20VC: Steve Blank on Why The Startup Ecosystem is Partially A Ponzi Scheme, 3 Things That Determine Startup Survival in a COVID World & Facebook: Platform vs Publisher and Where Does Their Responsibility Lie?

Steve Blank is one of the leading luminaries of Silicon Valley, credited with being foundational to the creation of The Lean Startup movement and having spent the last 9 years at Stanford University as a professor and the last 8 as a Senior Fellow @ Columbia University. Steve is the author of "The Four Steps To The Epiphany" and "The Startup Owner's Manual". Prior to joining the world of academics and writing Steve spent over 20 years in the world of entrepreneurship as part of, or co-founded eight Silicon Valley startups ranging from semiconductors, video games, personal computers, and supercomputers. If that was not enough, Steve is also on the Defense Business Board for the United States Department of Defence. In Today’s Episode You Will Learn: 1.) How Steve made his way into the world of startups and Silicon Valley and how that led to his creation of "The Lean Startup Movement"? 2.) Why does Steve vehemently disagree with Adam's Smith's "Invisible Hand" theory when it comes to government intervention? Why is this proven to have failed? How does this only help the rich become richer? As a result, what needs to change in the mechanics of the economy? 3.) Why does Steve not believe that there is accountability placed on investors and founders for projects they create and invest in? Why does Steve believe for the majority of investors today, they have no social conscience? How could this be changed and improved? 4.) How did seeing the booms and busts of the dot com and 2008 impact Steve's operating mentality? What are the 3 core traits that will ensure success for founders in a post COVID world? How should founders change their decision-making process post-COVID? Why does Steve believe in "benign dictatorship"? Items Mentioned In Today’s Show: Steve’s Fave Book: Innovator's Dilemma: When New Technologies Cause Great Firms to Fail As always you can follow Harry and The Twenty Minute VC on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  You are listening to the 20 minute VC with me, Harry Stebbings, and what a show we have in store for you today. One of the leading luminaries of the valley and one I remember studying and reading all of their work so ferociously in my more foundational years. And so I'm thrilled to welcome Steve Blank, the man credited with being foundational to the creation of the lean startup movement. And having spent the last nine years at Stanford University as a professor and the last eight as a senior fellow at Columbia University. Steve is the author of The Four Steps to the Epiphany, my personal favorite, and also the Startup Owner's Manual, which is also fantastic. And prior to joining the world of academics and writing, Steve spent over 20 years in the world of entrepreneurship as part of or co-founding eight Silicon Valley startups, ranging from semiconductors to video games to personal computers to supercomputers.

• 0:43Harry Stebbings?

  And if that wasn't enough, Steve is also on the Defense Business Board for the United States Department of Defense. But before we move into the show today, I'm sure you've heard about it, but my word, this is a product I love, Carter. Carter simplifies how startups and investors manage equity, track cap tables and get valuations. Go to Carter.com/20vc to get 10% off. More than 800,000 employees and shareholders use Carter to manage hundreds of billions of dollars in equity. And Carter now offers fund administration, so you can see in real time data in the Carter platform and work with Carter's team of experienced fund accountants. Again, go to Carter.com/20vc to get 10% off. And speaking of amazing products you've heard about with Carter there, last month I had Jeff Seibert and Wayne Chang on the show from Digits.

• 1:27Harry Stebbings?

  Simply put, they're two of the best founders that I have ever met. And they're creating the most intuitive financial software that you've ever seen or used, automatically analyzing your company's spend and visualizing it for you as it happens. Hone in on recent activity, trends, anomalies, or any question that you have in just a few clicks. And unlike every other financial software, the integrations is not weeks, it's just a few clicks. I have to say the product is absolutely beautiful, which is not something I ever thought I'd say for financial software. But you have to check it out and you can do so at digits.com, that's at digits.com. And finally, did you know there will be 1.4 million job openings for developers in 2020 alone? Well, that's when my friends at Terminal come in. Terminal is a remote teams engine for fast-growing companies.

• 2:10Harry Stebbings?

  Connecting you with global talent to deliver the product building powerhouse your business needs to grow. They provide services and infrastructure in a complete solution that allows businesses to build and scale their remote engineering teams from the ground up without sacrificing experience or quality. From workspaces to community to on the ground support, they take the guesswork out of remote so that you can really thrive. But really, don't take my word for it. Just ask high growth businesses like Gusto, Chime, Earnin and Hims, all trusting Terminal with their remote teams and you can find out more today at terminal.io. That's enough from me though, and now I'm very excited to welcome Steve Blank.

• 2:51Speaker 01

  You have now arrived at your destination.

• 2:54Harry Stebbings?

