Download the Future

Hi. I'm Frederic Kerrest, co-founder and COO of Okta, a public software company that specializes in enterprise identity.

And I'm Joshua Davis, co-founder of Epic Magazine, a media company that shares incredible true stories from around the world. Welcome to the first episode of Zero to IPO, a podcast that's going to take a look at startups, technology and entrepreneurship a little differently. Over the next 12 episodes, you're going to hear from some of the most successful, innovative and determined business people from Silicon Valley and around the world.

Our mission here is simple. We want to give you a real sense of what it's like to be in the trenches, day to day, while you're trying to take your genius idea that might change the world and turn it into a successful, profitable business.

In each episode, we'll look at a different stage in the growth of a company, and tackle it from a bunch of different perspectives. Successful founders have to be innovators, so we figured that the best thing to do would be to hear first hand how different people approached similar problems.

We're not trying to tell you how to do it or even how not to do it, but we're going to show you how some really successful people have done it, and also how they probably shouldn't have done it.

If you're thinking of starting a business or in the middle of launching a business, or even if you've already been through it and are looking to what comes next, we hope that you come away from this series, motivated, entertained, and most of all, inspired.

This is Zero to IPO. So after telling you what this series is going to be about, we're going to throw our own rules out the window for the very first episode. Today, we're going to be talking with Mark Andreessen, and only Mark Andreesen.

Mark isn't just any entrepreneur. And we figure, if anyone has earned an entire episode to themselves, it's him. He's the co-author of Mosaic, co-founder of Net Scape, co-founder of Ops Wear, and co-founder of venture capital firm Andreesen Horowitz. He's also the guy who penned the very influential op-ed, "Why Software is Eating the World in 2011". He's been an early investor in everything from Twitter to Bitcoin. He serves on the boards of Facebook, Ebay, Oculus VR and more. He's one of the most innovative people in the industry.

Part of what makes Mark so good at his job is his ability to look at the big picture. He's a devoted student of the history of technology, and knowing the past has helped him to make some excellent bets on the future. He knows a good idea when he sees one, so we figured, talking about ideas, good ideas, bad ideas, old ideas, new ideas, we figured this would be a great place to start our conversation.

We started out by asking Mark a really broad question. Is there even such a thing as a new idea? How often do you come across an idea that you're like, "I've never seen that before. I've never seen anything like it. That's 100 percent new". Or how often are they just re-configurations of other ideas?

It's really rare. So usually if something looks like a new idea, it's just 'cause you don't know the lineage of all the failed attempts that came before. So there's a pre-history to basically everything. Everything traces back, you think it's new, but it turns out there was a startup that tried it five years ago and ten years ago and 20 years ago and there was something in a lab 30 years ago and Leonardo DaVinci dreamed it up in 1575.

We've all just been recycling it.

There's tons of stories. And so as an example, television was actually invented in the late 1800s. Originally invented as mechanical television.

How did that work?

It was literally spinning wooden blocks.

What would it show though?

Not much. It was literally spinning wooden blocks representing pixels.

And how many pixels were on the screen?

Not a lot. I'm guessing it's something like 80 by 40 or something like that. And so basically what the contemporary accounts at the time were basically that if you squinted, you could occasionally [crosstalk 00:03:52] get an image of a person. But it was such an embarrassment, it was 30 years of complete failure and then finally the technology got to the point where you could do it electrical, electronic and then it worked. The fax machine was invented in the 1870s. It was invented in the 1870s, commercialized in the 1970s. The fax machine was invented before the telephone.

So why didn't it work in 1870? How much of it is a technical problem, like we're missing something [crosstalk 00:04:19] and how much is it a distribution problem? You can only fax to someone else who has a fax machine.

This is the problem. The first fax machine is useless. By the way, the first telephone is useless. The television set is useless. All these things, the first computer was useful but the first computer that connected to the internet was useless. And so yeah, how do you boot up the network effect? How do you get these things going? So it really is the trillion dollar question. My assessment is, the devil is in the details. There's no general answer, but there's three primary threads to pull, and one is the technology thread of when is the technology actually ready in the way that the thing is actually going to work. So that's one, and then there's the economics question, which is when is this thing actually cost-effective for normal human beings?

How can you mass produce it so you can get to the point of being able to have a network?

Mass produce it and also mass consume it, or mass market it, be able to actually get it out to some level of volume. And then I think the third thing is, there's a sociological component to it. So one of my theories is basically, which I hope is wrong, it may just be that there's a fixed number of new ideas the world could absorb every year, and the world could just absorb-

Right, so you get to number ten, we've got ten new ideas. If you have the most amazing idea but it's number 11, too bad.

Sorry, our brains are full. It's kind of like path dependency. I'll give you my favorite example. So there was a company called Auto Ped, I believe was the name, in 1910. And they brought to market the electric scooter. And yes, 100 percent. You can't see facial expressions in the podcast.

Unbelievable.

