The First Two-Million-Dollar Check

A single drink perfectly captures the weirdness of raising money for the first time.

Photo courtesy of Dylan de Jonge
I found myself at a hotel with some friends. I was visiting Portland for a conference. Puppet’s first investment round — and mine! — was closing. The money was being deposited.

Have you seen a David Mamet movie, like The Spanish Prisoner? They’re fantastic. But eerie. Disquieting. They build up a story, brick by brick. Then they yank a few bricks away, exposing the whole story as a lie. Only a hollow truth remains, unrelated to your built up belief. It makes you question everything.

I’m waiting for the closing in this hotel, and I order a Macallan 18 to celebrate. This was back when it was only expensive, not egregious. I lift the glass, and I think:

The money is being deposited into my bank.

I think it’s a real bank.

I mean, they had, like, a website. And websites are pretty hard to… wait a minute.

Who introduced me to the bank?

The investors introduced me. They specifically wanted me to work with this bank. They’re the ones giving me the money. They wouldn’t say they’re giving me the money then give it to someone else. That’s a silly kind of fraud. I just have to trust them.

I sit there. Sipping my whiskey.

I think it’s a real bank.

I think I’m getting $2.25 million.

I had never seen a bank account with that many zeroes — and I still may not at that point! I have no idea what to do.

So I sit there. Savoring that delicious, delicious whiskey.

I didn’t mean to raise money. I was just focused on running the company. We had bootstrapped for almost four and a half years. I figured we were going it alone.

I had talked to people in the past about raising money. It was like Groucho Marx’s joke about clubs: I wouldn’t take money from the investors willing to give it to me. “Wow, I would love them as an investor,” you get nothing. Or, “I would happily give you money and ruin your life.” Hmm. Not really the deal I’m looking for.

One day at an event, an investor tracked me down. He said, I’d like to invest in your company. I said, That doesn’t sound right. A lot of investors say, We should talk. He said: We should talk on Monday. That specificity made all the difference.

He made a very confusing offer: We would like to write a $1.75 million check into a $2 million round. I said, how can you be that bad at math and work in finance. He said, Go find other, rich people that you know to give you the rest of the money. I said, you are, literally, the only rich person I know. He said, I just joined this firm. I am not rich. Then we’re stuck, I said.

I lived in Nashville at the time. There are a bunch of rich people there. But they’re all musicians. They don’t do technology. We most emphatically did not hang out. We weren’t going to fill this round through my network.

Eventually, by connecting me to their network of rich people, I was able to raise $2.25 million. Mostly through luck not skill. I didn’t build a deck. I didn’t run a formal process. I didn’t pitch multiple investors to get competitive term sheets. I pretty much did the exact opposite of the play book. The investor who filled out the round turned me down at first, but I heard his wife persuaded him. I don’t know if she liked me or was cursing him.

Once all of the investors are in place, you wait.

The things you learn in your first round.

Closing takes about thirty days. Five rounds later, I have no idea why. It takes thirty days, and it costs $30,000. One of the terms in the term sheet you get from your investors states that you pay for closing. “We’re going to give you this money, and then you’re going to give some of it to the lawyers.” Investors cap the fees, and the lawyers coincidentally hit that exact number every time.

I honestly don’t know what the lawyers do at closing. The documents are massively long, but they’re pretty much the same. At a late-stage company, I can understand: There is diligence to do (although not by the lawyers), financial data to look through (done by analysts, not lawyers), customers to talk to (by the investors, not the lawyers). At an early stage, though, there just isn’t much information. I don’t know what they do.

But it takes thirty days. And costs thirty grand. Says so on the term sheet.

So you wait.

But when that waiting stopped, boy howdy did things move.

The money did get deposited. It was a real bank after all.

Within a month I’d moved from Nashville to Portland. Within two months, I had my next three employees. And within six months I had a team of ten.

Raising money set us off like a rocket. Bootstrapping for more than four years provided a fantastic foundation for quick growth.

Looking back, I’m glad we raised money. I only wish we had done it earlier.

How TechCrunch is like the Iliad

The drive for social status created the worst, most important part of the Iliad. Now it’s filling up investment announcements.

Picture by Mikuláš Prokop

My fancy liberal arts school hazed me, like it does all students: I had to read The Iliad and The Odyssey.

We did more than read. We wrote. We talked. We dissected, for meaning and history. Me, and a dozen other kids I’d just met. It was school, after all.

The Odyssey is great. A proper story. Easy to read, and easy to see why it stuck around.

The Iliad is… not. It’s hard to read. Everyone in it is kind of a jerk. The biggest jerks are the biggest stars. The entire story rotates around a woman — Helen — without giving her agency. Maybe she didn’t want to go home?

For all its difficulty, it’s the more important book. Studying it taught me a lot.

Founders could learn from it even today.

In a hard book to read, one section is by far the hardest, weirdest, and seemingly most pointless. We called it the Parade of Ships, but Wikipedia uses the less glamorous “Catalogue of Ships.” It is exactly what it sounds like: A description of a lot of ships. More than a thousand. You know. Because Helen’s face was so beautiful it launched a thousand ships.

This gives us the millihelen: Enough beauty to launch one ship.

The Catalogue is scintillating:

First the Boeotians, led by Peneleos, Leitus, Arcesilaus, Prothoenor and Clonius; they came from Hyrie and stony Aulis, from Schoenus, Scolus and high-ridged Eteonus; from Thespeia and Graea, and spacious Mycalessus; from the villages of Harma, Eilesium and Erythrae; from Eleon, Hyle, Peteon, Ocalea and Medeon’s stronghold; from Copae, Eutresis, and dove-haunted Thisbe; from Coroneia and grassy Haliartus, Plataea and Glisas, and the great citadel of Thebes; from sacred Onchestus, Poseidon’s bright grove; from vine-rich Arne, Mideia, holy Nisa and coastal Anthedon. They captained fifty ships, each with a hundred and twenty young men.

That’s just the first paragraph! Every time I read this I delight in its nothingness. Now that I don’t have an essay due.

This litany, 2,500 years later, wakes our deepest fears about dusty old books. You’re probably feeling pretty good about skipping it. Yet it drove people to tell this story again and again. Being in it mattered. To your family. To your village. To everyone in Greece. Without the Catalogue of Ships, The Iliad might not survive.

Retelling a great story would always draw a crowd. (Remember: Both of these books were told in oral form long before they were ever written down.) But giving every listener a chance to brag or shrink because of the behavior of one of their ancestors… jackpot!

I was reading a funding announcement recently, and was struck by this:

Investors in the $10.1 million round for the company were led by ArcTern Ventures and joined by new backers Capricorn Investment Group, Incite Ventures. Previous financiers in the company included Wireframe Ventures, Congruent Ventures, Ulu Ventures, Energy Foundry, Hardware Club, 1/0 Capital, and Wells Fargo Strategic Capital […].

That’s a long list. Especially so for a company likely raising only its second round of funding (based on the amount).

Then it hit me:

These investors are listed for the exact same reason the ships are catalogued in The Iliad!

The Greek warriors were fighting for timé, a kind of honor and fame. The stories helped them pass it on to their descendants.

Investors are fighting for the modern equivalent (named, ironically, after a different, also unpleasant Greek story). Now it’s earned in investor announcements on sites like TechCrunch, not ship descriptions in stories told in the town square.

This is more funny than bad. There’s value in being able to track down which investors work with what kinds of companies. More openness is a great trade-off for a little exposure for the investors.

Still. Seeing the parallel was a delightful lift to the morning. I have a science degree but a liberal arts education. I love what the combination has done for my career. It’s nice to have it be a source of humor, too.

The parallel provides a lesson for founders:

The catalogue of ships describes a thousand vessels, and far more people. But most of them were never mentioned again in the story.

Don’t look for those involved in the investment. Look for who helped the company succeed. Who wrote the first check.

P-Hacking in Startups

Science has a problem.

It’s kind of broken.

