David Smooke: Hello. I’m here with Lumen on Market Street.

Lumen Sivitz: What’s happening.

David Smooke: And today we’re going to take a walk. We’re going to start talking about really the difference between seeing failures as a success, and as well as inputs versus outputs, what you can control and how this changes the perception of different businesses in a way you do business. That sounds about right?

Lumen Sivitz: Sounds about right. Just the general idea of what matters; the work you put in or what you get out. And I think we kind of have two interesting topics to talk about. One, potentially the start-up scene and how this matters, and then also what’s going on with basketball these days, in this interesting trade of potentially Kevin Love going to Cleveland for exchange for three first-round picks. I think it’s a perfect example of known quantity of what you get out from Kevin Love, and some interesting inputs and potential first-round picks, it seems very promising. Clearly, these two organizations see different values in these players and have different stances on the subject at the moment.

David Smooke:  One thing that really excites me about that trade is LeBron James essentially functioning as Executive of the Cleveland Cavaliers. I’m of the opinion that all the top NBA players should have stock options, ownership, and franchise. They’re the ones producing value. When LeBron went from Cleveland to Miami, he changed the value of the franchises by $200 million in each direction. That was worth more than anything Dan Gilbert or the Heat owner, Micky, could have done. In my mind, this trade was agreed to the moment he signed. It just got announced now. He knows he’s 29. He has a small window, and in his mind, they should be giving up their best young assets for a player who’s in the prime of his career, ready to help them win now.

Lumen Sivitz: Isn’t it interesting also that LeBron’s probably in a way better position than either of the other executives or really any executive, to make analysis about the inputs of the situation when it comes to a basketball team of performance, and whether or not that correlates to output success of championships. And so now, he’s someone who can go, “We can look at the players very critically here and figure out, is this the best opportunity for us to pull off the championship?” Meanwhile, the casual fan is basically looking at a much dumber version of this, or a much less informed version of those inputs. Trying to really just measure success is not in the work that goes in, which is you know how LeBron’s measuring, “Are we trying as hard as we can everyday?” And he knows what championship effort looks like. Whereas, the fan could basically say, “Well, if we have the right players, we should get a championship,” and they don’t really understand the mechanics of how that actually transpires.

David Smooke: Yeah, even though those mechanics are so different, the Cleveland fan base and LeBron James both agree bringing in Kevin Love is the right move. So sometimes it’s cool to see those align, because a lot of times when an executive makes a trade, they’ll talk to you about the long term vision. And in Minnesota, they’re going to have quite a marketing challenge. They just gave up one of the ten best players in the world, and I think they got one of the better hauls you’re ever going to get for everyone knowing you have to trade a superstar in the next year. And at the same time, that’s tough to sell. That’s tough to tell your fan base, your most important asset and the guy that’s driving the majority of your wins is gone.

Lumen Sivitz:    That is the inputs versus outputs kind of perception of value. If your fan base understands that you can’t just buy championships, you have to get the pieces that come together and hopefully there’s a big – not Love component – but some sort of chance component, whether it be the quality of the teams in the league or what have you, that kind of affects your ability to actually get the championship. What you can’t control is the influence. The quality of players that come in, they’re not actively together, the cohesion of the team. Obviously it’s a different sell than what’s going on. They have this expectation of championships, the expectation of the output that he is going back to work in Cleveland based on this Kevin Love trade with LeBron.

It’s also reflective of how we view start-ups as insiders and outsiders in this business. You got people who, they kind of go, “We’ve got eight players who are formal executives of the companies.” Investors buy into that and say, “We’ve already got people who look like they’re going to create this output for us,” and they doubled down and say, “We’re going to put in the money, because we think the output’s going to come.” And then, the public feeds off the [technical?] particles saying, “Yeah, we think this is going to be a big hit.” But it’s not the day-to-day effort or the struggle that’s gone into the process that’s really being written about or being glorified: it’s the efforts. Meanwhile, the less insider, boot-strapper start-ups are more focused on, “How do we sell the inputs? How do we sell the work as its own journey? Hopefully we end up with an output that’s nice, but we’re really going to focus on talking about that more immediate tangible possibilities.” It’s a very interesting dynamic, and it’s [inaudible] and well placed.

