How to Think Like an Investor - with Josh Elman

[Treehouse Friends] [Pasan Premaratne] Hey, Josh, thanks for being with us today. 0:00 [Treehouse Friends] [Josh Elman] Thanks. Great to be here. >>For people who don't know you, 0:02 tell us a little bit about who you are, what you do, and what you've done in the past. 0:04 [Elman] I joined Greylock about a year ago as an investor looking for 0:08 the next great companies that we'd like to get involved in. 0:12 Greylock has been involved in companies like Facebook and LinkedIn 0:14 and Pandora and Airbnb, so these really big, iconic consumer companies. 0:18 Before I joined Greylock, I spent the last 15 years building a lot of products 0:23 and really working, hands deep, as both an engineer and as a product manager 0:27 on companies like RealPlayer, LinkedIn, Zazzle, Facebook. 0:31 Facebook Connect was a product I worked very closely on, and then Twitter. 0:36 And I've just had a lot of fun thinking about these products in the very early days, 0:40 and how they could really scale, and how could we get these products 0:43 in the hands of millions and millions of users. 0:46 By the luck of a lot of the stuff I've been able to work on 0:48 and the people I've been able to work with, 0:51 I think Facebook and LinkedIn and Twitter have really realized 0:54 some of the dreams of when I joined those companies. 0:56 [Premaratne] How was it like working at those places? 0:58 Let's talk about each one, like Facebook and Twitter, LinkedIn, Zazzle. 1:01 How was it like working there? 1:05 [Elman] They were all at pretty different stages, and it was fascinating. 1:07 I joined LinkedIn when it was 15 people, and Reid Hoffman had this idea 1:09 that if we connect all professionals in the world, 1:12 we'll be able to create new opportunities for them: professional opportunities, 1:15 business opportunities, sales opportunities, because instead of 1:19 needing to find out who somebody knew, to go through everybody's Rolodex 1:22 to find a connection, you'd all of a sudden be able to use this search engine, 1:26 this network, to find those access points immediately. 1:29 And then still be able to use your relationships in order to access them. 1:32 At the early days, we had this really hard problem where nobody would want to sign up for it. 1:36 They were like, I don't want to put my resume online. 1:40 I don't know that I want to join this network that makes it look like I'm looking for a job. 1:42 Because in the past, the only reason you'd ever have your work history online 1:46 was if you were applying to Monster or CareerBuilder to look for a job. 1:51 But Reid really had this vision that said, once the resumes are online, 1:54 or their professional profiles were online, the world will look very different. 1:57 And so we spent a lot of time at the company really working through, 2:01 how do you tweak the product on a daily basis? 2:05 And to engage more people, and to invite more people to the network 2:07 to understand the value of the PR and marketing side. 2:11 How do you make sure the people understand this isn't just a job site? 2:14 One of the key things we did when we launched our jobs product 2:17 wasn't just to try to launch a big business around job listings and job recruitment, 2:20 but to show job listings and job recruitment were a subcomponent of the website. 2:24 There were many more things you could do with your professional network. 2:28 So lots of crazy challenges in the early days. 2:31 [Premaratne] And that was at LinkedIn? >>That was at LinkedIn. >>So LinkedIn came before 2:34 Facebook and Twitter, or--? >>Yeah. So LinkedIn, I was in the creative team, 2:37 and then I left LinkedIn for Zazzle. I joined, again, when it was like 20 people, and it was this vision. 2:39 If you don't know what Zazzle is, it's this on-demand marketplace for products. 2:44 You can design shirts and posters and mugs and mousepads 2:47 and iPhone cases with any image that you have, 2:52 and you can get the product made to order. 2:55 Zazzle makes it within 24 hours and then ships it out. 2:57 And the idea is, anybody who is a designer can put a storefront up just with their artwork, 2:59 and anyone can come buy any of those products without even having to 3:04 have made inventory or purchases in the past. 3:07 And then you make money for royalties off of your own artwork. 3:10 And when I joined it was kind of the future of eCommerce. Imagine every store 3:14 instead of just having the 50 things or the 500 items that they have 3:17 in the store right now, you take any content on any product 3:20 and customize it for shirts, any one of the 30 or 40 shirt styles. 3:24 And when I joined Zazzle, again, it was 20 people and it had this dream 3:29 and it had this challenge of, how do we create a marketplace that makes it work? 3:32 How do we acquire more users using both SCO and advertising and social tools? 3:35 How do we get our sellers more empowered to spread it through their networks? 