Well. Not all of it. Mostly the social sciences and medicine. And I don’t just mean the fact that they consider Freud canon.

It started with a trickle. A retracted paper here. A study that couldn’t be repeated, there.

Then someone decided to get systematic. It opened the floodgates. A study in 2016 showed that 70% of scientists had failed to replicate another scientist’s work, and fully half had failed to reproduce their own work.

Reproducibility is fundamental to the scientific method — it’s supposed to be a study of the natural world, which doesn’t change all that often — so what does its absence mean? Are we incompetent? Can we trust anything? Do we know anything?

The high failure rate of venture-backed startups is its own kind of replication crisis: “How could my company fail? I followed the growth-hacking, blitz-scaling advice from the founders who made it big!” I don’t mean to give blogs and podcasts the weight of peer-reviewed science. But our industry seems to trust them as if they deserve it.

What does it mean if a founder can’t get similar results when following the practices of another?

Science has begun to heal itself. It’s time for startups to go through their own reckoning. Their methods are failing most people. It’s time to learn why and how to get better.

What’s wrong with science?

The crisis in science has multiple, interconnected causes. A lot of them come down to taking techniques from simpler systems and applying them to the far more complex study of humans. The practices useful for studying minerals also worked great on metals, but with people? Not so much.

One of the most famous examples of these studies that fizzle under scrutiny is the marshmallow experiment, conducted at Stanford University in 1972 on the children of students enrolled there. It produced original, important conclusions on the ability of children to endure delayed gratification, and later studies showed that ability was highly correlated to success later in life. Suddenly we’ve got a new tool for understanding how successful you’ll be at a very young age.

Or… maybe not. Further studies showed the original work was actually just exposing the socioeconomic background of the kids. If your family is well off, you are comfortable with delayed gratification and, just coincidentally, are also likely to be well off when you’re older. If you’re from a poor family, delayed gratification is harder to accept and, huh, you’re also more likely to be poor than those kids of rich parents.

Once someone reran the study with a larger group of kids (900 instead of 90) and controlled for socioeconomic background… the effect largely disappeared. It’s not all that surprising that kids with no food insecurity are better at delaying gratification and also will be more successful in life. It certainly doesn’t grab the headlines like announcing that kids who can wait five minutes to eat a marshmallow will earn more money than those who can’t. No HBR article for that one.

It’s been almost fifty years since this study was published. That’s five decades of science based on flawed work, five decades of science that has to be unwound and retried. The longer these mistakes last, the more expensive they are to fix. And like that HBR article above, many conclusions never get retracted.

One particular “technique” has helped trigger the crisis in science. Many a growth-hacking product manager has fallen into the same trap. They can only be rescued through discipline and rigor.

The how and why of P-hacking

Abusing data is a sure way to get bad results. Unlike startups, scientists rarely just make up their data. They make more subtle mistakes, like P-Hacking. This probably sounds pretty cool, but it’s actually a common form of data misuse. Wikipedia describes it this way:

…performing many statistical tests on the data and only reporting those that come back with significant results.

It works like this:

A researcher comes up with an idea for a study. He collects a bunch of data, runs the experiment and… no dice. The idea didn’t pan out.

Hmm. “I have all this data. I can’t just throw it away.”

So he starts slicing the data looking for something that stands out. After a while, sure enough, he finds some correlation that is strong enough to stand up — usually its P-value is under 0.05, and thus considered statistically significant. He publishes this in a paper and looks like a genius. It gets big exposure in the press. Journalists love weird and surprising science. They can report on it without understanding it.

But no one can reproduce the work. The paper gets retracted. He gets uninvited from the big conferences. (Don’t worry. The papers never follow up and publish the retraction.)

What went wrong?

He left out one key piece: How he got the data.

Let’s say he thinks breastfed kids are healthier than bottle-fed kids. He sets up a study that tries to isolate just these variables, which means he wants his population to be reasonably homogenous (similar quality of life, similar locations, etc). Put simply, the difference being researched should be the only material one in the population (unlike in the marshmallow experiment).

But then he looks at the data and — like most of these studies — find there’s no significant difference in health outcomes between breastfed and bottle-fed kids.

He could just toss the data. But, well, he’s already paid to collect it. He’s got all these graduate students who are working nearly for free. He might as well try something. So he puts a student or two on trying to find useful results.

They nearly always do, but… that success kills his work. All those controls to make it work for his original experiment fatally bias it for other studies.

Let’s say he discovers that the study participants who were bottle-fed tended to move around a lot more than people who were breastfed. He concludes, oh, wow, getting bottle-fed causes you to hate your parents and move away. (Yes, this is exactly the kind of headline that would get picked for a result like this.)

He has not proven that. All he has shown is in this particular — probably small, and certainly narrow — data set, that happens to be the case.

He should throw away all existing data. Start from scratch controlling for everything except this new variable under test. Only then can you look for correlations between how a baby was fed and mobility.

But he was too lazy or scared to do that. He found a match in that smaller, biased data set, and then published the results without admitting the problems in either his data or his methods. A few decades ago he would have gotten away with it: A big splashy result on publication, and then everyone just assuming this was true, with no attempt to reproduce and no real questioning of the result.

Today, no chance. Science has developed defenses against this kind of malpractice.

Preregistration of experiments is a key tool.

Researchers register with a central database that they are going to study the health of breastfed vs. bottle-fed babies. When they get results, they point to that registration and say, see, this is what led to my data collection.

If they then wanted to publish some other study, people would say, no, you didn’t pre-register this, which makes us suspect you’re p-hacking, so we’re going to do a deep dive on how you got your data. On second thought, we’re just going to reject your paper. Come back when the results hold on a clean dataset.

From social science to startups

This might not initially seem to have anything to do with startups. Product managers and marketers aren’t commissioning studies — and they certainly aren’t controlling for variables!

Hmm. If you look at it a bit funny… Every data-backed marketing campaign and feature launch is an experiment.

Let’s build an analogous example.

A product manager builds a new feature, and because he’s growth hacking, he has lots of telemetry to tell him exactly how people are using it.

His theory is that people will use this new feature in some specific way. But he builds it, ships it, and observes, well, hmm, no, almost no one is using it. It’s a bust. I’m sure you’ve never worked on a project like this, but trust me, it happens.

Except… hey, there’s this small group that is using it, and widely. He looks into it more closely, and realizes they’re using it at 10x the rate people use the rest of the product. So he changes plans, and he rebuilds the feature around the specific thing those few people were doing with it.

Wait, what? No one uses that feature, either, and even worse, the people who originally used it aren’t any more, now that it’s focused on their actual usage!

What went wrong?

You got caught p-hacking

The data set from his failed feature is bad data. He got the most important result: This feature did not work well for his users. He wasn’t willing to let go of failed work. Just like the scientists, he went looking for some other way to reuse it. And instead of developing new hypotheses and running new experiments, he took his biased data and tried to find new correlations cheaply.

Unfortunately for him, he did.

But when he published the new feature, he is faced with a harsh truth: Those few people who were using the feature in unexpected ways don’t look like the rest of his users. A new feature built for that purpose doesn’t help everyone else. And because he relied on data to make his decisions instead of talking to actual users, he learned too late that those unrepresentative users were doing something even more weird. His simplified feature actually removed that weirdness in the name of simplicity that everyone can use.

So now he’s two features in and nothing to show for it. So much for growth-hacking.

How do I fix it?

The solution is very similar to what science has done.

Connect your data to experiments. With discipline. You must get new, clean data for each new test. I know this is anathema to modern data-oriented product management. But it’s the only real way to trust your results.

That word discipline is key. You don’t need to build some international central registry. Whatever your mission statement says, you’re not really saving the world, and you’re not actually doing science. You’re just trying to build a product people love. What you need is rigorous internal practices, and to hold each other accountable so you can’t cheat at statistics.

Unfortunately, this requires you let go of one of Silicon Valley’s most cherished and wrong beliefs.

No, you don’t learn more from failure than success.

