Pod Insights a16z Podcast Stories of Startup Survival Mode About this episode The story of startups is often a story of survival. What do you do when the markets go down? When your biggest customer churns? When your big product launch falls flat? Ben Horowitz and Jason Rosenthal share stories and lessons learned from doing whatever they could to help their companies survive in hard times.
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 The story of startups is often a story of survival. What do you do when the markets go down? When your biggest customer churns? When your next major product launch falls flat? And as a CEO and leader, how do you make the right call? That helps you live to fight another day? In this episode from February 2017, Ben Horowitz and Jason Rosenthal shares stories and lessons learned from doing whatever they could to help their companies survive in the hard times, including making and living through major pivots, selling new products before they were ready, figuring out financing with market and industry headwinds against them, and more. From their days together at LoudCloud to Jason's experience at Lytro and beyond, a common theme emerges.
0:44 Speaker 00 A CEO's job is lonely in these moments. And the hardest thing about a big pivot or change might be in finding the courage to make the decision in the first place.
0:55 Sonal? Hi, everyone. Welcome to the A6 and Z Podcast. I'm Sonal. I'm here with Ben Horowitz and Jason Rosenthal, CEO of Lytro. And we're sharing some founder war stories today, focusing on the theme of pivots, especially since pivot is one of those overused and now seemingly innocuous words that has lost a lot of meaning for a lot of people. Both of you have witnessed firsthand or driven major shifts in company direction. And so in this episode, we're going to cover what it means for decision-making, culture, product-market fit, timing when you don't have that much cash left, and to how every startup is actually a series of pivots.
1:29 Speaker 02 I used to think that there were two kinds of startups, right? There were, there were ones where your idea worked from the get-go. And from then on out, it was just up and to the right and champagne and caviar. And then there were the hard ones that didn't work out. And maybe you figured it out along the way and got lucky. And I think my worldview has evolved a lot where I think that really, actually, every startup is a pivot. And it's along this big spectrum from tiny pivots that, that happened at the beginning to much harder, bigger ones. If we take most, if not all, of the biggest, most successful tech companies that we think about today, just about every single one of them went through a big or a little pivot. It's Point in their history, right? You know, things like Google starting as an enterprise
2:13 Speaker 02 search company and becoming the largest advertising company in the world. That was a form of a pivot in general in tech. In hindsight, everything looks great. But when you're in the heat of the moment, there's always some level of uncertainty or pivot or hardship that you have to go through.
2:28 Ben Horowitz? Yep. Intel used to be in the memory business, pivoted to microprocessors. That was the legendary pivot that built the PC industry.
2:35 Sonal? When I think of building startups, I think of the sort of Jobsian narrative of like, you have this vision and a product and you have this incredible view of the future and you're going to build your company towards that.
2:46 Ben Horowitz? Like Next.
2:47 Sonal? Oh, well, yeah, I forgot about Next.
2:50 Ben Horowitz? Which he pivoted into Apple.
2:52 Speaker 02 So when Jobs came back to Apple, what was that? That was 90, 96, 97, right? I mean, the company was on the verge of bankruptcy. They had a ton of products. They were all crap. As the story goes, Jobs killed them all, except for one that became the iMac. And that kind of sort of worked. And then from there came, you know, the new PowerBooks that worked a little bit better. And then OSX and then the iPod and then, and then, and then, and then.
3:18 Sonal? But what gives you the confidence to do that? Do you have data? Do you just have a wake up in the middle of the night? You have a realization? Like, what drives it?
3:25 Ben Horowitz? Andy Greb does a beautiful job of describing this, and only the paranoid survive. The decision isn't actually that hard. It's the courage to actually make the decision. That's nearly impossible and why nobody ever does it because you're basically, if you continue going on your current route, you know, particularly if the company has got some heft and momentum to it, nobody's going to blame you like for the market not being there. Like, it's not the same kind of blame than if you go, I'm gonna just dispose of all of our revenue and our customers and half of our employees and go in a completely different direction. If you get that wrong, that's just such awful consequences, even if the other path was
4:08 Ben Horowitz? going to lead you to bankruptcy. At least that's the mistake everybody would have made. So that's, that's really the, I think, the challenge to it and why so many companies just wind down and never kind of make it out of a troubled spot.
