VW, The People’s Car, Betrays the People. Whither the Innovation?

Volkswagen Group, home to storied global brands such as Volkswagen, Audi, Porsche, Bugatti, Bentley and Lamborghini was recently caught with its pants down. VW, paragon of German engineering, efficiency and reliability has apparently been running on fumes. Literally. VW decided to fake it till it made it when it came it to its fuel emissions claims. VW had everyone convinced that they had engineered relatively “clean” diesel engines. And because they’re German, no one doubted them.

The damage to the VW and German brand is surely massive, not to mention the expected fines and lawsuits that will plague the company for some time to come. Some top VW executives are even calling it an existential crisis for the company, though I wouldn’t go that far. Let’s face it: a corporation that makes 13% of the cars on the planet is just too big to fail. This is probably the one instance where Wolfgang Schaüble and his fellow German austerians wouldn’t mind abandoning all attempts at fiscal rectitude in favor of bailing out the company.

Were environmental regulations on pollution unnecessarily overly optimistic? Perhaps, as Volkswagen, GM, Daimler, BMW, Toyota, Renault, PSA Peugeot Citroën, Ford and Hyundai i.e. basically the entire global auto industry are asking for European authorities to allow a 70% increase in the nitrogen oxides their cars emit. In other words, they also may have been cheating about their vehicles’ emissions level.

But auto manufacturers have long been fudging numbers in other areas as well. It is a well-known fact that manufacturers tend to over-state fuel efficiency through a number of tricks. It's hard to be sympathetic with these attempts at getting around regulations. Auto manufacturers should be investing more in R&D, given the relatively decent profits that most are generating. Instead we get stock buybacks and other accounting shenanigans to boost stock prices. 

On the other hand we have Tesla which equipped its latest emissions-free Model X with a bioweapon defense mode that apparently is able to provide hospital-level air quality though an insanely efficient air filtration system. Allegedly. As one commenter on a Techcrunch article humorously put it, “in case you are overtaken by a Volkswagen on the highway”.

If we are serious about curbing pollution/ emissions, then the auto industry is one of the key areas that innovation is urgently required. No doubt electric vehicles will play a key part, but the transition to an all-electric car fleet is at least a few decades away. We simply require the internal combustion engine to get better, before it is ultimately phased out. And not by manipulating emissions/efficiency tests.  These are the hard problems I’d like to see more innovation around and not another “Uber for x”.






A concrete technological solution to gun control is already here.

Image credit: http://www.nationofchange.org/five-ways-stop-mass-shootings-america-1402668914

Image credit: http://www.nationofchange.org/five-ways-stop-mass-shootings-america-1402668914


EDITED: A friend has taken my suggestion to heart and will be creating a non-profit to launch an effective grassroots campaign against mass shootings. Please visit his Gofundme page here: https://www.gofundme.com/pn5gucts


Yesterday's shooting in Umpqua is tragic but it is hardly surprising. As of yesterday there had been 294 mass shootings in the United States in only 274 days. There could literally be a cable channel devoted to 24/7 coverage of mass shootings (Roger Ailes, I'm looking at you). 

You've been bombarded by coverage and numbers in the last 24 hours so I won't repeat them all here but I do want to make a concrete proposal for a grass roots effort to finally put these tragedies firmly in our nation's past.

After the Sandy Hook shooting left 20 children dead more than 90% of Americans favored stricter gun control laws and yet those laws fizzled in congress. Why?  The NRA spent approximately $35M ensuring that gun control would not happen in 2014. In non-election years their spending drops off dramatically but is still a substantial force. I don't know if the NRA is entirely to blame for this country's inaction on gun control but it certainly has been a huge factor.

$35M might not seem like much money but the average congressional campaign is "only" around $1M. If you look at just the primary portion of the campaign it is probably substantially less,. For the sake of argument lets say the average primary portion for a Congressional Representative's campaign is $500,000. This means that the NRA can pay for the campaign of 70 representatives in Congress or about 15% of Congress. Compounding this, the NRA doesn't need to spend money to get the votes it wants. With the war chest it has at its disposal, the mere threat of funding a challenger is enough to convince most Congressional Representatives to cave to NRA demands. The answer to getting rational gun control laws passed then has to be to defeat the NRA. 

Here is how we can take the NRA out of the equation. We start a $1000 gofundme.com campaign for every person killed in gun violence in this country. In 2013 that would have raised $33M, enough to counter the NRA dollar for dollar. If we also launched a $500 campaign for everyone injured but not killed in gun violence, we would have added an additional $42M in 2013. Every person killed or wounded in gun violence has family, friends and a community who love them and who would gladly contribute towards ending gun violence in the name of their loved one. 

Technology in the form of gofundme has provided us with an opportunity to make major change in this country. We can outspend the NRA more than 2:1. We can defeat them together and we can make this a safer place for all of us to raise our own families.  

