Most industries are dominated by monopolies. How we enforce antitrust law explains far more than you might think.Photo courtesy of BP Miller.
My first monopoly was AT&T.
I lived on a commune until I was eight. We didn’t have toilets, but we did have phones. We didn’t own them. It was a commune, after all. But they were in our house and we got to use them.
When we reentered “normal” civilization, we still didn’t own our phones. AT&T did. This was 1984, the same year Congress broke them up. I was more confused than injured by their power. Capitalism was new to me. Every single thing in our house was ours, for the first time, except that one. We had to lease it from Ma Bell. Even weirder, the lines in our house were apparently not ours. (I mean. We were renters. But you get the idea.) We had to pay to attach other objects to ports in our own house.
This confounded me. “Some… outside company I’ve never heard of makes rules about what we have in our house?” Yes indeed.
Thankfully, it didn’t last. With five siblings, we needed but could not have paid for those extra phones.
My second monopoly was Microsoft.
They had complete dominance of desktop operating systems and software (the Office suite, plus Outlook/Exchange for email). I went to Reed College, so I exited school as a Mac user, in the middle of their dark days. In hopes of avoiding Windows I tried everything else: BeOS, Linux, Solaris, you name it. No matter how fast I ran, I was often stuck on Windows at work because, well, everyone was.
Microsoft abused its monopoly heavily and freely until being taken to court. Microsoft’s abusive behavior is usually discussed in terms of its effect on the web. But I’ll never forgive them for Outlook. It taught multiple generations of people to do email incorrectly. To this day, the average business user is incapable of having sophisticated discussions over email because Outlook trained them not to.
Ironically, Microsoft itself likely only exists because of Congressional antitrust action against IBM. The government eventually withdrew its case against Big Blue, but not before convincing it of the importance of leaving room for others.
The Paradox of Antitrust Choice
Kids coming up today are lucky. They have so many monopolies to choose from.
Of course, I don’t actually mean “choose”. You pretty much have to use all of them. Google for search, Facebook for social, Amazon for e-commerce and cloud infrastructure, and Apple for hardware and apps worth paying for.
Tech is absolutely rife with monopolies. (And monopolists.) But the industry itself is largely in denial about that. “We’re different!”
The last month has highlighted this. Congress has dragged the richest, most powerful tech founders and CEOs in to testify. More importantly, a Judiciary subcommittee has produced a huge report on concentration in the tech industry.
I’m going to focus on that last link, from Ben Thompson. He makes a throwaway comment:
consumer harm, which is the de facto standard for antitrust in the United States
The article itself is interesting and informative, as most of Ben’s writing is. But this small line shows that Ben is in a box that limits how he thinks about antitrust. And if he can’t see out, few others are likely to.
I think he should. I think you should. I think everyone should.
America doesn’t have a tech monopoly problem. We have a plain old monopoly problem.
Ben works hard to explain that the tech monopolies are natural because of what he calls Aggregation Theory. He implies this makes their monopolies more acceptable, even inevitable. He accepts there is abuse, but a very narrow definition of it. Even if his theory is sound (which I am not convinced of), it doesn’t explain the rest of the monopolies that plague us.
Something else does.
The “consumer welfare” standard is not the law
Ben is right that US antitrust law focuses on consumer welfare. That’s pretty much the work of one person: Robert Bork. His book, The Antitrust Paradox, successfully rewrote the history of American antitrust enforcement. Gone were concerns about competitive markets, or any discussions of the downsides of market power. Nope. If prices are low, it’s good. That’s it.
He didn’t get any new laws passed. He just convinced our country to enforce them differently.
Yes, consumer welfare is an important input in the laws themselves. But there’s far more to it, including a healthy focus on market power. Yet Bork managed to gut everything else with one book. (To be fair, there were a lot of rich and powerful people set who became even more so once he won.)
To be clear: The laws themselves have not changed. Only how we enforce them, within the government and the courts.
It is impossible to understand antitrust enforcement in our country without accepting this fact: We have strong antitrust laws and are choosing not to enforce them. They have been gutted by an extreme interpretation, and fifty years later, nearly every industry demonstrates the ruinous consequences.
