Let my people go surfing

There aren't a lot of business books that I recommend. But "Let My People Go Surfing" by Patagonia founder Yvon Chouinard is one of the few ones that endure. 

The first half of the book is Yvon's personal account of his life and the development of Patagonia. It's a great story. Made greater because (I assume) it's true. It's not marketing bullshit. It's the story of someone who pursued his interests and his passions without regard for social acceptance or financial success. It's great to reset the baseline of what a successful life looks like. No fear, no greed. Do something you like and make something people want.

The second half of the book sets out Patagonia's philosophy. And this is where it gets valuable for every single company we invest in. Patagonia's mission statement is to "build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis."


The central idea is that product matters - build the best product. But product isn't just important by itself. It should be cared for because it is something made by a human for another human. You don't want to make shoddy products that you're not proud of. You don't want to make wasteful products that hurt the planet. You don't want to make something that's bought just because it's fashionable - you want it to have real utility, value. 

In everything Patagonia makes, they strive to make the best of its kind. The highest utility. The most durable. The least harmful to the environment.

This same care extends to its staff. So hiring selects for passion. Flexible work schedules permit the pursuit of those passions. Health and child care are priorities (and with the same attitude - how do we provide the very best child care). Self-management (teal) abounds.

And finally, though it's a "rag trade" company with horrible environmental externalities, Patagonia strives to use its profits to find solutions to the environmental crisis. It is a purpose-driven company not just in the utility of its products, which bring customers closer to nature, but in the proceeds from this value, which are used to preserve that nature.

As you can tell, I'm a fan boy. Business doesn't have to be solely focused on growth and consumption. In fact, the best products are often made by companies focused on anything but.

The three last miles of DTC

IAB had a great feature on direct-to-consumer brands a few weeks ago. Deck (PDF) here

I really liked this slide - partially because I'm a language and metaphor kinda guy:

1. To the head: great product utility/performance is more than a hygiene factor - it's the core of your product. Charge less than the value you provide (balance producer and consumer rents). Figure out what your customer needs (data!) and then seek to over-deliver on performance.

2. To the heart: have purpose. Be authentic. Tell your story: remember where you started and why. It helps to leverage data once again to figure out what resonates the most.

3. To the home: (over-) invest in phenomenal fulfillment and customer support. This is all about maximizing convenience as part of the product experience.

To some extent, these three last miles are versions of "selection, convenience, price." Which leads to the question of where this wonderful and chaotic proliferation of DTC brands will end up. I can imagine four scenarios that will co-exist:

- consolidation by the large FMCG companies in the categories with high frequency/critical mass 

- a healthy and long-term independent long tail of specialty brands that leverage data and fulfill very specific needs of a distinct but small target audience

- Amazon private labels that continues to eat at the bottom value-end of the scale and will push DTC out of the market in some categories

- digital FMCG platforms that build large, independent platforms in related verticals (too early to tell whether this will play out)

Capitalism and meaning

Slavoj Žižek, whose name I learned to spell because I liked his ideas on ideology, has a rather cryptic piece in the Spectator (UK) on whether Trump isn't a cause of the opioid crisis so much as a symptom. Which is a rather boring thing to waste your time writing (or reading, for that matter) about. But the interesting stuff that happened to me today was at a board meeting and it's all confidential and so here's the passage that stuck out for me:

"Capitalism is the first socio-economic order which de-totalizes meaning: it is not global at the level of meaning. There is, after all, no global capitalist world view, no capitalist civilisation proper: the fundamental lesson of globalisation is precisely that capitalism can accommodate itself to all civilisations, from Christian to Hindu or Buddhist, from West to East. Capitalism’s global dimension can only be formulated at the level of truth-without-meaning, as the Real of the global market mechanism."

See, this is the problem with Žižek - he thinks he understands capitalism. But like many academics (and doesn't the Moldbugian Cathedral ring true here), he has never understood the ethical triumph that is capitalism. 

