Life is cumulative. It unfolds in a geometric progression and therefore, the timing of your initial wins has a major impact on future outcomes down the road.
Met someone earlier this week who has had a bunch of major outcomes as an angel investor. This sparked my curiosity and I asked him about his backstory and career trajectory. Turns out these venture outcomes were a result of a series of parlays and things coming together over a decade-and-a-half:
He was early at a leading startup in the mobile supercycle, which was acquired by a BigTech in a marquee transaction. He continued at the BigTech for a few years (which in hindsight, was still relatively small at that stage), thus rapidly compounding both his net worth and network.
His spouse was an early engineer at a now-leading BigTech, then left to become an early engineer at a startup that was acquired in another OG marquee transaction. Through this journey, she also built a deep relationship with one of the OG Tier 1 venture firms in the Valley.
The couple used the capital acquired from this track record to start writing angel checks. Alumni of all the companies they worked at gave them access to some of the best deals.
The guy also went on to join a venture firm later, which further added to his creds and network.
Essentially, as a direct outcome of their early individual successes, this couple benefited from a self-compounding flywheel of relationships and capital. Pooling these assets as a married-team further magnified their impact. To their credit, in addition to being highly capable, they had the hustle, risk appetite, and foresight to keep taking shots at various opportunities that came along their way.
Btw, this story is not that uncommon in Silicon Valley. Though the extent of financial outcomes might vary, I know of many such stories where people have benefited from similar flywheels in their tech careers. In fact, this is one of the things that makes the Valley a unique place as there is an adequate density of talent, capital, networks, positive intent, and implicit trust within a small geographical region, which enables such flywheels to take shape in people’s lives. PS: I had written about this idea in my post ‘The Success Flywheel‘.
This story also highlights the importance of something I think about a lot, even from reflecting on my own career – there is a massive advantage to putting points on the board early on in life.
Life is cumulative. It unfolds in a geometric progression and therefore, the timing of your initial wins has a major impact on future outcomes down the road.
Mark Spitznagel, famous tail-risk trader and Taleb’s Partner at Universa, talks about this concept in the context of financial portfolio management and risk mitigation in his book ‘Safe Haven‘.
We are not a casino, or a portfolio of our distribution of possible simultaneous returns. Rather, we are one wager compounded through time. We only get one chance, and, if we shine a bright light on that, we will avoid many mistakes—start thinking about the right things, with a better internal valuation metric: making sure this chance maximizes its chance.
The idea is simple but powerful – having early wins enables the player to parlay the fruits of that win into the next opportunity while also having a long enough time runway for significant geometric compounding.
Being in the right zipcode like Silicon Valley in tech or NY in finance, also provides a large enough sample set of opportunities for continuous parlaying as well as high rates of compounding given the inherent leverage in these ecosystems.
This idea also makes the case for why students try so hard to get into Ivy Leagues, or why VCs try their best to get into prominent logos early in their track records. It also frames the competitive advantage folks get by starting as a fresh undergrad Analyst at Goldman, engineers who joined Google in the mid-2000s straight out of college, or those in their 20s joining OpenAI right now. The difference in getting these early wins starts showing up a decade later when the slope of the curve of these folks is markedly steeper than those who didn’t.
Of course, logging early wins isn’t by itself a sufficient driver or a definite leading signal of holistic success later in life. Everyone has their own unique journey and has to walk their own path. Still, given the sheer leverage these early points provide, it’s worthwhile to have this at the back of your head while executing your career strategy.
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Sharing my experience of uninterrupted weekly writing for a year, as well as general reflections and learnings from 2023.
Ahh…writing the last post for 2023. I intend to take a break for the next 3 weeks and recharge my writing brain. Hopefully, it makes the posts next year even better!
First, I want to thank all my readers out there for supporting An Operator’s Blog. Late last year, I committed to writing every week about my observations and learnings related to Building (startups), Investing (venture capital), and Life (parenting, marriage, and urban mid-life,) and doing it as candidly as possible. The idea was to share research, notes, experiences, and anecdotes from my life, in the hope that each post helps at least one person in their quest for seeking answers.
I had no way to predict (and still don’t!) what the reader persona of this blog would find useful and entertaining. Hence, I used the golden rule of creativity – create for yourself first. Each week, my endeavor has been to write about things I personally find interesting, covering topics I have a natural curiosity about.
Standing today, I can see that this blog has become some unique mix of a personal journal, professional notes, analysis memos, whiteboard, and scratchpad. I don’t know whether this is ideal or not, but am consciously not forcing a specific structure on it. I try and follow my natural flow of curiosity, keeping the writing as organic as possible. Hopefully, it then has a better shot at resonating with a certain section of the audience.
Even with niche topics like venture capital, public markets, mental models, and building startups, An Operator’s Blog has touched ~7,000 active readers in the last year.
I also write a weekly newsletter where in addition to long-form posts, I share curated content, fresh ideas, and other thoughts to consider and reflect on. The subscriber base now includes some of the top founders, investors, and operators in their respective areas. PS: if you find this intriguing, subscribe to the newsletter here.
