do at Stanford — and the VCs looked at me as if I were crazy. Then one of them pointed his finger at me and said, ‘We’re not interested in enduring, great companies. Come back with an idea that you can do quickly and that you can take public or get acquired within 12 to 18 months.’”

The core concept of the article was that companies, or rather barely products in the making, were being built for the sole purpose of being sold. A lesson a whole generation of tech founders took to heart.

The date in Collin’s article was February 2000. There were some unflattering words about the entrepreneurial mindset. Yet it seems to me that was cultivated, encouraged (and rewarded) at the time.

The entrepreneurial mind-set has degenerated from one of risk, contribution, and reward to one of wealth entitlement. We all have friends and colleagues — often mediocre friends and colleagues at that — who have struck gold after 18 or 12 or 6 months of work in a built-to-flip company. And we have all entertained the thought “I deserve that too.” Here’s another thought: When I and a lot of other people began talking and writing about the new economy in the early 1980s, little did we know that it would engender what we most despised about the old economy — an entitlement culture in which the mediocre flourish.

Zach’s company, Vimeo — an anagram of the word movie — was founded in November 2004 and was sold in August 2006 to IAC as part of its acquisition of Connected Ventures [source: wikipedia].

As he says in the talk, as soon as he sold his company, Zach wanted nothing more than to have those wings again. He missed it. He realized he wanted to keep flying.

One of the many conversations Zach had in the months following the sale was with Scott Heiferman, founder & CEO of Meetup, the company. Heiferman’s personal revelation was that Meetup.com was the first permutation of likely many more of a vision to create experiences and tools to help get people together along common interests. He was in it for the long haul.

Zach cites Henry Ford, Steve Jobs, and Elon Musk, all entrepreneurs who has dedicated their lives to building on one main idea, in some cases to the point of obsession. See for example this Quora answer by Elon Musk’s ex-wife on what it takes [h/t Shane Parrish]:

“Extreme success is different from what I suppose you could just consider ‘success.’ These people tend to be freaks and misfits who were forced to experience the world in an unusually challenging way,” she added, noting, “Other people consider them to be somewhat insane.”

He became intrigued by one less known entrepreneur.

Before being the founder of Patagonia, Yvon Chouinard was the founder of the Chouinard equipment company. A rock climber himself, he cruised along California with his friends — they called themselves dirt bags, hence the name of the Patagonia blog series the dirt bag diaries. They would forge equipment to modernize rock climbing and an unfortunate accident led to Chouinard divesting the business with the exception of rugged shirts. 

Patagonia was born. The company’s growth story is fascinating, and it was a source of inspiration for Zach.

That inspiration led to a desire to start building things with his hands. He and a group of friends tried their hand on putting together cabins. Zach says he felt like a beginner again, his creativity soared. He was:

Amongst people where there was no hierarchy. All of us were so grateful to be making something together.

Coming across a picture of children digging together for earthworms led to the realization that collaboration is a natural instinct we have as children. He says:

“We need to look backwards in ourselves, because I think it comes naturally, and over the years it gets beaten out of us. That what we should be doing is pursuing companies that allow us to play, that allow us to be beginners, that allow us to be learners.

Naturally, we are mesmerized by the world. Naturally, we learn effortlessly through observation… naturally we are scientists and explorers, and we are quick to prototype and make with what we have, without any excuse.”

This personal realization led Zach to his current work with DIY.org. His lessons (paraphrased):

  • we should make work feel like play — a human superpower we don’t talk enough about

It reminds me of Plato’s:

You can discover more about a person in an hour of play than in a year of conversation.
  • it starts with you — you need to lead with a beginner’s mind, to create the conditions in which everyone can be a learner
  • if you’re looking for co-founders, you probably already met them — we make thousands of decisions that lead us to a particular time and place; the people around you have made similar decisions. Zach says if you are not around people you trust, then likely you need to make some decisions, go places where you can meet those people who help you feel creative and comfortable
  • with investors choose wisely — for most of us, we are lucky if we can get investors at all. Zach’s advice, don’t be hasty in accepting just anyone’s money. Find investors who understand that the bottom line isn’t your only priority — being around for twenty years, creating an enduring culture… these should be baked into your business plan, and you should make sure investors buy into it
  • not all jobs are created equal — most jobs are crap, because most companies are founded to be profitable… and because of that reason, we ask way too much of our employees, and don’t give much back. One of the greatest joys of an entrepreneur is to create jobs that are meaningful and lead to interesting lives
  • treat the people who use the things that you make as a community

Build the company you wouldn't sell

In other words, have an exist strategy.

More than ten years after Jim Collin’s article, we still see plenty of companies built to flip. An idea snatched before it’s had a chance to hatch — when the idea at the root of the business has not had enough time to breathe, to face (or change and disrupt) market realities, and evolve into a strong (new) business.

Especially where it comes to technology products, even with a few thousand early users, ideas could still develop into something grander yet, given enough time. In some cases, the idea could also be a flop. So time is a luxury both the startup, and the potential suitor, would want to have.

Smart people should build things… to last.