3:41 And so we spent all of our time iterating on the product 3:46 to make the experience better, to make these virtual products 3:48 feel more real before you made a purchase, until it really got working. 3:50 And now they're growing really, really fast as a company. 3:55 [Premaratne] Yeah, I believe we've used them at Treehouse. >>Oh, awesome. 3:58 [Premaratne] Yeah. We got a puzzle made, right? >>Very cool. 4:01 [Premaratne] So what next? What happened after Zazzle? 4:04 [Elman] So I'd been at Zazzle for a couple years, 4:07 and personally was working really hard, almost too hard, 4:09 and kind of straining my family relationships, which I think is-- 4:12 I've learned a lot about how to balance that. 4:15 And I thought, I've had this great run. 4:18 I think Zazzle's going to be a great company, but I want to to take on 4:20 another challenge in my career, and a bunch of my friends had recently joined Facebook 4:22 and were encouraging me to come work with them there. 4:27 And when I went to meet Facebook, this was early 2008. 4:29 It had this really interesting phenomenon, which is, the world 4:34 had heard of Facebook and thought it might be interesting. 4:36 It was up to maybe 70 million users by that point. 4:39 There was this platform that you could build these applications and games on 4:41 that were spreading and really, really spammy. 4:45 But it still wasn't clear if Facebook was this fundamental thing in the world 4:47 that people were going to use every day and rely on and connect everybody, 4:50 and the developers were going to rely on as a core way to build their applications. 4:54 And I thought getting to work on that problem, if you're going to make this platform 4:57 really fundamental for every website and application, 5:01 would be a really great problem to go solve. 5:05 And so when I joined them, we worked on the platform team, 5:07 and really, a lot of what we did was work with all the developers and what they were building, 5:09 and connected that back with the product and engineering team 5:14 that were trying to iterate on Facebook's product and platform 5:16 to make sure that we were serving users better, 5:19 and we were enabling developers to serve users better. 5:21 Through one of these initiatives, we realized that a lot of these developers 5:24 were building within Facebook, and these things felt a little bit spammy and a little bit messy. 5:28 And we really wanted to step back to, what are the core principles? 5:32 What do you, as a developer and a user, really want from these other applications? 5:35 You want to be able to sign in without having to create a new account. 5:38 Because once you're on Facebook and have your profile, 5:42 you don't need to recreate all this information and tell it 5:44 your email address and how old you are and all those other things. 5:46 You want to be able to find your friends without having to go 5:48 and invite all your friends to a new game. 5:50 If your friends are already using this thing, you should just connect with them immediately. 5:52 You want to share what you're doing back with your friends. 5:56 We realized these core principles of identity, friends, and the feed and sharing 5:58 really made these core principles that will apply to any website or any application. 6:01 And we started looking outside Facebook, and said, 6:06 how do we get websites like CNN or Amazon or Yelp to integrate these same principles? 6:08 So we started a program called Facebook Connect that I ended up leading the launch for. 6:15 We decided to work with lots of major third-party developers 6:19 for how we can actually get them thinking about this identity 6:22 login, friends, and social graphs and social features and sharing, 6:27 which I share back to Facebook, but it also brings traffic back to my site, 6:31 really get that to become a real mainstream thing. 6:34 And I think we found a lot of early partners 6:36 who were interested to go deep and really try to make those things work. 6:38 I think we had a lot of successes: Huffington Post is one, a social news site, 6:42 or is a new site that is now known as a social news site 6:45 because they really embraced Facebook and built a lot of these key integrations. 6:48 That was a really great partner to prototype a lot of the things that now seem just commonplace. 6:51 I mean, how many websites or applications do you go to that don't have a Facebook button? 6:59 You're like--now you're missing it. 7:01 But we had to figure out, when we launched our program, nobody had it 7:03 and we had to work through all the interesting things to get the ball rolling. 7:07 [Premaratne] And then, what happened after Facebook? Why did you leave? 7:11 Again, to move on to the next challenge? 7:14 [Elman] Yeah. I think I have a little bit of ADD in my career, 7:16 where I've loved getting involved with these things and getting them 7:19 started and getting them to start working. 7:22 But once I feel like something is really working, my radar goes off 7:24 and I'm like, okay, what's the next challenge that I can go tackle? 