Welcome to the Berkeley Innovation podcast brought to you by Berkley engineering's sitar Jazz Center for entrepreneurship and Technology s CET on the thriving Campus of the University of California Berkeley Hello friends. This is Stephen Torres your host on this journey of innovation entrepreneurship and achievement today. We have a really special episode for you. It's a Newton series classic if you're a startup founder innovator and achiever thisEpisode is for you. If you work in Tech or our Tech fan, maybe a tech investor. You're also going to love this episode on November 3rd 2009 just four months after launching the new Venture Capital firm Andreessen Horowitz co-founder Ben Horowitz visited the Berkeley campus and shared this message. The talk was originally titled how to build a technology company and in it he shares his insight to Oh good and bad. He learned a long his entrepreneurial journey to that point in this episode. You're going to hear about that journey and you're going to hear about what he was looking for when they started Andreessen Horowitz as far as companies to invest in and people to work with we hope you enjoy this episode and get a lot out of it on your own entrepreneurial Journey. So let's get right to this amazing episode. Enjoy. Good afternoon. it is my honor to introduce to you Ben Horowitz our speaker today Ben is the founder and general partner of her of Andreessen Horowitz a new Venture Capital firm that he will talk about but prior to starting this company been was the founder president and CEO of opsware very successful company that he also co-founded with Marc Andreessen and was sold, I believe in 2007 to Hewlett-Packard for 1.6 billion dollars and before opsware been actually met Marc Andreessen at Netscape in early 1995 before Netscape went public and you know as probably many of you know, our remember that was really the definitive internet web company of the 90s that really made everything happen and possible that we take very much for granted now so Ben thank you very much for being That's today. All right. Thank you. All right, so I'm here and I'm going to talk about building a technology company and I actually originally titled this presentation how to build a technology company and I realize that was silly because it's kind of like giving a presentation on how to play quarterback in the NFL if you went to a presentation on something like that and went out there you probably get killed and the same thing is true here. It's a very Dynamic and ever. So this is just kind of much more my experience in doing it and then what we look for now. And new entrepreneurs who are trying to do the same thing. So today's talk is basically going to be three parts one my own experience secondly and I will say on my own experience. I'm going to give you the things that went wrong as well as the things that went. Right, so it'll be a little different than some of the business cases that you might be used to. Secondly, I'm going to talk about and discuss. Is it a good idea to start a company now or is it too late are all the good ideas gone because there's been a lot of Articles lately. Reality is Venture Capital over as entrepreneurship over is technology over and so we'll talk about that you obviously know where I come out since I just started a new Venture Capital firm and I'll talk about what we look for their so I'm back home. Actually. That's where I went to high school Berkeley High School. No, yellow jackets, and so after Berkeley High School I went and I got my degree. Free from Columbia University in computer science and back in those days computer science was actually somewhat controversial degree and Academia if you can believe it because a lot of the academics thought that it wasn't like real engineering that it was just like how can you have a degree based on like the tools you use to actually, you know use a computer the computer like electrical engineering that's a degree. That's a manly degree not like a little wimpy degree like computer science. Those of you are taking computer science are probably going well that's idiotic. But the funny thing is it wasn't just an Academia that they thought computer science, you know and software in particular wasn't that serious and Endeavor but in Industry as well and when you think about G, how did IBM just give the PC operating system business to Microsoft the real mistake they made was they thought software is just a little thing that came free with your computer like all of software the entire field. Old and that the computer was really where it's at. So that turned out to be a really good decision to go into what at the time was a controversial degree, which was to get a degree in computer science. After that. I went to UCLA and got a master's in computer science and I will say this about degrees because some of you are probably wearing should I am i setting the right thing? Should I be studying, you know networks artificial intelligence. Should I be studying business? What should I be doing? And I just want to say that. I was I found it a company as you heard. I was CEO of that company. That was a public company. I was CEO of a public company for six years. We sold that company to Hewlett-Packard for 1.6 billion dollars and I have yet to take my first business course. So don't get too stressed. I don't necessarily recommend that path, but you may like it. Okay, so there is a picture of me and Warren Buffett and despite what you might think I didn't put it up there because we're both extremely handsome. And I didn't even put it up there because he is for those of you don't know he's on and again off again the richest man in the world and he's certainly the most storied investor of our time but he also happens to be like quite hilarious. So I and he tells a story about business that I would be remiss if I didn't tell you guys so what Warren Buffett says like the best thing about being rich is that you don't have to do business with people who you don't like because doing business with people