4:22 Speaker 02 Very rarely, at least in my experience, are you pivoting into something that you know is going to work or that you've got super high confidence in. You're mostly pivoting away from, you know, near a certain disaster. For humans in general, change is hard. And when you're the CEO, it's a really lonely job. You can talk to your executives, you can talk to your board, but nobody has the data and the insight that you have kind of all synthesized together in the same way. And it's very clear that if you mess it up, you've got no one to blame but yourself. When there are no good options, what do you do? And you're often picking the least bad.
5:00 Ben Horowitz? The challenge of the LoudCloud pivot was, we had built this company, it had tremendous momentum. We went from our revenue growth, we went $2 million to $57 million in one year.
5:13 Sonal? It's pretty huge.
5:14 Ben Horowitz? Two to fifty-seven.
5:15 Speaker 02 And from five of us to about 650 employees in the same time.
5:20 Sonal? In a year. And the business at the time was basically like a precursor to AWS.
5:24 Speaker 02 Just 10 years.
5:26 Ben Horowitz? Ten years, exactly.
5:27 Sonal? Timing, damn it.
5:28 Ben Horowitz? And we had taken the company public. We had a lot of customers, you know, and we had 500 people, I think, at the time working the company. And look, the stock market had not yet given up on us, although they were starting to. You know, we were thinking about $200 million at the time. So I also understand how fast it happened. So we founded the company in 1999. We went public in 18 months later. And then we pivoted the whole thing 12 months after that.
5:55 Sonal? After IPO.
5:56 Ben Horowitz? After IPO. So you know, you're out there four quarters, and then you change the whole business. That was something. But, you know, it was one of those things where we went to look at a company called Data Return. We were in trouble. We knew we were gonna, you know, it was gonna be hard not to run out of cash, even though we had over $100 million in the bank at the time, because just the nature of the market, there was an oversupply of these kinds of services. Pricing was below cost, all that kind of thing. And we looked at this company that was just like us, but probably 18 months ahead of us. They were very close to bankruptcy. And we were looking at them to acquire them because we were going to mix all the expenses
6:36 Ben Horowitz? together, you know, kind of cut costs, whatever, save some money. You have two expense structures that are overlapping and one kind of combined set of customers. So you double the number of customers and then you get efficiencies out of the cost structure and whatever.
6:51 Speaker 02 This was sort of the, this is an in vogue play in the late 90s, right? Where you take two businesses that really aren't working that well separately and you put them together and you hope that magically together and with more customers, less cost, they're going to start working.
7:05 Ben Horowitz? I remember I had taken my first vacation. It was a three day vacation. We started the company, took the family to Ashland, Oregon. That was as far as I was willing to go to see like the Shakespeare Festival. And I got a call from John O'Farrell, who was running a business development for us. And he's like, Ben, we're sitting here talking about this data return deal and all of us are going, that company looks like we're going to look in 18 months if we don't do something. And if we do it with, if we do this, it will probably get there faster. And I said, you know, that's exactly what I was thinking. But it was like, like weird science fiction nightmare.
7:46 Sonal? Were you just like outside like a playhouse?
7:47 Ben Horowitz? Yeah, I was just standing outside, like talking to him on the phone. So, you know, I said, go ahead, kill the deal. And I came back and I couldn't think about anything, but like, we're going to be in a lot of trouble. And off of that, we started this product, project called Oxide,
8:06 Ben Horowitz? which was basically take the Opsware out of LoudCloud, take the software out of the cloud computing business, the software that ran it and like make it its own product.
8:18 Sonal? That's basically decoupling the software as a service from the actual software platform that ran the data centers?
8:25 Ben Horowitz? Yeah, exactly. Exactly. And, you know, and it was like a very hard project. And, you know, we had weird things like servers in the building were named in the software code and hardware. So we had all kinds of, and the user interfaces were ridiculous and all that kind of thing. But so we got to do that and immediately like a lot of the smart people in the company were like, what are we doing? We can't be in the software business and in the cloud computing business. And of course, in the back of my mind, I was like, I'm trying to get out of the cloud computing business.
8:58 Sonal? You're 10 years too early.
8:59 Ben Horowitz? Yeah. At that point, it was pretty clear to me that we needed another path. And then a few things happened that caused us to get there much faster. Our largest customer went out of business, Atriax, which made it impossible for us to raise any money. They had us $25 million at the time.
9:16 Sonal? So they even pay you before they went out of business?
9:18 Ben Horowitz? No, no, no. They went bankrupt and they paid us nothing.