This traction, combined with the qualitative feedback I regularly receive, tells me there is something of value here. Some of my friends have asked how I manage to gather the energy to write about diverse and intense topics every week. The secret is the above – getting feedback from readers about how a particular post impacted their thinking is the ultimate reward.
An Operator’s Blog is both my product and my art. One of my core life pursuits is to keep improving it and with each new post, make it more useful and interesting for you.
Closing out this year’s last post by sharing my top 15 personal and professional reflections from 2023. Just something for you to chew on during the holidays!
#1 Interest rates impact our lives much more than we imagine.
#2 Operating under scarcity leads to better capital allocation decisions.
#3 Entry price matters in venture investing.
#4 No one is going to share their best deals with you. Having your own proprietary deal flow is critical.
#5 Attending events is unscalable, yet extremely high ROI.
#6 When the sun is shining, make sure you make hay. The clouds are always around the corner.
#7 The best way to sell is to “not sell”. Instead, do Inception.
#8 Children don’t do what they are told. They do what they observe.
#9 Everyone gives you money when you don’t need it. No one gives you money when you desperately need it.
#10 The best things in life happen organically. Let the natural flow of life take its course.
#11 Charlie Munger’s quote: “The key to happiness is low expectations” is unbelievably true.
#12 Having a high income isn’t enough. The key to wealth creation is owning assets.
#13 It’s important to start early to ensure you are on the right side of compounding in anything.
#14 A good way to bond with new people is to be genuinely curious about their journeys.
#15 Even the smallest achievements of your child give unmatched satisfaction to the soul.
Wishing you all a happy new year. See you in 2024!
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Is our life a game of Chess or Monopoly? Can we use our skill to control outcomes, or are we at the mercy of luck?
I layer the work of Michael Mauboussin on top of my own life experience, to understand modern reality and suggest ways we can tilt the playing field in our favor.
Since entering 1st grade, my older son has been really into two different kinds of games – Chess and Monopoly. As expected, I am his default opponent whenever he feels like playing either one. Especially on weekends, when he assumes I have nothing better to do anyway!
Anyway, I have noticed an interesting behavioral pattern over many weeks of playing. While my son hates losing in general (need to rewire him on that), he is relatively calmer in accepting defeat at Chess. But when he gets defeated at Monopoly, he totally loses his marbles.
After experiencing several instances of this behavior, I had to ultimately sit him down and explain how Chess is a game of skill while Monopoly is a game of luck. Of course, it’s hard for a 6-year-old to understand the difference, but I think he got the gist of it when I told him the difference between thinking through a Chess move and rolling the dice in Monopoly.
This explanation seems to be working so far. While it helped restore a much-needed weekend peace in my household, it also brought me back to the ‘Skill-Luck Continuum’ framework by one of my favorite finance practitioners, academic and author Michael Mauboussin. Both as a parent and venture investor, I feel this is a good opportunity to do a refresher on MM’s work untangling skill and luck, as well as apply his lens to my own life experience.
Straight out of a dictionary, skill is defined as the ability to use one’s knowledge effectively and readily in execution or performance. Essentially, having perfect skill means the ability to re-create the same performance each time across repeated rounds of a game.
Luck, on the other hand, is much harder to define. The dictionary defines it as a force that brings good fortune or adversity or favoring chance. However, I like the 3 conditions outlined by Mauboussin, that need to be satisfied for luck to be at play:
1/ Operates for an individual or organization.
2/ Is either good or bad.
3/ It’s reasonable to expect that a different outcome could have occurred.
An awesome thought test by MM for this is – “Can you lose this game on purpose?”. If it’s 100% yes, it’s perfect skill. If not, there is definitely some luck involved.
B. The Continuum
All outcomes in life are a mix of skill and luck. So all professional and personal games that we play can be plotted on a skill-luck continuum, with the extreme left being 100% skill and the extreme right being 100% luck. Anything in the middle is a blend.
C. Insights from the Modern World
MM highlights the following insights regarding the interplay of skill and luck in today’s world:
1/ Outliers require both extreme skill and extreme luck – that’s when the likes of Michael Jordan, Bill Gates, and Warren Buffet become what they did.
2/ Mean-reversion* – on the 100% skill side, there is no reversion to the mean. On the 100% luck side, there is a complete reversion to mean.
*Mean-reversion means an outcome that is far from average will be followed by an outcome with an expected value that is closer to the average.
3/ Paradox of skill – in the modern world, as skill improves, the role of luck becomes even more important. Across diverse areas such as sports, business, and money management, it has been observed that the difference between the very best player and the average player has been steadily going down compared to the previous generation. For eg., in the Olympic marathon, the time difference between the 1st place and the 20th place has come down from ~39 mins in 1932 to 5-7 mins as of today.
Standard deviations of baseball batting averages, managers generating excess returns over the benchmark, and the quality of physical or digital goods have all been steadily declining.