Freddy has the [crosstalk 00:05:49] appropriate facial expression. If you Google Auto Ped, there's images online. It literally it's people, it looks exactly like people using [inaudible 00:05:58]. It looks exactly like somebody using electric [inaudible 00:06:00] which is one of our companies. And it's freaky. The modern version, it's balancing, it's better in a bunch of ways. But it's an electric scooter, they would plug it in and charge it and then they would go-

Probably different battery technology.

Different battery technology. A lot of the original cars were electric cars. Internal combustion engine was harder to get to work that the electric car. So a lot of the early cars were electric.

Right.

So anyway, the answer to your question I think is it's what the mathematicians call "path dependency". It's one long chain of "it depends". And I think it's this multi-threading, this combination of the technical component, the economic component and the psychological component. Part of it is who believes. You have to believe it's going to work to put the level of money and effort against getting it to work, in a way that's going to cause people to be able to evaluate it for you to discover whether it's going to work. And so if there's a lack of confidence, then it won't happen.

So when you talk about the path dependency, that means that at any given moment along the path, if you get to a depend sn the answer is "No, it won't happen", then you're off the path.

You can get knocked off. Here's another example, so AI, AI emerged immediately upon the invention of the computer. The minute they actually got the computer working, let's say. Immediately it was like, let's get the thing to think like a person. And they had no conception of how to do but they immediately started to work on that problem. And then basically AI went through basically, I think our partner Frank Hall, I think it's six cycles of death and rebirth, where it's going to work and then it doesn't work. But then there's this valley of death or nuclear fallout during this period where everybody's convinced it's not going to work 'cause they tried and failed. And there was literally, when I got to the Valley in the early 90s, there had been a giant AI boom in the 80s in the Valley and it basically didn't work so people just gave up. And so AI was almost thoroughly discredited until basically 2012. [crosstalk 00:07:55].

You needed a new generation who couldn't remember that that had happened.

That was part of it, and then you also needed, honestly some people who were at that point, were let's say of advanced aged who had not given up. And now that it works, now there's going to be a giant surge. There is a giant surge underway of training, and everybody's all excited about it, but everybody gave up. And it's sort of like, well, the counterfactual, we got it to work in 2012. If people had been more confident that it could work, would they have gotten it to work in 2002 instead of 2012? Maybe.

Where were you at in the early 90s when you first got here vis a vis AI? Were you already thinking in this way? Were you already thinking about the future? Were you already thinking about path dependency? I know you obviously weren't involved in AI, but almost as a hobby were you thinking about these things?

No, I thought I had failed. I just thought it was a pipe dream, 'cause it had been a pipe dream. AI by the early 90s had been a pipe dream for 50 years. And so at some point, it's the thing, at some point people try and fail to do something for 50 years, there are two possible conclusions you can draw. One is, that was a bad idea, and the other is, well it's [crosstalk 00:09:02] right around the corner, which is a more logical expectation to have. And I think we all fall into that. By the way, this is one of those things where just because somebody is super optimistic or aspirational about the thing they care about, you'll find they tend to also be very negative on everything else that they're not working on. So I've met very few people who are perpetually optimistic about all ideas maybe being right around the corner. Almost nobody is like that.

So there are very few ideas that are actually new, and most of those ideas aren't even good ideas. Freddy, you've had a lot of bad ideas over the years. Let's talk about them.

Let's.

You started a recycling business in elementary school that you foisted off on your brother for seven dollars.

Sold at a great profit.

Right, it went bankrupt.

It did, right after I sold it.

You had a tennis racket re-stringing business.

In high school.

That also went bankrupt, congratulations.

I didn't even sell that one to anyone.

There was nothing to sell. What about the machine? What about the re-straining machine?

The machine, I think I wrote off as-

Do you still have it?

-bad debt.

Do you re-string your own tennis rackets to this day?

No, I don't know what happened to that machine, I think my parents probably threw it away when I went to college.

You had a mixed martial arts business plan, I don't think you ever quite got that off the ground.

No, I did actually raise funds though and then I had to return the fund to the investors.

That hurts.

Yeah.

Yeah, so good job there. You had a business in South America that ended up getting caught up in both a revolution and the dot com meltdown, so there was that. But you actually had an idea, that I thought, surprisingly, was pretty good. It was a finance program, app, that was tailored to young kids and taught them how to save and invest.

Yeah, in 2007 and 2008 a lot of my friends were starting to have children that were of school age. Basically, they were looking for ways in which they could teach their kids about money, give them allowance, have some control over it but also show them some liberty. And so I came up with a business idea around building a PayPal meets mint.com for five to 13 year olds.

Did you have a name for the business?

It was PayPal meets mint.com for five to 13 year olds. I didn't [crosstalk 00:11:17] have a name for the business, I can't remember what the name was.

You can't remember? Well maybe that's a sign [crosstalk 00:11:22].

I had so many bad ideas.

Maybe that's a sign of why the business didn't work. Why didn't you pursue it?

