‘Do not have Silicon Valley envy’: Martin Green @Techtoberfest Anthony Reinhart October 17, 2012 Startups As the dust settles after Waterloo Region’s inaugural Techtoberfest startup conference, a few things have become clear – and we don’t just mean the heads left foggy by all that Bavarian good cheer. One is that our startup community has much to celebrate, with new companies surfacing daily and the broader ecosystem gaining altitude – and attention – from far and wide. Another is that we’re too busy being ourselves to worry about trying to be more like Silicon Valley, or Boston, or Boulder, or New York – and that’s a good thing. The point was made prominently at least twice throughout Techtoberfest’s three days; by Reddit co-founder Alexis Ohanian during his closing beer-and-pizza session, and by Martin Green during his opening-day keynote. “Do not have Silicon Valley envy,” said Green, a longtime San Francisco resident who is as qualified as anyone to give that kind of advice. Born in England and raised in Waterloo, Green parlayed a Queen’s University commerce degree into a gig as an investment banking analyst at Morgan Stanley in New York in the early 1990s. Bored with the slow pace of deal flow, he secured a transfer to the firm’s Menlo Park, Calif. office, where he climbed aboard a rocket called the Internet (it still took an upper-case ‘I’ in those days). After steering CNET to its IPO in 1996, Green joined the fledgling tech news site and stayed 10 years, serving in various high-level positions. In 2007, a year before CBS acquired the company for $1.8 billion, he left CNET to join instant-messaging platform Meebo. Google acquired Meebo in June of this year, leaving him free to write his next chapter, which includes a mobile project and some tech investing. I caught up with Green after his keynote, and we found a quiet corner (no easy task during Techtoberfest) to chat. Our conversation went like this: Q – Tell me about the Waterloo you left. A – It was a phenomenal place to grow up. It was a great place to be outside, so I spent a lot of time at Clair Lake, which was a walk from my house. I spent a lot of time just hanging out in the streams and that kind of stuff, fishing for catfish, and playing hockey very badly on Columbia Lake during the winter. I spent summers at Laurel Creek Conservation Area; I volunteered there. Did a lot of fishing. A lot of spending time outside, alone. I lived in Beechwood in Waterloo. Q – Where did you go from Queen’s? A – I went to Morgan Stanley in New York. They did on-campus recruiting. Q – So a Waterloo kid suddenly finds himself in New York City? A – Yeah, it was a big shock. You’re a little bit intimidated because you find out who else is there, and it’s the captain of the Princeton ski team and all this kind of thing. And you realize, six months later, that it’s kind of all about the work; how hard you work and how well you do it. Q – What was your role at Morgan Stanley? A – I was an investment banking analyst. I was there for about two years, and I moved after a year to Menlo Park in California. I had worked in a small group at Morgan Stanley in New York that dealt with very slow-moving Japanese companies, relative to their U.S. investments, and didn’t do a lot of deals. A more-senior person at Morgan Stanley took me aside – I was doing 100-hour work weeks and just thinking about how I could do as good a job as I could – and this guy took me aside and said, ‘If you want a career here, you need to get out of this group, because there’s no deal flow. You’re good enough, but you’re not getting experience.’ So I listened carefully and I thought, ‘Okay, I’m going to find the group in the world at Morgan Stanley that does the most deals.’ And that was in Menlo Park, California, working with tech companies. And this was 1995. I was fortunate enough to be able to transfer, and I got put on a live deal literally the day I arrived. I got off the plane Friday evening, I went to the office and prepped for a 9 a.m. Saturday kick-off meeting with Intuit, which was raising money at the time. I worked on, I think, 13 transactions in the next 12 months. Q – So you got what you wished for. A – I got what I wished for. It was an amazing experience. One of the deals was taking CNET public. That meant drafting, in 1996, the IPO prospectus, and doing the roadshow with investors to talk about the internet and what it was going to mean; how big a business you could grow on the internet. Before you could pitch the company, you had to pitch the internet, because there were a lot of investors very skeptical about the internet. Q – It’s hard to fathom that now. A – Yes, but in 1995 there were [only] 40 million people connected to the internet worldwide. Q – So did you end up jumping from Morgan Stanley to CNET, then? A – Yes. I started doing business development, and then I did product management. Then I did some corporate stuff like corporate finance, and then I was an SVP of operations for the business, reporting to the COO, and I sat on the executive committee. There was a period where I did the budgeting process; I was there 10 years so I had a different job every two years. We were all making it up as we went along, right? So, it was neat to get a different perspective. Q – What kind of growth happened during that 10 years? A – We went from $3 million in revenue to $300 million in revenue per year; from 200 people to over 2,000. I guess we went public at about $180 million valuation, and it got sold to CBS for $1.8 billion. But that was after 12 years. Q – Were you still there when CNET was sold? A – I had left a year before. I had actually joined them two weeks after the IPO, but like Facebook, the stock traded down after the IPO. Like, literally after we went public, all the internet stocks were down for some random reason. It was a funny time. Q – What prompted you to leave investment banking to join CNET, which was still a startup at the time? A – I really enjoyed investment banking, and I was not looking to leave it. But, the group I was a part of took Netscape public, and Mary Meeker was our research analyst, who was just a phenomenal research person; now she’s a partner with Kleiner Perkins. And, the more I learned about the internet, the more I thought, ‘Wow, this is going to be one of those once-in-a-generation phenomena; it’s going to change everything.’ You didn’t know exactly what was going to happen, but you just knew it was all going to change. All the things we knew about the world were about to be changed in some very significant ways, and I wanted to learn first-hand from people who were doing it. Q – So you started there in 1996? A – I was there from ’96 to 2007, and I joined Meebo in 2007. Q – Meebo was already going at that point? A – Yes, it had 10 people, and it had an A round from Sequoia Capital. We had got to know each other, and the founders were trying to find a more-experienced business person to help them build a company out of the product. We got to know each other, and they said, ‘Why don’t you come and help us build this?’ I really liked the product and I liked the people, and it was clear that social – connecting people online to chat with each other, to connect with each other – was going to be important. I didn’t know how it was going to turn out; other people may have been more prescient than I, for sure. People were spending about two hours a day on Meebo, so I thought, we should be able to figure out how to turn that into a business. Q – What was Meebo? A – It was putting instant messaging in a web browser. So, what Hotmail had done for e-mail, and now Gmail does, where you don’t download a client to check your e-mail, we did that for real-time messaging, and connected you with any web browser. You just typed in Meebo and then you used it to message with friends from Yahoo instant messenger, MSN, AIM, and then Facebook and other services as they came along. Q – So, you were back at a startup again. A – Yes, so I went from Morgan Stanley, which was much smaller than it is today because it was a boutique investment bank with, I think, 4,000 people; to CNET, with 200, and then Meebo, with 10. Now, at the thing I’m working on now, there’s two of us. Q – And Google bought Meebo, right? A – Yes, Google bought it in June of this year. Q – Now that it’s been sold, what are you up to now? A – I am helping to fund and start a mobile project. We’re testing a prototype, and if we can get the prototype to work – meaning customers have value in it – then I’ll call it a startup, but it’s a little premature to call it a startup right now. It’s an idea. And I’m doing some tech investing. Q – What was it like to go from investment banking into startup world? What did you learn about each of those worlds that you maybe didn’t realize while working in the other? A – When I worked in finance, I really under-appreciated the difficulty of getting the strategy and execution right in building a company. I kind of figured that was the easy part, and that anybody could do it, and that the hard part was the financial engineering. How wrong I was. Now, financial engineering is hard to do, but it is a real specialist activity. It’s kind of like, if you’re skiing, it’s the discipline of the GS; hundredths of a second matter, and you’ve got to really have it dialled in. But, building a company is a little bit like backcountry skiing, with skins and no compass. You have no idea what’s coming at you; you’ve got to figure it out as you go along, and there are so many variables, from customers, technologies, people issues, competition, regulatory changes, finance. You’re never going to be an expert in any of them, but you need to pull it all together and make it work. It is a multi-dimensional chess game. Q – If you could go back to those investment bankers you worked with before you joined startup world, and tell them something about the entrepreneurs they deal with, what would you say? A – I think the investment community – not all of them, but a great number of them – project the future from the trends they observed in the past. They extrapolate. It’s in human nature to do that. The thing that startups do is, they invent the future. They are kinking a curve, or they are attempting to do that. Often times they fail. So, you really need a better assessment of the fundamental variables to find out if a strategy is going to work. You’re not extrapolating from the past into the future. It just does not help you; it’s not illuminating. There are a great number of examples of that; Groupon, Facebook this year. They were on the up and then everybody got negative, and now everbody’s negative, and maybe the future is going to be much better than people assume, because Facebook’s working really, really hard to invent stuff that doesn’t exist right now, in mobile advertising. Maybe they’ll be successful and maybe they won’t be, but you’re not going to figure it out by extrapolating from the past, and too many investments are analysed on that basis. Q – To flip the question around, what can startup people learn about finance that they maybe misunderstand or misperceive? A – Well, I think a lot of startups correctly are focused on the customer and the solution. But, in