Revisiting Consumer Welfare
Bork successfully reframed the downsides of market power, with a lot of help from the Chicago School of Law. But there have always been people fighting back.
Lena Khan produced the seminal work in this category, Amazon’s Antitrust Paradox. She lays bare how powerful Amazon is, and how useless consumer welfare is as a means of assessing monopoly abuse. Its impact has allowed her to carry the flag even further.
In particular, she was part of the team that ran that Judiciary subcommittee hearing, and produced the related report.
Yes, her argument - and thus at least partly, the argument made by Congress - is that Amazon and its peers have too much power, and they are abusing it to gain even more.
But more importantly, she’s arguing that you cannot have a conversation about market power without also talking about standards other than consumer welfare.
That’s what Ben Thompson (and Ben Evans) and all the other tech commentators need to understand.
The argument is not really whether one of these companies is a monopoly. It’s what standard we should use to assess their behavior.
Do we let Bork decide, and use a light hand and generally tolerate heavy concentration of power?
Or should we follow the original intent of the laws, focusing more on encouraging a competitive landscape and a market free from companies that are too big and too powerful?
The Tech Monopoly Minefield
Every tech founder I know builds their business around the reality of these monopolies. If you’re in e-commerce, your business is defined by the space Amazon leaves you. You don’t necessarily have to be on Amazon, but prepare to be attacked if you’re not. If you’re in social, you have to ensure Facebook doesn’t want your business. If you make apps, you can only make or sell them the way Apple lets you.
I expect most founders and investors don’t even realize how much we’ve given up on doing because of these monopolies (and all the smaller industry heavyweights, like Salesforce). We talk big about agile startups outwitting the big players, but… that only works if they can’t choke off your suppliers, outbid you for engineers, or take hundreds of millions in losses to destroy your company.
What could we build if we didn’t have to fear so many big players?
I’m still haunted by that AT&T phone we didn’t own.
I could not be happier that the government is finally revisiting our antitrust standards. And honestly, I’d rather they make mistakes in regulating the huge players than not regulate them all. We’ve seen what five decades of almost no action results in.
Like everyone, I love fast cheap shipping. But it’s not worth destroying independent retailers over. Honestly, I can’t stand using any of Facebook’s products, but maybe I could if they were stand-alone instead of part of a soulless corporation bent on domination.
I believe in the free market. But none of the markets I’m interested in are. They’re all dominated by players so large, so powerful, that our only choice is to work with or around them.
It’s long past time to get rid of the consumer welfare standard, and bring back to true antitrust enforcement.
Privacy expectations are changing. How will companies change with them?Photo courtesy of Tobias Tullius
Change is coming to how tech companies handle privacy. Everyone is going to have to adjust, but new startups are caught in the middle: Be as useful as the companies built in the old world, while following the new rules.
Today’s dominant tech companies don’t care much about privacy. Many of their businesses couldn’t exist if people were careful with their data. Facebook only survives if people are willing to share widely and publicly. Google’s ad engines feed on reams of public data.
Privacy will matter far more to new companies. Google has taught companies the cost of sharing their data publicly. Consumers are slowly waking up to how pernicious Facebook’s data practices are. And the laws themselves are changing.
Regulation is already happening at the state level, and internationally. You might not want federal legislation, but state by state rules would strangle growth of new startups.
I know some say government can only create problems, not fix them. I am not so cynical. The creation of the EPA is a great example of government taking industry in hand and making the world better. I am eager for Congress to take privacy as seriously.
The Business of Privacy
But I’m not a legislator. I’m a builder. I’m more interested in understanding how people’s behavior will change, and what that means for the products I’m creating.
For some, the future of privacy is already here. DuckDuckGo is thriving (despite its silly name) on promises of providing great search without all the tracking. The Brave browser is growing for similar reasons.
But how big is this change? Will the average person in the next decade expect to retain privacy, demand companies respect their data? (I originally wrote “computer user” here instead of “person.” With the smartphone, there is no difference.)