I didn't pursue the business for a couple of reasons. First of all, I went out and did a bunch of market research, and I spoke with a number of folks who built payment companies. And they told me how onerous the process was for entrepreneurs. You had to go file tax returns in 50 different states and all sorts of legislation and other things, number one. But number two, and I think much more importantly, is I was not ready to dedicate the next ten years of my life to build this company. I just didn't have that passion. I didn't have any kids, I didn't really have the problem. I thought it was interesting but it was not something I was wanting to focus on for the next decade.

That's interesting to me though, because you obviously were interested in it enough to invest a lot of time and building out a business plan and research the tax implications and the regulatory environment, so you were passionate about it to some extent. So how do you decide when you've reached the appropriate level of passion?

I think the question is, are you willing to dedicate the next five to ten years of your life to one specific project?

We talked to Mark about precisely this problem, that as a founder, you're faced with the problem of having to choose one thing and go all in.

You do get more that one swing, which is, if you've got [crosstalk 00:12:41].

You get a couple of swings.

You get a couple swings.

But not 100.

Yeah, the term "pivot", right. Is this a family podcast or can I swear? [crosstalk 00:12:51].

You can swear. You got to pay 25 cents for every swear word, but this is is our [crosstalk 00:12:55].

How about Bitcoin? Do you take Bitcoin? [crosstalk 00:12:58]. Okay. Yeah, so in the old days we used to call them "fuck ups", now-

Now they pivot.

Now you fancy, better-educated founders call them "pivots".

Much better term.

Less pejorative connotation.

It sounds so strategic.

Exactly [crosstalk 00:13:13].

It's very carefully planned. Yeah, so you do get some swings. And sometimes it takes a while. You got to iterate this, 'cause you learn as you go. And so you do get a few, but you have to have, there's no question, you have to have a much deeper level of confidence and frankly knowledge and understanding. I think the thing, this might be a diversion but I think the thing that's least understood about the best founders is, their level of depth in what they're doing is much deeper. The cliché of the founder is, it's a kid with a crazy idea and blah blah blah. No, it's somebody who has thought about this stuff for five years, ten years, 15 years, they're super deep. It may not be visible but they're actually super deep on it and they've been coming at whatever the thing is for a long time, maybe in different ways. Maybe they started out in college like you guys, maybe it was working at a bigger company and you're revolving around it. By the time you start the company, you just know so much about it that you have a level of confidence on it that even we can't match.

Which is why it always makes me laugh when someone's like, "Well, I don't want to tell you too much about my idea", and I say, "Why?", "Well, because you might do it". And it's like, hang on, first of all that means I must have the ten or 20 years of experience you have. Second of all, that means I'm going to stop everything I'm doing and just do this for five years. And then third of all, I'm assuming that if you're talking to me about it, you've already done some amount of work, so I'm already that far behind you. And then you give them that explanation and they're like, it goes one of two ways. Either, I'll tell you everything, give me some feedback, or I'm not going to tell you anything. In which case, we move on.

So there's a famous line, somebody said, "Never be worried about telling somebody your idea. If your idea is any good, you're going to have to beat people into accepting it".

Right, they're not going to want it [crosstalk 00:14:47].

So they have to keep doing exactly what you did as an entrepreneur, which is you need to keep beating your head against the wall until you get the technology right. You need to figure out the psychology that you're actually going to spend all of your time doing this. And then do you put distribution in the same category of economics? Because I would argue that one of the pivots that we made, was a distribution pivot.

So I would put maybe a little bit of both. I would say a little bit of psychology, a little bit of economics, which is a big part of distribution, I think, is psychology. Which is getting the customer to believe in the thing, getting them to understand it, know it, want it, establishing product-market fit. There's obviously a technology component to product-market fit but there's the market part of it, just sort of a market psychology thing. Are people ready for this thing?

How do you convince them?

How do you convince somebody they want something that they didn't even know existed yesterday? So there's a big psychological component to that. But yeah to your point, it immediately becomes an economic question because then it becomes a question of, okay, how are you going to afford to go convince the people you need to go and convince, and then how much money are they going to pay you such that you can then afford to go convince more people? We are always talking to our entrepreneurs about cracking the code on the economics distribution, it's as important as getting the product right. Because the world is a very big place. People are already very busy, their mind has already been colonized with all the new ideas this year. They don't have any room left by default.

Does that mean if you got an idea, you should pitch it in January before you get full up for the year?

Probably true.

Get in early.

There's no idea purge in December [crosstalk 00:16:14] it's a rolling process. That would be a good idea though.

At the beginning you said, when I was asking about are there truly new ideas, you said "Very rarely". Have you come across a truly new idea in the last ten, 15, 20 years?

I think only to the extent that I didn't know the pre-history. Yes-

What was that feeling? Can you think of-

Oh, you're just like, "Wow". I'm trying to think of examples 'cause it's so rare, but every once in a while [crosstalk 00:16:38].