you don't like is kind of like marrying for Money probably not a good idea in any case but if you're already rich it's ridiculous. So that's my muffin little words of wisdom. So now we can get into my story and how I built the company and but before I do that, I want to give you some more words of wisdom. That's me and the King of Pop the late great king of Pop Michael Jackson and once again, although he is very handsome. That's not why he's up there. So the first thing to understand when you think about building a company is Is something that comes from a meeting that I had with them? So in this picture I went down to he was getting into the internet and he want to learn all about the internet. So Keith, I'd be a good idea to meet with me which maybe wasn't such a good idea. But anyway, I enjoyed it and so I went down to meet with Michael Jackson and he kind of been less interested in business like kind of been less interested in business. And so we really didn't have that much to talk about but fortunately just a week earlier. I had watched The Wiz which those of you don't know is musical that was turned into a movie starring Michael Jackson as the Scarecrow and in The Wiz he does this spin move on the yellow brick road. That is like the best spin move you could ever imagine. It's way better than the moonwalk or anything else he did but nobody ever talks about it because it was in The Wiz and nobody liked the wisdom movie. So I said, hey Michael, I was watching The Wiz last week and that's been you did on the yellow brick road. That was like better than anything. I've seen from like a ballerina. Arina or anybody. That was awesome and he goes. Oh, yeah, and not only that it was way harder than it looked because I had to go uphill the yellow brick road was actually on a slant and I was like no way it's like way but that's the biggest lesson about building a company it's harder than it looks just like spinning up the yellow brick road. All right. Okay. So now I'm going to actually get into the presentation so conventional wisdom on how to build a company what are some of the things that people say well You might get an MBA. You might come up with a good idea. You might write a detailed business plan about that idea might carefully tests the idea and refine it you might get the business to profitability and then grow it. Is that right? I don't know because I didn't do any of that. So what do you need to build a new technology company? I think there's really two things that are very consistent with every good one. That's ever been built. So what does matter number one you have to build a transformational product? There is no way to build a great new company without a great new product because you know, I'll tell you now Microsoft IBM Hewlett-Packard, they can all hire people they can all train people. They can all cell they can all Market with they all have trouble doing Is innovating coming up with something like truly new truly transformational and it's got to be way better than what's out there or way better than the current way of doing things. And since I'm at Berkeley, I'll point out that technology when you talk about technology from an etymology standpoint technology literally means better way of doing things. So when you're in this business, if you're in the technology business the first thing that you have to do the fundamental thing, That you have to do is come up with something. That's way way better than what anybody's done before what anybody's doing currently and if you have that then you have a chance of building a company around it. But without that you're not going to get anywhere so products matter, that's the first thing and because you'll hear a lot of people say what's really important as a business model or what's really important is marketing our what's really important. Is this or that but what's really important is the product that really is the main thing. And that doesn't end actually with starting a company. So if you look at the great technology companies that thing that distinguishes them is the ability to keep coming up with a better way of doing things and I'll give you a really good example. So those of you most of you know Apple computer because they make a lot of great products, but the story of what happened at Apple computer it was they started out to be a great technology company and there were run by their founder. Steve Jobs, who was the product Visionary and then as Apple got big the people including Steve Jobs decided G. This is too big. I don't know how to run a company. I don't have a business sense. I don't know how to do it. Let's bring in a real executive and they brought in John sculley who was an executive at Pepsi. So these were the early days when you thought it was a good idea from someone from Pepsi to run apple. And so John sculley proceeded to run apple on the way that a lot of professional business people might run Apple which is to not really come up with better ways of doing things and so once the product cycle that Steve Upset created and then along the way John sculley fired Steve Jobs because he was in the way and he was kind of a kind of a dick but he was a very Innovative and very important to the company. So after he fired Steve Jobs Apple started to fall apart and by the late nineties apples was very close to bankruptcy like had completely imploded and they missed product cycle after product cycle after product cycle. Now if you go back and read The Articles if you go back and read businessweek or Fortune, are you read anything from like any of the analysts of the time the Gartner group or what have you they all had the same analysis of Apple what was wrong with apple was they didn't take the Mac OS and make it available on all computers. They tied it to the hardware. And the right thing to do was to separate the operating system from the hardware and it was completely uniform conventional wisdom. Well, so they tried that Gil Amelio came in and he like move the, you know, put the OS on other computers. The