Or will privacy concerns continue to be like security concerns have been for the past decade: the domain of the few, the nerds?
But it’s also a business question. What kinds of companies thrive in the current privacy framework? Will they thrive in ten years? What about a world with little privacy? Which companies might do better if people cared more about it?
It’s worth elaborating on what I mean by privacy. Google and Facebook have very different definitions, for example. Facebook’s business is built on promising as little privacy as possible, and delivering even less. They share your data with pretty much everyone. Google just uses your data internally. They don’t share your browsing history; they just use it to market ads.
There are far more companies out there like Google than Facebook. Everyone shouting “data is the new oil” is advocating for Google’s business model: Collect a ton of data and profit off of it. It might start as your customers’ data, but if you collect enough it, and tie it all together, it becomes your data.
By policy, these companies (usually) care more about privacy than Facebook does. They rarely sell or share your data. This is better. But privacy isn’t restricting data to only a few trillion-dollar companies. It’s sharing my data with people, not companies.
It’s instructive to look at one company offering less privacy today than in the past: Microsoft. In the old days, all of my documents sat on my computers. My email ran through servers run by corporate. Microsoft could never have gotten to any of them.
Now it’s all “on the cloud.” What does that mean? Microsoft has it. They might not be sharing it with others, but they’re certainly looking at it. Oh, maybe individuals aren’t. But their programs are.
This can be good. Usage data can help vendors improve their software.
But mostly, it’s bad. These promises of better software tend to be hollow. I don’t want better ads. I don’t want your algorithm picking what I see. And I certainly don’t want machine-learning recommendations based on a statistically average user.
People are beginning to see the downsides of handing all of their data to companies. They know that Facebook, Google, Microsoft, Apple, and Amazon have too much power. They are changing their privacy expectations. Not just the nerds, but average people.
But how much? How fast?
The Cloud Conundrum
Privacy in the modern era is a special quandary. The cloud is pretty great. No synchronization. No management. Easy sharing.
No one wants to give that up. Yet today, cloud usually brings severe privacy compromises.
Do I try to build without the cloud, enabling more privacy, and try to compete with what might be less functionality? Or do I build on the tools everyone else uses, where a lack of privacy means there’s little limit to what I do?
Is there a world where you get all of the benefits of centralization, of the cloud, of being online, but don’t have to sacrifice your privacy? Can you be in the cloud, but keep your own data instead of letting a company put it all into one bucket?
I think so. For many cases, I don’t even think it will be that hard. It will just require thinking differently. It will require new answers, maybe slightly harder ones. But not whole new forms of math or science. Something attainable and reasonable today.
As a founder and investor, there still might be big downsides. It might mean you can’t be the next Google. The next Facebook. Or even the next Salesforce.
It might be that a company is worth less if it does not exploit your data.
What if ethical, privacy-conscious companies stay small, and unethical privacy-destroying companies get to keep growing? There is precedent. Prior to the creation of the EPA, an industrial plant would be committing fiscal suicide to spend money reducing pollution.
I worry about this. I’d sure love to see better behaved companies get rewarded with growth. But that’s certainly not the world right now.
Of course, this is partially why we need new regulation. The rules need to change. There was a time when big business just dumped all of its waste in the local rivers. It was cheap. Why should they care if it killed people and ecosystems? Gotta protect shareholder value! But then the rules changed. Nixon (!) created the EPA, and now we take it for granted that industrial players are forced to protect the air and water at least a bit.
The rules will matter less if enough people change. If you stop buying from companies who abuse your data, they’ll stop doing it. If the next Facebook can’t be built off of your data, then someone will need to find a new way - and hopefully a better one! - to meet your needs.
But maybe those businesses won’t be quite as big. Or get there quite as fast.
Are you ok with that? Is that a reasonable trade off?
It is for me. Facebook didn’t make me a billionaire. I’m not at risk of some other data-centric company making me rich. I’m not investing in companies that collect and exploit your data.
But a lot of people are. A lot of our industry is built on the idea that access to this data is good. Many companies could work without it, but choose not to.