Okta.

Yeah exactly.

I was going to bring it up [crosstalk 00:16:41].

Thank you [crosstalk 00:16:43].

Exactly. Well the Okta bet was not, it was-

It's a historical thing. I'll let you ...

Well yeah, the idea of what Okta did was not a new idea. The idea that it was going to be cloud first, cloud native, and that that was going to be the thing, that was a new idea. It's a classic example, there was a pre-history to it. The big leap was just the pre-history kind of didn't matter because the world going forward is going to be different, because the world going forward was going to be cloud first and most importantly, and basically our macro, the way we think about these things is basically when there's an architecture change ... an architecture change [inaudible 00:17:19] applications being the most important thing to cloud applications being the most important thing, that's an architecture change. And then the nature of architecture changes is that generally speaking, it's a new set of companies. Because generally speaking, it breaks the assumptions of the current generation of products, the existing vendors can't adapt because all their conceptions of how the world works now all of a sudden are wrong and then you need new companies. And that's sort of the role of startups is to build the things for the new architecture.

That was the best elevator pitch. We should have hired you as our first sales rep ten years ago.

There we go. Okta had the marvelous attribute, we got laughed at for funding it. Multiple times [crosstalk 00:17:56].

I mean the series B too, and the fall one too.

Yeah, and it was literally like, isn't it obvious that this problem has already been solved? Isn't it obvious that these big [inaudible 00:18:03] vendors that have single sign up systems already solved this? Isn't it obvious that yeah, people are going to have a handful of cloud apps or [inaudible 00:18:09] apps but they're not going to have a lot of them, that would be silly.

Right.

Real companies will never go to the cloud. There were like eight different reasons to laugh it, and by the way, that for us is catnip, we get super excited. It was basically the best venture formula of all time, at the heart of it is, laughed at and growing fast is just the best.

That's the perfect-

Oh god, you cannot have enough of those. Those are the monsters.

A lot of what Mark is talking about here, about the winning formula for venture capitalists and how founders have to have an incredible depth of knowledge about one thing and one thing only, a lot of that is only really apparent in hindsight. It's easy to sort out the good ideas from the bad ones, once the dust has settled. But Freddy, tell me how it feels when you're in the middle of it. For instance, did you know that Okta was part of a huge shift in computing architecture at beginning? At the time, did you feel like, I've been thinking about business the wrong way and now I need to think about it in a new way, and that's what Okta things.

Well I think there's a few things there. I think, first of all, you're probably right. It's easy in hindsight to say those were small businesses. At the time, they seemed like genius, huge ideas to me when you're seven or eight or nine years old and you're getting dollars in every month to go play arcade games. That's a huge amount of money.

But even flash forward to your 20s and 30s, these other ideas.

They were never big enough that I pursued any of them full time.

Yeah.

The only one I ever pursued full time was the business that we built in South America, and that one did go very well until it didn't go very well anymore. So the other ones were always hobbies. And by the way, it was actually Mark Andreesen at a social event where I ran into him in 2005, who told me, "You can never do two things excellently at the same thing. So whatever you're going to do, make sure that is the one thing you're going to do". Ultimately I ended up doing all of these other things as hobbies. I never invested full time in them.

But Mark is doing a million things.

Yeah, well clearly he's Mark and I'm not.

He wanted you to focus this one.

He did [crosstalk 00:20:11]. He's like, I invested in you to create shareholder value. It was a trick.

It was a trick.

It was a trick that he played five years before he invested in me.

Right, he got you ready. So you say that you had gone to biz school and that changed the way you thought about business, and you worked in VC and that changed the way you thought about business. For those of us who haven't gone to biz school, maybe you can just summarize what you learned right now in a couple of sentences so we can save all the money.

Go after big markets, build awesome teams and then product is actually ten percent of it. Because if you're in a giant market and you have an awesome team and the product is not perfect, you'll pivot the product. You'll modify the product. But if the market's not big enough and not growing very fast, if you're trying to take market share in a very stable, mature industry where it's not growing at all and people are optimizing on margins, you're not going to be able to build a big business. And if your team is not awesome, you won't be able to make those changes.

Well luckily now we don't need to go to biz school 'cause you just told us what you learned. Was it two years? And how much did you pay?

18 months.

18 months. All that time, all that money and now we just heard it right there.

70 percent market, 20 percent team, 10 percent product.

Done, there you go.

Boom.

Boom. Business goal, we all just go MBAs [crosstalk 00:21:26].

You can send me checks. You're welcome.

You mentioned Freddy, the importance of putting together the right team. And we also talked about that with Mark Andreesen, so let's get back into it and hear from Mark again.

90 percent is the people, it's a people business. We all sit around all day and talk about technology and economics and think that we're experts and then most of us are just like, who are you working with? And then what are their characteristics and their principles and then what are they going to be like to be partners with? And then how hard are they going to work? Are they going to quit and are they going to make it work? And obviously-

Right. You looked at Freddy when you said "Are they going to quit?" [crosstalk 00:22:08].