9:20 Speaker 02 Well, and as that was happening, right, we were about six days away from putting some more capital in the company.
9:25 Ben Horowitz? Putting 50 million. So we did this analysis of how much money did we need to get to cash flow positive? And we needed $50 million. And so I was like, okay, you know, at that point, the market cap, we were like $4 a share. So we were probably worth whatever 400, yeah, $400 million. Does that sound right? I guess it was. So we were worth $400 million. We could raise $50 million. So we could raise it, but not in a secondary. We had to do this thing called a pipe, which is a private investment in a public entity or public equity, maybe. I can't remember. And so we get it all set up. We're ready to go on the road and do it. And the Monday, we're going on the road on Tuesday, that Monday, we get
10:08 Ben Horowitz? the call from Atriax saying that they're going bankrupt. And this was like a Citibank and Deutsche Bank built this foreign currency exchange. So we thought they were solid, but they're just like, let that thing go. And they didn't back it at all. They owed us $25 million. So now we were $75 million in the hole. And we had to disclose immediately that we'd lost our largest customer because we're a public company. And as soon as we disclosed that we lost 50% of our market cap and we couldn't raise the money. And so
10:38 Sonal? Shit.
10:38 Ben Horowitz? At that point, yeah, that was like, rut row. At that point, it was like, okay, we got to figure out how to pivot.
10:45 Sonal? Had you know that Opsware was where it would be at? Like that there was something there? I mean, was that just like a guess in the dark kind of thing?
10:51 Speaker 02 So we had some signs at the time all this was going on. I'd actually moved to New York to run our field operations and implementation team. And we would repeatedly have these conversations with prospective customers. And we'd pitch them on this whole big, beautiful cloud services vision about how they were going to get more efficient and save costs and move faster. And every single one of those meetings would end the same way, which they would say, I like your people. I like your services. I like the other customers that you guys already have. But everybody else in your, in your segment has already gone bankrupt. So I'm sure you guys are going to too. And then they'd pause for a second and they'd say, but you know, this Opsware thing that
11:36 Speaker 02 you talk about that you use to run our, your data centers, like that sounds really interesting. Can we buy that? And so there was probably about a six month period where we would just kind of laugh at them and say, no, we're, we're a cloud services company. We're not a software company. And that's, that's part of where Oxide was born from was the realization that maybe there was actually a gem hidden in what we were doing.
11:58 Ben Horowitz? They had no idea what they were asking us for. Like what they were asking us for in their mind was not what we had.
12:03 Sonal? What do you mean by that?
12:04 Ben Horowitz? Well, look, we built a system to run our business. It was not a software product that they could buy in their environment with their processes and their people that would work the way they wanted it to. And so the distance from getting that thing from what we had to what they wanted was long. So that was, that was one of the scarier parts of it. And, uh, you know, when we made the change in the business, um, the very first thing that came up was, uh, many of the engineers were like, we can't ship it. There are so many other things we need to do. And I was like, you don't even know what we need to do because like we haven't tried to sell this thing yet. So we got to ship it and we got to try and sell it and we got to find out where the gaps
12:49 Ben Horowitz? are. That was a long, long journey. And I think at the end, only about 10% of the codebase was the original LoudCloud software.
12:59 Speaker 02 I mean, to the point where for the first over a year of being in the software business after we've made the pivot, the only way that you could install the software at a customer site was you had to bring along a server with you from our headquarters that was already running the software.
13:15 Sonal? That's friggin insane.
13:16 Speaker 02 And you'd use that to clone the system in the customer environment. And then, of course, as soon as you did that, just everything would break because we had all of our IP addresses and network naming scheme hardcoded into the software. So it took, took over a year just to make it so you could install it.
13:31 Ben Horowitz? In Silicon Valley, there's this thing, all that matters is product. Whoever's the best product wins and this and that and the other. If you're short on product and you, it's going to take you some time to get there. The thing that actually can make the company survive and get a good outcome ends up being management, culture, the organization. The way we got out of it, we just had such an exceptional team. And not just individually, but collectively and collectively in the way the culture worked, the way the managers work with the employees, that we were willing to basically go through any issue to get to the goal line. I have to say, I see very little of that. Like people get so, they
14:16 Ben Horowitz? just completely neglect the things that you would need to do to execute like that. But we would have died thousand times.
14:24 Sonal? It's like going to war, because if you have an army on the field and you have the best weapons, it means jack shit. If you can't coordinate, move, adapt, flexibly, just like go attack, defend, reposition, all that stuff.