Take the smart home, for example. My smart thermostat is in my house with me, right next to my phone. On the same network. But how does my phone configure it? Not by talking directly! No. My phone contacts cloud services, which then contact my thermostat. Why? Partially because it’s easier. But mostly it’s about data.
There’s no chance Google would have bought Nest for $3.2B if that data weren’t available.
Maybe Nest would be a better company if it were more concerned with making better devices instead of extracting our data. But I don’t think Google would be as excited about that other company. Investors like the multiples that all that data gives them. And product people like what the data allows.
Like industrial effluent, this data is toxic. Dangerous. I’m afraid of what’s being done with what leaks out. I’m afraid of all of the bias. I’m afraid of businesses built on my lack of privacy, my lack of boundaries.
My Bet on Privacy
My new company assumes people will care more about privacy than they have. I expect I’m giving up some long-term potential by doing so. There are things we can’t do as a result. Things that our competitors might find easy to do.
But we’ll be able to make promises no one else can. And we’ll find new ways - hopefully better ones - to solve our customers’ most important problems.
Even writing this frightens me a bit.
I’d love to believe that promising privacy would make my company more valuable, make it easier to raise money. I know it will make it easier to hire people.
Some users will choose us specifically because of our privacy model. But how many? And will it be enough?
Why and how my team built board reports instead of PowerPoint decks. Fifty pages, less work than slides, and more valuable.Image courtesy of Drew Beamer.
Board meetings are a critical time of communication and reflection for a company. You have to share enough information that the people in the room can make existential decisions about the business. Yet most CEOs I know share only slides (the “board deck”) with their board.
This is a huge mistake.
People who worked for me at Puppet claimed I hate PowerPoint or Keynote. Nope. I use them myself when presenting on stage in front of a large crowd. But they are a horrible choice for communicating without a talk track, and are incapable of conveying large amounts of information, or anything of detail.
Don’t trust me? Ok, how about Edward Tufte , The Godfather of information design, who partially blamed them for the Columbia space shuttle explosion:
These [NASA] review boards examined what is probably the best evidence available on PP for technical work: hundreds of PP decks from a high-IQ government agency thoroughly practiced in PP. Both review boards concluded that (1) PowerPoint is an inappropriate tool for engineering reports, presentations, documentation and (2) the technical report is superior to PP. Matched up against alternative tools, PowerPoint loses.
What’s that you say? Running your business is easier than shooting rockets into space, so you are fine dumbing down your communication? You’re not in great company.
Bezos revealed that “narrative structure” is more effective than PowerPoint. According to Bezos, new executives are in for a culture shock in their first Amazon meetings. Instead of reading bullet points on a PowerPoint slide, everyone sits silently for about 30 minutes to read a “six-page memo that’s narratively structured with real sentences, topic sentences, verbs, and nouns.”
There’s a much better option right in front of you.
For most of my time running Puppet, we prepared a board memo: A text document written in normal English, with supporting images and charts. It averaged between 35 and 55 pages in length.
It worked great.
It took less time to prepare, and conveyed the state of our company more effectively. I recently shared my last board report, from 2016, with a friend, and he protested, “This is an SEC filing, not a board report!”
I’m not sure if our process is a fit for you, but hopefully it will at least inspire you to find a better solution than slides.
I used to be like you. Well. I never walked through slides in the meeting. I always drove a short (3ish items) agenda. My goal was discussion, not presentation. But I did start out using a deck.
I still cringe a little at the thought. But one of my startup principles is “Innovate only when necessary.” Your business requires a certain amount of breaking new ground. But don’t add risk by doing something unnecessarily new. If I avoided everything I thought was dumb I’d never get anything done.
Everyone else did board decks. My team was used to them. 🤷♂️ Sure, we’ll give them a try.
I hated it.
We spent too much time, on the wrong work, and did a poor job in the end.
Wow. The team spent so much time on fonts. And arranging images. What, exactly, is this adding to the board meeting? I understand: An ugly deck makes us look bad. But it seemed like we were spending a third of our time prettifying something instead of actually communicating.