Experiments fail. This might be an important part of the process, but it’s not very valuable. Congratulations. Of all the possible ways you could fail, you’ve discovered one of them. Don’t let it go to your head.

Don’t work too hard to salvage that failure. You’re p-hacking, and just making it worse. Yes, obviously, you get personal lessons. You might be lucky enough to learn something that triggers your next experiment. But you have to go run that separately.

You can’t build on the detritus of failure.

So my data is now worthless?!

Of course not. I still rely on data for all kinds of problems. One of the great things about building a company today is how easily you can get information at scale.

But never let yourself forget that your data is heavily biased, especially by how it was collected. One of my favorite examples is from when YouTube dramatically reduced response time. Their average response times went up! Suddenly people with much worse connectivity found it worth using, making the average worse. The developers thought they were helping existing users, but the biggest impact was in creating new ones.

You have to recognize your job isn’t to find some way to make the data valuable. Your job is to make high-quality decisions. Use data when you can. If you don’t have data, go get it.

But the job of the data is to inform you, not give you answers. Use it to hone your instinct, to improve your decision-making. When something doesn’t add up, go talk to the actual humans who are the source of the data. And even, spend some time with people not represented in it.

If you’re working at a software startup, you’re not doing science (even if, like me, you have a science degree). But you should still take advantage of its discipline and practices.

Don’t stop at protecting yourself from P-hacking. One founder’s success might be hard to replicate for many reasons. Gain what lessons you can. But don’t blindly trust others’ story of their work.

Because failure on your part won’t be paired with the retraction of a Nature paper, it’ll be an announcement of layoffs in TechCrunch.

The Automator’s Dilemma

Automation is not to blame for all the job destruction and wage stagnation. But you can still do great harm if you build it for the wrong reasons.

We’re told that automation is destroying jobs, that technology is replacing people, making them dumber, less capable. These are lies, with just enough truth to confuse us. You can have my robot washing machines when you pry them from my cold, wet hands.

I’m not some Pollyanna, thinking tech is only ever positive. Its potential for abuse and hurt is visible across the centuries, and especially so today. But I’m more optimistic about the upside than I am pessimistic about the down, and I’m uninterested in scaremongering screeds against it.

And yet. Technology and automation are not forces of nature. They’re made by people. By you. And the choices you make help to determine just how much good or bad they do. Even with the best of intentions, you might be doing great harm. And if you don’t have good intentions at all, or you don’t think ethics are part of your job, then you are probably downright dangerous.

I’m here to convince you that you have a role in deciding the future impact of the technology you build, and to provide you — especially you founders, tool builders, automators — some tactical advice on how to have the best impact, and avoid the dark timeline.

As I was building Puppet, explaining that I was developing automation for operations teams, execs and sales people would think they got it: “Oh, right, so you can fire SysAdmins!”

Ah. No.

When prospective customers asked for this, I offered them a choice: You can keep the same service quality and cut costs, or you can keep the same cost, and increase service quality. For sysadmins, that meant shipping better software, more often.

Their response? “Wait, that’s an option?!” They only knew how to think about their jobs in terms of cost. I had to teach them to think about quality. This is what the whole DevOps movement is about, and the years of DevOps reports Puppet has published: Helping people understand what quality means, so they can stop focusing on cost.

And those few people who said they still wanted to reduce cost, not increase quality? I didn’t sell to them.

Not because they were wrong. There were real pressures on them to reduce costs, but I was only interested in helping people who wanted to make things better, not cheaper. My mission was completely at odds with their needs, so I was unwilling to build a product to help them fire their people.

This might have been stupid. There are good reasons why a CEO might naturally build what these people want. The hardest thing in the world to find for a new product is a motivated prospective customer who has spending authority, and here they are, asking for help. The signal is really clear:

You do a bunch of user interviews, they all tell the same story of needing to reduce cost, and in every case, budgets are shrinking and the major cost is labor. Great, I’ll build some automation, and it will increase productivity by X%, thus enabling a downsizing. The customer is happy, I get rich, and, ah, well, if you get fired you probably deserved it for not investing enough in your career. (I heard this last bit from a founder recently. Yay.)

This reasoning is common, but that does not make it right. (Or ethical.) And you’ll probably fail because of your bad decisions.

Let’s start with the fact that you have not done any user interviews. None.

The only users in this story are the ones you’re trying to fire. Executives aren’t users. Managers aren’t users. It seems like you should listen to them, because they have a lot of opinions, and they’re the ones writing checks, but nope.

This has a couple of consequences. First, you don’t understand the problem if you only talk to buyers, because they only see it at a distance. You have to talk to people on the ground who are doing the work. Be careful when talking to them, though, because you might start to empathize with them, which makes it harder to help fire them.

Even if you do manage to understand the problem, your product will still likely fail. As much as buyers center themselves in the story of adopting new technology, they’re largely irrelevant. Only the people at the front line really matter. I mean, it’s in the word: Users use the software. Someone, somewhere, has to say: Yes, I will use this thing you’ve built, every day, to do my job.

If you’ve only talked to buyers, you have built a buyer-centric product, rather than a user-centric one. Sure, maybe you got lucky and were able to build something pretty good while only talking to managers and disrespecting the workers so much that you think they’re worthless. But I doubt it. You’ll experience the classic enterprise problem of closing a deal but getting no adoption, and thus not getting that crucial renewal. Given that you usually don’t actually make money from a customer until the second or third year of the relationship… not so great.

Users aren’t stupid. Yes, I know we like to act like they are. But they aren’t. If your value promise is, “Adopt my software and 10% of your team is going to get fired,” people know. And they won’t use it, unless they really don’t have a choice. Some of that is selfish — no one wants to help team members get fired, and even if they’re safe today, they know they’re on the block for the next round of cuts. But it’s just as likely to be pragmatic. You’re so focused on downsizing the team that you never stopped to ask what they need. Why would someone adopt something that didn’t solve their problems?

What’s that you say? You ignored their problems because you were focused on the boss’s needs? This is why no one uses your software. Your disrespect resulted in a crappy product.

Call me a communist, but I think most people are skilled at their jobs. I am confident that I can find a learned skill in even the “low skill” labor. I absolutely know I can in most areas people are building software.

I was talking to a friend in a data science group in a software company recently, and he was noting how hard it was to sell their software. He said every prospective buyer had two experts in the basement who they could never seem to get past. So I asked him, are you trying to help those experts, or replace them?

He said, well, our software is so great, they aren’t really necessary any more.

There’s your problem. You’re promising to fire the only two people in the whole company who understand what you do. So I challenged him: What would your product, your company look like if you saw your job as making them do better work faster, rather than eliminating the need for them?

It’s a big shift. But it’s an important one. In his case, I think it’s necessary to reduce the friction in his sales process, and even more importantly, to keep those experts in house and making their employers smarter, rather than moving them on and losing years of experience and knowledge.

The stakes can get much bigger than downsizing. In his new book, Ruined By Design, Mike Monteiro has made it clear that designers and developers make ethical choices every day. Just because Uber’s and Instacart’s business model requires that they mistreat and underpay workers doesn’t mean you need to help them. While I don’t think technology is at fault for most job losses, there absolutely are people out there who see the opportunity to make money by destroying industries.

This is not fundamentally different than the strip mining that happened to corporations in the 1980s, except back then they were making money by removing profit margin in companies and now they’re making money by removing “profit” margin in people’s lives. Jeff Bezos of Amazon has famously said your margin is his opportunity, and his warehouse workers’ experiences makes clear that he thinks that’s as true of his employees as it is of his suppliers and competitors.

Just because they’re going to get rich ruining people’s lives doesn’t mean you have to help.

I think your job matters. I think software can and should have a hugely positive impact on the world; not that one project can by itself make the world better, but that every person could have their life improved by the right product or service.

But that will only happen if we truthfully, honestly try to help our users.

When, instead, we focus too much on margin, on disruption, on buyers, on business problems…. we become the problem.

My Losing Battle with Enterprise Sales

I’ve hated enterprise sales since long before I started Puppet. I just didn’t know why.