14:36 Ben Horowitz? And not burst into tears. That's the other thing, right? Like not just go like, this product sucks. What are we doing? Or, you know, like, we've got this crazy customer issue or, or any of these kinds of things, you know, to not kill each other.
14:48 Speaker 02 People will say, how did you guys keep going in the face of all that? Why? Because like, it was our company and the only way to make it through was to run as hard as you could at the wall again and again until you broke through. One recollection that I have vividly is that that's, that's what got us to the other side.
15:06 Sonal? Definitely a testament to the culture part. Because you're right, like, culture's one of those words that we just throw around, but it has this deep. Layered gravitas to what it actually means.
15:16 Ben Horowitz? Well, it's who you are, it's how you behave, it's your way of doing things. You know, it's not free lunches and yoga and dogs at work and all that other stuff.
15:23 Sonal? You're right.
15:24 Ben Horowitz? People get confused about that, I think.
15:26 Speaker 02 And in a lot of ways, I mean, culture doesn't matter that much when everything's going great. Culture matters a lot when the shit has hit the fan and people, whether it's employees or customers are running for the, for the exits. It's having, you know, a strong team, a strong culture, a strong belief that what kind of keeps you together and gets you through that hard part.
15:45 Sonal? I reread sapiens over the break and one of the things that just comes through over and over again is that the thing that distinguishes Homo sapiens more than any other species of humans before is the ability to coordinate across, beyond a group of trusted strangers, like trusted intimates. And that is, I think, to me, the definition of culture is to be able to coordinate all these with that glue, culture is the glue that lets you do that.
16:06 Speaker 02 And, and adaptability.
16:07 Sonal? Yeah, exactly, which is another eco thing. But how do you give up this idea of your vision? I mean, you know, Jason with Lightrow, the original founder, had such a vision from his work at Stanford, that light field, it can do all these incredible things. And that's a really tough, how do you sort of navigate it when you have that technological driver, in your case, it was cloud computing?
16:26 Speaker 02 So Ren is the founder, now chairman of Lightrow. He was the first CEO and he is now a professor of, of computer science at, at Cal. Did his PhD work at, at Stanford where he finished in 2006 on light fields and building light field cameras and really helped advance a research topic that had been going on at Stanford for about 10 years at that time. You have to go all the way back to the invention of photography about 175 years ago. If you look at how imaging works even today, the core fundamental physics haven't changed in about 175 years. Ren had decided he didn't want to be the full-time operating CEO. And the thing about it that really, really appealed to me was it was, it was truly a
17:08 Speaker 02 core fundamental technology in the vein of software is eating the world. Lightfield is all about taking the constraints that have been imposed on imaging by optics and mechanics and really turning that all into software. The founding product vision was really harnessing the power of the light field to develop this new kind of consumer camera first. And it just turned out that everything about that strategy was not the right way to do it.
17:34 Sonal? You just knew right away?
17:35 Speaker 02 No. No. I wish. When I looked at the prior board decks and the financial plan, Ben was very upfront. He said, you know, Jason, one thing you just got to know coming into this company is like, you're going to have to raise money. Now, the good news is that you've got about nine months to do it. You've got a hot new product on the drawing board that looks like it's making really good progress. I'm like, well, you know, I don't particularly like raising money. I think no CEO feels like that's their favorite part of the job. But okay, you know, transformational technology, hot new product, really supportive lead investor, like, we can do this. And so that, that's how the conversation went. And then about a week before I officially started, but after I'd already left my other job, I started really digging in with the, with the VP of Finance at the time. And I called up Ben, I said,
18:20 Speaker 02 Ben, I've been looking at the, at the plan and our cash, and I don't think we have nine months of cash. I think we have about six weeks.
18:28 Sonal? Oh, my God. That's a huge difference.
18:31 Speaker 02 How could that be? What are you, what are you, what are you talking about? Well, certain things didn't count. It turns out that for the first generation Litra product that had already shipped, we owed an enormous amount of money to, to the tune of, I think about $4 million to our suppliers who had pre-purchased all the parts and all the components needed for the camera.
18:51 Sonal? That is a defining feature of hard tech, of hardware startups, where you have to actually lock down that, those components in your supply chain in order to be able to plan and do a lot of that. Like, there's a, this is a unique challenge. Let's put in perspective and compare to typical software-only businesses.
