Please, someone buy me the Slack shoes
Reality distortion vs. Boom Supersonic; Airbnb's high burn; macro- and micro-flight from San Francisco; meeting Marc Andreessen.
🧠Top of mind: Reality Distortion Goes Boom?
Boom Supersonic rolled a fully-constructed supersonic aircraft onto a runway this Wednesday — but will it ever get off the ground?
Blake Scholl might as well be a non-technical founder. Before founding Boom Supersonic, he worked in software development, product management, and eCommerce. What does managing a team building a software app have to do with founding a startup that develops carbon-composite airframes?
The simple answer: reality distortion.
Startups are expected to fail. Blake could have earned a guaranteed $300,000 a year as a Software Engineering manager, and perhaps up to half-million dollars all-in after bonus and equity. But instead, he decided to earn a significantly smaller salary in the short term and (probably) to be rewarded with a handsome $0 bonus at the end for all of his troubles. Why?
The startup world is hard. Really, really hard. You have to fight battles on multiple, simultaneous fronts — securing funding, selling to customers, managing a team, building new technology — and you have to win every single one of them to be successful. Most startup attempts die well before they attract serious venture capital financing, but even after clearing that milestone, more than half of all startups lose money for their investors.
How do you convince yourself (and other talented engineers and business people), to take on that kind of challenge? You have to distort reality:
You have to convince investors to believe in your business, even though it will likely fail.
You have to convince your customers that you can solve their problems, even though you lack a 10, 20, 50-year track record like [insert incumbent here].
You have to convince recruits to join your company, even though they could get FAANG (Facebook, Apple, Amazon, Netflix, Google) jobs with higher salaries, lighter workloads, and complementary massage chairs
And you have to do all of that while developing technology that has never been developed before, even though other smart people have tried and failed to do so before you.
Outside of Silicon Valley, reality distortion gets a bad rap. Folks point to fraudster founders who are malicious in their distortions, and conclude that irrational optimism is a force for evil in the world. But inside the startup world, it’s understood that not all distortions are alike — and that because changing the world always requires a healthy dose of skepticism for what other people consider possible or probable, distortions of traditional thinking are not just acceptable, but wise. For instance, just because a bet has a >50% chance of zero return doesn’t mean it’s irrational: the best VC firms in the world don’t have more winners, they just have bigger winners. Similarly, Blake’s bet to start Boom may have had a positive expected value, as long as he felt that the potential payoff at the end was large enough to offset the miniscule probability that his company will eventually achieve a superlative outcome.
The ultimate question of where a given founder will fall on the spectrum from Steve Jobs (who is remembered as a benevolent, if mercurial, reality-distorter) to Elizabeth Holmes (who will stand trial for fraud in 2021) is nearly impossible to answer from the outside. Founders are often judged ex post facto by the public on a binary scale, i.e., as either fakers or geniuses but nothing in between.
So because Blake Scholl hasn’t yet made his vision come to life, the entrepreneurial questions linger on. Will he be remembered as someone who refused to accept a stodgy, incorrect orthodoxy, or as a snake-oil salesman? Or, in other words, will reality ever match Blake’s distortions? Or will his high-flying dreams come crashing back to Earth?
🔌Shameless plug: I’ve started a Twitter list for Silicon Valley Outsiders.
If you’re a subscriber, @me and I’ll add you to the list. And if you’re not yet a subscriber, that’s easily fixed!
✨What’s (not-so) new in the Valley
High Burn: Airbnb is preparing to go public and revealed this week that they “burned'“ (spent) more than $1.2 billion over the last 12 months. Luckily, they still have $4.1 billion in the bank, including $2 billion of new debt they took out when the pandemic was just beginning. But that’s quite a slope, and a development to watch as the pandemic continues and their IPO approaches.
Company Swag: This week, Slack released company-branded shoes in a partnership with Cole Haan. You say, “eew, corporate sponsorship at its worst.” I say, “please buy me a pair.”
Macro Trends: 80-90% of internet users are now outside of the USA, a fact reflected by venture capital investment trends (see below). Many of the best VC investors are still headquartered in Silicon Valley, but more and more have offices popping up around the world — sometimes focused globally, sometimes just on a particular market like China.
Micro Trends: Thinking about making the hop to SF? Now might be the time. In the midst of the pandemic, folks are moving out of San Francisco and causing rental prices to crash. Granted, it’s still the most expensive city in the world on paper — average listed rents for a 1bd are holding above $2800/month — but I’ve heard from multiple folks the effective SF rent prices have fallen much further. Meaning, landlords they’re keeping sticker prices high but offering ridiculous perks like free rent for the first two months after you sign a new lease.
👨🦲 Someone to know: Marc Andreessen
Today, Marc Andreessen is best known as the first ten letters of a16z. (Meaning, he’s one of the founders of Andreessen Horowitz, arguably the best venture capital firm in the world.) He recently wrote an essay called “IT’S TIME TO BUILD,” which made a major splash and harkened back to the days of pmarca (short for “private Marc Andreessen”), the blog he maintained from the day he founded a16z in 2009 to the day he discovered tweetstorming in 2014.
pmarca is a Silicon Valley-essential reading, because Marc Andreessen is a Silicon Valley-essential entrepreneur. He built Mosaic, the world’s first web browser with a point-and-click screen, text links, and .gifs, while a student at the University of Illinois Urbana-Champaign. He subsequently founded Netscape, the IPO that launched a thousand startups.
Using his own language, he’s built quite a career portfolio, and that makes him a must-follow if you want to understand Silicon Valley.
About Silicon Valley Outsider
If you’re an aspiring founder or investor who lives outside of Silicon Valley and wants to understand its magic, this newsletter is for you.
Written by Christian Keil.