There’s a good reason it was so hard to make them attractive: We had a ton of information to convey. We had to include detailed information about sales, marketing, engineering, and operations. The reader needed to quickly gain a sense of what was working, what was not, and what the vectors were around the company. No amount of picking fonts and rearranging images could deliver that understanding with PowerPoint.
So one quarter we ran an experiment. It was early on, only a year or two after our first round.
I gave each member of my team a choice: You can produce slides, or prose (i.e., plain text, using full sentences and paragraphs). Unsurprisingly, sales and marketing picked slides, and engineering and services picked prose.
What a stark difference.
The prose was done faster, communicated more, and just felt so much better.
Experiment over, prose won, we switched.
I don’t remember exactly how the process evolved. I do remember where we ended up, six years into using producing what we called board reports.
We did all the writing in Google Docs. We could all work at once and not step on each other’s toes.
I would build a skeleton of the report: Write out each section heading (“Summary”, “OKRs”, “Product”, “Marketing”, “Sales”). Then I’d use a comment to assign each section to the relevant executive. They’d either produce the text themselves, or do so in partnership with their team. Sales, marketing, and finance would include a lot of charts and graphs; product tended to stick to prose with a couple of diagrams or screen shots.
As people filled out the document, I played a few roles.
I spent most of my time assessing when someone was done. I’d read through people’s work and mark something that was insufficient, unclear, or missing with a comment in Google Docs. These are easy to spot even when scrolling through a fifty page document. As people worked, they marked their progress as done or ready to review. A completed section was easy to recognize: All comments and suggestions were resolved.
In this way, I could scan a large document and instantly see where work remained to be done.
My second job was overcoming a shortcoming in Google Docs. Or maybe a lack of training of office workers. Docs has built-in headings, and if you use them, your document is visually consistent, and auto-generates a table of contents. However, most people who worked for me never used the headings. They’d make a headline bold and increase the font size. So I had to go through the entire document and correct the markup. This was probably a quarter of my time.
By the end, I delegated this to a senior copy-editor who we trusted to see the entire document in process.
My last major role, and the only one that resembled the work of a CEO instead of an editor, was to ensure we were telling a single, coherent story. I’d write the summary to set the key messages. Then as I assessed everyone’s work, I pointed out inconsistencies or gaps. Most of this simple editing: Ensure all of the text used the same voice (first person plural, usually). It involved plenty of strategic work, though: tying company goals to team performance, ensuring the whole story was told, and asking everyone to cover the ‘why’, not just what happened.
You can guess this process triggered a few tense side conversations as I dragged information to light.
That, in the end, is the real point of the board report: Make sure we all understand the true state of the business. The writing was more important than the reading. It was on me to ensure we did the real work, rather than just packing it with information without saying anything.
I usually spent about four hours on it. Again, on a fifty five page report. My team each spent 1-3 hours. I did have the odd executive here or there or spend more like four or five hours on their part. We also never invested enough in automated reporting, so I’m confident some parts of the org had to work harder than I’d like to admit to generate their charts.
We targeted completion at least a couple of days before the board meeting. I’d share it with the board as a PDF. A couple of times I tried sharing it as a Google Doc (copied, so they can’t see the edit history), in hopes they would ask questions that could drive the agenda. It never got much engagement so I stopped.
Without a board deck, what did we actually talk about? I mean, without slides driving every minute, don’t you lose track?
No way. I ran a tight ship. But we measured time in half hours and big topics, not individual clicks.
My board meetings were usually three hours long. I’d spend an hour with just the board discussing high level status of the business and team. Then we’d take an hour and a half to cover our agenda, usually with portions of my team in the room. Then we’d spend half an hour at the end again just with the board, discussing what we learned and what we expected to do about it. This is when we also assessed individual executive performance. By the end of my tenure we also had a few minutes set aside for just the board, with me absent.
This process created space for deep conversation in the meetings. Everyone who read the report (which was, well, nearly everyone) was caught up on the business. They were fully prepared to discuss the three topics. And we had no structured flipping of slides to get in the way of discussion.