truth of it was that wasn't the problem and it was too late. Anyway, like it might have been the problem in 1985, but it wasn't the problem in 1999 that wasn't the problem with apple anymore because like Microsoft's operating system that ran on lots of computers had gotten pretty good and was almost as good as Mac OS and it just wasn't the thing. So then Steve Jobs came back in Funny Thing Happened through an acquisition and then he ran a coup and overtook Gil Amelio and to the joy of all people who use technology took back. Over the company and when he did that he did a funny thing. He got rid of all the Clone manufacturers the people who are were using Apple OS on other computers. He said we're not going to do that anymore. We're going to forget the horizontal strategy that everybody thought was right strategy for us and we're just going to like build better products and in building better products, ironically the strategy made them completely vertical so of like not only did he put the computer in the operating system together like he had a music player and he had a store. He made it more and more vertical exactly the opposite of what of what everybody said, but what he did do was he started making good products and so from a bankrupt company that had to have some like elaborate kind of structural industry structure strategy to get itself out of by separating the operating system from the hardware, like none of that worked. What worked was building better product and what always works is having a better product and that's what the technology business really is about. So before I get to my second bullet I've got to tell you story. Hopefully you don't mind the stories. Okay starts. Okay, because when I wrote the second bullet like it turned out to be an inside joke. And so I said, well, I better rewrite it because these guys aren't gonna understand the joke, but when I tell you the story, so there's a famous boxer by the name of Bernard Hopkins and he's a you know, one of the great boxers of our era, but before he became a boxer he was in prison for about five years and so people are always wanting, you know when they interview Always ask them. You know, what was prison like like that's a question. You can just answer what was prison like, I don't know so they asked Bernard I said, you know, what was it like in prison and Bernard Hopkins says, well, you know that movie with Tom Hanks A League of Their Own with the women baseball team. The guy says yeah, he says well, you know how Tom Hanks says there's no crying in baseball goes. Yeah, so it's well, there's definitely no crying in prison. That's what prison is like. So with that in mind the second thing that you need need to do is you need to take the market and why do you and by taking the market you have to win the market so you can come up with the best product but if you don't win you really don't have a company and the reason is there's no crying in baseball and there's definitely no profits for number two in technology. Like that's just the way you know, that is the way it works because most of the technology business our Network effects business meaning if I you know, if I buy Microsoft where it's much more valuable for you to own Microsoft Word because we're compatible With each other and so there's no room for wordperfect. The number two similarly. Like who's the number two networking company who's a number to database company? Do they make any money? Generally the answer is no so number two is taking the mark and by that, I mean winning the market you have to win and when you think about if you're an engineer what business skills do you need to build a technology company? There are all around the skills. You need to win the market. How do you mark it at cell? And beat the competition that's ingredient to and those are the two things that really matter. Can you build a product that's been better than anybody else's and better than the current experience by enough that people will actually change and then to do you take the market. Do you beat the competition? Do you build a good enough company that you go win? So starting loud cloud and Ops or so my story now, we're going to my story. So how do I get to be CEO? And this is I think an important thing that I just want to point out. So in America is a little different than other countries in that the way CEOs are portrayed is a little different, you know, normally they're a little more respected. For example, they actually did a study in the US and US television in the 80s and 90s. of murders on television were committed by CEOs and so as part of you know, as an extension of that a lot of people will think gee if I want to run a company if I want to be a CEO then I need to be ruthless and I may need to be Criminal. But that's not actually true. In fact, it's pretty far from being true and that if you work your way backwards and say what is the fundamental thing that's required of a CEO. What's the fundamental thing that you have to be able to do in order to be CEO as you people have to want to work for you? Like that's it because of nobody wants to work for you. You're a CEO by yourself. Right? Like you can't actually do anything. And so how do you why would anybody want to work for a person? Well, do they have good vision? Do they care about my interests and not just there as you know, like are they somebody that I can get Behind These are the questions people ask of themselves. So to be a good CEO you actually want to do the opposite of what's portrayed on TV and you don't want to be ruthless and you don't really want to be a dick because nobody wants to work for that. And of course Warren Buffett will never do business with you either because it's like marrying for the money. So to be a CEO you you have to at some point people have to want to work for you. That's a fundamental skill that you have to have. Secondly the founding team. What does what ought to the founding team look like and in technology companies and ideal founding team is usually two people and