Absolute skill has never been higher while relative skill has never been narrower, thus increasing the role of luck in the modern world.
4/ Convexity in payoffs – convexity means for a small change in quality, there is a huge change in payoff. From tennis grand slam prize money to Big Tech market caps, the modern world is littered with winner-takes-all dynamics wherein the gap between the payoffs of the #1 and #2 ranked players is really wide, even though their absolute skills are relatively similar.
D. Suggested Approaches For Skill vs. Luck Games
MM recommends the following two approaches for each end of the continuum:
Iterate by running small experiments (check out the Business Model Canvas by Steve Blank).
Invest in inefficient markets.
Have an adequately diversified portfolio.
E. Applying to My Life Experience
Let me plot various games from my own life on MM’s skill-luck continuum:
1/ Writing
In any creative field, it’s extremely hard to pick winners. J.K. Rowling was rejected by multiple publishers. Classics like Star Wars and Jurassic Park initially struggled to get greenlit by studios for several years.
An exec at Time Warner had this to say during a guest lecture in MM’s class at Columbia Business School:
We have no idea what’s going to be a hit. We try and run numbers, or apply formulaes, but we really have no idea whether it will work.
Exec at Time Warner
While writing as a creative art is mostly a skill, luck also plays a role in what eventually becomes popular. For eg., even an average work of a popular author will generate more sales than the great work of an unknown author (check out my post ‘The Success Flywheel‘ for more on this phenomenon).
My approach: focus on Practice. Put in reps and continuously learn from observation and feedback.
2/ Venture investing
Classic early-stage venture capital (in today’s terminologies, that would be anything from pre-seed to Series A) is ruled by power laws (see my posts ‘Conviction vs Randomness in Venture Investing‘ and ‘Only Need To Get a Few Right!‘ on this). Given the high levels of uncertainty at this stage of company building, the eventual outcome is a widely distributed set of probabilities. Ergo, picking is really hard.
Data also corroborates this view. In this Venture Unlocked podcast by Samir Kaji, Miriam Rivera of Ulu Ventures cited data from Horsley Bridge that shows for the absolute top-tier of funds like Sequoia and Benchmark, a mere 4.5% of their companies have generated ~2/3rd of all their returns.
Of course, the track record of funds like Union Square Ventures and Benchmark where they have repeatedly beaten benchmark returns across decades of multiple vintages, also suggests that some VCs have more skill than others.
If I had to put venture capital as an industry on the continuum, I would give a higher proportion to luck relative to skill in the blend.
My approach: focus on Process. Respect power law. Identify and double-down on your ‘edge’. Take enough shots at the goal. Ensure asymmetric upside (when you win, you win big).
3/ Public market investing
I have no hesitation in calling myself, as well as many of my successful peers, major beneficiaries of the post-’08 ZIRP decade. For cusp Millennials like us, our peak career years coincided with a never-seen-before era of loose monetary policy, leading to a worldwide economic boom and asset inflation. I am not sure if I will see another decade where the economies of the US, China, and India are all ripping at the same time.
Of course, there was still some skill at play wherein a few were better positioned than others to take advantage of this wave, and they did. But still, a rising tide lifts all boats, as everyone who worked in tech over the last decade would testify to.
With respect to public markets, I totally agree with what Howard Marks says in his 2014 Memo ‘Getting Lucky‘:
But in investing, it’s hard to know what will happen and impossible to know when it will happen. Many things influence performance other than (a) investors’ hard work and skill and (b) the market’s dependable discounting of information about the future. Luck-randomness, or the occurrence of things beyond our knowledge and control – plays a huge part in outcomes.
So, while the inherent randomness in the world ensures that successful investing requires significant luck, a skillful investor is right more often, over a long period of time.
My approach: focus on Process. Acknowledge how hard it really is to beat the index. Respect randomness. Act as a permanent owner of businesses. Benefit from compounding. Remember that you only need to get a few right.
4/ Parenting
This is the hardest game to analyze. As parents, we all strive for control – the ability to craft, almost guarantee, our kids’ destiny. We read books, talk to other parents, listen to podcasts, hound teachers, and constantly iterate on what is and isn’t working. We continuously gather skills and tools in our yearning to discover the ‘playbook’.
The reality, however, is much harsher. There is no playbook for nurturing humans. There is just too much unique context, too many variables, too many uncertainties, too many externalities – basically, too much randomness. In this dynamic, it’s essentially a fool’s errand to predict anything.
I loved a thought that I recently read on X, and which was also echoed by a few other parents in our school community – “parents can only hope to give a modicum of downside protection to their kids. They can’t guarantee the upside”.
Approach: focus on Process (and Philosophy). Acknowledge the uncontrollables. Let it be organic.
F. TL;DR
Layering the work of Michael Mauboussin on top of my own life experience, here’s what I am netting out to on this topic:
All games in life are a blend of skill and luck.
The modern world is highly random and the future, for the most part, is unknown and unknowable.
Ergo, barring a few specific games, most of modern life is highly influenced by luck.