I think in terms of marketing the inputs, I think social media has made it a lot easier. It’s a lot easier to broadcast what you’re doing and what you’re working on at an earlier time. Like a less mature company, you can be more aware of the hard work they’re actually doing. I know one small thing was just releasing weekly release notes every week, and making it public all the work you’re doing. So even if it’s not this whole grand picture, it’s like, “Listen, you can look at the last X amount of weeks, and you can see the clear growth and estimate our rate.” But at the same time, no one cares. If they really want to dig into you because they’re interested in your output – what you’re putting out there – then they’ll go back and look at your inputs. It’s not like your inputs, “Oh yeah, I had a really hard week and I worked 65 hours,” but if they’re not interested in the end-product that you’re putting out there, no one’s going to care.
But isn’t the value actually created by the inputs, not the outputs? The outputs show you that value has been created, but that’s not what happens.

David Smooke: 100% agree.

Lumen Sivitz: So isn’t the thing like, don’t we want to figure out a way to glorify the input, so that more people want to put in and ultimately create more value?

David Smooke:  To solve that problem, we do. But it’s still result-based American culture. And if you’re a consumer and I don’t solve your need, do I really care about you? So you have to have at least some level of output value to engage your target consumer. An example we were talking about earlier was Vine versus Viddy. I like this example because they both came at a very similar time. They came out with a very similar product of cool ways to make very, very short videos. Very small teams to begin with. For all intents and purposes, the inputs seem almost the same. Small teams going after this really growing market, and the output they actually produced was this little cool video. They went about it slightly different: Vine is six seconds, Viddy was 15 seconds and they offered more editing features. So in that way, they were ahead in the feature war. But their value prop was slightly more conducive to Twitter. Six seconds is easier to consume. They’ve beat them to market, in terms of embedding the video in a tweet first and making sure you don’t have to click out to consume the content, which also appeals to Twitter. Ultimately, making this move by parasiting off the larger organization, they were able to then get bought by that organization and become the top app in the App Store for a while, and still one of the most important apps. The inputs I imagine, are these two early-stage companies were very, very similar

I think you’re probably right. Obviously the products being so similar says that. I would just kind of question on the other side if it is the partnerships perhaps, that change the ultimate success, do you consider the partnerships an input or an output? One would look at it and be like, “Well, the work these people put in, the certain inputs, this work on partnerships, just focusing on we’re going to avoid spending too much time at editing the videos. We were able to do this because we’re doing shorter videos. Now, we’re more apt to developing partnerships that help our distribution.” Perhaps it’s the way to say that.

Lumen Sivitz: They did do a better input. It could be.

David Smooke: But all anyone looks at is, “Okay, Vine succeeded at least comparatively much more than Viddy did.” But the lesson learned that many, many people could apply if they in fact looked at the full scope of things would be, “Okay. Partnerships can be a key differentiator for success.” The outputs actually matter on the partnership, so I can get involve with this thing. As long as a I have a similar type of product and I focus on partnerships, I have a better than otherwise chance at seeing that success. But it would be glorifying that process of, how do you get the partnership that actually brings something to life. Not the fact that, “Oh, Vine did really well,” because it’s too opaque to say it’s the world of partnerships that did it.