  Steve, it is such a pleasure to have you on the show. As I said, I've been a fan for a long time and also heard the most wonderful things from Mike Maples. So thank you so much for joining me today.

• 3:02Speaker 02

  Thanks for having me. I hope I live up to the reputation.

• 3:06Harry Stebbings?

  Indeed, but I would love to kick off with a little contest. So for those that maybe haven't read some of your incredible work, how did you make your way into the wonderful world of startups and come to be one of the most prominent figures in the valley today?

• 3:17Speaker 02

  Well, I had a couple of decades career as a serial entrepreneur. I had spent four years in the air force during the Vietnam War before I became an entrepreneur. Came out to Silicon Valley in the early 1970s, did eight startups in 21 years, two semiconductor companies, supercomputers, enterprise software, video games, military intelligence, and then ended up retiring in the midst of the dot com bubble. And I think I have a T-shirt that said the luckiest man on earth, number 125 or something. But when I retired, I started to think about the nature of innovation entrepreneurship. How did this work, this business that was so good to me and I had so much fun in? I just kind of did it, never quite questioning how people gave us money and what they told us to do, et cetera.

• 3:58Speaker 02

  And it turned out that when you're doing a startup or when you're doing a company, your head is down mostly doing execution of your current business. There's very little time for great thoughts or what's this about? But I finally had time to kind of ponder the nature of innovation entrepreneurship. And in a nutshell, what I realized is in the 20th century, investors basically told Startups without ever using these words that startups are nothing more than smaller versions of large companies. So they were saying everything a large company did, you do. A large company writes a five-year plan, we want you to forecast the future. They write income statement, balance sheets, cash flows for five years. We want you to do that, even though the market might be zero, we want you to do that. And by the way, they hire sales, marketing, biz dev on day one, you do that too.

• 4:44Speaker 02

  And by the way, use waterfall engineering to build your products. And what a surprise, most startups failed. And my insight was, well, most startups failed because we were just assuming everything we were writing down was a fact, rather than we were just mostly effing guessing. And that we were confusing ourselves in early-stage ventures and new ventures inside of large organizations. That startups were the same. It turns out that large companies, existing companies, execute known business models, which is a fancy word for saying they know their customers, know their competitors, know pricing, know channel. They know all this stuff. But startups were doing something quite different. Startups were searching for business models. And this distinction, believe it or not, between search and execution had never been made.

• 5:28Speaker 02

  And once you make that observation, you kind of realize, well, huh, we had built a hundred years of tools and strategies and all kinds of stuff for execution, but we had very few tools for search. And I took that upon myself to kind of create them. And that became the basis of what's now known as the lean startup methodology. So what was your question, Harry?

• 5:48Harry Stebbings?

  I mean, what an incredible movement into has turned into. I do want to ask though, because you said there about the incredible history as an operator and seeing the multiple different market cycles. And we're in this very precarious position today. And you said before, and in my Maples' episode, actually, this is not a recession, this is a mass extinction event. I wanted to dig in on this. What did you mean by this? And what does a mass extinction event look like?

• 6:10Speaker 02

  Well, this is a self-created mass extinction event. I've lived through a couple of other financial crises in the 20th century, and as I said, the dot-com bubble. But this one, we shut down the economies across the world to kind of save potentially millions of lives. And it looks like at the current rate, we still might have lots of bodies on the street. But in shutting down the economy, obviously, some segments were impacted a lot more than others. Obviously, if you're in travel, or hospitality, or restaurants, or even major business segments have just kind of gone dark. And so by mass extinction event, I mean, we literally have put segments of the economy not only on pause, but potentially never to return. What that means, though, is that just like when the dinosaurs became

• 6:53Speaker 02

  extinct, those little mammals that scurried underfoot, in fact, realized that there was a niche that now opened up that they could become the dominant species, and they did. And the analogy means that there are new opportunities for startups, or even existing companies, to kind of take over. And they could do that by understanding the new normal of how people will shop and buy, or that people got used to using those types of services that might have taken a decade or more previously to kind of get adopted. So the world is no longer the same, is what I meant by a mass extinction event.

• 7:24Harry Stebbings?

  Can I dive in and ask Steve? Because I'm totally with you in terms of really realizing just how serious and severe it could be. But then I look at public markets, and I look at prices, and I look at venture activity, and I go, what am I not seeing here? Because deal volume is barely down, pricing is barely down, public markets are actually very high and resilient. What am I not seeing? And how do you think about this dislocation?

• 7:47Speaker 02

  Well, I think about 10 to 15% of the unemployed are asking the same question, right? There's never been a period where the economy and the stock market have been so out of sync. I think there's a good chunk of the stock market that's basically assuming we're going to have some shape of a V-shaped recovery, and possibly people are putting their money, their paychecks, that they were normally putting on gambling or somewhere else into the stock market. I can't explain, though smarter people probably can, about the disconnect. But it obviously doesn't reflect the daily lives of a good number of people who are both out of jobs and And are eager to get back to work.