Towards a VC Service Level Agreement

white-glove-service.png

 

In all other facets of business or life, when you make a long term commitment to someone else, there are rules governing the commitment. Marriage vows, service level agreements, early termination provisions, employee handbooks, codes of conduct, CC&Rs, etc. These governance documents all go into great detail on how the relationship should work and help to set expectations. 

When you enter into a relationship with a VC though, very little is actually codified. There are financing docs but much of what is spelled out in those agreements is purely procedural and does little to define the expectations of the parties over the life of the relationship (10+ years). In an effort to address this failing I am working on something akin to a Venture Capital service level agreement. What follows is a rough draft of the SLA. Please let me know if I've missed something or included something that should go without saying. We are open to any comments, ridicule or praise. Please let me know what you think in the comments or at my twitter handle @runvc

The goals here are (1) to set expectations and (2) to craft a VC firm that is responsive to the needs and desires of founders. 

Sazze Partners Pledge

  • Respect – We respect your time.
    • We come to meetings prepared
    • We can close an investment in no more than 3 meetings and diligence can be done in less than 2 weeks
  • Transparency – We are open and honest about our decisions
    • If we pass on an investment after engaging with you, we will provide you with a written explanation for our decision.
  • Mutual Interest – We believe relationships should be based on mutual interest.
    • We won’t ask you for exclusivity or confidentiality during our pre-investment discussions. If we partner with you we want it to be because we were the best match, period.
  • Community – We want to join your community and we want you to join ours.
    • If we invest, we want to be involved at the board level and if you don’t yet have a board, we want to be there when you do. We will help prepare you for series A board meetings and beyond.
    • We invite all of our companies to participate in our community.
  • Founder Friendly- We believe that the best startups are run by founders who care passionately about their companies. To that end, we aim to support founders as much as possible.
    • We are willing to take a portion of our equity on par with the equity held by the founders as a means of aligning interest.
    • We are willing to do the hard work of pricing and leading rounds.
    • We believe in supporting founders through thick and thin and in helping them grow into their leadership roles. 

Startup Lessons from a Good Ol' Boy

My dad, Walter Lee Chapman, passed away last week at the age of 67. He was a Vietnam vet (shot twice), a trickster and a friend to many. In a lot of ways we could not have been more different. I am a fairly reserved attorney cum VC and while I feel like I can fit in with the best of them (once I’ve had a drink or two), I am no extrovert. My dad on the other hand was at home in any situation. Whereas I live in Alameda “where hipsters go to breed” he basically lived at the stables where he took care of two stubborn mules. Where I filter everything I say to make sure I don’t offend, he was bold, he was fearless and he didn’t give a f**k what anyone else thought of him. With my dad you never walked away thinking ‘gee what does Buck (his nickname) think about me, because he made sure you knew.

There are countless things my dad taught me over the years, how to shoot a gun, how to live life and most importantly how to be a dad to Amara Chapman (my daughter) but he also taught me things I think are good advice for any startup.  I don’t want to be misleading, my dad never made an angel investment and didn’t think about tech companies very often, nor did my dad ever read a book on organizational behavior or pick up a copy of the Harvard business review. He lived his life according to common sense principles and rough spun country wisdom. That said, I think we in the startup community could afford to pay more attention to common sense than we do.

In honor of my dad, I would like to share a few pieces of wisdom from his life.

Don’t Be Forgettable

There are few people who knew my dad and felt indifferently about him. Most people liked him but not everyone and those with whom he didn’t get along were clear on where they stood. Dad may not have “gotten along” with everyone but at the end of the day, the people he loved and who loved him built strong relationships. My dad’s services will be 1000 miles from where he lived but they will be full despite the difficult travel for most of his friends and family. He did not make fair weather friends and neither should you.  

Companies should be focused on building a legion of advocates. If a startup can choose between 1,000 passionate customers or 5,000 paying customers they should choose the 1,000 passionate customers every time. Thousands of interesting companies are founded every year and thousands of companies disappear into oblivion just as quickly. To survive long term a startup needs to be a company for which someone will metaphorically travel across the country. Don’t waste money on acquisition campaigns or channels that only bring short term revenue. Those customers will cost you more in the long run and will serve only as a distraction. Most people are familiar with the 80/20 rule, which states 80% of your headaches will come from 20% of your business. Established enterprises often try to reorganize in order to cut this 20% away. Instead, you should be focused from the start on building a business without the 20% deadweight.