Better looking [crosstalk 00:22:11].

Exactly.

These things happen. Market sizing, the economics, the technology, you can probably do a bunch of customer surveys, you can do all these other things and then you just said, yeah but 90 percent of it is totally subjective.

So at least 90 percent-

At least! Maybe more.

Maybe more. So Arthur Rock is one of the legendary VCs, he funded, among other companies, Intel and Apple. So quite an outstanding track record. He worked for 30 years. And he wrote a paper at the end of the whole thing and he looked at all of his results in the rear view mirror and he said, "Honestly, I would have done much better if I had shredded all the business plans on receipt and just read the resumes and just met with the people".

Oh wow.

And bear in mind, venture is a funny business because there are two forms of errors. There's the error of I back something that fails, and then there's the error of, I don't back something that succeeds.

Right.

In venture economics, I back something that fails, kind of doesn't matter. That's built into the model. I don't back something that succeeds is just like-

A killer.

-torture for decades.

Right.

You say that 90 percent of it is the person or the team maybe. And for our listeners who are sitting out there, outside of the norm, somebody who's not in Silicon Valley, somebody who's not perhaps got the classic resume, is there something you would say to them? And also, how do you keep yourself open to people outside of the norm, not just ideas outside of the norm?

So I'm super blunt on that, you got to get in the middle of it. So the myth that you will hear is that UVC, you meet with all these people who are hyper-networked and hyper-extroverted and they're kind of in the flow and in the mix, and they're all these kind of undiscovered geniuses. They're all these people out there, in the middle of nowhere ... by the way, I grew up in rural Wisconsin. I know middle of nowhere.

Well, undiscovered genius got discovered.

It came to freaking Silicon Valley, the first chance he had. But there are all these people out there, and it's the whole Addison versus Tesla thing. The misunderstood genius, Nicola Tesla had all these great ideas and everybody was too dim to see them. And it was kind of like, well the problem with that is, it's not just the person and it's not just the idea, it's the ability to build the team. It's never a solo thing, it's always like, can you put together a team? Can you recruit resources around you? Can you recruit a team of co-founders around you? Can you recruit a team of executives, a team of engineers? And then can you attract resources? Can you attract investment capital? Can you go get customers, can you go get articles written about you in the press? Can you go do all these things that you need to do to be able to make the thing work?

And you couldn't do it in Wisconsin.

You might be able to, but you'd have to attract all of those resources around you in Wisconsin. My point is, the kind of person who is going to make one of these things work is not going to be working by themselves somewhere. They're going to be in the mix because they're going to have to be in the mix, 'cause they have to be in the mix to get the resources to be able to execute the thing that they want to execute on. Here I'll give an example. The pitch. Why in 2018, why do the entrepreneurs all come to our office and give an hour long PowerPoint presentation? How antiquated is that?

Cause it's been done forever.

That's actually, so I would argue that's not the reason.

Okay.

I would argue the reason is because, if you can't do that, it's a test. If you can't do that then how are you going to pitch to a customer? And how are you going to pitch a recruit? And how are you going to pitch the next investor after us? How are you going to do all the other things-

You're going to get five minutes for each of those. I would argue then they should just do a five minute, like what Todd and I did. 'Cause you were you like, you got a terrible PowerPoint, just tell a story. It's just storytelling.

Storytelling is critical. I would say most engineers who become entrepreneurs need some structure to that.

Agreed.

Yeah, some people can come in and just talk. Most people. It's not so much the PowerPoint, it's more just, can you show up here? Here's another-

Can you get organized and present the information in a way that a potential customer is going to consume it and then you can answer the right questions so that they can walk out and they can say, "This is going to solve a type of problem for me".

Yeah, exactly, right. It's a proxy for, can you sell something to somebody? And so the way to think about it is, we're the easiest. Everybody thinks raising venture capital is the hardest. Raising venture capital, our job is to give entrepreneurs money. That's our reason for existence in the world. We're the easiest mark. We're it, we're all set up here. Here, money bags, here, we're handing out money.

That's your job.

So then the VC pitch is actually best understood, it's a two level thing. You're actually pitching the VC. 'Cause we do evaluate the pitch, and we could talk about that, but we're also evaluating your ability to give the pitch. So there's a meta layer on top of that which is the proxy for being able to convince everybody else. And that's the thing that people outside the Valley I think often miss, which is, it's the [inaudible 00:26:36] of resources. Just think about going on an expedition. 300 years ago, it's going to be the same thing. You and your canoe are not going to get very far down the Mississippi. You have to have a big ship and a lot of other people and supplies and all this other stuff, and it's the same process. And that skill is so central and important. And by the way, that's not enough. You also need the idea but you do need to aggregate the resources. And that's why the undiscovered genius thing is mostly a myth.