• 8:22Harry Stebbings?

  Yeah, absolutely. I agree with you in terms of that disconnect. The other kind of challenging thing I find is a lot of investors and LPs are saying, oh, yes, absolutely. The downturn is here, but actually the best venture funds and the best investments are made in the downturns. Look at two thousand and eight, and I always ask myself, yeah, but actually that was a technology inflection point with the rise of smartphones and the advancement of GPSs that led to some of those incredible companies, not the macroeconomic conditions. How do you think about that being technology inflection point versus macroeconomic conditions? And are we different today? How do you think about that?

• 8:57Speaker 02

  Yeah, I have a slightly different view. I think entrepreneurs and their investors tend to operate the idea that out of every crisis is an opportunity. And this is certainly a large crisis. And I think some of the opportunities of just, if you're an entrepreneur, are just massive here. And while they're not tech opportunities, as you point out, they're market opportunities. I'll give you an example. The nature of work will never be the same. I mean, there are tens of millions of people and their CEOs who are now questioning, let's see, I commute to work for an hour to sit in front of a computer to read email and get on Zoom. And then I go back home and I commute for another hour to return home. And why am I doing that? I might need to be in work a day a week to have meetings, but there's no rational reason anymore,

• 9:42Speaker 02

  since I've just been working remotely for the last three months, to show up every day into a place of business. So the shape of commercial office space is going to change now. And by the way, for those who physically have to come back for office work, the amount of space you need is potentially a lot more. So we're going to need less space on one hand and maybe more space on another. But I think number one, the nature of remote work and therefore the nature of remote tools. Anybody who's used video conferencing, Zoom or Teams or anything else has now discovered that while you could see other people and talk to them via conferencing, it's exhausting. And what we really understand is that at least half, if not more of most meetings are based on non-verbal cues that you pick up from facial expressions, from body language, from other cues

• 10:26Speaker 02

  that video conferencing apps just currently don't have. But in fact, there's already. Emotion detection, facial detection, voice recognition about emotion, pieces of software that exist separately. Some smart entrepreneur are going to start integrating those into business versions of video conferencing apps to be able to read emotions of a potential client. I'll give you one more. If I'm in sales, there is no possible way, or if I'm the VP of Sales or CEO, if I'm, there's no possible way I'm ever going to let a salesperson again do a first meeting in person. What a waste of time. In a complex sale, you certainly want follow-on meetings in person, but there's no way to even get in a car, let alone a plane, because we've also seen that while these video conferencing apps will lack a lot, for a first meeting, they're just more than adequate.

• 11:10Speaker 02

  And that's just for business. You know, if anybody's been trying to homeschool their kids via remote education, every parent in the world could tell you how badly lacking those apps have been. They're not integrated, the subjects don't talk to each other, and don't match different grades. What happens when you have one computer for multiple children, multiple grades? Huge room for improvement. Telemedicine completely changed not only the ability to do this, but the ability to get reimbursed that is paid from insurance companies and the government. Those rules changed, and hopefully they'll be permanent. On the other hand, it's potentially ripe for fraud, and maybe you can't charge as much if you're a doctor for the same type of treatment. So I could go on and on, but none of these are quote "technology-enabled," but they're massive disruption-enabled. Does that make sense?

• 11:55Harry Stebbings?

  It totally makes sense in terms of the movement of kind of societal behaviors and the kind of opportunities that that creates. I guess the question for me is then, when you look at the founders who are innovating within these markets, and maybe the ones who are already existing in them, I've heard you say there are kind of three things that determine startup survival today that's in the hands of leadership. In your mind, what are those three things, Steve?

• 12:16Speaker 02

  Number one is the speed in which you could assess what's going on and what do you think is going to happen. Number two is the actions you take to get your company in shape to do that. And number three, again, the speed in which you execute those actions. Notice the word "speed" occurred at least twice, if not in everything you do. What I've seen is that the companies that are going to survive and then thrive in the recovery are driven by CEOs who could assess rapid Come up with rapid strategies and then take action and seize the opportunities. Or else you just kind of have what's going on happen to you rather than you take as much control as you can. And by control, I mean not only the things necessary to have your business survive, making sure you have enough cash and runway to make it through, but there

• 13:00Speaker 02

  will be a morning after and there will be a recovery, but it's going to be a new normal. What does your company look like after that? And if you happen to be one of those companies that happen to have more cash or more customers now, how do you take advantage of the fact that you do? There's a ton of people that you could never hire that you could hire before. There are a ton of assets that you could buy that you couldn't have gotten before. Lots of opportunities for those who actually were coming out of this in good shape.