Plan Ahead, Armageddon Is Only A Bubble Burst Away

Vietnam changed my dad in many ways. He would never sit in a restaurant with his back to the door and he was never unprepared for disaster. I always knew this to be true but going through some of my dad’s things over the weekend has been eye opening. I can’t tell you how many first aid kits, flashlights, batteries and canned goods I found. Tucked away almost invisible in his wallet were a couple of old $100 bills that had obviously been hidden there years ago, I suspect dad hid the money in case he ever needed to pay a tow truck driver or bribe a border guard either were just as likely in his case. Were my dad’s preparations excessive? Perhaps but I can also tell you that I know at least a dozen families whose emergency plans began and ended with “Get to Buck.” My dad was ready for disaster and he was ready to get all the people he cared about through it.

If you are the founder of a startup, you do not have the luxury of having a Buck Chapman. Nobody is building an emergency stockpile for you and your company. You may think your VC’s job is to be backstopping your shortsightedness, but you are wrong…. dead(pool) wrong. The primary job of the CEO of any startup is to make sure your company has the resources it needs to succeed. Today, tomorrow and for as many tomorrows as it is going to take for you to get to cash flow positive. For the last couple years there has been a lot of talk about the bubble and the series A crunch. Now we are going through instability in the public markets. No startup CEO will be able to say they were taken unaware when the fundraising market dries up. You need to be planning ahead and if you don’t have at least 6 months to 1 year of runway right now than you are depending on the kindness of the startup equivalent of Buck Chapman and they don’t exist.

Practically speaking this means 3 things:

1)   Know how much runway you have based on both current and projected burn. If EITHER of those numbers does not give you 6 months + a cushion, you should already be fundraising.

2)   Pour over your income statement and look at each and every expense. Identify which expenses you can afford to cut and in what order and set yourself a threshold for when those cuts need to kick in. 3 months of burn left, 2 months of burn left, etc. It gets really hard to make rational calls when the gun is to your head. Make your plan now and stick to it.

3)   Tonight, even if you have 12 months of runway left, go draft an update for all your investors, prospective investors, advisors and tire kickers. Then set up lunch meetings or coffee with all of them over the next couple months. The “funraising” landscape of 2015 is going to give rise to a “hair raising” one in Q1 2016. You need to be top of mind for all of your supporters so that when you do go out hat in hand, they are waiting for you with open pocketbooks.

When The Going Gets Tough Be A Mule Not A Horse.

My dad loved mules. He had two Phil and Romey and while he could have just as easily had horses, he chose mules. For those who don’t know, mules are the sterile product of a union between a donkey and horse. Mules are the prototypical example of hybrid vigor where the combination of two things make for a better whole. Mules are smarter than horses but are bigger than donkeys. Pound for pound you can’t beat a mule for actually doing work or surviving in harsh conditions. Moreover, mules can get by on less food than horses. Put simply, mules do more with less. The one benefit of horses is their straight-line speed over flat terrain and short distances.

When conditions are perfect for your startup then by all means be a horse. Dump money into customer acquisition, staff up with talented people and spend money on PR. When conditions are perfect a startup can afford to run like a horse. In ALL other conditions, you need to take a lesson from my dad and favor the mule. Big established companies can afford to pour resources into a business line, startups on the other hand, need to focus on making steady progress and on surviving from one day to the next. As long as you survive and as long as you iterate every day, eventually you will get to your destination.

Startup conditions have been phenomenal for several years. For a while expenses were low across the board for both operating and capital expenses. That time is gone as rents and salaries have shot up. For a while the venture market has been pretty forgiving and full of cash but as general economic uncertainty settles in and as the influx of foreign money slows, times will get harder for startups. With the exception of only a handful of standouts, it is far better for you to be a mule today than a horse.

Living in the bay area it is often very easy to dismiss people in the rest country or even in other parts of California. We live in a bubble and I don’t mean of the economic variety. I think we could all do with listening to the common sense of people like my father more often. After all, what is wisdom if not an uncommon degree of common sense.

What it really means to "fake it till you make it"

A very common piece of advice in the startup world is to "fake it till you make it." I think this advice is often given to young founders of early stage companies and what it means is that they should project confidence and tell a story about their company that might be more aspirational that it is factual.

Put aside for the moment, the obvious ethical questions around stretching the truth when it comes to your company's performance. Most people who give this advice are really missing the point. Faking it till you make it isn't about something external (like click through rates and user adoption), it is about dealing with something internal, a lack of self-confidence in even the very best of founders. 

There is something called imposter syndrome, which very few people in Silicon Valley talk about but is actually quite significant. At the most basic level it is a fear harbored by many successful people that they are not actually very good at what they do. Their successes, they believe, are the result of a combination of luck and their ability to trick others into believing in them. Psychologists who have studied this “syndrome” claim that as many as 40% of highly successful people suffer from it at some point in their careers. Einstein is quoted as once saying that he felt like an “involuntary swindler.”  