the two people are of two different types. So one you need an inventor. And it's the inventors job to build the product that's 10 times better than any other product that's ever been built in the space or anything better it 10 times better than anything that's available to solve that problem. And then you need an entrepreneur and the entrepreneurs job is to take the market. And so if you think about the company, you know that the companies that I found it. So my partner Marc Andreessen, he was the inventor and I was an entrepreneur now what helped a lot for us. Is that as the entrepreneur I've got a master's degree in computer science. So I understood invention and I understood how to drive the company around continuous innovation and that's really really important and Mark although he was the inventor, you know when he like Vented the browser and a lot of important things he knows a lot about business and he knows a lot about taking markets and he knows a lot about competition. And so the best thing to do is have two people who know how to do both but at least one person who's world-class in each and that's how you think about the founding team. And so then okay, so you've got that I get it. Build a great product be ready to win the market put together the team that can do that. How did we start the company and really like that's the easiest thing like starting a company is all about having the courage to do so, like there's not really more to it than that. It is really easy. It's never been easier to start a company. You know, you just say hey, I want to start a company then like then it gets hard. Once you've started it. Then you got to go get money and do all these other things but starting a company. We really just sit around and we said, You want to start a company and that was that? So let me tell you I'm gonna take you through a brief history of that company so starting at at the founding. So the idea that we had to start ups around loud Cloud was we were all at a company called America online at the time which some of you may remember and is still actually around believe it or not. But that was the company that acquired Netscape which is our prior company and well at America online in 1999. We ran into this. Problem, which is there was a site shop at AOL and shop at AOL was the biggest e-commerce site on the internet bigger than Amazon at the time and we were running it and what would happen is every time we'd sign up a partner for shop at AOL because it was really just a shopping mall. So we'd have like Barnes and Nobles as a partner and Toys R Us as a partner. We would hand them the AOL traffic and their site would collapse and when we went and looked at G, yr. Their sites collapsing what we found is Like none of them knew actually had a like run these new sites and at that time like multi-tier architectures were new storage area networks were new application servers were like barely invented and so people didn't know how to build these things and we thought gee when it'd be a good idea. If somebody built something to do it for arm, we could call it a cloud like it could be like cloud computing and it would be called Loud cloud and like we thought that was a really good idea. And so we started the company and it was a really good idea. It was just like Yours too early. It's not a good idea to be ten years too early and Technology. Don't do that. That's bad. So then what happened? Well, so very we were in what's known as the internet bubble. And by the way, this is a chart I should point out of our market capitalization and that's in so, you know thousand is a billing and so it's in thousands and if you turn it upside down that's a chart of my blood pressure during that period so Two months after founding we raise money from Benchmark. Basically Clay on the pedigree of the founders at a valuation that you know, basically was eye-popping for us of 66 million dollars. So the company two months after we said, hey, let's start a company like we were at 66 million dollars, which is a lot of money. It's even a lot of money to me now, then the business initially took off everybody thought it was the bubble everybody thought cloud computing was a great idea. We booked a ton of business we had Twelve million dollars in bookings in our first four months after we started the company. So we started the company and four months later cloud cloud, the cloud computing business had 12 million dollars in bookings and like lots of customers and it was going great. Like it was like the business went off and then nine months after founding when we did series C. We raise money at 820 million dollar valuation, which like was ridiculous and stupid and silly and and we thought people had lost their minds and they had but like that's where we went and the problem with raising money at the high valuation like that as people expect you to build a really big company and the problem with people expecting you to build a really big company as they expect you to spend all of the money that you raised really really fast, which we did which caused a little bit of a problem later on so then shortly thereafter the so-called Bubble Burst And the impact of the bubble bursting press was about half of our customers went out of business, like literally went poof, which is bad if you're a cloud computing company because you've basically provision and purchased a lot of infrastructure to run all those companies nonetheless and you can see as we slide down. We took the company public in 2001 and interesting fact about that in 2001. There were only two IPOs in technology loud cloud and PayPal and I'm very good friends with the PayPal at guys and they were similarly traumatized and are also ironically we both sell Dar companies for the exact same amount of money PayPal on us. So like but that was it that was all the IPOs and then they cut it off. They said stop the madness and the bubble you guys are retarded. You're stealing all our money go home. And so after the IPO things got worse and worse in our