[Trigger warning: smacks of Rand]

Capitalism is, in direct contrast to what Žižek the Marxist believes, the first socio-economic order that elevates meaning and celebrates equality in humanity. It is, in fact, global at this level of meaning. The global capitalist worldview is of the non-violent exchange of value using an agreed upon currency - money. That, for the best of my efforts in bringing value, I receive such currency that I am then free (free!) to spend to acquire the value of others' labors. 

It is precisely this abstraction from culture, from the historical rivers of blood and slavery, that makes meaning - it is the only way to live in freedom. In return, it asks the best of each of us and expects us to demand the best in return. And this is where the problems begin.

Contrary to popular belief, it is not the decay of late-stage capitalism that has caused the misery we see around us. It is the lack of ethics and morals to demand better of the goods and services provided by and to us. Who stood against the sweatshop owners, the Taylorist timetracking slavedrivers, the polluters of our planet? And I don't mean the cheap standing they do at universities everywhere, but the actual refusal to consume the goods tainted by greed and violence. Even if it means a loss of comfort or convenience. 

Capitalism has brought us unprecedented prosperity. It has brought opportunity to the darkest places on earth. It is beginning to allow us to live as Gods. But in the end, capitalism only says "you are free to choose." Or as I like to put it: you are a God - now act like one.

Escape velocity

Last year Joi Ito, who was a co-investor in my first ever seed investment Last.fm, published an important essay called Resisting Reduction. You can read it here: https://pubpub.ito.com/pub/resisting-reduction

I agree with many things in it, not least taking an evolutionary and integral view of progress, and that the one currency view of the world is wrong. But there’s a key concept that I have a different take on: that of escape velocity. 

I deeply believe in escape velocity as a human motivator. Whether it is making planetary resources work for a population of 10 billion. Or making algorithms smarter than humans. Or making us a multi-planetary species. 

These are all escape velocity goals. Without them, we have always been heading for the end of the runway as a species. Technology has always been the lever of escape velocity - we have never managed to “change” human nature. God knows we have killed millions trying. 

Escape velocity goals are good segments to think about starting a business in. They’re generally worthwhile ideas to pursue.  

Weapons of hyperscale

Yesterday I wrote about the compromise of German government networks, an attack that seems to be the worst assumable accident for anyone thinking about cybersecurity and nation states. There's no such thing as secrets anymore. Unwittingly, Julian has won. 

Anne Currie, a self-avowed "greybeard" programmer wrote a related article in The Reg yesterday: Ethics? Yeah, that's great, but do they scale?


Her point is simple but powerful: off-the-shelf tooling for continuous integration/deployment and infrastructure-as-a-service have boosted "time to scale" by multiple orders of magnitude. This is, of course, great for companies that make stuff that we want. They'll improve it more quickly and get it to us instantly. But "we're getting close to the point where almost anyone could potentially affect the behaviour of a significant proportion of humanity." Great quote (I suggest removing "almost" and "potentially").

I think she's right. These tools are open for anyone. Before the last election I used to joke that if you give me a sufficiently large online advertising budget, I could swing any European election. I think that's still true. 

I'm not sure how often you interacted with companies today whose primary objective is to change your behaviour so that you stay longer, click more, consume more. I'd bet ten times or more since you got up this morning.

If you value freedom, that's a problem.

P.S. Case in point: the DDOS attack on Github. Look ma, no botnet!

German cybersecurity is dead

German news media ran a story yesterday about a hack by "Advanced Persistent Threat 28", purportedly of Russian origin, who penetrated the data networks of Germany's federal government and its security institutions. That is to say the German equivalents of the entire executive branch, including chancellor, cabinet, and executive branch agencies like CIA, FBI, ICE, federal and state police services, military intelligence and security command. Yes, let that sink in.

Counter-intelligence noticed the breach in December. At that point the systems had been compromised for the better part of a year. A year.


Notwithstanding the fact that all journalism related to this attack is abysmal - in particular the "let's blame a sovereign nation for what amounts to a cyber act of war" based on what: an IP address? a common methodology? - the fact that a breach at federal level can remain undetected for a year speaks to how woefully unprepared Germany is in cybersecurity.