On top of this, payoffs are getting increasingly convex, courtesy of power laws.
Work to discover your ‘edge’ and back it up with deliberate execution that tilts the odds in your favor just a little bit each day.
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Here are some insightful ideas & quotes from Munger that stayed with me from David’s experience:
1/ Buy wonderful businesses at fair prices
Before Munger joined Berkshire, Buffet used to invest in Ben Graham’s “cigar-butt” style – buying super-cheap stocks, often trading below book value.
Munger gave him a new blueprint: “Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices”. This is what led to Berkshire becoming the compounding machine it is today.
2/ Cash is king
Through a company called Blue Chip Stamp, Munger & Buffet learned about the value of “float”- excess cash that a business throws up due to the timing difference between receiving payments & settling payouts. This excess cash could then be re-invested in profitable companies.
Through his early investing experiences, Munger started seeing the advantages of investing in better businesses that didn’t have big capital requirements and did have lots of free cash that could be reinvested in expanding operations or buying new businesses.
Munger advises keeping enough cash at all times, in order to take advantage of stock market crashes.
We made so much money because when the great deals came during an economic crisis, we had cash and could move fast.
Charlie Munger
3/ Acting on the few big ideas that matter
Munger says that very few times, you will be presented with an opportunity to buy a great business run by a great manager. Not buying enough when presented with this opportunity is a big mistake.
You have to be willing to act when the right opportunity comes along. ‘Cos great opportunities don’t last very long in this world.
Real wealth is created via concentration. Or to put it in another way, over time, one should expect 1-2 outlier winners to constitute a majority of the portfolio.
When Munger wrapped up his pre-Berkshire fund, Blue Chip Stamp accounted for ~61% of his portfolio.
Worshipping at the altar of diversification is crazy. One truly great business will make your unborn grand children wealthy.
Charlie Munger
5/ Chase unfair advantage
Competition is for losers! Why would you want to compete with people?
Some quotes from Munger on this:
“My idea of shooting fish in the barrel is to first drain the barrel”.
“Only play games where you have an edge”.
“Differentiation is survival”.
“Aim for durability”.
Munger talks about how size and market domination has its own kind of competitive advantage. When a company is deeply entrenched with customers, it acts as a deterrent for other players to enter the space.
Sectors that are generally considered to be “bad businesses” (eg. retail, textile, airlines etc.) are intensely competitive. Players beat each other over price and drive down profit margins for everyone, killing cash flows and bringing down chances for long term survival.
That’s why Berskhire looks for great businesses that have a durable competitive advantage.
Mimicking the herd invites regression to the mean.
Charlier Munger
6/ The power of Compounding
Find an exceptional business where underlying economics are going to keep increasing its value, and then hold on to it over time.
Quoting Munger – “Time is the greatest friend of an exceptional business. It’s the greatest enemy of a mediocre business”.
Compounding also works in knowledge. Munger gives an example of how over 50 years of consistently reading Barrons, he found just 1 idea worth investing in but that made him $80Mn, which he then gave to Chinese fund manager Li Lu, who turned it into $400-500Mn!
7/ The value of Rationality
To quote Munger:
“We don’t let other people’s opinions interfere with our rationality”.
“Life is like poker. You have to be willing to fold a much loved hand when new info or facts come to light“.
“It’s remarkable how much long term advantage people like us have got by trying to be consistently not-stupid, instead of being highly intelligent”.
8/ Focus is a super-power
Munger says:
“I succeed because I have long attention spans. People who multi-task give up their advantage”.
“You will always lose in a race to that one guy who sacrifices everything he has in service of one idea”.
“Extreme specialization is the key to success”.
“Intense interest in a subject matter is super powerful”.
He cites examples of how great companies tend to focus on optimizing one specific lever in their business:
Costco – optimizes costs
Geico – optimizes distribution via direct-to-consumer
Nebraska Furniture Mart – optimizes price for the end customer
What’s the one thing that both Warren Buffet & Bill Gates said was the key to success? Focus!
9/ Frugality drives value
Munger cites one common quality amongst all Berkshire businesses – they will go to great lengths to keep operating costs low. Even Berkshire itself demonstrates the same behavior:
It has no PR department.
It has no investor relations office.
For many years, its annual report was published on the cheapest possible paper & had no expensive color photos.
10/ Brands are magic
Munger says – “A great brand is a piece of magic”.
Brands like Coca Cola & See’s Candies have a piece of a consumer’s mind & therefore, have no competition. Charlie calls them “consumer monopolies”.
A lot changed the day Berkshire realized the power of brands.
11/ Business plans are useless
Munger says Berkshire has no master plan – “We always wants to be accounting for new information. We are individual-opportunity driven. Our acquisition style is driven by simplicity”.
He shares an interesting anecdote. When Mrs. B (Rose Blumkin), Founder of Nebraska Furniture Mart, was asked about having a business plan, she said – “yes, sell cheap & tell the truth”.
12/ Patience is rare
Human nature is all about being impatient. People just can’t sit around, waiting patiently. They want to feel useful. So they end up taking action and doing something stupid.