19:05 Speaker 02 One of the worst things about doing a hardware company, particularly a consumer hardware company, is that the timing and the visibility that you have between your supply and demand curves is a complete mismatch. You know, when, when you're building something new and exciting and disruptive, you really don't know how it's going to do until you launch it and, and until you start to try and sell it. But the problem is to even be able to deliver it and bring it to market, you need to make big commitments to the tune of millions and millions of dollars prior to that. And that, that, the sad, cold, hard truth is, once you make those commitments, like, that money ain't coming back, regardless of how well or poorly your product is.
19:44 Sonal? So that's why. You didn't have, you were a lot more in the hole than you realize.
19:49 Speaker 02 Yes. So that was the day one crisis. And so the, the problem turned out to be with such a diminished amount of time and the precarious financial state that the company was in, raising money on any sort of reasonable terms or kind of market standard terms became completely impossible. I remember one of the less engaged ones wanted to give me some friendly advice. And he said, you know, Jason, I've been doing this a long time. And what I found is that really you just need to talk to eight investors. And, and if those eight say no, the company's unfinanceable. And so 83 investors later.
20:24 Sonal? Wow, 83?
20:26 Speaker 02 Eighty-three, I still have that spreadsheet. You know, we found an interested investor. We basically changed the cap table, radically reduced the, the valuation. But the good news was we got enough capital between our insiders and a few others to move forward and build what was then our hot new product that we have on the drawing board.
20:44 Sonal? Which was, what's the, what was the hot new product?
20:45 Ben Horowitz? That was, that came after another change.
20:48 Speaker 02 The hot new product that we thought we had was, was the second generation consumer camera. Only problem with that is, and this is really where the pivot came, was that turned, you know, we were still very much in the midst of what turned out to be the real problem, which was that trying to build a consumer business on light field technology was just too much too soon.
21:09 Sonal? Yeah, this is where I think it's really interesting because with a very early technology like light field, just like with the Opsware, the days of cloud, cloud, 10 years too early with cloud computing, you can go any infinite number of direction. How do you know when you're making the next pivot that you're going into the right one?
21:22 Ben Horowitz? Well, this one was very interesting because so new camera, great, great product reviews.
21:30 Sonal? So things are looking really good, basically.
21:32 Speaker 02 We now have $50 million in the bank. I also take my first vacation for the first time in, you know, since joining the company and realized that when I'm in Mexico with my family over Christmas break and I just cannot sleep and, you know, I'm sort of waking up every night. Our plan A had been to go build the third generation consumer product. And, and what I realized on that trip is that it just wasn't going to work.
21:57 Sonal? Why did you realize it though? Because everything looked great on paper. I mean, you have these way reviews. Wow, we have this press traction, PR, media mention, products looking great. Like, how did you get that sense?
22:07 Speaker 02 So one, I definitely think that it was sort of the spider sense that we developed, that I developed going through the LoudCloud to Opsware transition, where there's something, you can't quite put your finger on it, but you just know something's not working. And for us, the thing that wasn't working, I mean, it was a combination of factors, but the comparison of what we were doing was to every existing camera on the market from, you know, what you had in your pocket.
22:33 Sonal? Like a classic category thing.
22:34 Speaker 02 Or, you know, to kind of the highest end DSLRs. And the problem when you're doing something radical and new, you know, particularly as an entrepreneur, is you get very excited about all the things you can do that you just can't do with anything else. So that was all fine and good. And that's what really excited the market and customers and reviewers. The problem was you also have to at least be good enough on the expected value. How do you do on the basic things that every other existing product does? And that's the part that I can see.
23:01 Sonal? This is a classic thing that.
23:03 Speaker 02 Wasn't going to be good enough.
23:03 Sonal? I think any startup in any category creating fields, an existing category, when you're in an existing category, there's really interesting thing you're straddling here at this time. So when you had that realization, like, what'd you do?
23:14 Speaker 02 Yeah. So basically, my conclusion was, well, we had enough money to go for our third generation. That just wasn't going to get us there. We were not going to break through. We weren't going to become a mainstream.
23:25 Sonal? You'd be executing on your roadmap, but it wasn't the right thing to do.