sector and the big thing. So just to give you an idea or maybe main competitor Exodus which was the Big Data Center company the aptly-named data center company because that's basically what happened with their customers Exodus. In January of 2002 are in January of 2001 raised nine hundred million dollars nine hundred million dollars against what they claimed was already fully funded plans. So they raised nine hundred million dollars for expansion. They were worth 50 billion dollars as a company nine months later. They went bankrupt like that's how dramatic like the fall-off was. It was horrible like harvoni. Look there. I'm laughing like it was horrible. Well, but like it was really horrible. And so we started to slide as well and we were going to go bankrupt. There is no question like we there was just we basically found a market of cloud computing and that market disappeared overnight particularly cloud computing from a semi viable provider, which is what we were and so as we were on our way to certain bankruptcy. I was sitting there going okay, you know, sometimes when you have something really Bad happen to you or something really bad about to happen to you. One of the things I like to do is I ask myself how how bad is this? Really? How bad could this be? Is it really that bad? Should you really be up at three o'clock in the morning and a cold sweat like are you really acting correctly? And so I said to myself how bad could this be? And I thought well we're going to go bankrupt which is going to be really embarrassing. Okay. I've been embarrassed before I'm gonna have to lay off all the employees that's going to be really horrible and terrifying. I'll never be able to do this again because I will have burned through all of that cash that I raised that a very high valuation is thinking, you know, this isn't making me feel any better. And so I thought well what if before we go bankrupt before we actually run completely out of cast like is there something I can do? I said, well what am I going to do? Once we go bankrupt and I thought well, once we go bankrupt, what I could do is I could take by the software that we use to run the cloud. I could buy that out of bankruptcy and I could start us off our company. That would be a good idea and then I thought well what if I could do that before we go bankrupt? And so that was like a best idea I've ever had in my life. And so as a result of that I sold the cloud computing business to EDS, which was the basically service that ran the cloud and then I took the software and we became a software company opsware and opsware went from at the bottom there 35 cents a share we worth about 30 million bucks to 1.6 billion dollars in the sale to HP. And hooray. We were all happy. So that's the story of loud cloud and I'm sweating just thinking about it say Here's another good picture. Now this picture there actually are two handsome people Bill Clinton and there's my lovely wife. And so you're going why are you showing me all these pictures of famous people you really have a lot of problems. So I wanted to picture about leadership. So the last thought I want to leave you with and building a company. There's I often get asked what's more important leadership or management? And I was that Bill Clinton was a much better leader than he ever was a manager. And if you're starting a technology company, the key ingredient really is leadership because there's just not that much to manage it first and you can learn management is a little easier to learn although you can learn leadership, but the the end the key ingredient and Leadership is really something that a guy who used to work for Bill Clinton colon Powell said, which is leadership is the ability to get people to follow you. If only out of curiosity you guys getting need to come on. I need a better reaction than that. That's like one of the greatest things ever and that's really is what it is because there's so many times when you're building one of these things that there's absolutely no reason for the employees to stay with you. There's no reason for anybody to listen to what you're saying. And so all you can do is keep them curious enough and what's going to happen next to keep them on board. Alright, so next part of the talk. Is it to light like did I miss the boat? Like is it all invented? Gee? I wish I had thought of Facebook good grief. Now there's never going to be a Facebook again. It's all over and you guys are laughing but you know, there has been a lot of articles about like gee there's no more Venture Capital. There's no more Innovation. Like it's too late and probably many of you have roommates or fraternity mates or friends who go Are you going into computers isn't all done. I've got everything. I need I got my computer. I got my iPod. I'm like at my iPhone like what else is there to build? I think I've got all the technology. I need does anybody ever heard that? Yeah, you guys forget that. Okay, so I'm going to tell you how to sew and it's an interesting rhetorical question. How much do we need like how much of this stuff like when is enough enough? So I think the best way to look at a rhetorical question like that is to move back through history. So if you go back to 1843, this is a quote from Um Henry Ellsworth who ran the patent office and it's a free famous quote and basically an in Henry ellsworth's defense. He was basically echoing what he had been hearing. So there were a lot of people who wanted to shut down the patent office because they were like, it's over we've invented everything. It's done just stop like it's 1843 for crying out loud. We've invented all there is to invent. There's nothing left to invent. We don't need patterns for That's a pretty good ringtone hooray. It's another earlier. Thank you. So 1936 John Maynard Keynes generally considered there are at least in the conversation of the greatest economists in the last hundred years. And this is not one of the smarter things that he said, but basically what he was saying here is once people's needs are met