Let's talk a little bit more about trends and this idea of the bandwagon. 'Cause a lot of people, if you're coming up with an idea, you're like, "Okay, I'm trying to think about what's out there, it's Blockchain". Everybody is talking about Blockchain, I'm going to come up with a Blockchain idea. Good idea? Bad idea?

So, dichotomy. The problem with the hot sector is there are too many people pursuing. The problem with the cold sector is it's very hard to aggregate the resources around it, and so there's a little damned if you do, damned if you don't kind of thing there. I'll give you another slightly off axis version of this, which is like, so it's sort of like half the startups we back are going after an existing market where there's lots of entrenched competition. And actually you guys were kind of an example.

Yeah totally.

And then half of our startups, it is literally something that the customers don't even know that they want 'cause they've never seen it, they just don't know. It might have existed before but they're never been confronted with it before, so it's like a brand new thing. So what's the problem ... the good news, going into an existing market, you know it's a giant market 'cause people are already spending a lot of money on it.

There's a budget line item that you can go after.

100 percent. Now the problem is, you have to convince somebody on hook, off an existing vendor a lot of the time, which is very hard. The advantage of going after something where people don't have the existing line item for it, is there's no competition. The problem is, there's no line item.

It's not budgeted.

It's not budgeted, and people have a lot of new things they could spend money on. They don't wake up in the morning and say, "Boy, I wish I could go spend more money on something new I've never even heard of".

Unless it's you.

Well no, so that's the thing [crosstalk 00:28:29] that's why we're the easy mark. Everything is harder after us, that is the one thing that's for sure. So it's a damned if you do, it's one of these grass is always greener things. The grass is brown on both sides of the fence, the grass is just always brown. It's just a question of what shade of brown. Which problem would you rather solve? So it kind of takes back to your question, which is, the good news of saying we're going to go do something with Blockchain, is people at least have some sense that there's something important happening and they're open for business, their ears are open and trying to understand it as opposed to, I built a [inaudible 00:29:05] and you don't know what a [inaudible 00:29:05] is but I'm going to tell you about it. But the problem is, there's 5000 Blockchain startups, good luck trying to differentiate.

There's not that many [inaudible 00:29:13].

That's true. And so now I would say in practice, generally speaking this question is actually not that significant for us, in that we don't think categorically in that way. We're not out there, for example, trying to say we need to see 100 Blockchain startups, that's not how we operate. We're thinking about it much more inductively of like, who are the super smart people who are pursuing some idea? And then if it has to do with Blockchain, fair enough, we're going to hear. But if it doesn't, we also want to hear from it. So we actually try very hard to not really even have a point of view on the trends.

So this is what Mark's talking about. It's not about knowing what to do, it's about what to do when. It's about timing and making sure you get the timing of the execution of your idea right.

You could have the most brilliant idea in the world, but if it's not timed right, it's never going to work. Imagine if you came up with an idea that was going to change the fabric of time. Would there ever be a bad time for that idea?

No, that sounds like a big market.

That sounds like a big market.

If you have that idea, call me.

If you have that idea, immediately, that's going to hit. That's going to be big.

So a time machine that changes the fabric of the space-time continuum? Obviously a great idea. But some other ideas that have hit big maybe didn't seem so revolutionary at the time. Here's Mark on the importance of having perspective and seeing the big picture.

I'm not old enough. I remember when eBay was a brand new idea, and the overwhelming consensus on it was, "What a dumb idea" [crosstalk 00:30:43] Pez dispensers on the internet. Like, seriously? We invented the microprocessor, we put a man on the moon-

And this is what's next.

And this is, now we're doing fucking Pez [crosstalk 00:30:53] dispensers on the internet, honestly. That's how far we've fallen. That is just the most depressing thing, literally [crosstalk 00:31:02] garage sales. Yeah well it turns out, so one way you look at it is Pez dispensers on the internet. The other way you look at it is global marketplace for goods. Like wow.

Peer to peer.

Peer to peer [inaudible 00:31:12] marketplace for goods. It's just a fundamental step function in human ability to transact and trade. Or you know, when Google came out, Google's not obvious in retrospect. Google was the 35th search engine, search engines-

Excite.