• 13:26Harry Stebbings?

  Can I ask, Steve, you mentioned there about kind of the speed of decision making, the speed of execution being so important, both of which rely on, in my mind, narrow funnels of leadership or kind of single leaders, or as you said, benign dictators. My question to you is, why do you believe in the power or kind of benefits of benign dictators? And is it purely about making the speed of decision making or execution faster?

• 13:47Speaker 02

  By benign dictatorship, I don't mean my way or the highway. What I mean is smarter leaders will realize that in this case, you have to trade off ultimate collaboration versus speed, because unlike in other times, the environment is dictating the necessity to move fairly rapidly. But it doesn't mean you don't want to hear other input, particularly if you're trying to figure out what new business models or what new segments or where do we think the future is going. I certainly would be getting out of my office and first of all, asking everybody in the company what they're seeing and also getting out of the building and doing customer discovery and understanding what's the macro environment like? When do we think the lockups and the sequestering is going to end in my industry or state or locality? And what do we think the recovery is going to look like? But then I would suggest

• 14:32Speaker 02

  that whatever the past normal was of having a collaborative consensus of whatever, for most businesses, you really don't have that time now. Maybe in some you do, but in others, I would just politely suggest we need to make decisions and we need to move on. And that's just kind of my view of how one needs to operate. It doesn't mean that you sit in your office locked up and just kind of rattling off memos or emails, but the time for long time committee to have the committee to schedule the conference room is probably over for a while. And I think that will be one of the defining differences between the winners and losers in this new normal.

• 15:07Harry Stebbings?

  I absolutely agree with you there in terms of the speed of execution and the speed of decision making, kind of the need for that to be narrow in terms of who makes it. I guess my question to you is, it makes me think of Ben Horace's wartime versus peacetime CEO. How do you think about the wartime versus peacetime? And I guess from working with some of the best CEOs in the business, how have you seen how they operate and think about wartime versus peacetime in terms of their leadership styles?

• 15:30Speaker 02

  Yeah, number one is business people who use that analogy. I'm not sure too many of them have been in the fight. If you lose in wartime, it's measured and killed in action. And if you lose in business, it's maybe you lose your corner office. So I'm not sure that's the right analogy, but even more so, if you're in the Army or Marines, you train for the fight all the time. You're running battlefield drills as part of what you do. What peacetime CEOs have encountered and business schools and your current job never trained you for this type of crisis. So you're kind of thrown into this environment where you have to act differently than you acted before. And I think I articulated a couple of those differences. You have to act with speed and urgency or else you will be overrun, in this case, by the circumstances of the market.

• 16:15Speaker 02

  You have to make decisions at speed and sometimes unpopular. And more importantly, you're not sitting there voting as kind of like the world moves on. And as a matter of survival, you need to be able to personally assess what's going on around you by either getting firsthand data, my preferred method, or validating the data you're getting. So for example, in the beginning of the pandemic, I heard from a bunch of CEOs, "Oh, my VP of Sales says the forecast is just fine." I went, "Really? Well, have you personally gone through the pipeline list and called the top 10 prospects?" "Oh, no, but she assures me it's great." I said, "Get on the phone and dial through them." And of course, we discovered for a quarter of them, they didn't even have their jobs anymore. They weren't even there.

• 16:58Speaker 02

  And the other quarter, they were talking about, "What do you mean by this quarter?" Like, our customers are like not even around anymore. Because salespeople, not relying, but they tend to be, the nature of their job, incredibly optimistic. They have to be. But the facts were changing underneath their feet. And the only point of this is that as part of this process, CEOs need to gather firsthand data or at least validate that the data that they have is valid. And then be able to operate on that information and figure out what the new plan is.

• 17:26Harry Stebbings?

  In terms of kind of that communication and that data gathering with their team, in terms of switching to a different communication channel, which is their leaders communicating with the investor base, how do you think about the best founders and how they communicate well with their investors more specifically?

• 17:41Speaker 02

  Well, I think in normal times founders have figured out how to communicate both up to their investors and down to their employees. But I will contend now that isn't optional. That's a skill. If you didn't have it, you need to learn it quickly. Or if you do have it, you need to figure out how to make it a regular cadence on a regular tempo. And what I mean by that is you wanna, as you're doing an assessment of what's going on outside your building and the economy and the recovery, you wanna share your view of what you think is gonna happen with your investors. A, because you wanna inform them, but B, while you're seeing one company, they might be seeing a portfolio of CEOs, might be seeing something different. So you wanna get their feedback on your assessment. And then the second thing you wanna share with them, maybe not on the same call or could be on the same call,

• 18:25Speaker 02

  is you wanna share with them as, well, here's how we're gonna kind of pivot our business model based on what we see going on. Either we're gonna lay people off, or we're gonna hire people, or we're gonna change our products and services, or this is where we're gonna be spending money, or this is where we're cutting back our marketing activities, et cetera. And you wanna make sure they validate that that's a good new going forward plan, because that wasn't the plan they thought you were doing ninety days ago. And again, they are probably hearing the same thing from other portfolio companies. And smart VCs might say, have you considered, which is a shorthand for, hey, pay attention, you know, this is what everybody else is doing. And the conversation could go back and forth about why you think this is the best course of action for your business.

