I remember hearing about this talk on the puzzle of motivation by Dan Pink a while back but I finally got around to watching it. It’s definitely worth checking out if you haven’t seen it and I’ll be writing more on this later.
Macklemore and Ryan Lewis are quadruple platinum with Thrift Shop and counting – I love to see the success of a local (Seattle) artist who was down and out and is now on the rebound in a big way. Conscious hip hop by this duo is a return to to music with a greater purpose for this genre. Can Sasha Frere-Jones over at The New Yorker do a piece on him already?
Inspired by a tweet linking to Bijan Sabet’s post, I thought I would reflect on those who took a chance on me.
I still vividly remember the day the big envelope showed up from Stanford. The university and some admissions officer took a chance on me and it has had such a tremendous impact on my life from the amazing people I met to the the opportunities it has created for me.
One of the amazing people I met in school who took a chance on me became my wife. We started off as dorm mates, then friends and she decided to take a chance on this slacker of a CS major that used to make fun of where she grew up. What a ride it’s been, nearly 11 years later. With the arrival of our son, it feels like we’re just getting started on a great journey.
Professionally, the first person to take a chance on me was a senior director at Aplix. When he brought me on to his team, it opened up a lot of new experiences for me. I traveled around the world to work on a standards body, learned and came to deeply understand the nuances of the mobile ecosystem and got an inside track on Android well before it hit the market.
That inside track on Android led me to T-Mobile, where I found a VP that was a fantastic mentor. He took a chance on me and supported broadening my experience by branching out from T-Mobile to working with T-Venture. The US managing director at T-Venture also took a chance on me to provide him with technical due diligence on a number of startup opportunities being reviewed while learning a bit about how venture capital works. This was critical to getting Mobilisafe off the ground.
It was early on at T-Mobile that my co-founder Dirk and I would joke about doing some kind of startup thing. While starting a company with a partner is a two way street, Dirk was taking the bigger risk. He had experience at startups shipping products, but I had never been a startup CEO, never fundraised, never done a lot of the things you need to do to get a company off the ground. And yet, he took a chance on me and we’ve had an amazing ride together.
It would be nice to say that Mobilisafe would have happened with or without investors, but at the time it was important for Dirk and me to have some investor validation. The teams at Madrona and Trilogy took a chance on me. We had something that resembled a prototype and a pitch deck when they committed to invest. With Mobilisafe’s exit, we provided a great return in a relatively short period of time.
I had been thinking about this concept a bit in the back of my mind in light of Sheryl Sandberg’s new book and some of the commentary around it regarding the importance of having sponsors. Bijan’s post really pushed me over the edge to write this post. Sponsors take a chance on you. They invest their time in you with the hope that you will be better for it, likely because someone did the same for them earlier in their career. I’m grateful for my sponsors and I hope to continue taking chances on others as well.
A great contrast between perception, reality and ideals.
Last October, NIST published a draft of security guidelines that outline core security capabilities that mobile devices should have to protect the information they handle. These guidelines will inform how government agencies evaluate mobile security concerns from mobile device usage by their employees. Recently, the Telecommunications Industry Association (TIA) responded to these guidelines in a somewhat surprising way which merits investigating this topic a bit deeper.
Overview of NIST Guidelines
The guidelines boil down to the recommendation of including three key security components in every device:
- Root of Trust – The combination of the BIOS and a trusted platform module (TPM) form a root of trust.
- APIs to use the security functions of a root of trust
- Policy Enforcement Engine to process, maintain and manage policies for a mobile device
The combination of these components can help provide strong security assurances that devices are trustworthy and have not been jailbroken or otherwise compromised.
The Telecommunications Industry Alliance is a large and powerful industry organization that counts major handset manufacturers and carriers among its members. Just a few weeks ago, they warned that NIST’s guidelines were too detailed and prescriptive and could consequently cause a fracture between products built for consumers and solutions built for government agencies that embrace NIST recommendations. They argue that today’s mobile platforms support equivalent capabilities while not adhering to the specific requirements in NIST’s publication.
While TIA is challenging the specificity of the NIST guidelines to achieve mobile security, there have been a number of implementations of elements of trusted computing that are available in the market today. The most recent example is the Platform Integrity Architecture that is shipping with Windows 8. (We are still determining if this shipped on the Microsoft Surface device and other Windows RT devices.) What is also interesting about the availability of this software implementation is the corresponding widespread availability of hardware that can potentially support it. For several years now, the majority of ARM chipset architectures that are utilized in smartphones and tablets have a trusted execution mode known as ARM TrustZone. TrustZone may be able to help meet the requirements of NIST.
Challenges and Benefits
Earlier in my career, I spent time in the defense industry researching and building solutions for DARPA that laid the groundwork for the NSA’s High Assurance Platform Program. All of our efforts were centered around trusted computing efforts that are also at the core of the NIST guidelines. Trusted computing techniques offer an extremely high level of security, but there is a corresponding infrastructure investment to make the technology effective. From dedicated hardware shipping in a device (TPMs) to a network attestation service, the end to end requirements to support a legitimate trusted computing architecture are not trivial. While the costs of TPMs have come down dramatically, leading to their inclusion in most laptops today, mobile TPMs for smartphones and tablets are not widely available. The specificity of NIST’s guidelines should be weighed against a possible solution with the widely available TrustZone capabilities.