Excite. Search engines number one through 34 basically proved two things. Number one, search didn't work, it was not a solvable problem because the results were all terrible. And number two, there was no business model. Those were the two things that everybody knew. And Google came out and had the audacity to say, no those are both false. And actually, on top of that, the good news from the very beginning was that Google had good search results. But when they raised venture money, way before us, when they raised venture money, they didn't have a business model. They just did a complete fly on the business model. By the way, there's a counter factual world in which Google never figured out the business model and they became a cautionary tale for hubristic founders. This is where I say, the myth is like, okay I'm in a good position to judge this idea, and that's not really true. It's more, at best I can maybe judge this person or get a sense of potential, and then at least I can have some aperture on the range, the characteristics of the ideas, as an example. It's sort of the classic thing with venturists. It's not will it work. It's, if it does work, how big could it get? This is the market size point, which is just, if there's only 14 potential customers for the thing, even if it works, that's probably a bad idea. But if there's 40 million potential customers for the thing, then even if it's a long shot, the expected return on that could be very high. And then on the technology lens, it's the same thing, which is just, look, you know there are certain ideas that you just ... give an example. The kind of thing you don't want to do is as a VC, I'm going to bring to market a smartphone with a battery that lasts 30 percent longer. That's my big idea, and it's the world's biggest market. Everybody wants a smartphone, everybody is frustrated when they run out of battery life. I have a smartphone that lasts 30 percent longer. Well guess what, Apple is going to have that too. Plus they're Apple and they're going to have all their other advantages and they're going to crush you into the ground. And so a battery that lasts 30 percent longer is not a big enough transformation. It's not an architecture shift to justify a startup. And so you do have to sniff out, there has to be something that's an [inaudible 00:33:12] magnitude shift in the technology. Blockchain is a great example. Blockchain has properties the centralized databases cannot match. Blockchain may or may not meet all the aspirations that we have for it, but if it works, it is doing things that existing databases simply cannot do.

It's an architecture shift.

It's an architecture shift, right. And therefore, exactly right, therefore if it works, there's highly likely to be turnover of almost all the companies having anything to do with databases. And almost everything having to do with financial services and almost everything having to do with contracts. The whole thing is going to turnover.

Which is a big market.

Yeah, these are gigantic markets.

These are the biggest markets.

These are gigantic markets. And so that's the thing, and then it's all probability adjusted. And then like I say, in the portfolio, we have the ability to take the failures, and so that's the bet. But I would say a lot of it is to have the humility or objectivity or something, or maybe it's just emotionally removed, to not think that you can over judge these things. You're looking for the shape of the thing, not the thing, if that makes sense.

Right. And in your position, you can kind of place a number of bets on the shape of the thing.

Yeah that's right.

There was something I had heard, I don't know this is maybe ten years ago, that in the early 2000s, obviously the first dot com boom ... there's a million ideas coming up. And most of them went away. And then people started sifting through those old ideas and kind of saying, you know what, lets do that again. Do you remember that? Did anything actually come out of that where then it worked ten years later?

They all worked.

They all worked.

They all worked. So the strong form of that, is they either all worked or they're all going to work. The strong form of this theory basically is that there are no bad ideas.

Right [crosstalk 00:34:54].

So here's the strong point. It's all timing and to your point, it's all timing and it's all timing intersected with those threads, technology, economics and psychology that we were talking about.

And so if you're an entrepreneur thinking about all these things, how do you think about going up against, like you were talking about I'm going to create a cellphone with 30 percent more battery. If I'm thinking, I'm going to do door to door delivery or warehouse to door delivery with drones, really are you going to go up against Amazon?

The way that we think about it basically is, big companies have a special advantage in the world. They get to pursue the good ideas that look like good ideas. So a printer that prints out pages 20 percent faster is a really good idea, it looks like a good idea, HP is going to do it. 30 percent longer battery life, Apple is going to do it. So therefore, as a consequence, what's left are the good ideas that look like bad ideas.

That's your sweet spot.

That's the sweet spot for the entrepreneur. It's a good idea that looks like a bad idea. Like, that looks dumb, Microsoft is just going to do that. That's dumb. And by the way, Microsoft thought that was just a simple little add on. It just looks like it's a dumb, marginal idea. Of course, what's the problem with that?

They might just be bad ideas.

All the actually bad ideas also look like bad ideas. And there are a lot more bad ideas.

Well, but there's no such thing [crosstalk 00:36:11].

It's purely timing, that's exactly right. So literally, it's entrepreneurs. Entrepreneurs are in the business of pursuing the good ideas that look like bad ideas. And it's the fact that they look like bad ideas is what prevents somebody else from doing them. And then how does a big company define a bad idea? It's something that its customers don't want. And so the existing customers, the existing market is perfectly well served, perfectly happy with what they have. It's all these other customers that are unserved today that the big company is not even talking to, is where this new idea can go into. So Blockchain is a great example. You're not going to go sell Bank of America a piece of Blockchain software to replace their IBM mainframe. They're happy with their IBM mainframe for their whole database. You have to go find new people, new applications and new use cases. It never even occurred to IBM or Oracle to pursue that idea, and that's the good idea that looks like a bad idea.

Either that or, it's just that, I think that is very true when you did not have what we now modernly called hyper-growth companies. In hyper-growth companies like Google for example, I also would posit that the problem is, even if you're trying to build a new idea inside Google, it's not growing fast enough to matter to Google.

The big thing I would argue is, the big the different about this era, one is just the sheer scope and scale. Now it's happening in the entire world.

Right, it's no longer in pockets in the same way [crosstalk 00:37:31].

Yeah, it's going to happen everywhere.

Which is good for entrepreneurs.

Yeah. And I think also by the way very good for the world, 'cause it should be possible to make much more dramatic progress over the next several decades in really important areas-

Like health.