• 19:07Speaker 02

  Simultaneously, you need to be communicating with not just your C-suite, but the entire company. First, to kind of let them know your view of what's going on, both now and in the future for the company. And if you need to do some actions, either layoffs or changes in the business, you need to communicate why. And the first one is just kind of a strategic communication of like, hey, we're on it, we're not sitting here, here's what we're doing. We're trying to understand what's going on. And, you know, I would be soliciting input from, as I said. Earlier from other people in the company is, you know, we're thinking about how to either survive or take advantage of or change our business and be open to some suggestions for a short period of time. If anybody has any ideas this week, happy to hear them or send them or come

• 19:51Speaker 02

  to my office, etc. And then you continue to communicate about how we're doing, what we're doing, why we're doing it on a regular basis, at least once a week. And it shouldn't be this glib, everything's fine if everything's not fine. It should be what you're doing and what you're seeing with obviously hope for the future, but it shouldn't start out with the first seven paragraphs of somehow wonderful it is. And then with the last one, and that's why we're laying off three quarters of the company.

• 20:17Harry Stebbings?

  It's got to be reflective. I'm totally with you. You mentioned the layoffs there, Stephen. It's the one thing that's challenging me is when founders ask, absolutely, we do need to do layoffs, but I'm not sure as to the severity of which we should do them. And so when you think about advising founders today, how do you advise founders on the magnitude with which they should approach cutting and layoffs? And what's too much and what's sufficient?

• 20:38Speaker 02

  Well, what's sufficient is if when this is over, you're still in business. And more importantly, you're able to kind of rebound and grow and scale. Layoffs kind of depend on, I guess, number one is what's your burn rate and what's your runway and how much cash you want to have in the bank that you'll feel comfortable your business could ride this out. Typically, people say you should have somewhere between 18 months and two years of cash. If you were startup cash flow negative and you had no revenue, you kind of giggle about that. Well, that's nice, but only cash I'm getting is my next round of funding, which may or may not be here. Remember as startup CEO, you were playing life, so were your investors, trying to figure out their portfolio and what companies do they need to put their money in to help survive if their revenue have fallen off. And so you need to make a set of assessments

• 21:22Speaker 02

  about is your burn rate that is how much you're spending each month. It doesn't need to be radically reduced because your customers have gone away or your business has changed radically, etc. And sometimes some of that biggest expense is people. And so you need to assess is what do I need to do? And can I apply for government assistance payroll protection program or any other programs? Who are the most vulnerable people? A lot of CEOs just kind of look at the headcount. And throwing out the janitorial services who are the most vulnerable with people who could get jobs, engineers who could get jobs in another company overnight. And you need to figure out how much you need to cut. The biggest mistake that I've seen time and again that people make is not making the cuts, but basically cutting a bit at a time.

• 22:04Speaker 02

  And while that seems, well, we'll see how it's going and we'll cut 5%. And then three weeks later, you realize, nah, we ought to cut another 5%. That's the worst possible way to do layoffs is that while it seems like the right thing at the time, it destroys morale and productivity almost down to zero. Because everybody's looking over their shoulder, knowing another cut is going to come, another layoff is going to come, and they wonder if it's going to be them. And then literally you see people playing Game of Thrones, struggling for who survives. It's the wrong way to do it, at least in my mind, is if you realize that you might need to reduce your burn rate, then just do it at once. And if I had an error on any way, I'd error on the side of maybe more than less, because you could always rehire. Does that make sense?

• 22:48Harry Stebbings?

  It totally makes sense. I totally agree in terms of erring on the more severe side. I guess my question then, I've had a lot of founders ask me this. I don't actually know what to advise. Maybe it's a little bit of US versus UK, Steve, but I'd love your thoughts. You mentioned PPP there, and a lot of people say, hey, this is a venture backed company with large funds behind it. They should not be taking PPP. And others say, absolutely, we should, we're more than within the criteria. Of course we should. Where do you land on whether PPP and startups is a suitable fit? And how would you advise founders who are going, should we have taken or be taking PPP?