13/ Learning from mistakes is crucial
Learning from history is a big form of leverage. The biggest financial disasters get forgotten in a few years.
Munger says:
“Wise people step on troubles early”.
“Every missed chance is an opportunity to learn”.
“Be willing to take life’s blows”.
I love rubbing my nose in my mistakes. It’s an extremely smart thing to do.
Charlier Munger
14/ It takes many, many attempts to find your life’s work
For context, Munger started working on Berkshire in its current form only in his 40s.
15/ Finally, lots of life advice…
“Build relationships with A players”.
“Problems are a part of life. So why are you letting them bother you?”.
“The best way of reducing problems is to go for quality – Go for Great!”.
“It’s the strong swimmers who drown”.
“Envy has no utility. The key to living a well-lived life is killing envy”.
“The best armor for old age is a well spent life preceding it”.
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Fred Wilson recently wrote a great post on how WeWork’s botched IPO exhibits the stark differences between public and private markets.
As a founder, my major takeaway from the post was that one needs to be crystal clear on the type of company one is building. That should reflect in how you build, take it to market, price, capitalize, grow and eventually exit. North Star Metric reflecting all these being (gross & operating) “margins”.
Fred’s post also offers some critical insights for tech investors. It’s imperative that investors understand what is really the “type” of business being evaluated — differentiation, pricing power, cost of customer acquisition, scalability etc, all ultimately getting reflected in gross & operating margins. Smart investor behavior dictates peeling the onion significantly on all these issues.
Any business solving a real problem for the world, and if executed on well, has “value”. It isn’t about Uber, WeWork or Peloton being good or bad. They are solving a problem and that’s why customers use them. The key is to value them appropriately, based on fundamentals.
As Graham/Buffet say — “any company can be a good buy at the right price”. That’s why people invest in junk bonds, distressed assets etc. The challenge is in figuring out this “right price” in private markets, where information availability is significantly lower. At these stages, there is no perfect pricing mechanism, no feedback loops, no liquidity to correct mistakes.
Unlike public markets, private markets are driven by a bunch of individuals and not “Mr Market”. They are full of irrationalities, driven by emotional drivers like FOMO, personal passions, vision-over-fundamentals etc. Private market valuations aren’t driven by sound financial theory like DCF, Comparables etc. There just isn’t enough data!!
Imagine as a VC, a solid founder coming to you with a disruptive vision but not much execution. Your instinct (“heart”) says this could be big. How do you value this company? In absence of data, your estimate of value will have no choice but to be driven by 1) your “heart”: conviction and how badly you want it, 2) “buy-sell” dynamics: how much are others willing to pay relative to you and 3) comps from past experience. Though sub-optimal, this isn’t particularly bad as, in absence of data, you need some basis to value these companies, so they get funded and execution continues. That’s how game-changing companies will be built.
To summarize,
Valuing assets in public vs private markets is drastically different.
Due to lack of data, private markets value companies based on emotion+past experience+buy-sell dynamics.
Therefore, a valuation reset when IPOs happen should be expected more often than not.
The best private market investors get it right more often, despite playing at the mercy of emotional drivers and market externalities.
This public-private valuation contrast will always exist.
Sustainable, well-run businesses will withstand, adapt & survive.
“Contrarian” is one of the favorite words of Silicon Valley. Investors want to be contrarian in their picks, founders want to be contrarian in their ideas, employees want to be contrarian in the company they choose to join. In today’s age of near-perfect information flow, one has to be a contrarian to generate any sort of “Alpha” as a professional. This is in terms of both spotting opportunities, as well as timing your entry and exits. Of course, just being contrarian isn’t good enough. As Howard Marks (legendary value investor and Founder of Oaktree Capital) cheekily says, “you have to be a contrarian…and you have to be right!!”.
Over my career, I have made several moves that, at least at the time, I thought were fairly contrarian. Left a Partner track VC job to move to the Bay Area and start from scratch as a startup operator in a brand-new ecosystem. Had 2 startup offers — one from a pre-IPO enterprise software company and other from a maverick Series B startup trying to beat Google in search; joined the latter. Left a meaty role at Alibaba to start Workomo at a tricky mid-stage of my career. Invested in several companies at Operators Studio, where the businesses were (and are) considered “unsexy” from a VC perspective. Whether the above moves turn out to be right or wrong, I need a decade more to find out 🙂
Am a believer in what Robin Sharma says “if you do what everybody else is doing, you will get the results that everybody else is getting” (which is, being average). Through-out my career, I have consciously sought risk and tried to keep myself uncomfortable.
Since early 2018, when I started institutionalizing the Operators Studio investing thesis as well as ideating for my startup, I noticed something interesting. When I discussed some of my previous contrarian moves with friends & colleagues, while they perceived them as “hard to understand” or “highly risky”, I was able to naturally see those opportunities as “an obvious gap” or “the downside is really quite limited”. Clearly, these choices were taking me down a different path compared to my peers, and therefore, perhaps I was being contrarian in spotting & evaluating those opportunities. But I hadn’t articulated the mental model that I was intuitively using while making those decisions.