7:27 And one of the things that I've loved doing in my career is 7:29 what I call being in product management. 7:32 Which is really being very close with product development 7:34 and the engineering team, building great new features 7:38 and the day-to-day cycle of doing that. 7:40 And at Facebook, I found my role was a little bit more 7:43 working with this marketplace of developers, 7:45 but not really my own core products that I was iterating on a daily basis. 7:47 And so I'd gotten to know the folks at Twitter at the time, 7:51 and they--I thought it was just really phenomenal, 7:54 and I found myself using this product more and more everyday, 7:56 and said, I'm really happy at Facebook, but if I could ever 7:59 go work on one other product, it would be Twitter, 8:01 because I think--I can see why I want to use it every day, 8:04 and many times a day. I can see why, I think, hundreds of millions 8:06 of people around the world should want to use it, too. 8:09 So I'd gotten to know that team over 2009, 8:12 and by fall of 2009 got an opportunity to go join them. 8:14 And at Twitter we had this fascinating problem. 8:18 Tons of people had heard of Twitter and had heard Twitter existed, 8:21 and the media is talking about it and celebrities are talking about it. 8:24 People are tweeting, but they didn't really know why it would be meaningful to them. 8:26 And so they asked me to start up a small team there, 8:30 we called it onboarding and now it's called user growth, 8:34 where we really tried, step by step, to figure out, how do we help people 8:37 when they sign up for Twitter to get more engaged, 8:40 to start using the network in a meaningful way, to build 8:43 a daily habit for how they want to use Twitter? 8:46 And over time, I think the phenomenon's growing. 8:50 I think there's still plenty of people who don't get Twitter, 8:52 but they've announce numbers that are much, much higher than the early days. 8:54 So I think we're just starting to see Twitter really coming to fruition. 8:58 This week there was a seminal moment around the NFL 9:03 that tons of people were tweeting about their reaction to the NFL replacement refs, 9:06 and if you're watching this video a long time in the future, 9:11 this may no longer be relevant, but that was, again, another seminal moment 9:13 where the public conversation on Twitter has just become such a phenomenon. 9:16 [Premaratne] Right. It's very commonplace now. >>Yeah. 9:20 [Premaratne] So why the change to investing? 9:22 You've been a product guy for so long. >>Yeah. 9:25 [Premaratne] Why did you jump over? 9:27 [Elman] A lot of people ask me that, and when I look back at my career 9:29 and I think about investing, I think they are actually very similar. 9:32 The goal of investing is find great companies that you think can be 9:35 fundamental, iconic behaviors, companies, brands in the future, 9:40 get involved with them early, do things both financially 9:44 to give the company money, but also time and energy 9:48 and resources and connections to help a company really get to that scale. 9:51 If I look at my career, I've been really lucky multiple times 9:56 to find a company in the early days that I thought could really be 9:59 one of those long-term, interesting companies, and be involved, 10:02 and thought, maybe investing is actually a way to take some of those lessons 10:04 instead of going to find one more company to do it, 10:08 then maybe one more company and one more company with my own 10:11 ADD or other things going on. 10:13 From investing, I actually have a platform 10:15 where you get to do multiple at once, 10:18 and you have a little bit more leverage to do the same thing. 10:20 But my main objective is still the same. 10:22 Find things that can become really important, big companies in the future 10:25 and be a part of helping them grow. 10:29 [Premaratne] How do you find these new things? Is it the team, or do you look at the idea? 10:31 [Elman] It's a great question, and the answer is always all of the above, and many more. 10:36 I think there's 3 or 4 key things that you look for 10:43 when you're looking for an opportunity. 10:46 The first is a vision for this future that you think you can create 10:48 and build a profitable company around. 10:53 At Facebook it was, we think we can connect everybody in the world 10:57 and they'll share things and all of a sudden it's going to become more 11:00 connected and they'll be using this to communicate and interact every day. 11:02 And if we do that, we'll be able to monetize in a variety of ways. 11:07 At LinkedIn it was, we think we can connect all these professionals 11:10 to open them up to all these new opportunities, 11:13 and if we do so, there will be some sets of people who will pay for it. 11:15 In the case of LinkedIn, it's sales and recruiting and a few other business lines. 