Like health is an example.

Yep.

The introduction of computers and software and sensors into healthcare should lead to dramatic improvements in quality of living all over the world. There's a lot of work to be done to deliver on that, but that really should be possible now.

Yeah, which is one of the reasons why you guys are focused on it.

Well the only thing we do focus on, we need to focus on something where there's a fundamental technology change happening. There's a lot of human activity where that's not the case. So we're focused on the stuff where there's big tech change. The big thing, I think, is there are these really big sectors. Healthcare is one, transportation is another but then there's also education, financial services. I would also say law is another example. Construction, real estate. There are these gigantic sectors of the economy that have actually not been touched that much by tech until now.

Yeah, construction is a perfect example.

Construction.

Jeez.

Why are the houses not getting much better and much cheaper extremely quickly?

More quickly, yeah.

It should. And then why does everybody, at least in the US, who builds a house go through the nightmare of all the stuff that you go through? Why can't you have a new house up in two weeks that's just so much better than what you spend two years building right now? It just doesn't seem to make any sense. And so there's this giant vista of opportunity for that. Another is going to be the self-driving car. Another part of that is geography. So the car created the suburbs. The self-driving car might really build out whatever is beyond that. And yeah, it's too early to tell but it may be that that fundamentally reshapes our whole idea of land utilization. It may be that that's the thing that breaks this whole issue right now, which is the rising cost and price of housing in all the cities. Maybe that's the way to break it, or even just a simpler version of that. You've got all the cars that are incredibly dangerous, you've got all the pollution and all the environmental impact and all the noise and everything else and then you've got all this land that's misused in really prime areas. And so what if you could convert all that, basically, let's say convert it to parkland? And what if you could transform cities into a much friendlier live-work environment than anything we've conceived of today? And so you might be able to completely reshape the whole idea of what a city is and the whole idea of what a suburb or an [inaudible 00:39:44] is, and really change patterns of living in a really positive way.

One of the things I loved that Mark said was, "If your idea is any good, you're going to have to beat people into accepting it". You may feel like you've got a great idea, but in all likelihood, nobody else will, and it's probably a pretty lonely place. Definitely a very lonely place.

I think that's one of the key takeaways about this early stage of starting a company, is hopefully you're thrilled and excited with your idea. But probably nobody else will be, and so you're going to have to get used to that feeling of loneliness. It's actually pretty ironic because as you start building that company, within a few years, if you're fortunate and it starts going well and you start hiring more people and raising more money, then people are going to say, "What's this market called?". And so if you're the only one in the market, the question is, is it really a market? So you actually have to have competitors and you have to have all these validating things, so it's pretty ironic the hat you have to start by saying, "I'm going to do this thing that no one has ever done before and everyone's going to say it's ridiculous". And then very quickly it has to flip to, "That's a genius idea, look, all these other people are doing it". Right. It's pretty hard to convince people that it's a giant market when nobody sees it.

Yeah I think that's true. I think it's actually interesting that if you look at the data, most successful startups come with entrepreneurial teams that are from two to four or five people. So one doesn't work, and over five doesn't work either. One doesn't work because it's super lonely, and when things are going South, you have no one to talk to, you have no one to bounce the idea off of. You could say, "I'm actually just the only crazy guy here and no one else thinks this is a good idea". Over five, there's just too many cooks in the kitchen, there's too many voices, you can't actually get anything done. So it's pretty interesting that two, three, four are the ideal teams so that when it is so lonely, there's someone else there with you.

Almost everybody that we're going to hear from in this series are not solo entrepreneurs. In fact, I can't think of any of them who are solo entrepreneurs. Maybe Fred Lutty was solo-

Fred was solo. He hired his brother pretty early on.

But you look at-

There was [crosstalk 00:42:04].

You look at Sales Force, that was a team.

Yeah.

You look at Work Day, that was a team.

You look at Netflix, it was a team. You look at Eventbrite, it was a team. That's a very good point.

You have to convince people. I think that's the takeaway. Come up with whatever crazy idea you want and then start to convince people.

Which is a very tricky topic and one that needs its entire own series of podcasts on. That'll be season two.

That'll be season two. With that, we'd like to take a couple of moments to quickly thank Mark for taking time out of his day and very busy schedule to speak with us. We'd also like to thank the Martin Trust Center for MIT Entrepreneurship for collaborating with Okta to bring this podcast to life.

If you like what you've heard and you want to know more, check out exclusive, in-depth stories from each episode on fastcompany.com. And to hear the next step in taking a company from zero to IPO, make sure to subscribe and give us a good rating on iTunes, Spotify, Stitcher or wherever you listen to your podcasts.

I'm Joshua Davis.

And I'm Frederic Kerres, and we hope you'll tune in for episode two. So, You Think You're a Genius?

The whole notion of getting another job was just not, not, not appealing. I thought, I worked for enough people, I had to say if I'm as smart as I think I am.