Wednesday, June 20, 2012

30 years and counting

Hard to believe that Bret and I have been married 30 years now. It seems like so very long, and yet the blink of an eye.

If you had told me 30 years ago that in 30 years we would have moved to America, raised two young adults, remodeled 4 houses (3 with our own hands), had lots of great dogs and cats, spent plenty of time on and in the water in the sun, worked too hard, run our own companies, loved each other, liked each other, and disliked each other - often all at the same time - and lived a hurly, burly two tech industry executives lifestyle I would not have been surprised. That was what I expected.

But if you had told me 30 years ago that we would have had to learn so much about Alzheimers, cancer, strokes, learning disabilities, eating disorders, divorce, meth addiction, aging, broken friendships and fatigue I would have ignored you and said "not us!". Ah the innocence of youth.

But also if you had told me that we would be happier at 50 than we were at 20, that while our bodies were better looking at 20, our minds were not, that there is a greater depth and sweetness and appreciation of our lives today I also would not have understood, but I do understand now.

I was 19 when we moved in together, Bret was 21, and we were married 2 years later. We were different people then, just kids. Marrying young and moving to a different country with no family was either a recipe for disaster or burning the boats so we had to make it work. We are the lucky ones that we are still married 30 years later. With shared values and a pragmatic view of what it takes to build a life together and raise a family together - and plenty of respect for each other's personal space and hobbies - we've emerged still loving each other and still having fun together.

Last night we talked about what happens next as we become empty nesters and we each made our bucket lists - the places we want to go and the things we want to do before we die. Some places appear on both our lists and we'll get onto those right away! Some appear on only one list and for those we agreed to either sign up friends, or take it in turns to go where the other wants to go. Either way we're going to get going on the list. There is just so much to do!

Whatever happens we're living life to the full, and loving and supporting each other as we do it. I feel very lucky.

Monday, June 18, 2012

The dark side of Silicon Valley

Silicon Valley is on a roll right now. The relatively low levels of capital needed to start a software company has meant that start up incubators and small software companies wanting to be the "next big thing" are popping up all over. Bars are crowded, San Francisco is hip and traffic is worse than L.A. All signs of a booming economy and tech infrastructure that has spawned new wealth-generators like Facebook, Zynga, Instagram and now Yammer.

And yet, this is just the face we like to present to the world. Underneath, as in any competitive society, there is a dark side.


Depression:

Ben Horowitz captured the psychological pain of the struggle of being a company founder and leader in his blog post The Struggle last week. He captures perfectly the isolation, the pain, the cold sweat of building a company which, in 99.99% of cases, does not goes smoothly. Being on the emotional roller coaster of building a new company can lead to depression. It can be hard to setp up every day and face your demons and the risk of failure while all around you seem to be succeeding (because no one talks about the failures). We saw this tragically recently in the case of the suicide of Diaspora founder Ilya Zhitomirskiy.

I try to remember that it's "not checkers; this is mutherfuckin' chess" (to quote Ben) and manage my stress with swimming. But even for me, who's lived the entrepreneur's life for 15 years, there are days...


Discrimination:

It's illegal to discriminate on age - employees over 40 are a protected class. But the new generation of companies doesn't seem to know or care. The median age of Google is 31, the median age of Facebook is 26. They are hiring a generation of new employees who know Java but not C++, who can sell ads over the phone, and who cost a great deal less than experienced employees. Contrast that with computer and communications companies like HP and JDSU who need experienced hardware engineers and have median ages of 44 and 47. At FirstRain, we need both experienced and less-experienced employees to build our solution so we have a healthy mix, but even so I am the oldest employee. Yikes.


It's illegal to discriminate on race too - and yet, as Vivek Wadhwa discovered when he reported the dearth of black and latino employees in Silicon Valley, it's a contentious issue and he found himself being dismissed by Techcrunch's Michael Arrington for highlighting the issue. As Vivek says "an elite group of power brokers, exemplified by Arrington, is totally ignorant of the hurdles faced by minority groups". But like the shortage of women, this issue starts in middle school and perpetuates into college with the shortage of graduating engineers. We are so short of good engineers in the Valley now that I don't see race or gender discrimination at the engineer level -- I see a dire shortage of qualified candidates.