11:17 And so you look for somebody who has this vision of what a future can look like, 11:21 and then you look for, do they have the team and the capabilities to go and do it? 11:25 Do they have some unique insights that really help them along the way? 11:29 And it doesn't necessarily matter what they've done in the past 11:32 as much as all the things they've done in the past set them up 11:35 to have really unique insights along how they're going to go make that future. 11:38 And you look for some wedge, where they say, hey, 11:42 this future seems really great way out here, 11:45 but the only way I'm going to get there is if I get to this little proof point first. 11:47 And if I can get to this proof point, it makes me more confident 11:51 I'm going to get closer to that future, and then I get to this proof point. 11:53 And so we really look for people who both have that vision 11:56 but understand the tactical step-by-step way. 12:00 They just want to keep proving it to themselves more and more that they can get to their big idea. 12:03 [Premaratne] So as an investor, do founders have to have revolutionary ideas, 12:07 or is it the execution of a normal idea that gets to the next big thing? 12:11 [Elman] You know, it's--again, it's a tricky question to answer, 12:15 because it's not revolutionary or evolutionary. 12:18 It's always a combination. I don't think anybody looked at the first day 12:21 of Twitter and said, "That's a revolutionary idea." 12:23 It felt like a toy; it felt like this silly little thing that you can send messages back and forth. 12:26 But I think what the best founders do have 12:30 is a deep understanding of behavior 12:34 on the consumer side, a deep understanding of behavior 12:37 and the way in which that behavior will manifest more and more 12:40 through the way that people will start acting differently 12:44 and communicate differently or think differently in the world. 12:46 And it's often the simplest little gestures, 12:49 the simplest little ways in which people will communicate a little bit differently 12:51 or do things with a slightly different nuance that ends up cascading 12:55 into these really phenomenal, revolutionary changes. 12:59 It's not, robots are going to be the future and I'm going to go invent the future of robots, 13:02 but it's, hey, what if we all started--what if we had our networks together 13:06 so that if I needed to figure out who you know, 13:09 I can search for it instead of having to ask you? 13:11 It's a pretty simple idea turned out to be revolutionary, in the form of LinkedIn. 13:14 [Premaratne] Okay, so as an investor, what do you look for 13:18 that you think other investors may miss? 13:20 [Elman] You know, I think one of the things I've gotten to see 13:22 and experience from the products I've worked on, 13:25 and I think some of my instincts that led me into joining those companies 13:27 is understanding that wedge and that path 13:30 to get from this simple gesture, these simple ideas, 13:34 to this big revolutionary changing behavior. 13:38 I think understanding how to both create those step-by-step approaches 13:43 and how to look at data and read the data 13:48 to give you some signal on what's working and what's not 13:51 are 2 things that I've built a lot of experience and instinct around, 13:54 and so when I'm meeting founders and drilling the details on those, 13:59 I hope that I can see some of those same instincts and insights 14:02 reflected back from the founder, because it's not that I can join the company 14:06 and help them through all of that. 14:09 We're really looking for the founders to have those insights to guide a whole company around it. 14:11 [Premaratne] Right. So you've been a product guy in the past. 14:15 You've mentioned all the places you've worked at. 14:17 So 2 questions with that: do you think founders should be able to code? 14:19 Well, let's tackle that question first. Do you think founders should be able to code? 14:23 [Elman] I don't think the answer is yes, that a founder needs to code, 14:26 needs to write the product, needs to be the best writer of their product in order to succeed. 14:29 But I think the founder needs to have a fundamental understanding 14:34 and respect and partnership around what it takes to build technology 14:38 to actually be successful at all. 14:44 I think there's plenty of people who have founded companies-- 14:46 Reid didn't write any of the code for LinkedIn, for example, 14:49 but Reid was very clearly somebody who deeply understood the art 14:52 of software development and the process of making software, 14:57 and when he was given questions and challenges around how the database 15:00 needs to work or the node graph needs to work, 15:03 was deeply involved in those conversations. 15:05 I personally haven't written code in 8 or 9 years now on a daily, active basis, 15:07 but I still, having done that prior in my career, 15:14 have been able to work with great engineers to build really successful products 15:17 because I'm able to have that real exchange and respect for what they do. 15:21 [Premaratne] Right. And understanding. Okay, so secondly, 15:26 do you take that product--what kind of role do you take with companies 15:28 and startups and founders that you've worked with? 15:31 Does your product experience translate into direct mentor roles? 