Over last year or so, I have tried to de-construct the above decision-making process, and then put it together again to arrive at what I call my “Zone of Real Contrarianism”. One caveat — this is my deconstruction of how I attempt to act in a contrarian way during big decisions. Not claiming this as a universal mental model but perhaps, you might derive some value out of it.
The diagram is pretty self-explanatory — to me, real contrarianism is at the intersection of what you have really high personal conviction on, and what the majority are unable to see or agree with. However, it’s important that your personal conviction is:
Authentic — needs to come from an authentic place inside you; represents your personality, values, ideals, and what you stand for (not copied or overly influenced/ inspired by others)
On-the-ground — original beliefs result from exhibiting skin-in-the-game in this world; being out there, understanding & playing the game (not deriving ideas & conclusions from being a desk-jockey or paper-pusher)
Execution-led — observing your environment as you execute; the unpredictable, unplanned & idiosyncratic nature of execution makes it a prime breeding ground for non-obvious ideas & gaps
Nassim Nicholas Taleb defines complex systems as where the behavior of individual elements doesn’t explain the behavior of the collective or the ensemble (eg. while people are individually sane, they are prone to exhibiting irrational mob behavior as a collective). My thesis is that due to this very nature, complex systems are a gold-mine for contrarian ideas, provided you operate with skin-in-the-game in it. As a professional, I seek them out proactively (starting companies, venture investing, white space opportunities in large companies, operating in radically-new geographies & markets) to at least have a shot at generating career alpha.
Would love to hear your feedback on this mental model, and your thoughts on how to be a true contrarian in one’s career (& life).
PS: am currently building Workomo, a smart & simple professional relationships management hub for the new-age professional. If you find it intriguing, do sign-up for free private beta access.
I am really excited to kick-off 2019 by introducing ‘Operators Studio’ — my endeavor to invest in & support founders globally, by being with them in the trenches right from a really early stage. As you will see on the website, Operators Studio is all about “Backing gritty founders who are solving real problems “ — supporting innovative technology startups through early capital, deep operating expertise, global networks and a personal sounding board.
The Genesis
While I left my Venture Capital career 5 years back to become a full-time operator, I still wanted to keep that one element that I most enjoyed as a VC, in my life — partnering with entrepreneurs to solve really interesting problems and build innovation-driven companies that move the needle for the world. As I transformed myself from an ‘investor’ to a ‘builder’, I also started investing in startups in their angel/ seed rounds, supporting founders at a deep operating level, working with them through their biggest tactical & strategic challenges, as well as most importantly, being a friend & sounding board to them.
Over last 5 years, I ended up investing in & supporting >15 startups across the world, along with my full-time operating stints. As I travel on the path to discovering my own differentiated world-view, investing style and what really excites me both as an operator & investor, I thought this is the perfect time to institutionalize my efforts. Hence, Operators Studio was born!
2. How is the Operators Studio Mandate Unique?
In my experience as a VC, angel and tech operator across US, China and India over last decade, a key gap I have observed is that the entire business & venture environment leans towards only a certain kind of business — that which is attractive to institutional investors. This means characteristics such as potential ‘moonshots’, going after humongous market sizes (as per guesswork), exit potential that moves the needle for institutional funds, and aligning with trends in-vogue (AI, ML, AR, VR, Crypto etc.).
Due to these filters, an entire gamut of tech businesses that are solving true ‘operating’ problems for customers/ users, which are often unsexy and lag behind latest trends, get completely overlooked. By the way, in majority of cases, these customer-centric businesses are highly innovative in their own right, and can often be built to be economically-viable without overt dependence on external capital. And in the process, generate solid financial returns and entrepreneurial gratification for all stakeholders over the long term.
The Mission of Operators Studio is to back exactly these kind of companies — those that put the customer’s problems first, leverage practical tech innovation to solve them, and are founded by tech warriors — entrepreneurs who are visionary, humble, resourceful and believers in deep execution. It doesn’t matter if a space or product is considered unsexy, unattractive or out-of-trend by the financial ecosystem or media — as long as the company is solving a problem that matters for the world, customers/ users are vouching for it, and founders are willing to be in it for the long haul and build the company in a way that’s most suited for realizing their vision, Operators Studio will be a believer in it!
3. How does Operators Studio Add Value to Founders?
a) Early & “patient” capital — will mostly invest in friends & family/ formal angel/ seed rounds; will be flexible from a stage perspective (‘Day 0’ co-founders coming together, pre-PMF, post-PMF to even Series A and beyond).
It takes at least a decade for a business to realize its true potential. We take an “evergreen” approach, supporting founders for whatever time it takes for them to realize their vision.
b) Operating guidance — deep-dive product sessions, go-to-market strategy, hiring, user acquisition, customer introductions, pitch decks, investor connects, exit discussions.
c) Global networks — helping companies go global via access to market knowledge, business expertise and networks across the “tripod” — USA, India and China.