like his because that he said once people's needs are met once they've got food once they've got shelter once they've got like the basic things taken care of. Then a they're not going to want to work anymore. So like why work if you've got your basic needs met you're going to work much fewer hours and two as a result of that. They're going to save an enormous amount of money because like they're going to be making so much money and their needs are all going to be met and there's going to be nothing to buy and so he predicted two things that one in the next 50 years people would work a lot less into the savings rate would go way up. So those of you know economics are probably the ones who are laughing because of course The exact opposite happened so like why do you get that so wrong? Well, the 1936 he didn't think you needed a washing machine. He didn't think you needed a color TV. He didn't think you needed a car for every person your house. He didn't think you need an iPhone. He didn't think he needed any of that. Those weren't needs those were once well what we've learned through history is needs turn into wants and wants and needs there isn't actually a line between them like a need can quickly become a want. I need Gucci shoes. Well, maybe I don't need gooses. But that's how it happens and my favorite example of this is how many microprocessors do you need in your automobile? 20 yeah, so my next question is and people usually say 20 is actually pretty aggressive like for an end that's got to be an engineer. You must be an engineer to say you need 20 microprocessors. Most people would think they need that but then do you need anti-lock brakes? Do you need an air bag? Do you need a navigation system. Do you need your CD player? Do you need there are average automobile as 50 micro processors and it today average hybrid. Well over three times at and so and actually a hybrid is more of a computer than a car. Well, do you need that? Do we need hybrids? Well, like some people think yeah, we need hybrid. So now you need a hundred fifty microprocessors in your car. And so what a need is is definitely up to the imagination of the person and there's not really a line between wants and needs. This is my favorite. So in 2003, this is 2003. Right? So this before cloud computing before virtualization before social networking before a like everything. That's like taking off. This is from Nicholas Carr Nicholas Carr wrote this for the Harvard Business review. It has become a commodity affordable and accessible to everyone that no longer offers strategic value to anyone 2003. So when I read this in Great. I thought wow, how could someone from Harvard write something so stupid? But then as I started started to think about it more I thought ah, of course only someone from Harvard could write something that's stupid because it was anyone who wasn't from Harvard. Somebody would tell them. Hey, you're an idiot don't write that. But can you know I'm telling the truth? So so anyway, so people continually underestimate what's going on and then if you look at what's really happening, so this is a chart of patents granted in the u.s. Like so that's what's really happening on invention. Like that's a patent card. Now. There are a lot of there's this new thing called patent trolling. So there's more patents than there used to be but like that's still an impressive curve. That is nodes on the internet. like uh-huh, like so that might create a few opportunities for invention. Just that growth a lot just said growth alone. But invention is what's also driving that grows. So it's a virtuous cycle. It's a loot and I actually had like 50 of these kinds of slides to show you but in reality we're in Innovation is accelerating and the opportunities are multiplying So if technology isn't dead then why are smart people so stupid once you like to know so the first thing is because investors people who are looking at it from an economic standpoint turn out to be highly emotional and this is a very tricky thing for me to learn because I always thought with their fancy suits and with their like fancy words investors were like really logical but it's just the opposite. They're like highly emotional technology is definitely not Technology, whether like people are feeling good about it or people are feeling bad about it or like people want to jump out the window or people want to like invest all their money in it. It just keeps going at you know, it just keeps going and let me give you a couple of examples of this and how it in a related with people's emotions and stock prices and finding a venture capital. The first is the PC. So the PC was invented, you know, really in the late 70s and then by 1980 like a Esther's got wind of it and by 1983 there were 300 companies just making disk drives for PCs. Like everybody thought it was the greatest invention of all times and they were going to invest all their money in it and Venture Capital exploded. It was all great. But the funny thing about it was like the PC really wasn't very useful to anybody. In fact the main way they marketed it was it was a way to save your recipes. Like if you didn't like a box with like people use the same old box with a little carts and like so now you could keep them like in your PC like in that was the big application and that was it and as a result like the PC do real well as a product and people were like like it's not doing very well as a product and investors got like completely they were like nobody's ever going to want why would any person want to computer and like they got completely despondent Venture Capital fell by two-thirds by 1987 Venture Capital was only one third of what it was in 1983 and like the stock market was totally gleich through with it and was horrible and nobody wanted a PC. Well funny thing. Happened the technology keep getting a little better kept getting a little better and by 1990 he had Intel 386 which is a pretty powerful chip and you had Windows 3.0 which was like not as horrible as Windows 2.0 but like