Photo by Tim Trad

You can either be a good example or a horrible warning. When it comes to enterprise sales, I had two horrible warnings before I started Puppet.

In 2000, I worked at Bluestar, a business DSL startup in Nashville. Pretty much everything that can go wrong with a startup did with this one: Founder was pushed out the week I started (I swear it wasn’t my fault), they raised too much money ($450m) and then spent it badly (e.g., on hardware that didn’t work and on salespeople that didn’t sell), they brought in a big business CEO who had no idea how to run a growth company, and then the regulatory framework shifted to highly advantage monopolies again so they all went broke. But in the meantime, I got to learn a lot, both about the problems that eventually resulted in my starting Puppet, and also about what does and doesn’t work in business.

At one point, the company decided to buy a new product. I honestly can’t remember what it was for. Something related to asset tracking? Or maybe some kind of operational monitoring software?

I don’t know. I just know I shifted from being a sysadmin to responsible for making it work. I wasn’t part of the team that decided whether to buy something, and if so, which one to buy, I was just designated to put their decisions into action. In the months I worked on it, I don’t think we ever even got it installed anywhere except on a test server, and at some point we just, ah, decided we didn’t need it any more. The project went away, so I returned to my old job. The executive who had made this horrible decision had the gall to say my moving back to my old role was a strike against me, and it would reflect on my tenure at the company. No worries, he was gone the next month.

This wasn’t just a software problem. While the company was slowly dying, they had an argument with EMC over a storage array they never should have purchased. A million dollars of hardware sat in a receiving warehouse for almost a year, because we would not accept it, and EMC would not take it back.

The second warning was during my brief stint at Bladelogic. I worked there for less than six months, but I learned a lot. Again, mostly what not to do. I was ostensibly a product manager, but in practice they just wanted me to maintain their lab and maybe write some justifications for how their product worked. Certainly they did not want to listen to me. My most memorable experience is being in an all-dev-team meeting when the most senior engineer said something like, “What does it matter what the customer thinks? They already bought the product.” Astoundingly, the CTO did not fire him on the spot, and instead just moved on, ignoring the comment entirely.

It was clear Bladelogic’s business model enabled them to just not care what their customers thought. Onlyprospects mattered. Once the deal was closed, meh, they got paid, no biggie. You literally could not upgrade their software without losing all of your data — you know, the stuff you’re using to build and deploy your whole infrastructure — and doing any real work with the system required that you do everything twice, once to deploy and the second time to update. But you’d never discover that unless you actually used the software, which would be long after their salespeople left, so who cares? Not them.

You can maybe see why I lasted less than six months. It didn’t help that I was commuting between Boston and Nashville, and I’d managed to rent an apartment at the center of a cold vortex in Boston where my roommate collected Grateful Dead grape juice.

So when I started Puppet, I didn’t know much, but I at least had some anti-patterns. I knew we had to care more about our customers successfully using the product than we did about closing the initial deal, and that selling to people who would not use the software was a bad idea.

It turns out, that’s not quite sufficient to develop an effective sales strategy. Who knew?

I was lucky enough to hire the best sales leader in Oregon, who was not only incredibly skilled and experienced, he was also used to entrepreneurs and found me relatively sane compared to bosses he’d had in the past. Where a bunch of our engineers complained every time I opened my mouth, this guy quietly soldiered on. That made our years-long argument much easier to manage.

Early on, I didn’t know enough to break down what I wanted and what I didn’t, or how to talk about the individual behaviors, so I just wrapped up everything I hated and called it “enterprise sales”. We weren’t doing that. Ironically, our sales leader agreed with most of my concerns, so it wasn’t a real fight in the normal sense, but there were multiple areas he was convinced we needed to change, and it’s hard to do that when your ignorant CEO just puts up a ward against the evil eye and changes the subject.

Within a couple of years, he wouldn’t even say the word ‘enterprise’, because I would jump down his throat, proverbially speaking.

In the first few years of building Puppet, I tended to focus on preventing sales from skewing our product plans. I wanted to be sure we built products to be used, not sold, and I didn’t trust myself or the team to be able to tell the difference. I think this was basically right, but today, I would know that you should treat ideas from sales like you treat those from customers:

Always listen to what customers tell you, but never do what they say.

The sales team has a limited lens into the product world. They are smart and highly educated about your customer, but that doesn’t automatically translate into good solutions.

This is a general risk at any company with sales teams, but you have an even more pernicious variant with enterprise sales teams: Being confused on who your customer is.

Are you building the product for the person who buys it, or the one who uses it?

Remember back to that product I tried to set up at Bluestar. It was purchased to solve a business problem, and the person who decided to buy it did so based on discussions with sales and, probably, looking very closely at a grid of check marks comparing it to its competitors.1 Actually using it was someone else’s problem.

In fact, I was not going to be the user either — I was supposed to be its administrator. Some other team (support or installation, probably) was going to actually use it. So they were even further from the buying decision.

If you’re selling to the enterprise, getting a deal done requires that you convince the buyer that your product is a winner. That makes them the most important person at the customer. Now, a quality company would also involve users, administrators, and many others in a buying decision, but in the end, buyer decides. Two or three decades ago, these decisions were mostly made on the golf course, so schmoozing was the most important feature. Today, it’s a lot less corrupt, but not a whole lot more functional.

This brings us to the other problem in this separation between user and buyer: Enterprise sales is a team sale, not selling to one user. Suddenly you succeed based on your ability to manage the interpersonal relationships of warring sub-teams at your customer, instead of the strengths of your product. I distinctly remember a dinner with tens of customer employees, and there was almost a flashing DMZ between two teams, who had differing opinions on whether our solutions was the right one. Salesperson quality and experience begin to matter more than anything else, because you’re basically managing internal politics to get a deal done.

Where did the focus on our product go? How do we stay focused on building something our users love?

We don’t, really. It’s hard to sustain an effective a feedback loop that includes sales if they’re focused more on people and politics than products. Not impossible. But hard.

At a big company, you can begin to navigate this kind of cognitive dissonance — listen to your sales team, but don’t build the products they demand. But in the early days of Puppet, I knew I couldn’t handle it. I am not good at dissonance in general — I’m a bit too fond of the idea that there’s just one truth — but I especially knew my organization could not handle it. We needed to be 100% aligned, and that meant sales needed to be working on the same problems as our product teams. Thus, no enterprise sales.

As we got bigger, the other big problem with enterprise sales starts to show up: Wow is it expensive. Lew Cirne of New Relic told me the primary reason he sold Wily when he did is because he needed to $150m just to build out the sales team and it wasn’t worth it.

If you’re doing inside sales, you’ve probably got someone who can talk through most of the product, they can talk to ten or more customers a day, and only once in a while will they pull someone in to help get a deal done. Once you go enterprise, you have field reps who might be covering thousands of square miles of territory, so if you’re lucky they’ll do three meetings a day on average, and they need a sales engineer on almost every visit. They pull in an expensive executive for meetings as often as an inside rep would pull in a cheap sales engineer.

Yes, you can get much bigger deals done this way, but think about the disruption to your organization: Essentially everyone on your leadership team is taking time away from running the business, not to learn from customers but just to make them feel loved enough to write a big check. Your deals start taking nine months to close instead of six weeks, and getting a check signed begins to look more like a challenge level in a video game than a partnership to solve customer problems. And the boss fight of that game is the worst part of enterprise sales: Procurement.

I’m not in the habit of disrespecting roles or teams, and I think procurement is often staffed with experts who play a vital role in their company. But they are generally paid based on how much money they “save” the company. All that discounting that you have to do for enterprise clients? It’s because procurement’s bonus is based on how much of a discount they force you to give. Absolutely everyone knows this is how it works, and that everyone knows this, so it’s just a game. I offer my product for a huge price, you try to force a discount, and then at the end we all compare notes to see how we did relative to market. Neither of us really wants to be too far out of spec; I want to keep my average prices the same, and you just want to be sure you aren’t paying too much.