addition to that, as soon as they’ve validated that there’s a real customer need, that their solution works, then I think the one thing that they need to do before they grow it is get the microeconomics of the business right. Are you building something that has profitable customers? What do your margins look like? How many customers do you need to sell before you cover your fixed costs? What percentage of revenue should you be reinvesting? When do you get to cash-flow break-even? These are the types of things that a lot of first-time startup entrepreneurs don’t think about. They think it’s premature, but you need to dial those things in before you grow your business. Q – If I’m hearing you correctly, that speaks to the strength of the Canadian startup community, where companies typically have to bootstrap for a longer period before they raise money. So, instead of seeing that as a problem, they can maybe see that as an opportunity? A – Absolutely; I definitely think so. I will say this caveat: I don’t know what it’s like to build a company in Canada, so far be it from me to be the person who opines about what to do here; I don’t know the realities. That being said, Jeff Bezos built an incredible company out of Seattle. Now, Seattle had Microsoft, so there was a kind of ecosystem of people, but it wasn’t part of the Valley. So, I think there is an opportunity if you take it, which is to focus on the building of the product, the validating it with customers, and on the economics of your business model, and not getting all wrapped up in what angel round of financing the latest photo-sharing site in Silicon Valley has just raised. That is irrelevant to your business, and if you focus on it, you’re not taking advantage of the space and time that you have here. Q – You’ve lived in the Bay area for many years now, yet you told your audience today to drop their Silicon Valley envy, and to be glad they’re not there, in a way. Why are people so envious of the Valley? A – You know the age-old thing about, ‘Oh, I lost my keys. Where am I going to find them?’ I’m looking under the street lamp. They could be anywhere on that street, but there’s a light shining under the street lamp, so that’s where I’m going to look for my keys. So, there’s a light shone on the activity in Silicon Valley, but the keys may be somewhere else. The reality is, there’s so much written about, written by and written for Silicon Valley, that I would imagine Canadian startups go to GigaOM, they go to TechCrunch, they go to VentureBeat, so their view of the world is somewhat skewed by that. The reality of a lot of Silicon Valley companies is that their customers aren’t in Silicon Valley. Q – It’s the same everywhere for tech companies; their markets are global, not local. A – Exactly. Your customers, inevitably, if you’re trying to build a big business, are everywhere, and they are by definition not just where you’re located. What really matters for building a company is figuring out what customers in a very large market segment really need, what a really big problem is, and super-serving it better than anyone else. And then, having a business model that takes less value from the customer than you’re delivering to them, but enough that you can make a good business out of it. There should be no inherent advantage to starting a company that is focused on global customers in any particular area. Freemium business models, the consumerization of the internet, iOS platforms, Android platforms and other platforms mean that the means of distribution to those customers don’t have to go through a sales force that’s knocking on doors. So, the world is flat in terms of distribution to customers, and there are two billion people connected to the internet today. And they are not all in Silicon Valley. Now, what is in Silicon Valley, in spades, are a bunch of entrepreneurs, engineers and infrastructure that’s sympathetic to making it easy to start companies. With places like Toronto and Kitchener-Waterloo, the question isn’t, ‘Are they as big or as good’; the question is, ‘Are they sympathetic to a startup’. When the startup needs space, does the landlord say, ‘That’s great; I need a letter of credit for two years of rent’, which the startup doesn’t have? And, if they have that cash, they certainly shouldn’t be putting it towards two years worth of rent. These are some of the things that matter. So, as long as those basic building blocks of a company are in place, then the next thing is talent. Talent is one part capability and one part supply and demand. The thing that Silicon Valley has in spades is that there are a lot of very capable people. I am positive there are a lot of capable people here, as well. The other thing about Silicon Valley is, demand for that talent is off the charts. Q – And people don’t stay as long at a company, because they can walk across the street and get a better deal. A – That is exactly right, and they’re in the bubble of, ‘You’re not cool unless you’re working on two startups at the same time’. I think Jeff Bezos said that this is a huge advantage for Amazon, and Tony Hsieh from Zappos created an amazing business in Las Vegas, and thinks it’s a huge advantage that they were there and not in Silicon Valley. So, don’t have Silicon Valley envy. But have an awesome focus on customers, and a great mission to solve a real problem, and find people who are interested to join your team and solve that problem. Find customers who want that problem solved. Find investors who think that problem is worth solving. Those are the things to focus on, not the bubblicious stuff.