What's 🔥 in Enterprise IT/VC #368

Thoughts on board governance

WTF just happened??? Sam Altman is suddenly out from OpenAI? Many theories abound but this from The Information seems to be what actually happened:

To some employees, the question implied that Sutskever may have felt Altman was moving too quickly to commercialize the software—which had become a billion-dollar business—at the expense of potential safety concerns.

What’s even crazier is how it went down - here’s Greg, co-founder and President, sharing what happened.

What jokers - sounds like a complete palace coup.

Kara’s take captures the moment quite well.

All I can say and I’ll keep repeating this- choose wisely.

And in this case significant value was destroyed.

The irony in all of this is that many founders are afraid of having VCs on their board but in this case there was zero investor representation - none. I 100% agree with Alex that we would have had a much different situation had this been the case.

The conclusion is that it just doesn’t matter whether you have VCs or non-VCs on your board; you still need to find the right team who believe in the mission and who have a vested interest in the outcome of the business. Bonus if you can get board members who understand this 👇🏼

This is what I call the “3 Chs” and something I’ve learned over many years as an investor and board member. When things are great you have to “challenge” to make sure founders/execs don’t get too cocky, when the shit hits the fan you have to “cheer” to help founders keep going through the many tough times, and finally you have to know when to just “chill” and let the team do its thing.

I went deeper into this topic on the Full Ratchet Podcast in early 2021 (here’s a clip) and in What’s 🔥 #206.

So founders, please choose your board members wisely and yes, it’s ok to have some VCs and some operators and most importantly find folks who are aligned with your vision. More to come…

As always, 🙏🏼 for reading and please share with your friends and colleagues!

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Scaling Startups

1. Must watch from Brian Chesky (Airbnb)👇 +

   Lenny Rachitsky
   -avoid at all costs (full podcast here) covering product management, founders staying close to details no matter how big, advice for founders on how to lead…

2. When do successful enterprise startups hire their first Product Managers? It’s all over map but Lenny shares data here

   Takeaways from the data:

   1. Everyone hires a product manager eventually.

   2. The typical company waited two to three years to hire their first product manager. They typically had 10 to 15 engineers and 15 to 25 total employees. But the ranges are wide, so don’t use this as a hard-and-fast rule.

   3. Surprisingly, more than half of companies hired their first PM before finding product-market fit, which is counter to the advice you hear. Particularly in B2B.

   5. Most first PMs were previously individual-contributor product managers, or senior PMs. Very few were previously former directors, VPs, or heads of product. Surprisingly, almost a fourth were engineers.

   BTW, on #5, very important to understand that lots of early PM hires are really just executing the founder roadmap and vision as demands for customers, fundraising, and other externally facing needs scale.

3. Want to scale like Vercel? Pure 🔥 + awesome growth hack for developer first companies…must read

   At Vercel, this decision drove the highest conversion from inbound leads to both Enterprise _and_ paid self-serve I'd ever seen from prospecting. Any team selling a technical product can execute.

   I avoided hiring SDRs from $1M to 10M ARR, preferring automation that covered 85% of what most SDRs can do. As the need for that last 15% became too great, I workshopped an idea for technical SDRs with @mgonto and created the "Product Advocate" role.

   Before Vercel, I'd created and managed two SDR teams for very technical products (neo4j & @gitlab), plus I'd been an SDR for a technical product myself (@Pentaho), so I know there's value in SDRs for technical products... but also a massive gap in their abilities to (1) qualify enterprise interest and (2) avoid damaging self-serve interest.

   Learnings documented here:

4. ❤️ from Ryan Holiday, author:

   "The rarest of human qualities is consistency." — Jeremy Bentham

5. Incredible dispersion of pre-money valuations for seed in latest 9/30 data from Pitchbook - many are multistage firm founder bets or “Inception Rounds”

   

   which you can read more about here 👇🏼, why, the 3 kinds of Inception Rounds…

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Enterprise Tech

1. Epic 115 slide Deck from Coatue on AI: The Coming Revolution, X 🧵 here with top 10 takeaways and deck here

2. Reports galore this week: State of Generative AI in the Enterprise from Menlo Ventures, Open Cloud: Software’s AI driven Watershed Moment from Battery Ventures, 2023 SaaS Benchmarks from Openview

3. Databricks must read - from Ali, co-founder & CEO

   The founders of Databricks put together this strategy blog on where we think data platforms are headed in the future. We're moving Databricks quickly in this direction. This is very exciting and is the outcome of the MosaicML acquisition we did earlier this year!