But because companies compensate procurement based on saving money rather than making good decisions about what to buy, we can sell crappy products at a steep discount but not good products at list price.

It’s a helluva boss fight.

There’s often a miniboss, too: Legal. They just want their pound of flesh, and often this seems more like a puzzle level than a direct fight. I recently saw a deal that had been in legal for a year. That’s too much puzzle for me. (Incidentally, I worked on that same customer more than 4 years ago. Talk about long sales cycles.)

So now you begin to see why I fought against enterprise sales: It encourages you to build the wrong product for the wrong person and then sell it the wrong way at the wrong price.

Why, then, is it so popular? Or rather, why is it so hard to avoid that despite my best efforts we ended up in an enterprise sales motion, which I then ran away from?

Well, first and foremost, if it works it’s incredibly lucrative. For all that Lew Cirne built New Relic in response to his experience at Wily, and pointedly avoided enterprise sales for years, once they went public they went through a dramatic transformation and added it in, because the money was just too appealing. The biggest companies buy the most software, and, well, the biggest companies want to be sold a specific way.

In many cases, you just can’t avoid it. That’s a lot of what happened at Puppet: Our products were built to solve problems that big companies have. Heterogeneous environments, every operating system and application known to man, complex networks, and heavy compliance needs. Turns out it’s rare that a company has all these problems but buys large software products like you buy toilet paper.

Our first deals at companies did tend to look very consumer-like. But once they wanted to expand to other teams, and especially if they wanted to cover the whole company, the relationship naturally switched to a team sale, where we’re having to work with legal, procurement, executives, and then reps from three or four other teams. Ideally someone inside the org is an advocate for our product, so it’s more facilitation than direct selling, but the problem still stands: This is a clear enterprise sale.

But when it works… wow. You start closing $100k deals, then $300k, then $1m, then $10m. This starts to add up.

And for all that I’ve said this is hard… it’s actually the easiest way to sell.

What’s actually hard is having the best product, and only ever winning based on merit. Enterprise sales is the default motion, and in many cases it’s chosen to paper over weaknesses in the product. After all, only the user would actually notice those; in a meeting with the CIO, procurement, legal, and project management, no one’s going to install the product and give it a runout.

We’re still super early as an industry in our understanding of how to build a product that doesn’t rely on enterprise sales. For all that Atlassian relies more on sales than it has said, there’s no question that they managed to avoid an enterprise selling motion. I’m hoping the next generations of software companies will learn from them instead of Workday.

In the meantime, hopefully this story of how I fought enterprise sales, and why, will help you make better decisions about how to build your own teams. At the least, maybe I can just be a horrible warning.

  1. These feature check lists are bad ideas. Don’t trust them as a user, don’t make them as a product marketer.

The Rights You Lost When the Document Died

There are many upsides to the era of the smartphone and the cloud. But I’ll never forgive them for killing documents.

Photo by Daniel Zurnau

The limitations of mobile devices perfectly complement the strength of the cloud, as foretold by Sun Microsystems two decades ago: Your computers will be weak and hold no data, and the servers will be powerful and store everything. They were just wrong about what form those weak computers took (and, of course, who would be selling the servers).

I obviously love the benefits of mobility, of having an amazing computer in my pocket and having access to the world’s information pretty much wherever I am. And there are many capabilities we take for granted that you just could not provide without large central collections of data that the cloud enables.

But many of the changes in our tech landscape are accidental outcomes of cloud + smartphone. I regret them. And I want to fix them.

One of those big changes is the demise of the document.

You might think, no, I still have documents. I mean, yeah, I used to have Microsoft Word documents, but now I have Google Documents. Right?

No. The content you have in Google Docs is stored in a big database. Sometimes, when they choose to, you can treat it like a collection of documents. But it’s not.

This is pretty obvious when you try to use Google Drive. Compare using documents there to a Dropbox folder full of Word (or Pages1) documents. One comfortably exists in a world of folders, hard drives, and file systems, and the other just feels…. not quite right. That’s because Google Drive is wearing the camouflage of a filesystem, but it’s a database in the back end, and the truth leaks through. We’re not fooled that easily.

It starts with a miserable user experience, but doesn’t end there. Because Google is storing all of your data centrally, you need their permission to use it. This is new.

Until the smartphone and cloud took off, Microsoft had a comprehensive monopoly in digital documents, in text, spreadsheets, and presentations.2 To participate in business, you pretty much had to own Office. Their position was so strong they built a Mac version just to prop that platform up enough for it to look like a viable competitor. The market just didn’t see an OS as competitive without office.

But lo and behold, times change, and now you want all of your files online. Google wants to help you do it, and just happens to have a couple of fancy features you couldn’t (at the time) get without uploading everything. Real-time collaborative editing is actually pretty sweet.

Microsoft worked for years to prevent other apps from reading their documents, but they seem to have stopped that at some point. I don’t know if they just gave up the arms race, realized they had already won so it didn’t matter, or actually felt the need to reduce their market power. But by the time Google acquired Writely and rebranded it as Google Docs, it wasn’t that hard to read these docs separately. This was a massive boost for Google (and theoretically smaller companies, but it didn’t turn out that way).

After all, all the docs you care about were right there, on your computer. You didn’t need to ask Microsoft for a copy; you did not have to export them, wondering what data was included and what was kept back. And the form you’d send to Google is the exact form you’d send to anyone else, via email or on a USB drive. Their ingesting of all of your critical data was pretty easy as a result.

But in 2019, things are very different. Want all of your data from Google Docs in the next new company’s fancy web app? Step 1: Export. That’s right. You have to ask Google to give your data. Because, and I hate to belabor this, you don’t have it.

Then your fancy app needs the ability to import the special arbitrary 100% proprietary format Google exports in. It’s true that some apps might allow you to skip this step: They’ll authenticate directly to Google and slurp your data down. But just like when Facebook shut down data access for Twitter and other competitors after building its own network by copying data from Friendster and others, Google will only tolerate this kind of integration when they don’t feel threatened.

You need their permission, their tolerance. Given their use of monopoly power to weaken Yelp, among many others, you can be sure they’ll have no qualms about quashing a budding competitor by making this hard if someone gets close.

So here we have two analogous situations, with almost identical data, but in one case you have your data, and in the other, you’ve got to ask permission for it. There are downsides to each, but there’s no argument they’re different.

Note that this isn’t really a question of data “ownership”. Google would probably argue that you do actually own your data, as might Facebook. You just can’t access it in a useful way.

I’m thrilled that the cryptocurrency/blockchain communities are driving a conversation around data ownership, but it’s still disappointingly naive. This concept runs up hard against the reality that digital copies are free, and it’s basically impossible to prevent people from copying data you’ve given them read access to. Conversely, “ownership” means nothing if I can’t get all — and I mean all — of my data in a useful form.

What they need to talk about instead is rights. Realistically, I can’t own my birthday. Would that be a copyright? Trademark? Patent? Of course not. It’s just a fact, and facts can’t be property. But we all know that my birthdate matters.3 I need the ability to prevent you from, say, publishing it widely, or using it in combination with other facts to impersonate me. These are legal rights, not aspects of ownership.

I miss the rights that documents gave us, now that we no longer have them. Because these rights were implicit, a consequence of the technology reality at the time, we did not even know we were giving them up. But we’ve got to fight now to get them back.

The first thing you can do is be conscious of this when you choose your tools. All life is a compromise, and sometimes it’s the right answer to give up rights for functionality. But many apps are functionally equivalent, yet make vastly different choices about your rights.

As one example, I recently migrated away from Evernote, because their business model is shifting to a focus on businesses, which, well, I am not. It was a nightmare. Even though everything in my Evernote notebooks was either a text file or a PDF, I couldn’t export literally a single thing as text or PDF. Well, that’s not true. I could export each individual item that way. But not the whole collection. My choices were HTML or a proprietary format. It took hours of manual work, and a lot of it I just dumped in a folder, never to look at again unless disaster strikes, because it wasn’t worth it.