23:27 Speaker 02 Exactly. It wasn't the right, right thing to do. What became pretty clear pretty quickly was, gosh, why, why should we spend all this capital building something that we're not excited about? Why don't we just take what we have and start working right now on the things that we think can be amazing? And those two things for us ended up being using light field technology and virtual reality, which, which hadn't yet emerged. You know, Facebook had bought Oculus about nine months prior to that. So, but, but no, no consumer products had been shipped yet. And then the other thing was, you know, we would, we would hear again and again from filmmakers, from, you know, big time directors and movie studios about how transformative. Lightfield could be in, in making movies and TV. So he said, you know, why don't we put
24:12 Speaker 02 everything on that? That would have been great. Uh, other than the fact that A, we had to start by laying off about 55% of the company in order to be able to go execute that plan because we, we needed different people. Second was we were still in market with our consumer products and we needed to sell those through and, and live up to the commitments to our customers and our distributors. And third was this uncomfortable situation of I had to go back to the board that had really supported us in this last capital raise and say, um, you know, all that money that you guys just invested, I think there's a better way to do this.
24:45 Sonal? What was your guys' reaction? Cause honestly, no offense, Jason, but if I were on that board, I'd be like, dude, what the fuck? This is like three times we're having this conversation.
24:53 Ben Horowitz? The thing that you always hope that the CEO gets to is you don't want him to lie to himself.
25:01 Sonal? Yeah.
25:01 Ben Horowitz? And in my conversation with Jason, every argument for building consumer product always comes back to how can you sell a premium product with subpar image quality? Cause image quality is the number one criteria for every single consumer. And then, you know, we kind of go, well, like, what about video? And it's like, well, video requires a whole lot of storage and there are people who would pay anything for Lightfield video, but no consumer is going to pay anything for Lightfield video. And so that was it. Like, I mean, it is what it is. Did I wish we would have raised the money on that plan? Yeah, that would have been better. Why didn't you tell me this three months ago? Right. Was the natural kind of thing. And he was feeling, I was like, I should have known.
25:46 Speaker 02 I remember that our first board meeting of the year was, it was January 11th, 2015. And if I didn't sleep on our, in, in Mexico, I sure didn't sleep anymore in the days leading up to this, because this was the conversation where I was going to tell everybody what I'd come to believe and what I'd realized. And, um, I basically kind of laid out where I thought we were, what I thought our different options were, and the one that I was recommending, which was to exit the consumer business and focus on these two new opportunities.
26:16 Sonal? Did you already have customers in mind? I mean, did you know that you could bank on say, two Hollywood customers, for example?
26:20 Speaker 02 Hell no. We were 18 months away from a product.
26:25 Ben Horowitz? We didn't have, there was no product. There was a plan to go explore possible products.
26:32 Sonal? Jesus.
26:33 Speaker 02 Yeah. So we had, we had one guy working on the cinema camera and we had me and a couple of engineers who were really excited about virtual reality and knew that there was something to be done there, but didn't yet know what it was.
26:45 Sonal? Yeah.
26:45 Speaker 02 And the other, the other thing was that in some ways was harder decision around this pivot than the LoudCloud Ops for one was, was it wasn't like the consumer business was completely whiffing and failing and, and you know.
26:58 Sonal? Exactly. You could have continued, made version three and sold it just fine.
27:01 Speaker 02 But, but I could see where it was going. We were going to lay a path to ruin for the company if we just kept executing the plan. And so the board was amazing. They, they certainly didn't cheerlead, but they were stoic and they said, well, you know, we didn't invest in Lightro because we wanted to be a consumer products company. We invested in Lightro because of the power of light field technology. So if there's, there's a better way to bring that capability to market, let's go do that.
27:26 Sonal? Right. You're still actually in reality, executing on the original promise of the research and the technology. This is, I think, very common with any company coming out of Universal.
27:35 Ben Horowitz? They spent so much time, so carefully explaining in detail, all the technology. And then you had all these people who they're explaining it to going, well, I don't understand this. I don't understand that. Why would you do that? That doesn't make any sense to me. And then with the new product, it is actually going to, I mean, like J.J. Abrams, guys like that. And they're like, oh my God, this is the greatest thing I've ever seen. Like I know a thousand things I can do with this, like right now. And so when you saw that change, you knew, okay, like even if the first product isn't right, like we're, we're in the right place.
28:11 Speaker 02 As a CEO, getting that early customer validation that you're on to something is about the best feeling that you can have.
28:18 Sonal? Yeah.
28:18 Speaker 02 When you know that something you can do is going to solve a big pain point or open up all these new creative possibilities, like that gives you a lot of confidence and courage to go for it. And that's, that's exactly what started happening for us in VR and in cinema.