Operators Studio will be flexible from a mode-of-involvement perspective, as long as its Mission is being fulfilled — in addition to investing directly in companies, this could involve direct ‘Day 0’ incubation, becoming an LP in other funds to get access to the most-promising companies, partnering with high-quality accelerators/ incubators, collaborating with established tech companies to unlock synergies etc.
4. Why This Name?
I have consciously avoided names like ABC Ventures or XYZ Capital. Operators Studio stands for a fresh venture-building approach —to me, this name is very significant as it communicates key tenets of this approach:
Operators — looking for companies that are solving real operating problems for customers/ users, backing entrepreneurs that have a rigorous operating mind-set, supporting founders by adding operating value to companies, helping them work through on-ground operating challenges rather than giving theoretical advice.
Studio — rather than being a conventional investing entity or a personal asset allocator, the vision for Operators Studio is inspired from boutique movie studio models (the likes of Hello Sunshine founded by Reese Witherspoon; Blinding Edge Pictures by M. Night Shyamalan; or Color Yellow Productions by Aanand L Rai). Its ethos is based on how these studios operate — looking for a unique story (problem to be solved) to tell to a specific audience (target customer), assembling/ supporting a team that brings to the table diverse skillsets needed to tell this story most effectively (backing gritty, execution-focused founders) and executing at economics most optimized for the story to be delivered most efficiently (capital efficiency, driving optimal returns).
5. Active Portfolio
My entire portfolio of companies is now under the Operators Studio umbrella. Following are the companies (currently-active) we are proud to have backed so far (in alphabetical order):
1) Artifacia (Toronto/ Bangalore) — AI-powered platform that helps e-commerce brands create and manage shoppable photos
3) Hate2wait (Gurgaon) — queue management product for SMBs and large enterprises
4) Instashift (Estonia) — global peer-to-peer platform to buy/ sell cryptocurrencies
5) Lets Venture (Bangalore) — India’s most trusted platform for angel investing and startup fundraising
6) My Ally (San Francisco Bay Area) — world’s only AI Recruiting solution for fully Automated Interview Scheduling and Recruitment Coordination
7) Scandid (Pune) — eCommerce deals & price comparison platform, now offering omni-channel commerce solutions for the global travel retail market
8) 91Springboard (Delhi) — category-leading co-working space in India
9) Trailze (Tel Aviv/ San Francisco) — making tough-terrain outdoor navigation easy (hikes, trails etc.)
10) Tydy (Gurgaon) — global onboarding & training product suite for the distributed modern workforce, bite-sized+gamified
11) Widget (San Francisco Bay Area) — transforming images and documents into customer communication channels, all without apps, phone nos. or forms
12) Yulu (Bangalore) — re-defining urban mobility in India via smart dockless bike sharing system
6. The Future
Am super-psyched to grow Operators Studio as a passion-driven parallel track, along-side my main operating career. I see tremendous opportunities for using tech innovation to solve really interesting problems and build outstanding companies, in markets as diverse as US, India and China. At the same time, am excited at the growth prospects of the current set of portfolio companies, several of whom are already emerging as category leaders.
Whether you are a founder, startup employee, established tech exec, angel, VC or corp dev professional, am eager to connect with you — for feedback, to exchange notes, collaborate or just brainstorm. You can Email me, as well as connect with me on Twitter and LinkedIn.
I thank all the founders, startup teams, investors as well as other tech ecosystem professionals that I have had the privilege to work with over the past decade. Here’s to leveraging entrepreneurship + tech innovation to solve the world’s most pressing problems over the next 50 years.
PS: for more details on Operators Studio, check out our website.
Admittedly, I have been a bit behind my Silicon Valley colleagues & friends, in terms of ramping up on Blockchain & Crypto-currencies. Being deep in the eCommerce operating trenches, combined with frequent trips to Asia, has pretty much consumed all my bandwidth over last 2 years. However, with developments in the space evolving to levels that can’t be ignored, I finally decided to start researching on it.
Over last 2 months, I have studied all the core white papers (Satoshi et. al.), read numerous blogs by both the bulls and the bears, discussed it with numerous VCs in the valley, listened to many podcasts and seen numerous fireside chats on YouTube. While I got the mechanics of it early on, I have been waiting for my ‘aha moment!’ on it. All gigs throughout my career (IB, VC, tech startups) have pretty much involved ramping up on new sectors/ companies/ investment opportunities extremely fast (ranging from Oil & Gas, med-tech and enterprise s/w to search, eCommerce and logistics) and building an actionable POV. While furiously consuming content around these topics, there is always an ‘aha moment!’ I wait for. That point where I truly ‘GET’ the problem statement & the proposed solution in a very basic, first-principles kind of way. It just goes into my soul and from that point onward, I either become a strong ‘believer’ or ‘non believer’.