15:34 [Elman] As investors, the first thing we fully understand 15:40 is that the company is the founder's company >>Right. >>And they're building 15:43 this product and this company to their vision, and we're backing them to do that. 15:47 We're getting involved to do that. 15:51 I think, having gotten to work at these companies, I can understand the difference 15:53 of saying, here's what you should do or here's what I think 15:56 you need to do versus, I can tell stories and frame conversations 16:00 in the ways that we had to face similar problems and how we got to similar conclusions. 16:03 So I think a lot of what I try to do is give them context 16:07 and help them through frameworks for their decisions, 16:10 and push the founders on decisions that they're making 16:12 and why, and give them suggestions, 16:14 but fully expecting them to really take the onus of making and driving those key decisions. 16:16 And by offering that up, I think that's experience that they can tap 16:23 anytime that you try to be there when they're wanting to chat at 11 p.m, 16:26 or needing a full day deep dive on metrics and growth or whatever they would need. 16:30 [Premaratne] Okay. Now, how do you think entrepreneurs should deal with failure? 16:35 Well, first, when you meet a founder for the first time 16:41 and they're pitching an idea to you, do you see past failures as 16:44 battle scars that they've learned lessons from? 16:49 Or is it that they don't have a proven track record because of that? How do you view it? 16:52 [Elman] That's a really good question. 16:57 I think--I don't think failure is battle scars. 17:00 I don't think failure is "no proven record," either. 17:03 I think the key is, how do you, for this opportunity that you're facing now, 17:06 put all the things you've done in context to help you know why this is the inevitable idea 17:11 and why you think you're going to be able to make this company 17:15 and this idea work right now? 17:18 I think when a lot of people say "Oh, my idea was great but the timing was wrong," 17:20 I think that's an excuse, because I think you weren't looking 17:25 at the time and the way the world worked today, 17:28 and building things to create the wedges in the step-by-step path 17:30 to get you through that, and anybody who had any brilliant idea pre or post, 17:33 it's all about, can you harness the things that are going on right now 17:40 to make something become much bigger? 17:43 But I think the people who have really healthy reflections on that 17:46 and the people who continue to approach everything in the best way possible 17:49 and understand when to pull the plug because they say, hey, 17:52 my assumptions are starting to fail here. 17:55 I'm not actually proving what I thought I could prove. 17:58 I think it is time to go in a different direction. 18:00 I think that's a really healthy, very, very positive learning process. 18:02 [Premaratne] Okay. Now, how should someone approach an investor or VC? 18:06 You can either use your experience or just give a general--how to find someone. 18:10 [Elman] I think the first thing is to know which kind of investors 18:15 you're approaching for which stage of your idea that you're at. 18:17 I think every investor, just like every company has a business model, 18:20 every investor has a business model. 18:23 And larger venture capitals fund business models to back products 18:25 that are growing in attraction and to help them become 18:29 these really long-term sustainable companies. 18:32 Early-stage and seed investors often like to help guys with an idea, 18:34 get their first product out the door to see if it can actually 18:39 test some of the assumptions of their idea to see if it can work. 18:41 And there's different interplay in the stage and the level 18:45 and the amount of the investment for all of those things. 18:48 So the first is, understand what stage you're at and which type of investor you want. 18:50 The second thing is, the best way to get introduced to an investor 18:54 is always to get a referred and trusted introduction. 18:57 And that's never super easy to figure out, but it's starting with your network 19:00 and saying which friends do you know that know this investor. 19:04 If you're new to a community with investors, and you know there are these programs 19:08 that--these accelerator programs can do great jobs of helping you to get-- 19:12 join a new community, get into a network, start meeting a lot of other 19:15 entrepreneurs who are figuring out which investors they know, 19:18 and there's always the--try to find any common ground with an investor that you can. 19:21 When I first approached LinkedIn, I actually didn't know any of the people at LinkedIn. 