Feeding the cash monster:

Companies take cash. They consume cash. Salaries, rent, insurance, computers, bandwidth, data center fees... it's never ending. And once you raise money you are a slave to the cash monster because you have investors who want growth. They want success. And that takes more cash. I watch some of the new young companies raise (too much?) cash, and then spend it on flash offices and parties (see below) and fear for them. Do they know what a down round feels like?

In the social media world, like the dot.com era, the focus is on users and eyeballs, not on profitability, which will work for the very few who ramp fast, get bought and exit. But it takes cash to do that. Consider Yammer which raised $140M to build a Facebook-like service for the enterprise and has purchased by Microsoft for $1.2B. But that's the exception. Most new companies cannot get access to that level of capital and they underestimate the cost of user-acquisition. Unless you are in the in-crowd with a runaway success you'll be feeding the cash monster with VC rounds and sleepless nights until you get profitable.


Excess:

But on the flip side of the cash monster... The dot.com boom brought with it a period of excess that hyped, and ultimately hurt the Valley. Companies celebrated raising money and launching products with wild parties - never mind that they had no idea how to make money. Then for a while the Valley sobered up. Companies got back to work, profitability became fashionable, companies talked about helping non-profits and excess was considered bad taste. Especially as the great recession hit and companies worked hard to preserve their cash.


But now, even though the rest of the world is still struggling, the Euro-zone is in crisis and 8.1% of the US workforce is without work, the excess is back in Silicon Valley. Once again companies are celebrating launches, and recruiting and, as Business Insider reports, there sure are a lot of parties going on.  Are we tone deaf to what's happening to the rest of the world? Is this, again, the result of too much money flowing in?


As Rob Cox wrote in Newsweek, in his analysis of Silicon Valley's undeserved moral exceptionalism - we are not as altruistic as we'd like the world to believe. He makes the case that "though Silicon Valley’s newest billionaires may anoint themselves the saints of American capitalism, they’re beginning to resemble something else entirely: robber barons."  For example, the flagrant disregard for privacy prevalent in the new, free apps is stunning. When I gave my TEDx talk at Gunn High School a few weeks ago I surprised many of the students as I explained how they are now the product - their every move and action is being recorded and sold in a way most of them simply do not understand.


But, in the end, these facets of Silicon Valley are capitalism at work. A lot of people work very hard, a few get very rich. Many make healthy salaries working on fun products and in exciting companies. Most will not get rich, but most will have a fun experience. But as the leaders in Silicon Valley, we need to pay attention to the dark side and not perpetuate it. We need to be aware of the stress the long hours and intense deadlines can create. We need to be circumspect about our good fortune. We need to hire the best and the brightest, no matter their age, gender or race.


And on the good days, like today, bring in ice cream for everyone!

Tuesday, June 5, 2012

Why activist shareholders travel in packs

Have you ever wondered why activist shareholders travel in packs? It's because they are significantly less effective alone—just like any other minority on a board.

Activists (often hedge funds) accumulate a position in a stock because they want to make change happen at a company and, by making change happen, they will make money on their investment. It may be that they think the company is being mismanaged and so is undervalued against its potential. It may be that they think it should be broken up and the pieces sold off. Or it may be they think the board is incompetent and by driving change they can increase shareholder return.

Daniel Loeb, who runs the hedge fund Third Point, is currently in the news for the aggressive strategy he pursued to get onto the board at Yahoo!. He accumulated 5% of the stock, demanded 3 seats on the board, was rebuffed, found a fatal flaw in new CEO Scott Thompson's inaccurate resume, and then used that chink to drive a wedge into the board room for himself and two of his nominees. Dan has become famous for his investment track record and his pithy letters eviscerating the management and boards of the companies he targets.