28:34 Sonal? So now you had this conviction that you could build for that audience and that they would really need what you had. You had this really unique technology that wasn't easy for someone else to just come up with. So you had a couple of advantages there, but you're also now doing an entirely different type of hardware product. So like, talk to me about some of the things in between. There's a moment right now, because there's a lot of enabling factors already in place with the smartphone supply chain and all other kinds of, you know, cheap computing. You can create a lot more now than was ever possible.
28:59 Speaker 02 Exactly. So if you, if you look at everything from, you know, autonomous drones and vehicles to AI to things that people are doing in space to, you know, even VR and AR, you've got a class of entrepreneurs who are going after just a really difficult set of technical problems. We go after cinematography, the data rates that you need to deal with because of all the information and the, that you're capturing in the light field are just insane, right? At our peak bandwidth on the, on the cinema camera, we're capturing about 400 gigabytes of data per second, which is close to a thousand times more than just a, you know, even a today's professional cinema cameras. And so rather than sort of shrinking from that challenge, we started to really embrace it.
29:41 Sonal? But does that mean you're sell, what does that mean for sales? Like, are you then selling like a prototype?
29:46 Speaker 02 Well, so no, the, the beauty of the, of the new business model was not only did we have, you know, a much better product for a much better group of customers, the business model improved dramatically because the way that we work today.
29:59 Ben Horowitz? That inventory problem.
30:00 Speaker 02 In both cinema and VR, we really look much more like a SaaS company, a subscription based company were. So today we, we rent the cameras and we rent the hardware and we charge on a recurring basis for all the data processing, all of the cloud services, all the software. So, I mean, it was this triple benefit. Our cost structure, we cut by about 70% by just not being in the, in the consumer business. We more than doubled our, our margin structure because again, with, with marketing and distribution and manufacturing, a one-time consumer sale is really, really hard. And, and we found a way to get to a recurring business rather than a one-time business. So sort of everything is painful and uncertain and scary
30:43 Speaker 02 since we didn't even know really what the product or the market was when we were doing it. Just about everything got better.
30:49 Sonal? It kind of actually ties together all the different elements of your career from loud cloud to Opsware to Ning to Litro, where you're at. Any final parting words of advice for entrepreneurs going through similar, both as hard tech startups or just going through any kind of change? Which seems like the nature of startups by definition.
31:05 Speaker 02 I mean, the biggest thing that I would say to people is everybody who's decided to do this job or pursue this career has their own set of, you know, hard things about hard things. And I think there's comfort in knowing that you're not alone. So I think that's, that's number one. And then number two is that I think conventional wisdom around startups and other things is, you know, stay focused, keep on going and you'll find a way. What I learned, sometimes, you know, the highest form of courage is realizing that what you're doing isn't working and is not going to work. And there, there may be a better way, as painful as it may be, to, to achieve something better.
31:42 Ben Horowitz? The other thing is that a lot of times you'll see a CEO want to get validation on a decision like this. So
31:49 Sonal? From who?
31:50 Ben Horowitz? From the board, from the employees, from their mentors, from their, and the truth of this kind of decision is, you know, you make this one all alone because you're the only one in the position to synthesize the knowledge. And so if you ask somebody, should I take like a crazy risk and decommit everything I've committed to this point? Nobody's going to advise you to do that. So you can't get validation.
32:15 Sonal? They don't have all the information.
32:16 Ben Horowitz? You've got to make your own decision on it. That's generally where people go wrong. It's kind of like if you're a football coach and the owner says, you got to play this guy, you got to play that guy. Well, if you go four and 12, you're getting fired anyway. So you might as well make your own decision because you know what to do. That's really the key. And there are, you know, as soon as you look outside for the answer, you're in trouble on that one.
32:38 Sonal? Yeah, you know, it actually reminds me a lot of therapy. You know, the whole point of therapy is to identify patterns in your life and try to change them. And I don't think entrepreneurs have those kinds of like therapists per se. I mean, you have your advisors, your VCs, your board, your cohorts, but I thank you for joining the A60Z podcast because you sharing this on air probably helps a lot of people think through their own struggle.
32:59 Speaker 02 Thanks for doing it.
Previous Innovating While Scaling: Lessons from Amazon Next Crypto, an Oral Essay Page updated September 30, 2026 · transcript and summary are machine-generated