At this point, one should assume that there is no such thing as German state or economic secrets. Everything has been compromised. For a nation that used to pride itself on security and the strength of its intellectual property, this is a very sad day indeed.

What are you ignoring?

What are you avoiding looking at?

I love asking founders these questions. I don't believe I get a real answer until I've spent more time with them, sometimes until about a year or so into the relationship. Suddenly something happens and they open up.

Here are some of the most common issues I see that founders are hesitant to address or talk about with their VC:

- the job is all-consuming and their life is on hold
- all areas outside of work (especially: fitness, love life, family life) are neglected
- worries about how they're viewed by others; doubts and insecurities; wondering how they come across in one-on-ones, in small groups, at board level; worrying about their relationship with board members/VCs, management team
- in general, founder and management team troubles; how much value they're adding; whether they are respected, feared, resented
- they have creative ideas for the business but are shackled by the need to focus on shareholder value, the expectations of board/VCs
- immense time pressure until next capital raise to show traction/"make it" as CEO
- being increasingly and sometimes overly concerned with image/media/PR
- figuring out the best use of their time / not constantly getting sucked into activities
- wanting to change company culture, but unsure how
- worrying that they're not using technology well (especially social media)
- comparing themselves to others in similar positions - how are they holding up? 
- whether they're dealing well with underperforming employees
- lacking people skills/EQ and wondering about how it's affecting their leadership

At some level, these are very common worries for anyone in a position of responsibility. And all these concerns are connected: life is rushing by in a blur, you're completed exhausted and, contrary to expectations, you're not very happy. At some point it's perfectly legitimate to ask: is this worth it?


Step one is to list the items that you're ignoring/not facing with perfect openness and honesty. At least be honest with yourself!

Step two is finding someone to talk to. No matter who you are in the organization - you need a peer, a mentor, a confidante or a coach whom you can trust. Most importantly: this person shouldn't tell you what to do. The world is full of those who think they know what's right for us. But this is a process to help you figure out what's right for you, and not anyone else. So best to get someone less left-brained, with higher EQ and more likely to listen and ask, rather than rush to tell.

Step three is asking yourself the big, million dollar question: what's life all about for you? If you're answering that question completely out of sync with how you're living it, it's time to make a few changes. Most people don't ask "do I want this job"; they ask, "how do I cope?" Gaining the awareness to ask the first question will help in answering the second.

True, powerful leadership emerges once people are in touch with their true, authentic selves. Way too many folks pursue success for the sake of it - living someone else's expectations for their life. Facing that realization and having the courage to do something about it is the start of something great. As trite as it sounds, follow your heart and you will lead others to greatness.


Here's what's really going on in European venture in three charts

Man, you gotta stop clicking on that 'bait. But now that you're here, I thought I'd share three slides from the macro update to our LPs yesterday.

I. The first one shows a now pretty well-established trend. Total deal value in European venture is at all time highs, but number of deals is at five year lows. And you can feel it in the market out there, can't you? Time to borrow some Patagonia from your favourite VC to make it through the Polar vortex. Personal prediction: this is going to get worse before it gets better.


The reason? Many of our early ecosystems, like Berlin, are still figuring out that venture works much better as a consensus-building, cooperative approach if total capital available for follow-ons is the constraint. The savvier investors are starting to wait, round sizes are going up, it's harder to raise smaller and earlier.

Note: Sunstone is doing a push to do more seed rounds (€250K-€1M), so once again we're trying to get ahead of the trend. We want to be early, we have conviction and we will lead every round we choose to do.

II. New funds raised is way, way down (though capital raised is holding pretty strong). We're at a third of the 2008 number of new funds raised, more than 50% down over the last five years. Sounds like smart LPs are doing the same thing smart VCs are doing - crowding into the quality funds. Venture in Europe is still a small, small industry, and it's fairly clear based on track who is doing a good job.