Compare that to what I’m replacing it with: Keep It (as of today, anyway). I’m sure I’ll give up some features to pick it, but, ah, I haven’t found any yet. And all the files I put in it? They’re just — hold on to your seat, folks — files. I can open that directory on my Mac. I can add things to it. I can remove them. Then I can see them in Keep It. If I stopped using it tomorrow, I would have to, um, add the files to something else. Or use the Finder, or Dropbox, or something similar.

It’s obvious that Keep It respects the document, and they see their value as adding functionality on top of it, rather than subsuming it in some way.

This should be the gold standard. You should be able to adopt an app that gives you functionality, but does not take away rights.

In the age of documents, apps like Microsoft Word could try to curtail your rights, but other developers would be on your side trying to give them back. In the age of the cloud, and the smartphone, you don’t get that option. You no longer have rights, you have “permission”, with a side of binding arbitration.

I don’t think we can go back to the era of documents on a disk. But it’s worth looking back and asking: As we’ve gained so much, what have lost?

And then demanding that our software providers begin to give some of that back.

  1. Although even Pages, and all of Apple’s productivity apps, weaken the definition of a document, because they use bundles instead of a single file.
  2. I was on team break-up.
  3. I can’t believe you forgot mine last year.

We Were Promised Flying Cars and Five Hour Work Weeks

Work is not a zero-sum game

Image courtesy of Clem Onojeghuo

Remember those stories from a few decades ago, about how improvements in productivity and automation would mean that we’d only be working 5 hours a week by now? They seem as fanciful, and predictive, as The Jetsons.

It’s almost a punch-line now, because many actually work more hours today than back then. How could they have been so stupid?

Of course there is actually a lot baked into the fact that higher productivity has not reduced hours worked (nor, it turns out, has it raised wages for the bottom 50% of earners in the last three decades, quite contrary to the previous, oh, 200 years). But a big part of why that prediction seems so silly now is it included an implicit assumption: That the work we’d be doing today is pretty much the same as what we did then. You know, before computers.

And I don’t mean, they could not foresee how much time we’d waste on social media. Their primary mistake was not thinking about how we’d use the space created by greater productivity.

We’ve known for centuries that increased efficiency results in increased consumption — we keep improving fuel efficiency, yet we’re consuming more gas than ever. Why?

We also know that expanding a freeway has never reduced traffic congestion. It has the same cause.

Induced demand. People who would not have driven with only two lanes, because of all the traffic, will now drive if there are four lanes. Trips you would not have taken because of the gas cost now become affordable and reasonable.

If your goal was to get more people driving, and maybe get the resulting increase in economic activity, then I suppose you got what you wanted. But if you were trying to reduce traffic — which is why most people say they want more freeways — then you’ve failed. If anything, you made it worse, because now twice the number of people are stuck in traffic. You didn’t reduce the problem, you just spread it around.

Demand is induced in many other areas. I grew up remodeling houses with my dad and got to see the impact of pneumatic nail guns and paint sprayers, which automated a huge chunk of how we’d spent our days. Of course, we didn’t use that newly free time to sit around, we changed our behavior: We did higher quality work, we finished jobs faster so got more done in a year, and we lowered prices.

I ran into this perception conflict all the time as I was building Puppet. I’d say I was building automation for the data center, and salespeople and execs would say, “Oh, so you can fire sysadmins!” I don’t know what they had against operations teams, but no, I would respond: I can give you a choice between reduced cost at the same service level (i.e., you fire people), or keep costs the same but increase service quality.

“Wait, that’s an option?!” Without higher level tools like Puppet, people had no idea how to increase service quality. Cost was their only dial, so they focused on that, even if it made no sense. Once I gave them other choices, of course they wanted better quality.

So where success in 1999 was shipping twice a year, and not going down, like, that often, now success is shipping multiple times a day and never appearing down to your customers. The standards have changed entirely, and that change was made possible mostly through automation. You can bet Netflix doesn’t become the new standard for infrastructure hotness using the bad old manual practices of the 90s.

You might say, no, people’s standards changed and that’s what motivated them to invest in automation, but you would be wrong. They always wanted higher quality. They always wanted better service. They just felt they had no choice but to accept the status quo, until we showed them other options.

I’m not saying automation never destroys jobs, never reduces the amount of work to be done in an area. But it’s by no means the default result.

The first impact of automation is to increase quality. I felt this myself, building houses. The main reason I’m no longer a carpenter is because of how incompetent I was at setting trim nails. You drive the nail most of the way into the wood1, then use a small punch to recess it. You cover that one little hole in spackle, and no one can tell. Unless you’re me. When I do it, I make a little sunflower, with a hole in the middle and holes all around in a circle, because I’m just that good at letting the punch head slide off the nail, into the wood. If we’d had the trim nailers that exist now, even I could have done a decent job. That kind of success might not have driven me out of the industry and into the welcoming arms of computers. I’m not a lot better typist, but the delete key does wonders for my self-confidence.

And let’s be honest about what we’re automating: It’s literally the most boring and least useful work we do. I wasn’t exactly high skilled labor, but I assure you there were more valuable things for me to do than try to set a nail while on my knees, bent over to the base molding. As a SysAdmin, yeah, my bosses thought my job was typing the same command 1000 times a day, but we can look back now and see that definition actually got in the way of the work, rather than being it. We had much more important stuff to do. Or at least, I did. Not sure about the bosses.

If we were all willing to drive cars from the 70s, while living in houses from the 70s (oh god the colors), using computers from the 70s (all three of them), watching channels from the 70s (all three of them), then yeah, maybe we could also work 5 hours a week.

But we all know what we’d do with the spare time: We’d make more work.

You’d do something silly, like write a book. And obviously, most of those books would be junk, but enough would be good that it would become someone’s job. And maybe the other writers didn’t actually have a knack for writing, but found they could be great at helping other writers. Oops, now you’re an editor, or a publisher. And now you’re working more than five hours a week again!

Stupid entrepreneurship.

Or maybe you don’t want to be a writer, you just hate Avocado Green enough to do something different with your kitchen. Oops, now your friends want the same thing, and you’re an interior designer.

Or maybe you realize that the gas-guzzling death-traps we all drive in are insane, and you figure out some way to start bringing those sweet little rides over from Japan. You know, just to fill the time. Because you can only consume so much of your day watching three channels (and remember, no ESPN in this scenario).

You’re not the only one that’s bored. Everyone else has more time, and a need to fill it. They can spend the effort to become experts in watches, furniture, bicycles, hiking, boating, economics, philosophy, or any number of other areas. And we all know the main outcomes of expertise, beyond insufferable newsletters: Demand for more specialized stuff, or enough disgust at the lack of it that you’ll just do it your darn self.

Some number of us won’t do the work, but we still want more, because why else would I have read three books on horology? It only takes a few people to step in to fill that demand, and suddenly your time is taken up.

And of course, if you want to buy that fancy Patek Philippe to pass on to your kid, you probably need to work a few more hours than the minimum.

So now you know why we don’t work five hours a week, and hopefully you have a little more confidence that automation will generally be good, not bad. It’ll create more entrepreneurs, raise wages, increase quality, and reduce cost. Not every time, but most times.

It doesn’t explain why those prognosticators in the 70s were so silly, but, well, I bet it wasn’t the worst decision they made that decade.

  1. 16oz Estwing finish head with a curved claw, natch.

Hold on to your why

Founders need to retain their own mission while they build out the company’s.

Photo by Sharon McCutcheon

Managing a high-growth company is the hardest thing I’ve ever done. One big reason is that I only received problems that no one else could figure out. Some were organizational problems that should naturally route to the CEO, but a lot were functional issues that I was no more capable of solving than anyone else.

I eventually discerned a repeated pattern in solving these problems. At first I would just get a few issues. I’d muddle through — do a bit of research, ask for help, and sort things out. As we grew, more and more of my time would be spent on this one kind of problem. I’d become better and better at handling it, and just about the time I’d start feeling like I knew what I was doing, I’d realize, “Oh: There are people out there who specialize in this”. I could just hire someone to do it full time, and they’d be better at it than I ever would. Duh.

