Grant

[Grant @kocodude]

@ragaco30 @brunbitty 🤯 this is great

[Grant @kocodude]

@AndrewMarchand no warriors 😔

[Grant @kocodude]

@NBAMuseAcc How is klay third tier… wild

[Avichal Garg - Electric ϟ Capital @avichal]

The @carta debacle provides obvious lessons about how not to communicate.

It also provides some non-obvious product strategy & leadership lessons.

The situation reminded me of mistakes I've made as a founder, investor, and during my time at @facebook:

* Lesson 1: Incentives will lead employees to do dumb things at scale; founders cannot count on good judgment.

* Lesson 2: Trust first erodes, then implodes (and might kill your business).

* Lesson 3: Raising at too high a valuation makes organizations do unnatural things and employees are the ones who suffer most.

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Lesson 1: Incentives drive employee behaviors, not good judgment
--
As a founder or early team member, you will exercise good judgment. Any good founder knows to not read a private cap table from a startup and then email investors in that company.

Unfortunately, the 50th salesperson you hire or a typical mid-level growth marketer probably has mediocre judgment about these things.

At best, it may not occur to them from their narrow slice of the world that cold emailing investors in a startup who did not opt-in to receiving that email is a bad idea. And it may not occur to the head of product or VP of engineering that they should encrypt and lock down all of the data because they don’t understand sales incentives. They know how to do their functional job and often don’t have a great sense of how all of the components of the business fit together, so they will act in line with their incentives.

Hitting sales targets is an incentive. Shipping new product features is an incentive. Growth is an incentive.

If there is no incentive for safe-guarding user data, preserving privacy, or locking down data, then it becomes fair game for people inside the organization to use this data to achieve their objectives. This may not be what the founder had in mind but it is how incentives work.

Not understanding that incentives drive behavior is a leadership failure, so there is no excuse for it.

This means that a good founder/CEO/leader has to make sure to create incentives for things that people with good judgment would do intuitively, and make sure there are not inadvertently opportunities for people to do the wrong things. It's exhausting.

Unfortunately if a company mis-designs these incentives, the consequences are often borne by customers.

Takeaway: Your culture is what you reward. Be paranoid about how your incentives could be exploited and compromised.

--
Lesson 2: Trust erodes, then implodes
--
If you make multiple mistakes around safe-guarding data, poor hiring and poor management, and erratic communication, users and customers will notice. Each incident may not result in a measurable hit to trust, but over time and in aggregate it shows up in the metrics through lost market share.

We learned this lesson the hard way as Facebook killed its brand in the 2010s. Facebook made a number of privacy and trust mistakes, the FTC got involved (multiple times), and there were frequent blow-ups in the press. Certain users slowly reduced their engagement as Facebook eroded trust in qualitatively measurable ways.

But whenever we measured trust, it did not show up in survey data or in engagement data. Growth seemed fine. But eventually people got fed up and went to new products like Instagram and Snap. And when this happened, it happened extremely quickly.

At first, it looked like trust was just eroding but eventually it was clear that trust had actually imploded. It just manifested in people voting with their feet, and by then it was too late. Facebook dodged this by buying and building out Instagram and WhatsApp. But imagine if they had not been able to acquire those companies. What would Facebook be today?

Creating a culture that prioritizes user trust is challenging. It requires saying no to revenue and slower growth. It requires trusting qualitative data in addition to quantitative data. It requires trusting designers as much as salespeople.

And if you lose trust, every part of your business will face headwinds forever. CAC goes up. LTV goes down. Retention goes down. Employee retention goes down. If you are a de facto monopoly or a business with crazy network effects, you may be able to get away with your customers not trusting you.

The most common remedies via rebranding or small acquisitions that are eating up market share are increasingly challenging in today's regulatory and social media driven environment. For example, I doubt @facebook could have acquired @whatsapp or @instagram today. And there's a reason the company is now called Meta.

For most companies, repeatedly eroding your customers' trust in you is a great way to destroy the business over time.

Takeaway: The founder has to empower people across the company to invest in features and processes that build rather than erode trust with customers. This requires putting leaders in place who will not compromise on behaviors that erode (and eventually destroy) trust.

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Lesson 3: Raising at too high a valuation makes organizations do unnatural things and employees are collateral damage.
--
The Faustian bargain that founders make in order to receive large sums of money from VCs at high valuations is that they must grow into those valuations by any means necessary.