4. If you missed Kubecon or even went, I highly recommend Daniel Bryant’s Top 10 Takeaways - he always seems to capture the vibe every single show!

   1. The cloud native community is embracing AI/LLMs… slowly

   2. DevOps is so passe: Platform Engineering all the things!

   3. There’s gold in them thar hills! Selling picks and shovels in the platform rush

   4. Kubernetes should remain unfinished (and evolving)

   5. Don’t forget about developer experience!

   6. Increased focus on app development and integration

   7. Cloud native communications: Bundling FTW?

   8. Security is big business

   9. More focus on sustainability: Observability, scaling & FinOps

   10. Community, community, community

5. OpenAI breakout sessions now on YouTube, Dharmesh from Hubspot suggests getting started with The Business of AI

   Have been binge-watching the breakout session videos from OpenAI Dev Day for the past 3+ hours. Really great content. If you're not a developer, I'd start with this session with product builders from Shopify and TypeForm:

6. 💯 agreed - If you want to have a real moat for AI, you build your own model, but man, it’s so capital intensive that eventually there isn’t enough capital to go around unless you go the cloud vendors who get most of that money back later. Definitely not a game to play for Inception investors, and one must tread carefully because building your own LLM is more like playing Russian Roulette IMO

   INVESTORS OF LAST RESORT

   The revelation that Character AI is speaking with Google about their new financing round, is not surprising in the least. Despite an incredibly engaging product (4M DAUs, with the average user spending 2 hours per day in the product), the company has extremely high burn since they are building their own models (competitive advantage in the long run), monetization is non-existent today (though obviously lots of promising future avenues) and competition is on the horizon as modes switch from text to images and video, and Meta readies its own avatars. It’s impossible for VCs to underwrite a $5B valuation for the company. The only viable investors at this stage for Character are Alphabet, Amazon, Microsoft, NVIDIA (and a handful of other large corporates). They are price insensitive and are driven by completely different considerations (GPU / Cloud / Enterprise customer lock-in) than VCs.

   As we’ve seen with OpenAI (Microsoft), Anthropic (Google / Amazon), StabilityAI (Intel) , Cohere (NVIDIA / Salesforce), and other cases, any company building their own foundation models will ultimately need to go this route. It’s just far too expensive to train these models, and the ROI / revenue from inference is too far out, for the venture model to support…

7. Hot take from Adam Jacob (co-founder of System Initiative + Chef). For those of you catching up, at GitHub Universe, it repositioned the product all around Clippy, I mean CoPilot, for all products and seems to be forgetting what got them there in the first place - collaborative code repos!

   The more I think about it, the more GitHub pivoting to be an AI centered experience is going to create a market opportunity for a new competitor. There is a lot left undone that this direction just will not only not address but makes arguing to address it misaligned.

8. Best of breed or single vendor domination in cybersecurity?

   

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Markets

1. IPO Window DOA (WSJ) - both Klaviyo and Instacart already down double digits

   

2. Interesting data from The Economist showing us what we already know.

   *During ZIRP, founder-led public cos outperformed others by 50%

   *Rewarded >revenue growth + more spend on R&D

   *Premium is gone as FCF is all that matters

   Yet there are signs that the so-called “founder premium” may be waning in a world in which capital is no longer cheap and investors prefer jam today to jam tomorrow. The Economist has analysed the performance of the publicly listed software firms in the Nasdaq Emerging Cloud index produced by Bessemer Venture Partners, a vc outfit. From 2018 until the end of 2021, the share prices of founder-led firms in the index outperformed the rest by a half (see chart 1). Beginning in 2022, however, that gap disappeared.

   To understand why, consider that founder-bosses in the index invest more money in research and development, expand their teams faster, deliver higher revenue growth—but generate less cash (see chart 2). During the tech boom of the past decade, a founder’s success depended chiefly on their ability to set a bold vision, raise funding from venture capitalists, gobble up talent and get a head start on possible rivals. Investors now demand greater attention to costs and a speedier path to profits.