I’d then spend three months, or six, or twelve, hiring for the role, and bam, suddenly my time is freed up and I’ve got an actual expert in charge. Well, kind of. At this point I’m a self-taught semi-expert who does not buy into the orthodoxy of the role, and we’ve got a year of my weird solutions, so there’s a lot of friction as we sort out just how to add this new skill set to a growing org. But the point is, my time spent on this problem drops precipitously, and I no longer have much opportunity to put my new-found skills into practice.

Usually just in time for something new to come into focus.

This pattern — gain just enough expertise to hire someone — played out again and again, for me and for other founders I’ve talked to.

In some ways it’s thrilling. You get experience with all of the key areas at the company, and you’re always learning something new.

In other ways, though, it is soul-crushing. Over the eight years I managed Puppet while in fast hiring mode, I rarely got to spend time doing anything I was good at. Humans have a psychological need to feel competent, to feel like they are in control and know what’s going on. I don’t need this all the time, but please, just a little? Sometimes? Nope. Pretty much the second I started to feel like I understood something, I had to hire for it, and my problem changed from doing to managing.

After years of this, I knew just enough about everything to suck at it, but not enough to actually be useful to anyone.

Only as my tenure as CEO came to a close did I begin to see what I uniquely added to the organization. I began being comfortable not delegating certain problems, and felt justified in spending hours on something as an individual contributor, rather than seeking leverage in everything I did.

Only once this happened did I start to feel comfortable as a CEO. I wasn’t just routing problems, I was actually solving some of them. I was not spending 100% of my time in areas I was incompetent; just most of it.

I know the advice as well as you: Great leaders delegate, they empower. If you’re doing the work yourself, you’re not a real leader.

Bullshit.

Yes, building and running a team absolutely requires that you empower the team. But that doesn’t mean you don’t get to do anything yourself, that you hand everything off and have nothing left.

Just like everyone else, you, too, need a reason to show up, to stay engaged. You have to hold on to your own why.

If you don’t remember why you, personally, are in the job, then you’ll look up in a few years and realize it’s not there any more. You’ve moved too far from what gets you up in the morning, and suddenly you can’t do it. Or worse, the company has developed but you haven’t. You’re no better at the thing you want to master than you were when you started, because you haven’t been spending time on the problems you care most about.

Some of this is that you need a place of safety. I am a highly fireable person, and raising venture capital made for downright tenuous tenure. The less confident I was about my own strengths, my own value, the less safe I felt. And humans need to feel safe to do great work.

More than that, though, I needed a platform for learning. I was pursuing mastery, but of what, exactly? Of not mastering things?

I know other leaders really are master delegators, hirers, organizers, etc. But that was never going to be me.

I had to peel things back, really understand why I was there, what I cared about, what I wanted to be the best in the world at. And, really, what I was good enough at that I ended up in this place, running this company. Then, as the problems rolled by, I could be sure to push that forward just a little bit, even if my focus was on the organization’s needs, not my own.

The times I lost this sense of why I was there and what I was getting better at were some of my most depressing days. But the days where I could connect what I felt good at, what I spent my time on, and what the company needed from me were the best days.

I don’t think that’s any different for me, or for other founders, than it is for anyone else.

But all the discussions of leadership I hear leave this bit out: You’re a human, too. You have to provide the why for the whole organization, but every individual deserves to be able to translate that into what they do every day. Even you.

How to Neg a Founder

Is that a compliment, or an insult?

Photo by John Salvino

My experience growing and fundraising for Puppet was full of inspirational-sounding phrases that cut like a knife. Aggressive goals got praise for wanting to “build a real product” and “really scale this thing.” These are some of my favorites. And when I say “favorites,” what I mean is, I hate them. Deeply.

The one that I heard most often made me want to walk out of the room. I’d pitch an investor while fundraising, and he (always he) would say: “So you’re going to try to turn this into a real company, eh?” As if being my full time job for years was somehow not real. As if you are the arbiter of truth, not my customers. Or me.

If you want to make an entrepreneur feel small, you really want to piss them off, try to inspire them this way. I assume most people who used it thought they were complimenting me, impressed that I was taking this big step or something. But it was a sure fire way to trigger my defenses. When you diminish the work I’ve done so far, it’s hard to see you as a potential partner. I quit my full time job five years ago, and have missed out on hundreds of thousands of dollars of earnings, but asking you for money is what shows I’m serious?

I’m convinced at least some investors did it on purpose, as a form of negging — trying to position themselves as an authority and me as someone who needed their help and wisdom. “That’s pretty cute. Why don’t you get some help from the professionals?” I’m good, thanks.

I know most people didn’t mean it that way, though. Their worldview is just so skewed that if you haven’t raised a ton of money, you’re not really trying. They can only conceive of success if it looks a specific way. You literally cannot succeed unless you do what they do, what all their friends do.

If you’re an investor, advisor, or executive, take a deep look at how you talk to founders. Are you truly complimenting them, or actually diminishing their work? Are you presenting yourself as the arbiter of success, even while you think you’re saying the other person has done so well?

If you’re a founder, know that you don’t have to take it. No one else gets to define success for you. There’s always an in-crowd, but by definition the best results come from being outside of it. Even if you decide you need their money, you don’t have to accept their framing.

Why We Hate Working for Big Companies

Modern capitalism raises the flag of the free market while pitting centrally planned organizations against each other

It’s quite a journey from being born on a commune to raising more than $87m in funding at a software company. This journey forced me to wrestle with existential questions about my true beliefs, and how they intersected my life as an entrepreneur. One’s work is rarely a pure reflection of ideology, but companies need a clear and authentic strategy, which requires a tight alignment between company operations and the founder’s philosophy. I have discovered more about those differences between what I believe and the best ways to grow a corporation while studying economics — that is, how money is made and exchanged — than any other area.

A worldwide conflict between communism and capitalism defined the latter half of the twentieth century. The United States’ ideological battle was the central drama of my childhood, and it was with a combination of glee, pride, and “told you so!” that my fellow Americans watched the wall fall in Berlin, and the USSR dissolve shortly thereafter. I expect few would deny that the US is the standard bearer for capitalism.

Yet, there’s a flaw at the heart of this claim. While the United States operates as a free market economy, the key agent within modern capitalism — the corporation — works more like an authoritarian state. Given how much of our world is built around corporations, this truth and its impacts are critical.

I grew up apart from America’s passion for capitalism. In the era of Reagan, I was living on a commune. My parents did not earn money for their labor, and we didn’t have personal property. My family left the Farm when I was 8, and as I matured, my ideological roots were in conflict with the US’s nonstop pro-capitalism message. As I joined the workforce and eventually started my own company, I found myself attached to neither the communal roots of my childhood nor the Wolf of Wall Street world I moved into. I grew slowly in convictions, as I encountered problems in the course of scaling a company.

The first real conflict came when it was time to hire managers. I founded a company primarily because I did not thrive as someone else’s employee, so what led me to think others would? More importantly, anyone who has ever operated at the front line is aware of the severe costs imposed by the separation between the people who do the work and the people who make the decisions in hierarchies. Hiring managers was just going to make the company do worse, not better, right? Right?

I expect three of you are gleefully shouting, “Yay, holacracy!” right now, while the rest are confused and either offended or think I’m an idiot. I did consider a manager-less world, but a little research provided only examples of disaster, because the only available options just replace an explicit power structure with an implicit one. In other words, it’s still hierarchical with the founder on top, but now decision making is opaque and the system is easy to exploit because of the lack of controls (which looks surprisingly like the cult/commune I grew up in).

Those who are confused or offended by the idea that managers make performance worse would be informed by a deep dip in economics. One of the core principles of the free market is that central planning committees can never be as efficient or as effective as the people doing the work. By definition a free market economy lacks a decision-making hierarchy; the ‘free’ means every agent (individual or corporation) can decide for themselves, without needing permission from a manager above.