• 23:22Speaker 02

  Well, the first thing you need to do is obviously figure out whether you taking any type of government's assistance falls in the bounds of, is it legal? And then if the answer is yes, at least one school of thought, probably the one where I would come down, is your job is to have your company survive. And if taking that money will do that, then for gosh sake, take the money and have the other discussions later after you're a successful company. But you do have an obligation to keep your company in business and more importantly, the people who work for you employ.

• 23:51Harry Stebbings?

  Yeah, no, listen, I do agree in terms of that kind of ultimate responsibility. And would they love to move this, Steve, into a quick fire round? So I can say a short statement and then you give me your immediate thoughts, about 30 seconds to 60 seconds per one. How does that sound?

• 24:04Speaker 02

  Sure.

• 24:04Harry Stebbings?

  So tell me, I'm sure you've read many a brilliant book. What's your favorite book and why?

• 24:08Speaker 02

  Well, if you haven't read kind of the ur text for innovation entrepreneurship, The Innovator's Dilemma from Clayton Christensen was kind of the book that just changed my head on how to view innovation. And though he wrote it for large companies, was actually my playbook to reverse engineer for startups.

• 24:26Harry Stebbings?

  Yeah, it's one of my favorites too, I have to admit. Tell me, the best board member that you've sat on a board with or observed at board meetings? And what made them so good?

• 24:33Speaker 02

  This one, I'm going to vote for two. And like every entrepreneur, you offer one, they'll take two or more. The best one on a nonprofit board is when I was a public official in California. I sat on a board with someone named Mark Stone, who was a coastal commissioner with me. And Mark had probably the best ethical center I've ever seen in anyone, even though we were dealing with lobbyists all the time and had the governor screaming in our ears for how to vote. Mark was pretty centered and in fact was a pretty good role model for me there. On the commercial board, it was Doug Leone of Sequoia Capital. It was great to watch Doug channel his mentor in Sequoia, Don Valentine. So he was a force of nature.

• 25:11Harry Stebbings?

  Can I ask your advice here, Steve? I've joined my first boards over the last two years and I'm a young individual in the world of venture. And as I said, first few boards, what would you advise me in terms of being the best board member that I can be?

• 25:22Speaker 02

  Board members tend to, and I fell into this trap as well, think that what the CEO needs is to hear their words of wisdom on every possible subject. And I've seen boards kind of circle the drain around trivial stuff when the building was on fire. And it is the classic, are you rearranging the deck chairs on the Titanic? The board's role, I think, is besides hiring and firing the CEO is validating strategic direction for the company and providing some insights to the CEO that they might be missing. And if you're not doing that, and obviously exercising fiduciary responsibility to make sure that things stays in business and the numbers look right, et cetera. But if you're not operating on strategy, I've seen boards just spend an inordinate amount of time on details that just they shouldn't,

• 26:06Speaker 02

  maybe because they can't add value. I mean, if you're arguing about the furniture or the office building or whatever, it's the wrong conversation.

• 26:13Harry Stebbings?

  Yeah, no, I do agree in terms of really synthesizing and concentrating on the things that matter. Can I ask, you're the epicenter of both kind of funding and entrepreneurial communities today. What would you most like to change about the valley in the tech ecosystem?

• 26:25Speaker 02

  The startup ecosystem is actually, and I mean it half facetiously, a giant Ponzi scheme. You know, while you're a founder, thinking that the reason you're starting the company is to change the world, or your industry, or make people's lives better, that's not what your investors' job is, and nor is it their investors' job. It's kind of an impedance mismatch. Their job is to make the most money without any rules. And what they're looking for out of you, whether they personally like you or not, is a liquidity event, that is how to make the most money. So there are literally no rules from the financial side about what you invest, what you'll do, et cetera. And I wish there was a little more oversight, because there are essentially no rules for what we invest in, who we hire, how we hire, et cetera. I think it lacks a moral center.

• 27:10Harry Stebbings?

  So I'm too intrigued. How would you like to see that implemented? Would it be like guidebooks? Would it be a governing body? What would your thoughts be on how you can place that kind of moral compass, so to speak?

• 27:19Speaker 02

  Well, you know, in the United States, the word national industrial policy is like a third rail, meaning you touch it, you die. And the reason why is that we live in a deep pockets democracy, where the deep pockets get to affect legislation. There's no possible way that any of the people who invest in VC funds want to be told how and why their money should and where it should go. And if they did, they might put their money elsewhere. But if you think about it, and I'll just take the non-social aspects, in the 20th century, venture capitalists and the things they invested in happened to be aligned with the things that actually, I think, made our society better. Better computers, but more importantly, the side that typically doesn't get press, and at least the same press, into life sciences. Therapeutics, medical devices, diagnostics, et cetera.