After the meeting, I edited the report as needed then sent it to the whole company.
Usually this involved removing just a line or two. Sometimes it was larger surgery, and others no changes at all. Mostly I cut out discussion of personnel changes, or removed sentences that required more sensitive, political phrasing than I practiced in these reports.
The end of this cycle ensured everyone involved in the company was up to date on, well, everything. Goals, status, progress, weaknesses, strengths.
I don’t know if everyone should use this process. I know many people were raised by American business to think slides are the best form of communicating. That’s a hard habit to break. I won’t even judge you if you use slides during the meeting to display the agenda and schedule, and maybe key images.
Slides are perfect if you want to tightly control the message, and not leave much room for hard questions.
But if your goal is to do real work in board meetings, skip the deck and write a report.
How I got here, how it went, and what happened along the way.
I didn’t want to start a company. But I had no choice.
I was a SysAdmin after college, because I tried everything else and got fired from them all. I had seven jobs in two and a half years. I’m very fireable. System administration was just the chair where I happened to be sitting when the music stopped. More a safe, fun place than a source of deep passion.
By that point in my career, I was a little easier to keep around. More importantly, I had become worth the hassle. I did good work because I liked the puzzles.
I had a particular way of working. My boss would say, “You should do this thing, and you should do it this way.” He did not look at how I worked, only the result. That gave me the freedom that made the job worth it. When I told him I had finished he would say, “Great, how did you do it?” and I’d say, “Look, is that a bird?”
I automated everything I could, whether it needed it or not. Automation has a built-in reward mechanism. I would take this well-paying but stultifying job - Type this command 1,000 times - and I would reframe it: How about I tell the computer to type the command 1,000 times? It will work. I’ll watch. Bam! Now I can move on to other fun stuff.
Over time I did so much automation I kind of ran out of work. I was in Nashville at the time, while my wife was getting her PhD, so there were no interesting jobs that needed my skills. Hmm.
I could go to business school, but - sorry! - I don’t have any respect for the MBA. Everything I hear about business school is how valuable the network is. If I want that, I’ll take a cruise. I thought about going to law school, but it is so expensive you have to become a lawyer afterward. I didn’t want to be a lawyer. I just wanted to change my career.
So I was like, I’ll find someone who’s doing what I want to do-building a product to help people like me-and I’ll go and help them.
Oh my god, that was miserable. I lasted five months.
Commuting back and forth between Boston and Nashville did not help. I also had the brilliant idea of commuting seven miles each way by bike. In the winter. In Boston. I gave myself permission not to ride if it was under twenty-seven degrees. Being on the road in Boston is dangerous in a tank. On a bike, in the snow, was a cruel joke.
But mostly I just hated our software. I hated what we were building. At one team meeting, a senior developer said, “What does it matter what our customers think? They’ve already bought the product.” Reaction to that statement - nothing at all - told me I was in the wrong place.
So I left.
I got home. I said, I have a little money saved up, and I’ve tried everything else, and now that I think about it, I guess my dad was kind of an entrepreneur. I mean, he did run his own business for thirty years. Technically. I suppose.
Maybe I should start a company?
I know everyone in the world who is building automation tools for sysadmins, and none of them are going to build a business. “I built this, so, obviously, it’s the best.” But they’re only interested in publishing papers and getting academic tenure. Their software was already perfect, so they saw no reason to listen to anyone’s reasons for not using it.
I thought, what if I build something? And then listen to the people who are using it? (And maybe those who aren’t?) Hmm. Could work.
I quit my job. Well, I quit my job first and said, “Eh, I should probably find a way to eat.” So after trying everything else, I started a company.
We lived on my wife’s generous graduate student stipend of $23,000 a year - the job I quit paid $110,000 a year - and, like I said, I thought I had some money saved up. At some point the IRS sent me a letter that said, “We disagree,” and it turns out when the IRS disagrees with you, well, you know how that goes. And even if you’re right, by the time you prove you’re right, “Ok, I had ten grand, and I spent ten grand on a lawyer proving I have ten grand, and…” Just send them the check.