Carl Icahn has a long history of launching campaigns against companies, and like Dan, often wins—like he is doing at Chesapeake. Shareholders delivered a bruising rebuke to Chesapeake Energy's board on Friday and although the board had agreed to replace 4 directors with Icahn's and Southeastern Asset Management's hand-picks, shareholders still withheld their votes from two key directors. In this case, two activists (Icahn and Southeastern) teamed up and acted as the lightning rod to help shareholders express their dissatisfaction with the board's oversight of the company.

But why, you may ask, do they travel in packs of 3 or 4? Dan Loeb is a smart cookie and no shrinking violet—why does he need to bring two of his guys onto the Yahoo! board with him?

The answer lies in how inefficient and/or difficult it is to be alone and an outlier on a board. Boards aim to be collegiate, making sure diverse opinions are aired while also providing good financial oversight of the company. They want to get to unanimous recorded decisions in the end (no matter how contentious the internal discussion) and disruptive behavior is frowned upon. If you want to make change happen as a board member you need to develop support from other board members first or there will be no further discussion or vote.

If you are an activist that wants radical change, that very change is probably unpopular with management and the existing board or you would not be agitating for it as an outsider. Your new ideas will die on the vine unless there is someone else in the room to pick up your idea, expand on it, help you build momentum and overcome objections and, in the end, second your motions to ensure a vote.

Further, if you can get three people on the board together with the same purpose they can create significant momentum behind an idea. And sometimes, these activists can take advantage of directors' natural tendency to act as individuals, and so create divisions among directors who have not yet figured out the need to unite.

This is why Starboard Value (which owns 5.3% of AOL) is proposing three nominees to the AOL board to challenge the strategy. They are also trying to line up proxy advisory firms ISS and Glass Lewis to support their new board members as this will influence how major shareholders vote. They want to be sure that if they get elected they can force a change in strategy at AOL by acting as a team on the board.

When you're a voice of one it's very hard to make change happen. It takes two to get a discussion going, and when you are just one it is too easy for you to be shut down—or if you will not back down—be labeled as disruptive and so have your effectiveness reduced. Activists know this and so, like any smart hound on the hunt for a kill, they travel in a pack. They show us the importance of having a group to represent alternative points of view on a board.

Odd, then, that so many Silicon Valley companies whose major customers are women have no women on their boards (like Facebook), or, if they have one, check the box and think they are done. Especially odd since we also now know that having women directors on boards improves return on capital for shareholders.

Because of the nature of how boards work, having token representation, whether it's an activists point of view, or gender-based point of view, is not enough. Activists are showing us the way. It's time to get more qualified women onto leading technology company boards.

Monday, June 4, 2012

Coding is the New Literacy

Our world is surrounded by software. Every day teenagers spend more than 10 hours a day on line interfacing through a software layer - texting, facebook, tumblr, TV, movies - all are constructed in software and people use a software layer to interact. Even as a CEO, my day is dominated by software - Office apps, Twitter, Skype and even Words with Friends.

Software is changing our world in as profound a way as the book did starting in 1440. The book, following the invention of the printing press, democratized knowledge. Anyone who could read and write could share ideas and change the way other people thought. By 1500 there were 35,000 book titles in print and over 20MM books printed. 60 years after the invention of the computer the influence of software on our world is still growing exponentially.

And it touches everyone. Poor illiterate women in India running micro businesses through a cellphone. CEOs and bankers. Students at a Palo Alto High School. And so when I was invited to give a TEDx talk at Gunn High School two weeks ago I chose to talk about how being able to code - or at least understand enough structured logic to create software apps - is as important now as being able to read and write.

Technology is now where the jobs are, where the growth is, where the source of the major revolution of the next 100 years starts. It's an exciting place to be and it's a meritocracy. Everyone can learn it, just like everyone can learn to read and write.

Here's my talk:

And the most exciting thing for me giving this talk was that at the end I was surrounded by teenage girls thrilled to have their interest in software and technology endorsed and confirmed by my talk.

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