My ‘aha moment!’ on Blockchain & Crypto happened yesterday, while I was listening to this beautiful podcast by Andreessen Horowitz. I connected the dots between some of the points made in this piece, and some of my own learning and experiences. The following insights have turned me into a believer in Blockchain (& Crypto):
Users able to capture value that they helped generate in the first place — In all centralized marketplaces today (social, commerce, ride sharing etc.), it’s users like you and me that generate value for the marketplace (you and I post pics, buy and sell products, hail and give rides etc.). In these so-called “Supply-Demand” systems, you and I bring both supply and demand. However, think about it — do we really capture any economic or monetary value out of this (aside from the emotional utility)? I mean, I have been posting pics and content on Facebook for 10 years; in that period, Facebook has become a $500Bn market cap company. What has been my tangible gain out of it? Zilch! Of course, besides giving a social boost to my ego :). If the same products & systems are built on Blockchain, you and I would be rewarded with economic incentives (tokens, which can be used as so-called “currency”) for participating in them. Essentially, ‘supply-demand marketplaces’ will become ‘P2P networks’. The broker (read — companies that run these marketplaces), who took a fat commission for running the place (read — ad revenue, subscriptions, market cap), gets eliminated. Economic value, instead, accrues to users who are anyway, driving and generating value in the network.
2. Skin-in-the-game — I have been a big fan and follower of Nassim Nicholas Taleb, ever since my Investments prof. handed me a copy of ‘Black Swan’ 10 years back. Just finished reading his new book ‘Skin in the Game’ — this concept has always come naturally to me and something that I feel, is poorly understood in the venture ecosystem (implications for angel/ VC deals, advisory gigs, CEO comps, founder equity dilution etc.). Connecting the dots, decentralized networks create perfect skin-in-the-game’. You participate in the network, contribute value to it, help to keep it going, and for that, you get awarded economic incentives accordingly. In this scenario, you can’t blame a broker/ intermediary/ 3rd party for f**king things up. As Nassim Nicholas Taleb says in the book — “it’s much easier to macro bulls**t than micro bulls**t”.
3. Economically-viable biz models now possible for open source — open source has arguably been one of the biggest movements of human-collaboration and generosity in last 20 years. We wouldn’t know the Internet the way it is today, if it weren’t for OSS. Sadly, due to lack of economic viability of several open source projects, they have been typically run more as ‘academic’ or ‘enthusiast’ projects, rather than commercial ventures that attract the requisite talent and capital (personally for me, the decline of Mozilla has been extremely sad). This all changes via Blockchain-based projects, wherein the participants who contribute and drive the project, get economically rewarded with ‘tokens’. Also, as an investor or even just a supporter of a particular project, you can ‘invest’ in a project alone (no formal ‘company’ incorporation is required) via buying these tokens. The network driving these projects can now potentially raise institutional capital — as the protocols being created by these projects start getting traction, the tokens go up in value. The ability for open source projects to be transformed into commercial ventures that can attract resources, is huge!
4. Reverting to the ‘Tribe’ — human beings are essentially wired to operate in ‘Tribes’. Be it our desire to stay in communities, create social groups or even what we call “herd mentality”, the tribe manifests in all these ideas. At a meta level, I am viewing Blockchain as a tech manifestation of ‘human tribes’ — people getting together to build stuff & deciding how it should work and grow, and using the tribe to drive progress of humanity. It resonates with the basic DNA of humanity!
Is Blockchain the right technology for re-imagining every problem? Definitely not. Will crypto-currencies replace traditional fiat in near future? Probably not. Will Blockchain based systems completely replace traditional enterprise s/w? Looks unlikely, especially given its nascence and untested scalability.
Blockchain, or any technology for that matter, isn’t a silver bullet. But now that my ‘aha moment!’ has happened, I have at least started thinking around Blockchain & Crypto in terms of the “what-ifs?” and “why nots?”.
Closing words — real-life use cases, and not the technology itself, will decide the future of decentralized systems. Remember, use cases always….always win over just a technology!!
Bonus point on investing in crypto-currencies as an asset class — they are volatile, no-one can time them or predict future movements (for that matter, no one can also time the stock market, interest rates, inflation etc.), no one really knows which currency will survive after 10 years (you can see individual market caps to check out relative adoption as of today). Agree with all this, but I really like how Chamath Palihapitiya puts it — the beauty of crypto-currencies is that it’s completely uncorrelated to all other asset classes (like stocks, bonds, real estate, gold etc.). And as any finance guy will tell you, that’s a beautiful hedge to have in life. Just in case the world goes to s**t (the current financial systems almost got wiped out in 2008, and from what I see, the same risk-taking behaviors, derivatives, inflated valuations etc. are still around), even a small, really small allocation of personal networth in crypto-currencies could save the day!
What has been your ‘aha moment!’ on Blockchain & Crypto? Are you a believer, non-believer or ‘on-the-fence’? Do share your thoughts.
PS: Thanks Robin Sharma for educating me on the concept of Tribes and Naval Ravikant for inspiring me to ramp up on Decentralized Systems.
Disclaimer: the above views are personal and don’t represent those of any organization I am part of.