So I was broke when I started my company.
As a sysadmin, you’re not a developer. People will tell you: In DevOps, everyone’s a developer. Those people are lying to you. Or selling something. Which, you know. So I had to become a developer. I had written some code before Puppet, maybe 5,000 lines total. But by the time I handed it over, it was 130,000 lines of code.
The people I handed it to regretted my learning experience.
I adored it.
I learned a lot. It was, to be frank, super fun. One of the densest learning periods of my life. Programming is the best puzzle. I find it harder to step away from it than anything else I’ve ever done. It’s been two days since I ate, I think my wife has been trying to get my attention for the past twelve hours, I should probably … and then I try to move, my legs don’t work. I’m lightheaded from hunger and my feet are tingly.
After about ten months I got my first paying customer.
I often advise other entrepreneurs. Much of what I tell them is to avoid what I did. I only had a vague idea for how to make money. I figured, “I’m confident I can make something valuable. I kind of have a plan, but I know my plan is stupid. If I bring my plan to people and listen to them, that could help make my plan less stupid.”
This is not that bad of a strategy! But it’s not exactly specific.
I didn’t really ask myself: What is my overall business going to look like? How will I get there? I started with services, because I’d been consulting for a while, and I was confident I could make enough money to eat. I know investors are down on services businesses, or anything that doesn’t look like a founder throwing themselves off a cliff with what they hope is a parachute. But you gotta eat. And services are a fantastic way to make money while you’re figuring things out.
I had a lot to figure out.
At the time - 2005 - there were a lot of open source companies out there. When I say a lot, there were four. I thought, “They’re doing well, I will copy one of them at some point later on.” That was not that great of a plan. Two years later Red Hat was the only one left. They’re a software powerhouse today, but they went public during the bubble as a T-shirt and mug company. There’s no copying that.
I did start making money, though. We consulted for three-and-a-half years. “We.” I was the only employee. About three years into the company, I discovered one day that I was incredibly burned out. This was the first of three major burnouts for me at Puppet.
I distinctly remember realizing I was burned out. I was standing next to my wife, at the doctor’s office, looking at an ultrasound. We just learned we’re going to have twins, and I get a sudden flash of insight: My life is unsustainable.
I personally can’t recommend, when you’re in a bootstrapped startup, planning to have a baby. I would work especially hard to avoid having more than one at a time. But that’s what we did.
(Speaking of which: All you people who had your babies serially, you’re lazy and you don’t know what you’re doing. You think you had it hard. We were tested. Y’all are amateurs.)
The technician said, “Oh, you are going to get scanned a lot.” Um. You’re going to have to explain that one. She told us we were having two. We laughed. She must be incompetent. Just because you have twins (she did) doesn’t mean you can recognize them in someone else. While using an ultrasound wand. Which is your job. Scan… scan… BING! The two fetuses clearly popped into view. My wife would have fallen over if she weren’t already lying down. My knees shook. I thought, I can’t do this anymore.
I had been working every hour I could. I counted once: It was about 72 hours in my busiest week. There are people who say, I work 100 hours a week. You might stand there 100 hours a week. I’m skeptical you’re working. Based on what I know about productivity, I hope you’re not.
I couldn’t do it anymore. Since February 2008 or so, coincidentally the same day I found out we were having twins, I haven’t worked more than 40 or 50 hours a week. No evenings and weekends. I might dabble sometimes, but I won’t let it become a pattern.
Don’t worry. I managed to burn myself out two more times without those extra hours. It can still be just as bad. Pack that intensity into fewer hours, and you’re all good.
So. I need help. How?
I had tried to hire people in the past. Both of them were misses.
The first hire was the most notable. In the three months it took to figure out he wouldn’t work out, the best person I could possibly have hired became available and then unavailable. This guy’s biggest impact was ensuring I couldn’t hire the person who would have been most helpful.
There’s one more crazy story about him. In the middle of his interview at my house there was a drive-by shooting next door. He had taken a bathroom break when the shooting happened. They weren’t trying to hurt anybody, just shooting up a car to send a message. One of the bullets ricocheted off the car, then my porch, and broke my front window. He came out of my bathroom, and I said, “Are you ok?”