it is still not that great, but quite a lot better and the PC started to become useful and the growth of the PC all occurred starting in 1990. When the product I'd get enough second example is the internet so the internet so my friend Mark, That University Illinois, you know Mosaic 1993, they came out with Mosaic and then like two years later in 1995, you know Netscape goes public all the investors get wind of it. We've got the internet bubble. Like, you know, it's great. Like everybody's moving to Silicon Valley to start their own.com like it was awesome. And then like guess what the technology wasn't quite there yet. It just wasn't quite there friend of mine. Just Silverman had a company called Evite some of Probably still use Levi today. There were like 250 engineers at Evite because like the technology that was what was required for a greeting card, like very like the you know, like for an invite like you didn't know you could do that like any to you guys could go build Evite right today, but that was a state of Technology was just really hard to build anything at scale because nobody had been delivering things to millions and millions of users. And so everybody got despondent all the movies all the jokes and all the movies of the time. We're like, No, you went to a.com. You're an idiot. Like you're a moron you bet on the internet. What what a bunch of dummies like that's all stupid. But what happens technology kept getting better and better, you know application servers started to get pretty good. The programming languages were really evolving really really quickly and then pretty soon and then all of a sudden, you know at a time when nobody was finding anything Google comes out like, oh, I guess the internet is something and that is generally been the cycle. So people get like overexcited and overly depressed all the Time about all of this stuff but the basic curves the fundamental things Innovation continues to go. So the good news is you guys all pick the right field. Smile you pick the right feel it's good. Okay, so what do we look for? So the first thing to understand about the technology business two important points? So of all the technology company, so there was a study that was done by Andy rackleff who teaches entrepreneurship at Stanford of all the technology company started in the US and any one year and this is over 20 year period about 15 ever generate a hundred million Revenue. So you take every company there's 15 of them that Million Revenue those 15 companies make up 97 percent of the value. extreme power law curve so less than one percent of the companies far less than one percent of the companies make up 90% of the value 97% of value. So it's venture capitalist. We only want we want to invest in those 15 companies. That's the whole Venture Capital thing. So all of the Venture capitalists are all just trying to get into those 15 companies. So like that's how it is. So if you want airplane money, if you want to change the world if you want to have an input big impact, you have to be one of those 15 if you want beer money, you don't need to do that. There's plenty of ways to get beer money, but that's really that's the playing field. So it's really what do you need to do to build something so transformational and take the market that you become one of those 15 companies to that gets to that scale that becomes that valuable and like that. Is the landscape that's what it is about. So, how do we find those 15? What do we look for? Well, there's really just a couple of things one is the size of the opportunity. Are you are is the company addressing a really really big and important market and by that, I mean really the market not not the theoretical Market but the market to actually buy that product and you have to be very careful here because sometimes people will come in and say we're going after a hundred billion dollar market and if we get just you know a half a percent then we're going to have a big company. Well when I hear that, you know what I tell them there's no crying in prison. There's no profits for a number two and Technology. There is no 2% of a big Market you have to get like 30 or 40 percent of a big market for it to actually be meaningful for you actually to make money in technology. And there's a lot of reasons behind that, but I'm just giving you the punchline. So first the size. The opportunity second the quality of the team. So is the team good enough to build the Great product that's 10 times better and take the market and that's what we invest in and like that's the most important thing and then the final thing a bad Market always beats a good team and when we don't invest in a good team, it's always because they've picked a market that isn't quite what they think it is and quite frankly the most common one of these today at targeting Everybody thinks it's a big Market, but I'll tell you what, there's a thousand entrepreneurs pursuing it and there's very little differentiation. It's very hard to Target an ad better than the next guy. And by the way, if you're a brilliant person, why would you want to spend your life targeting ads? Sorry just a little job for this is a venture capital joke. So other things that we like other things that generally lead to really good companies megalomaniacs. So it turns out that it's true. If you want to change the world the first step is to believe that to be kind of megalomaniacal enough to actually believe that you can change the world. So like that is actually a good quality and it is generally necessary to have the leadership skills to drive through all the issues that you run into along the way. Two outliers. So we tend not to be thematic. We tend not to say gee we want to invest in cloud computing. We want to invest in SSD storage. We want to invest in this or that we say, let's look at the very best entrance entrepreneurs and see the ideas that they come up with and generally the great great technology companies have not been thematic. They've been something completely out of the blue at the