III. Exits remain... well the slide says "relatively strong", which is historically true. But "a mixed bag" would capture it just as well in my view. Look at that tiny IPO number - we're mirroring the US here without any regulatory reason why (at least nothing substantially different vs pre financial crisis). Also note the $500M+ exit for 2017... under ten companies were sold for $500M+ in EV in Europe in 2017. This is still a very, very small and specialized market.


That last number is particularly worrying to me because it's the "available" enterprise value at exit that can sustain European venture funds.

Imagine you have a $500 million fund and you want to do a 3x gross return on it. That means returning $1.5 billion. Assume you own around 15% of your average portfolio company. That means your portfolio companies must generate total enterprise value of $10 billion. Now look at the number of $500M+ exits again (admittedly, these are only the exits where the value was disclosed, but at that level they tend to be disclosed).

Over the last four years, Europe had ~40 exits over $500M. Let's assume the average is around $750 million (which will be generous), that's total enterprise value created of around $30 billion. So as a $500 million fund in Europe, you need to have 33% market share of those exits to be able to do a 3x gross return. Those are very hard odds to make a living by.

Which is another reason why Sunstone likes its "right-sized" early stage fund size of around $140M. It's a way to consistently generate good returns for our investors and be able to become return backers to our entrepreneurs. 

Flus & seizures

For the first time in about a week I'm sitting at a keyboard again. The flu pandemic kicked my butt hard. It felt like rapidly accelerated aging.

I still didn't feel well enough to travel last night. And so I missed attending our bi-annual LP meeting in Copenhagen today, which is a pity because meeting our investors is always a big learning opportunity. 

But a few years ago I got onto a flight while still congested and damaged an ear drum. That was very painful and I couldn't hear properly for weeks. I promised myself not to do that again, so I feel pretty good about keeping that promise to myself.

On top of my own illness, I infected both my pregnant wife (double brownie points for that one, as you can imagine) and our daughter Charlotte (2). "Charlie" then had a febrile seizure on Saturday. For those of you who don't know what that is (like me, prior to Saturday), it looks just like an epileptic seizure and it's brought on by high fever. She convulsed for several minutes, seemed to stop breathing and started to turn blue.

Thankfully we are pretty good in these situations. We had her on her side immediately, opened her airways, and had emergency services at our house within 5 minutes. By the time we were riding in the ambulance she was getting back to her happy self again (and what's more important an SpO2 of 98%).

So she's fine, but we're a bit shaken. Because, you know, "...to have a child is to forever have your heart go walking outside your body." (Elizabeth Stone via Jerry Colonna). Ain't that the truth.

So, all this to say - I'm back. And I look forward to writing about more boring stuff this week.

To lead, first be loyal

Leadership is often used to mean "getting people to do what you want." A more worthwhile definition could be "getting people to want what you want." Or even better "making things that should happen, happen."

Leadership, above all, requires loyalty to both people and truth.

Top-down organizational change rarely works if the people aren't ready for it. At other times, I have been a hapless bystander as management has ruined a good company in a bad market by trying to drive it to greatness. Great theorists can make the worst generals.

As I don't tire of saying: people are more important than things. At times, those things include the truth.


Sometimes, all it takes is a bit more time for people to come around to your view. So be patient. Respect someone's ideas and dig deeper to see why they don't like what you believe to be the truth. Such a clarifying journey can be helpful for both the leader and the led.

To "command" loyalty is impossible. To deserve loyalty, first you must be loyal. This includes loyalty to your people, but also to yourself.

In speaking truth, it is thus necessary to gauge the readiness of others to hear it. They may need to hear it. They may say they want to hear it. But sometimes they can't hear it. Timing is crucial, since you may not get a second chance.

Above all, be loyal to yourself in evaluating the truth. Question whether you see what you want to see or you see what is. When discovering that the truth is not what you want it to be, do not take it out on others. Authority exercised thus is not just disloyal - it is incompetent and cowardly.

Authority is granted; it does not happen by appointment. Good leaders realize that whatever they may wish to do, it is only in the strength of their team that they can hope to accomplish it.