I needed him to work in my house.
(Yes, I did actually tell him. Eventually.)
When he didn’t pan out, I concluded, I guess I just can’t hire. I’ll do it all myself.
Pro tip: Don’t do that.
Puppet worked in spite of these decisions, not because of them.
Things had changed, quite suddenly. I needed help, and now.
I hired the only people I could think of who might do me a favor: my college roommate and my best friend. Two separate people. Again: Don’t do this. I paid them full salaries.
Years later, I realized, “Wait a minute, if I was paying them full salary, they weren’t really doing me a favor, were they?”
Burned-out people make low-quality decisions. Your brain is gone, and you’re stupid. You work too many hours, you get burned out. You hurt your business doing this kind of thing. Get sleep, eat well, get exercise, step away from work. It’s good for you.
We were making a few hundred grand a year. And by “we” I mean “me.” I’m the only person consulting. I’m getting a little help with the code and stuff.
But now I’m going to hand all the consulting off to my best friend. “Ahh. I can see the light.” And by light, I mean impending twins.
The transition is bright in my memory. He was shadowing me. Μy last gig, his first one. “Hey, funny story, tomorrow this is your job.” We were in San Francisco, my only development gig fueled by Red Bull. I had made a promise to Stanford University, in exchange for some money. If I did not keep that promise by - I think it was - August 31, the Sunday after my gig ended, I had to give the money back. Of course I didn’t have the money anymore. I had to give them the code instead.
I’m at my client’s office during the day, and back in my hotel room at night pounding energy drinks and my keyboard. My kids are due any day, it’s my last flight, my last trip before they are born.
I finish it. I ship it at 1:00 a.m., send Stanford a note with all the details, and go to sleep.
My wife calls me two hours later and says, I don’t think it’s a drill, my water broke.
Well. I’m in San Francisco, and she’s in Nashville. You cannot get from San Francisco to Nashville fast enough to catch a baby. Everyone told me, “Now don’t worry, it’ll take 24 hours.” The kids had other plans.
I was a father before I landed in Dallas. Cell phone pictures in 2008 were terrible, but they were enough to make me cry in the aisle.
Once again, things not to do, but it mostly worked out. My kids didn’t even notice.
My mother-in-law is actually thankful. She got to be in the delivery room instead. She would have been staring through the window if I had been there. It was great for her, and a great bonding experience for them. It was just, you know, complicated for me. If I’m going to flail at fatherhood, I could at least be present for it. Absent bad father is just a step too far.
That was summer of 2008. We were a little over three-and-a-half years in at Puppet. Lots of change all at once. We added two people and two babies. The business was picking up. I was spending more of my time at events and out in the community than writing code. Mostly this meant that the code wasn’t getting written, rather than that I had delegated it.
Again, my wife was getting her PhD. Nashville is kinda my hometown, and so as a result I, you know, hate it. I always told her I wouldn’t be at her graduation, I would be in the U-Haul honking the horn.
But she was pregnant with twins when she graduated. I was running a bootstrapped startup. We couldn’t afford to go anywhere.
What it all means
The birth of our kids was more than a turning point for our family. It transformed Puppet. It forced me to acknowledge I could not do it alone. I brought in help before they were born, and by the time they turned one I’d raised a funding round and moved to Portland.
In the four-and-a-half years of bootstrapping, we went from zero to around $250k a year in revenue, and from one to three people. In the seven years after funding, we grew to five hundred people and more than seventy million dollars in revenue. More importantly, we had an impact on thousands of people and thousands of companies.
I think founder stories are important. They’re usually educational, and often inspiring.
But they’re myth. They are a specific version of what really happened, refined and presented. Often, the myth so obscures what really happened that the lessons are dangerous rather than helpful.
This is a key story in my founder myth. For better or worse, I’m not afraid of you making catastrophic mistakes by trying to emulate me.
They say you can either be a good example or a horrible warning.
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.