This results in companies prioritizing growth above all else. Sometimes this means a company takes on initiatives that are fundamentally misaligned with its customers' objectives. In the case that prioritizing growth and new initiatives above all else works out, you create issue #2 above where you erode trust. Sometimes you can get big enough, quickly enough that you can balance giving up a little trust to get there.

Many times it is simply not possible to outgrow a small TAM or niche. I made this mistake in my first startup (in edtech).

If you cannot grow into your valuation, you have a BIG internal problem around employee compensation and retention. This is nuanced and far too few employees understand the consequences of this until it's too late.

The 1st problem with raising too much at too high a valuation, is that you may have a liquidation preference on the company that substantially eats into any sort of sizable acquisition. If you raised $500M and you sell for $500M one day, the investors get $500M back first. Employees get 0.

The 2nd problem is that employees start to look at the actual growth rate of your business vs. the valuation, and very quickly realize they could be at a different company that is growing quickly and will exceed its valuation from the last round. They would make a lot more money by leaving your company instead of trying to get more underwater options at your company.

Your best people leave first, and once they leave, you have a death spiral as great people all flee the company.

Many founders who raised big rounds in 2020/2021 are learning about the consequences of not being able to grow into their last round's valuation right now -- see the recent news from Pitch (wishing them well btw!). The companies that raised at monster valuations are now incentivized to do unnatural things, often at the expense of their customers. And many will soon realize that their best people are going to leave because the company can't overcome its liquidation preferences + last round price, which may force them to do even more unnatural things.

What this could mean for many employees and founders is that what would have been a life-changing amount of money with an appropriately valued company, will instead turn out to be options worth $0 in a company buried under liquidation preference. Investors will be the first to get their money out. And most employees walk away with very little.

Takeaway: Be paranoid about raising too much, too quickly, at too high a valuation. It feels good in the short-term and might kill your company in the long-term.

--
Disclosures: I am a shareholder in @pulley, @carta's largest competitor (also disclosed in my bio).

Also this is not financial advice. In general, don't take advice from strangers on the Internet.

[Yin Wu @yinyinwu]

1/ Switch to @Pulley by end of Jan and we will discount our cost by the balance of your existing cap table contract so you don't have to double pay.

Migrate with a few clicks and in less than a week.

Why make the switch? What makes Pulley different?

[Grant @kocodude]

checking into 2024 with clarity of purpose - happy new year!

[Yin Wu @yinyinwu]

Congrats to all the founders in the midst of @ycombinator S23!

First time founders obsess over the product. Second time founders obsess over distribution & sales.

Here's what I learned about founder lead sales to close @pulley's first $1m 🧵

[Grant @kocodude]

@Htdub_RR_OO @ClutchPointsApp And Lebron has never beaten curry without Kyrie?

[Yin Wu @yinyinwu]

Most founders only optimize for valuation when fundraising.

This a mistake.

You can work on a startup for years, sell for millions, and walk away with nothing if you fundraise on poor terms,

Here are terms you should know when raising to protect your upside 🧵

[Grant @kocodude]

@realnikohouse @sadboyraleigh @KevinOConnorNBA @ShamsCharania @TheAthletic You are spouting nonsense. Stop it.

[Grant @kocodude]

@Princedommm @TheAthletic @ShamsCharania @ThompsonScribe What are y’all watching 🤦🏾‍♂️ Just because Klay has a bad shooting night does not make for a below average game.

[Grant @kocodude]

@porcelainlyricz @liammcdaid05 @phishphood44 @tre_the_king_ @TheNBACentral 💯

[Grant @kocodude]

@Cron Congrats to the team!

[Grant @kocodude]

@Ericdsportsfan @KeyJayandMax Just. No.

[Grant @kocodude]

@ChiTownHB @BillSimmons This logic has lost me.

[Grant @kocodude]

@bayharbor850 @ESPNNBA @stephenasmith If PG is about passing then is Magic. If it’s playmaking it’s Steph.

Magic used his passing to play make.

Curry bends the defense with gravity and off ball movement. The impact is at worst equal and at best 73-9 wins (without KD).

[Grant @kocodude]

@acorapi20 @ESPNNBA @stephenasmith More impact than both arguably.

Equal success to Lebron and less than Jordan objectively.

[Grant @kocodude]

@DrGuru_ As a basketball player in an individual sense? Probably top 20.

As a member of a basketball team on the quest for a championship? Top 3.

[Grant @kocodude]

@LakersPOV @warriorsworld Get ready for the 5th ring. One for each finger.

[Grant @kocodude]

@Matthews1526 @shyeuros @warriorsworld Preach!