• 28:03Speaker 02

  In fact, it's amazing to think, in the 20th century, every hardware and software VC also did life sciences. And then by the end of the century, they had become so specialized, it's almost you could count on one hand the number of VCs that still today do both. And so therefore, and the reason I just make this point is, if you look at how many dollars are going into social media apps and entertainment versus how many dollars are going to things that actually make the world better, you could immediately see was, well, let's not use sticks, but maybe some carrots to kind of incentivize where this money goes.

• 28:38Harry Stebbings?

  The trouble is though for me, like I'm an investor today in London and I shiver at ad tech and I shiver at healthcare. Because I know the pains of selling into these large, monolithic, archaic institutions. So I guess like, do we need to change the infrastructure behind these hugely important sectors? To make them more amenable to innovation and startup sales?

• 28:57Speaker 02

  One would have said the auto business was completely monolithic and hadn't changed for a hundred years. And one wouldn't have said the, at least in the US, the monopoly on rockets were monolithic. And one guy changed both, or take a look at what happened with mobile phones and music. One guy there changed both. So I don't think the industry or even regulation needs to change. I think the entrepreneurs need to see and investors need to see there's an opportunity. And then on the social side, there's obviously been no reason to invest in first people of colour and then women and then anything else. It was like we invest in who we want to invest and okay, we see the consequences of that in multiple countries. I'm not suggesting we need government roles. You just asked me, what would I like to change?

• 29:39Speaker 02

  And what I'd like to change is we've gone and we live in a completely laissez faire type of investing environment with no social conscience and no national interests. And I think that's a mistake. After four decades, I'm absolutely convinced it's a mistake. And by the way, there's no responsibility for what happens to tech either. No entrepreneur, there's very few entrepreneurs who start a company thinking about how do I do evil? But of all the things that are probably going to destroy a democracy, it happens to be Facebook. And there's no consequence to the people on the boards who've made tens of billions of dollars, let alone the completely irresponsible CEO who runs the company. Like any adult with any distance would tell you, these have been started with maybe great optimistic views of the future

• 30:23Speaker 02

  and have turned the social media, at least in China for example, turned parts of that country into dystopian nightmare. If you're a Uighur for example, or in Tibet, and we could see where tech is going to be heading.

• 30:34Harry Stebbings?

  I'm so interested by that one because it's like, is the priority the fiduciary responsibility to the shareholders? Or is it the moral conscious and responsibility to the improvement and kind of sustainability of society and democracy? And that may be an incredibly right wing and capitalist perspective of mine to even have them on a pod because maybe the moral compass has to come first. But if one is optimizing fiduciary responsibility, is he not only acting in best interest of the company?

• 30:58Speaker 02

  Well, I mean, that's been the line for the last 20 years is we have a responsibility to our fiduciary responsibility to shareholders. I know, at least in the United States, that's not written into our constitution. In fact, capitalism isn't even called out in our constitution. Other things are: life, liberty, and pursuit of happiness. So we kind of use that as a mantra to kind of rationalize the things we do instead of social justice. And in lots of countries, that doesn't turn out well when the people take to the streets. In the meantime, the people making money live quite well, and hopefully it doesn't happen on their watch. Without this balance of what happens when you have unfettered capitalism and not thinking about its consequence, I think that's coming to roost in numbers of countries in ways that potentially are not going to be pleasant.

• 31:43Harry Stebbings?

  Yeah, I totally agree. I'm always concerned that we're actually going to see this kind of civil revolution or civil revolt at such income inequalities. Do you think it goes quite that far, or am I being overly pessimistic and overly concerned?

• 31:54Speaker 02

  Well, I think it goes in multiple ways. As I said, in China, it's not people in the streets. It's actually the government using the tools to take control of people's lives in a way that, as I said, were just only imagined in science fiction stories. In other places where people were freer, it ends up in chaos. And in other places, it ends up being manipulated by outside players, like the 2016 election in the United States. And it's a tool for others to sow divisiveness and discord in your own society. And when the only goal is, well, I don't really care because I'm making tens or hundreds of billions of dollars, that's when you go, this is out of control. Or if you're in the UK, the equivalent was what happened when all the Russian money flooded into London. All of a sudden, Russia's

• 32:36Speaker 02

  our best friend, and we're not going to pay attention. Or not only the Russians used social media to interfere in the US elections in 2016. Their hand was all over Brexit, and yet that was because of so much money in London. No one wants to talk about that. Everybody, at least who knew, knew what happened, but it seemed to be a too divisive subject to talk about. My point is, is that tech has now been used and mostly misused in ways that the founders just couldn't imagine. And I think that's kind of a story all the way back to, you know, the first rock. Her first wheel is that, hey, look what I could do. Isn't this exciting? And that's the nature of entrepreneurs and visionaries is you envision a better world. But there are always other people who can figure out how to turn that tool into something different.