19:26 But I had done the same program at Stanford that Reid Hoffman had done. 19:30 So I sent a cold note saying I've just moved back to the Bay Area 19:33 from 6 years in Seattle, and I would love to meet you and talk about what you're doing with LinkedIn. 19:37 I think it's the future, and I did the same program as you a few years later at Stanford. 19:43 And something I put in the note at least made him blink and say, okay, 19:47 there's a little bit of common ground here. 19:52 I like people who did the same program, maybe I'll meet this guy. 19:54 [Premaratne] Right. Okay. Now, do you think VC funding is always necessary? 19:57 Well, first, before that, going back to the previous question, 20:01 once a founder finds you, 20:03 what's the best way to get the idea across? 20:07 Do you still believe in using business models 20:10 and an executive summary and a business plan, all that stuff? 20:13 [Elman] I think I talked about, at the beginning, 20:16 the biggest way to get this across is you have to be able to tell a great story. 20:19 You have to be able to tell a story of why right now, the timing in the world is set up 20:24 for you and this team to go build this company that's going to create this kind of change in the world. 20:29 And that's for a venture-backed, multi-billion dollar company 20:34 that you want to go create out of this thing. 20:38 You have to be able to tell a story. There are many ways to tell a story. 20:41 You can tell a story in a 1-page document. 20:43 You can tell a story in a 30-second video. 20:45 You can tell a story in a slide deck. I often see a slide deck as one of the great ways to frame a story. 20:47 For people who are really good at it, you can frame a really good story. 20:53 And the other thing is, the more you've already built and the more product 20:57 you have for people to play with and understand the key gestures 21:00 and the things that you're basing your assumptions on is really, really good. 21:03 Especially for the stage that Greylock is at, I tend to look for people who have products 21:06 that already exist that I can play with. 21:10 [Premaratne] Okay, now, moving on, do you think VC funding is always necessary? 21:13 Should companies--you know, there's some people who start 21:17 and work on the idea with the explicit goal of getting funding and then exiting. 21:21 Do you think funding is always necessary? 21:25 [Elman] I think funding is a great tool, and venture capital 21:28 and the kind of people who do venture capital are great partners 21:32 to help early-stage people build companies that can become, potentially, 21:36 these sustainable multi-billion dollar iconic companies and brands. 21:41 Things like Airbnb and Dropbox and Tumblr and LinkedIn and Facebook 21:46 and the kinds of stuff that Greylock's gotten involved with, in particular. 21:51 Those are all consumer companies. We also have a huge 21:54 set of companies on the enterprise side that we're involved with, 21:56 like Workday and Palo Alto Networks. 21:59 And if you're trying to build a company like that, that causes change in the world, 22:01 venture capital can be an amazing tool. 22:04 But it's not the right tool for everybody. 22:07 It's not the right tool for every business. There are many phenomenal businesses 22:09 that aren't going to become multi-hundred-million dollar, billion dollar revenue 22:12 companies and go public on the stock exchange, 22:18 even in their wildest dreams of what they could possibly be, 22:21 that are still great companies, but those companies, venture capital 22:25 might not be the right tool for them, because it might set you up with different expectations. 22:28 Because venture capitalists back companies they believe have potential to become one of those. 22:33 [Premaratne] Okay, and to wrap it up, what advice do you have to future entrepreneurs out there? 22:38 [Elman] The best advice is find something you're really passionate about. 22:42 Not what you think is an objective potential way to make money, 22:46 but that you're really passionate about wanting to see in the world 22:50 and you really believe if you can make that thing happen in the world, 22:52 a lot of other people will be excited about it and will want to use your products, 22:56 want to pay you for your products, or advertisers will pay you 22:59 because your product is getting so much usage. 23:02 But just, really, find something that you want to see in the world 23:05 and go make that thing happen in the world. 23:07 If you try to be too rational and objective and-- 23:09 well, I think there's a hole here and I can go fill it but I'm not that passionate about it, 23:13 you're actually not as likely to succeed because you're not going to go to bed 23:17 at night and wake up every morning thinking about it. 23:20 [Premaratne] Well, I think that's all we have for today, Josh, 23:22 thanks for taking the time to do this. >>Thanks, Pasan. >>Yeah. 23:24 [Treehouse Friends] 23:28

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