 


Conversation Agent – Valeria Maltoni

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The Google lawyer evicting all his tenants may be a jerk; but it wouldn’t matter if SF would just build more housing

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Screen Shot 2014-12-18 at 7.19.41 PM

In 2012, Jack Halprin bought an apartment building at 812 Guerrero St. in San Francisco’s Mission District for $ 1.4 million. According to a wrongful eviction lawsuit brought against Halprin by resident Susan Coss, Halprin moved into the building and evicted Coss, who lived in the unit below him, so that his then-domestic partner, Daniel Ortiz, could move into it. This is known as a “move-in eviction” and, assuming certain requirements are met, it’s perfectly legal.

But Halprin and Ortiz split up before Ortiz even moved in — in fact, according to Coss’ lawsuit, the move-in eviction was implemented without Ortiz’s knowledge, which would make it illegal. Now, Halprin is evicting four more units under the city’s Ellis Act, which allows owners to remove tenants without cause as long as the building is taken off the market as a rental property. Halprin’s intentions for the property are still unclear, but often these units are transformed into high-priced condominiums.

Sounds like yet another tale of shady landlord tactics and displacement that has become all too common in San Francisco, where the median rent has skyrocketed to $ 3,200. But there’s one detail that makes the 812 Guerrero fiasco both unique from your average gentrification saga and enormously representative of these very tensions:

Halprin works for Google.

Over the past two years, numerous Silicon Valley technology firms have attracted the ire of San Francisco citizens who feel that the influx of young tech workers is altering the culture — and affordability — of their city for the worst. But perhaps none has taken more licks than Google, with protesters routinely blocking — and sometimes damaging — the company’s private shuttle buses that ferry workers who live in San Francisco and Oakland to its Cupertino campus. And with Halprin, an attorney who heads up eDiscovery for Google, accused of some of pretty unseemly tactics, the connection here between Google and evictions is even more overt than usual — and fair housing advocates have taken notice.

Earlier this week, protesters held a Google bus blockade just a stone’s throw away from Halprin’s Guerrero St. property. When Halprin saw the protesters as he prepared to get on the bus, he literally ran back inside his home to the sound of protesters chanting, “Eviction Jack.” They later picketed outside his door, singing Ray Charles’ “Hit the Road, Jack.”

Here’s a video of the protest and Halprin’s retreat:

Are the protests a reasonable response to a perpetrator of some of San Francisco’s ugliest housing practices? Or is it harassment of a man who’s simply capitalizing on the realities of the city’s real estate market? And if it’s the former, should Google have to answer for one of its high-ranking employees?

For Google’s part, it offered the kind of slick response we’ve come to expect from a company that’s been arguing it’s not “evil” for over a decade and a half. In a statement provided to Mission Local, spokesperson Meghan Casserly wrote, “While we don’t comment on employees personal lives, we continue to work hard to be good neighbors in the Bay Area. This December, to cap $ 20 million in local giving for 2014, we announced $ 2 million in Google funding to three San Francisco organizations working to help our city’s homeless and newly displaced residents. We’re committed to the community and look forward to doing more in 2015.”

As for Halprin, while the eviction of Coss to make room for his then-domestic partner — a partnership Halprin cut off perhaps too conveniently the same week Coss moved out — was almost certainly illegal, the lawsuit she brought against him has already been settled for an undisclosed sum. And as for the Ellis Act evictions, as long as Halprin does not intend to rent out the units and perhaps sells them as condos instead, his actions are entirely legal. For these reasons, there’s likely little legal recourse for the remaining tenants and their supporters.

All this begs the question: Should the Ellis Act be repealed? And should the city implement stronger eviction protections?

Jonathan Bornstein, a Bay Area lawyer who specializes in landlord-tenant disputes, is greatly sympathetic toward San Francisco residents who have been displaced by the Ellis Act and owner move-in evictions like the ones Halprin had implemented.

“You could grow up here, go to school, get a decent job, and you can’t afford to live here,” Bornstein says. “I’m from Cleveland. That doesn’t happen there.”

But he also says that stronger eviction protections would only make rents rise even higher.

“The more protections you create, you reduce the supply when the demand keeps increasing,” Bornstein says. “The more protections there are for veteran tenants, the more expensive it is for newer tenants.”

That’s because the real problem is not that it’s too easy to kick someone out of their home — it’s that there is so little housing available that landlords will do everything in their power to squeeze the most money out of their properties, which often means evicting long-time tenants whenever possible.

“I think the biggest problem is there isn’t enough housing. They need to do high density housing and that’s the only way to solve this problem.”

To be sure, Halprin hasn’t acted in good faith. Not only did his actions result in Coss being unfairly — and probably illegally — evicted, she also argues that he’s made a mockery of domestic partnerships. Speaking to the Bay Area Reporter, Coss says, “One of the most egregious parts [is] how difficult it was for people to fight for the right of domestic partnerships. To see someone use it for their own personal purpose and circumvent the law is such a slap in the face to people who worked long and hard to get that through.”

But if San Francisco would simply build more housing, then the city’s rents and property values wouldn’t rise so sharply in response to the influx of new well-paid jobs created by tech firms. And while stories like this make it easy to blame Google for displaced residents caused by evictions, legitimate or otherwise, in truth the company deserves very little of the blame. And besides, when there are so many other more legitimate reasons to criticize Google, why pick a false flag like this?

PandoDaily

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