time they came in big shifts in technology market. So I did mention SSD. Well, that is a big shift. Like storage is never going to be the same so that creates big opportunity when markets change. Market sectors that are dead so often the things that nobody wants to do so, you know, it was a dead Market in like 2001 2002 search it was over. Yeah, who won? It's really did. Hmm. So big Market winner bad product. That's a great opportunity often. Next thing we look for we like entrepreneurs that tilt towards the big Market rather than me. So I'd much rather see an entrepreneur come in and say here's how we're going to wipe out Google or here's how we're going to wipe out Microsoft. Then somebody says nobody competes with us because what we're doing is so different and so odd and so weird that nobody would compete with us because nobody else is stupid enough to try that because it's just an idiotic idea, but guess what we have no competition. So rather have the entrepreneur be more competitive rather have them going to face a big competition than be completely anti-competitive. And not even be thinking about the market but thinking about the competition that they're going to avoid. Hardcore technical team. So for us we invented we invest in technology companies were about technology. And so one test we have is if you take the technology team out of the company the really best Engineers out of the company if the company doesn't collapse we don't want to invest in it. And then finally in this one is probably the softest one we'd rather and it's generally better. It's generally better in the biggest companies generally start as wow. We've built this great product. Everybody wants it. We have to build a company now to deliver the product to the market that usually works out better than wow. We really want to start a company. Let's think of a product. Now, sometimes it works the other way, but generally products before teams. So biggest challenge for entrepreneurs first is like it's really good to have some of both skill sets entrepreneur and inventor. That's really really helpful. And the reason for that is it's really hard for the just entrepreneur to find the big product Innovation. And if they're running the company that's a problem. If they can't do that second big thing is finding the product Market fit. So finding the product that everybody wants to buy. The that the big Market wants to buy like getting to that because that's very different than the idea. But getting to the exact product and third and the begin. This is the biggest one of all managing your own psychology when we were starting loud Cloud Mark said to me he goes been you know, what's great about startups and I said no what and this was at a time when like I was like extremely nervous about everything and my stomach always hurt and he goes you only ever experience to emotions Euphoria and Terror and I find that lack of sleep enhances them both. And that is so true which leads me to my final picture whoops my final picture. So that is that's my daughter Sophia. That's my daughter Julia. That's Evan Williams who is the co-founder and CEO of Twitter and Mark Zuckerberg the founding CEO Facebook. And so this is the last story. So we were all together as you can see and we were at this thing the her balance Sun Valley Conference and you've probably never heard of it, but it's like the business conference to go to Nobody likes to go to that and so one of the things about this conference is they let you take your kids but only until they're 20, and then they can't come anymore. And so my big one Julie is going on Dad. This is so great. But like I can't come back because you know, I'm going to be 20 next year that's going to suck and I said, well you can come just like the come like a real successful business person and then like herbal invite you back and she goes that's ridiculous. I'm only 19 years old. Sold, I can't start a company and we were sitting right next to Mark Zuckerberg. And I go Mark. What do you think of that? And he goes think of what he says Julia says she can't start a company he goes. How old are you? And she goes 19 he goes bull crap. I was 19 when I started Facebook and I was like, oh that dad's never get that on their teenagers. That was awesome. But the big thing the biggest thing about building a company the biggest inhibitor to doing it is just believing that you can't and so take it from Mark Zuckerberg. It is possible. So, thank you very much. Thank you for coming.
Episode #4 Newton Series Classic episode featuring renowned Entrepreneur and Venture Capitalist Ben Horowitz. Andreessen Horowitz Co-Founder Ben Horowitz gave this Newton Lecture Series talk on campus at Berkeley on November 3rd, 2009, just four months after starting his new venture firm. In this episode, he shares his entrepreneurial journey, along with what his new firm was looking for in terms of entrepreneurs and companies in which to invest. 00:30 - Episode Introduction 01:30 - Ben Horowitz introduction 02:40 - How to play Quarterback in the NFL 04:10 - Controversial Computer Science degree  05:35 - Are you studying the right thing? 06:07 - The hilarious Warren Buffett 07:03 - Words of wisdom from the King of Pop, Michael Jackson 09:05 - What you need to build a new technology company 10:45 - Apple's Steve Jobs 14:17 - Story of Bernard Hopkins 15:10 - The second thing you need to build a new technology company 16:39 - How I became a CEO 20:30 - Story of America Online (AOL) to Loudcloud to Opsware  27:49 - Bill Clinton & Lesson from Colin Powell 29:10 - Is it too late to start a tech company? 33:12 - How can someone from Harvard write something so stupid? 35:12 - Would you like to know why smart people are so stupid? 39:34 - All the value in tech companies & who VCs want to invest in 41:48 - Quality of the team 42:40 - Megalomaniacs 43:59 - Great opportunities 45:31 - The biggest challenge for entrepreneurs 46:43 - Even William from Twitter and Mark Zuckerberg from Facebook 48:02 - The biggest thing to building a company 