While many successful people sometimes think of themselves as poseurs, they remain successful and the reason for this comes back to the misunderstood advice of fake it till you make it. The truly successful can accept feelings of inadequacy but can put on the mask of confidence when they need to. They tackle company meetings, wow investors and project charisma even though they feel like frauds on the inside. If they do this long enough, eventually they stop needing to fake it because they come to the realization that they have been successful all along, not because of trickery but because they’ve always had what it takes. Maybe it isn’t really about faking it till you make it, it’s about faking your belief in it until you actually believe it.

Don’t fake your numbers. Do project self-confidence. 

Demo Day Pitches Are Too Polished

I get less and less value from demo days. I attended the 500 Startups Batch13 demo day this past week and each of the pitches followed a very specific formula. By the time the 3rd or 4th pitch was over, the companies all started soundingindistinguishable from one another. It’s hard to make a secondary marketplace for cosmetics sounds like a 3D printing company and yet they somehow managed. This isn’t polishing presentations, it is grinding them down into a standardized unit for mass consumption. Each of these companies is crushing it with X% margins, XX% MoM growth and $$$ in ARR. Each has super secret ongoing conversations with big industry players and each just might be able to squeeze you into a round. What do the companies do? Its not entirely clear but they are in a big market, isn’t that enough?

I don’t want to cast shade on 500 Startups because I think their program is valuable for the companies and I don’t want to demean the companies who presented, many of them actually shine when you talk with them 1:1. The problem is that demo day seems to take everything exciting and interesting away from these companies. I don’t know if it is the time constraints or some desire on the part of the accelerators to level the playing field between their stars and their bench but whatever it is, I think it does a disservice to the companies. If I were to give any pre-demo day advice it would be to standout, whatever it takes. If you have impressive metrics drop them on me quickly but then move on to the human part of your story. Be unique! Be relatable.  

Last One Standing

The bad news keeps rolling in for HTC. Sales have fallen by (75%) since the September quarter of 2011. No one remembers when the last profit was seen. The sea of red ink is being forecast until 2017 (an optimistic take, in my opinion).

HTC is simply mirroring a widespread trend in the cellphone business. HTC, Nokia, Blackberry, even Samsung and basically anyone not named Apple is struggling to hang onto market share and turn a profit.

Apple is basically monopolizing profits in the industry(a staggering 92% of all industry profits). Think about that for a moment. I can’t think of a single industry where the market leader takes even 50%, let alone 90% of the profits. Globally. Apple is clearly in a sweet spot and does not look remotely threatened. Though, to be fair, that’s what they said about Nokia which is now an also-ran. Can you name one Nokia model that did not come out 10 years ago? Have the kids even heard of Nokia which was nearly ubiquitous barely 10 years ago? Not even Samsung is safe anymore, with profits dropping there in recent quarters.

The basic problem is that it's hard for all the Android and non-Apple non-Android(Windows phones, hello?) to differentiate themselves, meaning cutthroat competition and terrible margins. Peter Thiel has a point: competition is for losers. All hail the elusive dream of every company: having a virtual monopoly. At this point, Apple seems to be  competing with….Apple. Unless Samsung launches another strong assault on the premium segment of the market, it will forever struggle to catch up.

What about Chinese upstart Xiaomi? Its too early to say definitively. Xiaomi seems to have figured a way to make decent profits on cheap phones, but it remains to be seen whether the trend will continue, with the competition being relentless.

Will Apple be the last cellphone making standing when it’s all said and done?

 

The Trump Guide to Startup Success

  1. Refuse to bow to conventional wisdom.

  2. Your competitors are all total jokes. See 9.

  3. Act like you don’t need that VC money because, well, you're your own man or woman.

  4. Anyone who doesn’t buy into your awesome vision is clearly a loser.

  5. The name is everything. Everything. Choose wisely, then plaster it on everything. Everything.

  6. Tweet relentlessly.

  7. Be ready to fire employees, suppliers and anyone who pisses you off without blinking. Even better, make them duke it out in a board-room style fight to the death.

  8. Controversy is good for the soul. Negative press is a huge plus, always.

  9. All competitors are losers who must be crushed.

  10. Never admit defeat (even as you scramble behind scenes to retool).

  11. Be your products best promoter. Your product is always the greatest, ever.

  12. Bankruptcy/ failure is a temporary speedbump on your way to success. Spin it to show how you still came out on top e.g. by screwing over all those useless investors.

  13. Have a weird hair style. It helps. Adds brand value.

  14. Super confidence covers a multitude of faults.

  15. Constantly mention how much your startup is valued at. Feel free to inflate the figure upward . Produce a ton of indecipherable documentation to confuse everyone.

  16. Repeat at every opportunity that your startup is the best jobs generator that God created.

  17. Negotiate like a bulldog. Literally.

  18. Past performance is not an indicator of current nor future performance. Obvi.

  19. Ditch previous offerings/products that are no longer an asset. Pivot like crazy. Everyone does it so what?

  20. #MakeStartupsGreatAgain.