• 33:18Speaker 02

  And we always seem to be A, surprised, then B, go, huh. And sometimes a huh is a little too late where you wish that the government or someone else would have stepped in a little earlier. And this really goes down to the philosophy of what's the role of a government? Is it just protect life and safety or to get involved in some of the consequences of these things? It's a perpetual debate, though in this case of, for example, social media, I think a jury's already in. And all the optimism we thought that social media would bring us together. You read some of that stuff now and you kind of have this kind of sad laugh going. Yeah, sure wish it would have worked out that way, but it's been completely the opposite.

• 33:56Harry Stebbings?

  But one final one, do you believe in Adam Smith's theory on the invisible hand? It's one that I constantly think to, and I'm actually a big believer in, hence my lack of appreciation of government intervention. Do you agree with the invisible hand? And then penultimate one, how do you feel about government intervention over free market invisible hand theory?

• 34:13Speaker 02

  Tell me more.

• 34:14Harry Stebbings?

  Tell you more.

• 34:15Speaker 02

  About invisible hand.

• 34:16Harry Stebbings?

  In the way that the market will correct itself and that actually undeterred from government intervention, it will find it's kind of natural.

• 34:24Speaker 02

  Yeah, so I think that theory was probably wrong when first articulated, but certainly is laughable now. By people who are manipulating the markets and not just the markets, but almost every segment of society. That's why you have rules of law and rules of commerce. And the people who don't want rules of law and commerce are the ones that are the biggest contributors to making sure that the governments don't do that. And in their interest, you can absolutely understand why, you know, please don't get in my way of maximizing how much money I make. That's always been the case, but it's been multiplied by a factor of a hundred, if not a thousand in the last couple of decades. The invisible hand is actually today, the invisible hand of the people who have their hands in everybody else's pockets.

• 35:05Speaker 02

  And I don't want to sound like someone who doesn't appreciate the role of capitalism and the role of innovation entrepreneurship. I mean, my role was to build things that were better, faster, a lot more fun to either play or use or make people's lives better. But the people invested in those things didn't have the same goals. And today, the financial community, I think, has gotten a little out of control about a completely unfettered, without any rules. The invisible hand is actually around our throats.

• 35:33Harry Stebbings?

  Steve, I wanna thank you, A, for being so flexible in terms of the schedule. This was one of my favourite interviews in terms of just the plastic nature of the conversation. And so, thank you so much for joining me today.

• 35:43Speaker 02

  Thanks for having me.

• 35:46Harry Stebbings?

  My word, what a discussion. I love the way the quickfire there turned into kind of a 15-minute-long dialogue on the future of social, on the future of democracy, on the future of the internet. It is absolutely fantastic discussion there with Steve. And if you'd like to see more from us, you can on Instagram at H Stabbings 1996 with two Bs. However, before we leave you today, I'm sure you've heard about it, but my word, this is a product I love, Carter. Carter simplifies how startups and investors manage equity, track cap tables and get valuations. Go to Carter.com/20vc to get 10% off. More than 800,000 employees and shareholders. Use Carter to manage hundreds of billions of dollars in equity. And Carter now offers fund administration, so you can see in real-time data in the Carter platform and work with Carter's team of experienced fund accountants.

• 36:31Harry Stebbings?

  Again, go to Carter.com/20vc to get 10% off. And speaking of amazing products that you've heard about with Carter there, last month I had Jeff Seibert and Wayne Chang on the show from Digits. Simply put, they're two of the best founders that I've ever met, and they're creating the most intuitive financial software that you've ever seen or used, automatically analysing your company's spend and visualising it for you as it happens, honing on recent activity, trends, anomalies, or any question that you have in just a few clicks. And unlike every other financial software, the integrations is not weeks, it's just a few clicks. I have to say the product is absolutely beautiful, which is not something I ever thought I'd say for financial software, but you have to check it out and you can do so at digits.com, that's at digits.com.

• 37:14Harry Stebbings?

  And finally, did you know there will be 1.4 million job openings for developers in 2020 alone? Well, that's when my friends at Terminal come in. Terminal is a remote teams engine for fast-growing companies, connecting you with global talent to deliver the product-building powerhouse your business needs to grow. They provide services and infrastructure in a complete solution that allows businesses to build and scale their remote engineering teams from the ground up without sacrificing experience or quality. From workspaces to community to on-the-ground support, they take the guesswork out of remote so that you can really thrive. But really, don't take my word for it, just ask high-growth businesses like Gusto, Chime, Earnin and Hims, all trusting Terminal with their remote teams. And you can find out more today at Terminal.io.

• 37:56Harry Stebbings?

  As always, I so appreciate all your support and I can't wait to bring you a fantastic episode this coming Friday.