While there are many aspects of modern American capitalism I reject, this one I wholeheartedly support1. The downsides of a strong central executive were taught to me early.

Like many other communes, the one I grew up on routinely failed to feed its people — my parents speak with horror of the ‘wheat berry winter’, when we lived on little else. While his people were short on food, the founder of the Farm was off touring Europe as the 3rd drummer in a band, “bringing our message to the world”.

Thankfully none of us starved to death, but the failing was similar to what most communist countries experienced: The central organization could not feed everyone. For years, I assumed this was just incompetence, whether at the scale of the Farm or China. The truth was far more structural. Millions starved during the Great Leap Forward because the central organization was trying something impossible: Managing the productive output of an entire country. The Planet Money podcast tells a great story of how this central planning was walked back in China, but the general point here is that these communist countries did not just nationalize the means of production, they tried to centrally control all of it from within a small group.2

When people talk about communist countries not being a free market, this is what they mean: They tell the farms what crops to produce and in what quantity, rather than letting them decide for themselves. China even went so far as to dictate what hours a farmer should start and stop working, and then directed managers to ring a bell for transition times to control every little group of farmers. Anyone who’s ever had to punch a clock into a rigid, dysfunctional hierarchy is likely getting painful flashbacks about now.

It should be immediately obvious why this fails miserably: The distance between the central planning committee and the farmer is so great that good decisions are nearly impossible. It’s nearly impossible for critical feedback to make it from the edge, where the farmers are working, to the central planning committee in time to affect decisions, and then for those decisions to make it back to the edge in time to be useful. The podcast linked above also points out how unmotivated the farmers were under this regime, cutting productivity even further. Those who have studied lean manufacturing, agile development, and DevOps are likely seeing parallels here.

The result was catastrophe. When a corporation is painfully inefficient it loses money and might have to do layoffs, but when a country fails at growing food, its people starve to death. I don’t mean to imply that central planning was the only cause of famine under communist rule — there were political operations that led to mass starvation, just like in the West — but learning more about these helped crystallize what I do truly prefer about capitalist models. It also converted the phrase ‘the free market’ from a catchy slogan into something meaningful to me.3

The most important feature of free market economies is that each person within them is able to make independent decisions in their own best interests4. If you’re a farmer, you can decide what to grow, how much to grow, and when to work to develop your crop. Heck, you can even choose not to be a farmer any more. Success is merely dependent on your finding a buyer for your work at a price you can tolerate. Any given year might not be perfect, but your decision making gets better over time as you learn to respond to customer demand.

This pattern is easy to understand in any system where the people doing the work make the decisions. If you’re a jeweler, you can decide what to make, how much to sell it for, and what to spend your time on. Same if you run a small restaurant, lead local tours, or are a one-person shop doing house remodeling. It’s a free market, where you can charge what the market will bear, and you can quickly and efficiently respond to its whims, ensuring that you are getting the best use of your time.

This was a powerful organizing principle for a long time. The history of human commerce developed largely this way: One person, or as many people as could fit in one shop, would turn labor into a product, then find a buyer for it. Most large-scale efforts were organized by the state of the time: Monarchs and the landed gentry, who were the only ones capable of marshaling enough resources to build palaces, roads, and other large construction projects.

This began to change in the 17th century when corporations like the Dutch East India Company were able to deliver massive windfalls to investors by pooling money and using it to extract resources from colonies. There was a step change in the 19th century, as corporations went from generating wealth to building and owning infrastructure. It’s one thing to outfit a single ship for a year-long voyage, yet another to maintain railroad schedules across the United Kingdom, or run a telegraph network around the whole US. These aren’t just short-term money-making exercises, they’re long-term commitments with big capital outlays and large returns over years and years.

We still live in a free market economy, but it’s not one Adam Smith would recognize. Instead of individual or small operators, ours is composed almost entirely of corporations. Really big corporations. And these companies, they use the same kind of central planning that we so despise in communist systems. I know. I’ve done it.

By the time my company got near 500 people, we had a multi-week planning process, where the leadership (i.e., me and my lieutenants) set out top-level goals, built a top-down plan to accomplish them, then drew information from the front line to see where it needed change. We called this a bottom-up plan, but it was only bottom-up from the perspective of numbers — how much money we’d have, what our costs were, etc. — rather than from the bottom of the organization. We could see no way to have a system where the people doing the work built a plan for the organization. Even thinking about it now, my reaction is, “How would they know what my goals are?”

That’s the kind of question you can only ask in an authoritarian state, not in a free market economy. My goals became my company’s goals, and the only real way to ensure people worked toward them was providing a plan. You might argue that a corporation should focus on shareholder value, but that doesn’t help make decisions about what the company should actually do.

Great leaders find a way to listen to everyone in the company, but in the end, leadership is about making decisions. That’s essentially the definition of the word. And we all know leaders who did not bother to listen, or just did not need to in order to be great; today’s most vaunted tech leader, Steve Jobs, was famously disrespectful of the opinions of others, yet made a lot of world-changing decisions (not all for the better).

This is exactly why working in a big corporation is so stifling. If you’re in a small company, the executives are close enough to the front line that it’s more like working in a tribe, but in a big company, the leadership is so removed from whose who do the work that executive teams operate like the politburo we so decry in communist countries. Certainly the bureaucracies are no more enjoyable or forgiving.

I find it both ironic and painful that my inability to work for someone else resulted in my creating a company that involved a lot of smart, capable people working for someone else.

I wish I had a solution. If this were an easy problem, its solution would already be pervasive, because the benefits are massive. Just in terms of efficiency, we’ve seen how much better the free market is than planned economies, but it also has a hugely positive impact on quality of life. People are happier when they’re in control.

I know the solution is not more freelancing and contract work, which America’s corporations are addicted to. That’s the worst of both worlds: The exploitative nature of capitalism with the inefficient bureaucracies of communism. Transactions on the free market work because they’re good for both sides, but most people only accept part-time contract relationships today when they have no other real choices.

Holacracy certainly isn’t the answer. It’s fundamentally flawed because of its implicit power structure — Tony Hsieh still runs Zappos, even if he does not use a central planning committee to do it — but the biggest problem is it makes no mention of economics. Without a clear system for scoring the transactions (i.e., money) it’s impossible to build a free market.

This problem of how to handle economics within a non-hierarchical company might lead some to think of using blockchain tokens as an internal currency. This is impossible today, beyond the fact that the world of blockchain is mostly about fraud and black market sales. The biggest problem is that we have no idea how to value most of the work people do. I mean, we might know that what a developer should get paid for a year’s work, but how much is that work worth? The majority of the work done in modern corporations is incredibly hard to value, which is partially why companies are so inefficient and make so many bad decisions.

That brings up an even bigger problem — companies today hire workers to make money from their labor. In other words, they generate profit because they pay their employees less than they’re worth. If everyone could trade their labor for exactly the amount of money it was worth, the corporations that employ them would have a much harder time making money. Instead, in modern corporations the shareholders and the executive team — again, the central planning committee we so despise — make the majority of the money, while the front line does all the work and makes very little. This is true even at the big tech firms; software developers might be well paid relative to hotel workers, but they’re paid a pittance compared to the founders and executives. This might speak to why we have no solution yet — free market corporations would tend to reduce concentrations of wealth, which would be terribly disruptive to the current system.

Like I said, I don’t have a solution. But at least now I know what makes the current system so painful, and it gives me some hope that we actually can come up with a better answer. I know I’ll be working harder in the future to manage the downsides of what we have today.

  1. Although I might stress the “well regulated” part more than most modern economists.
  2. Of course, capitalism is just as capable of killing its citizens, whether through starvation or lack of health care.
  3. Note that I’m not taking the capitalist side of the cold war here; while Americans were decrying the oppression of the Soviets, we were actively clawing back progress on civil rights and knocking over democratically elected governments. This article is about principles, which political regimes rarely show a great track record in following.
  4. But not so independent that you should be as pathological as Ayn Rand.