Trusted computing initiatives were ambitious when they first kicked off nearly a decade ago but today we are starting to see widespread availability of some of the core infrastructure components to make these implementations viable. NIST’s recommendations reflect the critical importance of device trustworthiness but TIA’s pushback should be a cause for concern. NIST and government agencies will need to be sensitive to buy in from organizations like TIA to ensure they are not left behind on the ever accelerating mobile technology curve.
I had written a long post back in September about my perspective on valuing time as a founder after a discussion with another founder/CEO in town that I filed away to be posted at some point. Just recently, I ran across Jason Cohen’s phenomenal post on the exact same topic, coincidentally with nearly the same conclusion: value your time at $1000/hr. I recommend reading his post first before continuing on to read some of my thoughts below.
Founders work insane hours. I’ve been asked during numerous interviews with candidates for openings we have on our team how many hours per week I work and its hard for me to seriously contemplate an answer to that question. Getting a company off the ground requires immense dedication and most importantly, it usually doesn’t feel like work. I worked on Mobilisafe in nearly all of my waking hours, and even in my sleep where I go to bed with an unsolved problem on my mind and let my subconscious at it. Counting hours, at first blush, just doesn’t seem like a meaningful or uplifting exercise.
It’s easy to believe that the sheer number of hours put in to getting a company started dilutes the value of your time but I would strongly disagree with that belief. When I actually sat down to think about how to value my time and run the numbers before bringing on help to take care of work where my time would be better spent elsewhere, it became clear that the means are second to the ends. So I took a big step back and thought about what kind of value I wanted my hard work to generate.
This is typically an area where you see founders wax philosophically about changing the world, and never selling out and other idyllic and ambiguous goals. I don’t mean to slight these aspirations, but I think its also very important to keep value (and wealth) creation in one’s sights as well. After all, you are building a business for which you have a meaningful stake (hopefully) and if you have to choose between changing the world and having no material wealth to show for it versus changing the world and having it significantly change your financial position in life, most of us are going to choose the latter scenario. The other important reality is that in decreasing order of likelihood, venture-backed startups die (66%), get acquired (33%) or go public (<1%).
Let’s walk through a hypothetical scenario. PinbookBnB is a hot new startup that just raised 500k at a 2m pre money valuation off a prototype that is gaining traction with consumers. The investors hold 20% of the company, there is a 15% option pool post financing, and the founders Sally and John have 35% and 30% respectively. The financing has been raised to grow the team to 4 people and provide salaries for roughly 18 months. Sally and John believe they can raise their valuation 4x to $10m going into their next financing. They believe that to sell prior to completing their next financing a premium has to be placed on the future value of PinbookBnB in exchange for pursuing the opportunity and its potential upside.
If startup valuations were the outcome of a perfect process, then you could conclude that there is nearly a 100% chance that PinbookBnB could sell for $2.5m sometime after raising their seed round and prior to completing a major milestone going into the next round of fundraising. Of course, valuations are far from perfect and frequently fail to account for the lack of a market for a company at its earliest stages. Lately, the acqui-hire/talent acquisition trend suggests that there may always be a market for great teams even when the product flops but its been widely discussed that the stories we read on TechCrunch and other sites overrepresent the likelihood of these outcomes. In this kind of exit, Sally and John net 875k and 750k respectively. Returning 1x back to the investors doesn’t render this exit a total failure but its far from a success given the opportunity cost and cost of capital. Sally and John may think of this possible outcome as an absolute floor within their realm of acceptable scenarios.
Let’s look at the more optimistic scenario – PinbookBnB increasing their valuation by 4x to $10m by achieving/exceeding their milestones. Depending on your perspective, you may like or dislike the idea that valuation in subsequent financings is largely a function of the amount being raised, the tolerance for dilution and a little bit of market comps. This is an important consideration with relatively illiquid assets like early stage startup equity. Let’s say that based on some contemplation of this information, Sally and John believe there is a 33% probability of PinbookBnB getting the uptick in valuation prior to raising their next $5m round AND having a suitable buyer at that pricepoint. This puts the expected value of this scenario at $3.3m.
As we move up the valuation scale, there is a decreasing likelihood of a buyer at higher and higher prices, which will impact expected value calculations. Every segment is different, so the founders need to gut check these valuations and probabilities with the market, advisors, investors, etc. to come up with a plausible model. It may not be accurate but it can provide a framework. I’ll handwave through this part a bit and bring it back to Sally and John arriving at $1m each as their number. Since John has a smaller stake at 30%, this would mean that if PinbookBnB had an exit opportunity at $3.3m or better, this would net the $1m each that would make them seriously consider an exit. (Sometimes co-founders will have different numbers that will need to be reconciled during exit scenarios.)
Getting back to how this relates to how founders should value their time, you can now start to run the numbers. Let’s say founders average roughly 75 hours a week of work across 52 weeks of the year. At ~4000 hours into PinbookAirBnB with a personal exit value at $1m and a 1 in 3 chance of exiting, Sally and John could be valuing their time at roughly $750 per hour. This is well north of what they currently pay themselves (roughly $35/hr) and can help justify why it makes sense to hire an admin to do less value creating tasks like managing calendars and stocking the office. Of course, this all depends on having the capital available, the prevalent need and the ability to retain someone at an appropriate level of work.
As an aside, a great side effect of this process is evaluating what, if any, number would make you contemplate an exit. Some will base their number on a exit multiple for their investors, which I would argue is potentially more important than any other basis once you take outside capital. The multiple may depend also on the type of outside capital you have taken on (angel vs. institutional vs. strategic).