Someone was going to plug into that. Someone was going to be like, “Ride this Twitter wave of, this is how you get content and video,” a bit of a hole there. In my opinion, but maybe not. Maybe it could have just been more YouTube, more YouTube, more YouTube, and YouTube comes out with a better phone solution to make videos.
Maybe, but I guess the way I would think about it is, you see TechCrunch articles about the fact that Vine is killing it, right? And maybe you see, well, Viddy is not doing so hot lately, or something. But it’s not like you get these meta-Tech Crunch articles about the impact of really working partnership channels for distribution as start-ups. And by the way, here are the 20 start-ups that did this really well and nailed it, and then here are 15 that did it but somehow didn’t nail it, and maybe this is why–
I’ll tell you–
–and now we’re talking about the process–
Yeah, so who is writing articles like that? You’re essentially either going to find them, which are very, very valuable articles. A lot of times you’ll find similar stuff on VC blogs. So venture capitalist blogs do a decent job of this. And then if you find another post like that, someone in the list probably has a vested interest with the writer. Or the writer is– it’s also reflecting a process. If I want to make an animated cartoon of the company, I’m going to look at the ten best videos out there. At the end of it, I’m going to publish a list that these are all the best videos, including mine, and put it in the group.
There’s definitely a high demand for that type of content, and seeing where it’s already out there, you can see some flaws in terms of vested interest. It’s just much harder reporting. I mean from the logistical standpoint, to put a writer to do all that research and explain why? Tech Crunch is having their writers spit out four or five articles a day. They don’t have time to make that article, and their business prop is like, “We want to be the first to say the status update about these start-ups. We want to be the first to announce the funding, the first to announce the partnership, we don’t want to actually say how important it is, or if it was done well or not.”
Yeah, so it’s a big circular thing, right? People are addicted to the quick status update. They want to know the big hit, because they like to fantasize about that, so they’ll read Tech Crunch and not the potential other blog that talks about the real hard parts that are in the start up, which is not succeeding along the way. The success, that’s the prize. You earn the success by the failures and by the inputs, but we glorify start-up culture a little bit these days nationwide. The younger generation feels like start-up is the recipe to work-life happiness, just kind of enjoyment of one’s profession. But there’s just a total misconception about what that actually means and how we become one of the ultimate successes. I think that it’s kind of funny that there’s this discrepancy between understanding actually how it’s done and the ideal about what it’s like to do it.
I guess it’s a lot like Hollywood, right? People move to Hollywood because they think they’re going to become famous actors or actresses, and they don’t understand that the vast majority of people never make it there and are working as servers at the sushi restaurant.
Yeah. And at the same time they’re telling themselves the one that did make it, they’re like, “John Ham was a waiter for ten years. So in year nine I should definitely keep being a waiter, because I’m going to be on Madmen in year 11.” There’s a lot of that going on in Hollywood and in San Francisco.
And it’s kind of funny actually that you have these realty TV shows, which you can see one focusing on the struggling actor [laughter]. It’s not about the success in that case, it’s about dramatizing the failure.
That’s a great idea. Because the actor is definitely going to say yes, because it makes him as validated as an actor [laughter].
I know, right. I guess I just feel like everyone would be much better off to be a little more honest with themselves about how these things that they fantasize about, actually happen to come about. You can live eternally in this world of fantasy about, you just somehow go make and it happen, and somehow you end up with Twitter. The downside of that is that many, many fewer people are actually in a position than who would be good at executing something like Twitter to go do it, because they don’t have the knowledge of what it’s like. But if you have distribution about the actual reality, then you’re in a position where people who can meet that reality, and have a true understanding of it, know to jump in. And I see people who are suited for start-ups, but are too scared to do it, because they just don’t have a good understanding of what it looks like, and maybe they’re not as attracted to the fantasy as much as someone else. But someone who’s not attracted to the fantasy but still has those key elements could be a super game-changer in this space. It’d be good to provide them a [conduit?] into the industry.
I always thought a lot of these successful executives and entrepreneurs are able to play different roles very effectively, so I mean, going back to this acting example, a lot of them probably could have been actors, but they chose to act in this way and then they rose to the top in this field. What I’m getting at, you put 20 people, 200 people, 2,000 people, you just put them in a room or in a building and regardless of the setting, the same people are going to start repeatably emerging to the top. I don’t know exactly what it is, and I know I’m getting somewhere along Uberman’s discussions of the people that want power and have talent just ultimately just take it, wherever they are.
What do you think if on one hand you say, “Do what we do today” We celebrate the outputs. We say, “Hey guys, we should be chasing these huge wins, like building Twitter or like building X, Y, and Z start-up that has raised hundreds of millions of dollars.” And so, then you have this large swath of people who they want that outcome for themselves. So there’s a bunch of them who tried to get into it and some of them succeed – a very small amount – and the vast amount of them fail. But just hypothetically, if instead we were looking at, “Okay, here’s how it works.” Here’s how it actually would like to build the successes and the failures. I just feel like that what you get is, everyone who gets involved with it and then maybe the smaller group of [inaudible] people, because the concept of whining and [grinding?] isn’t this massively attractive thing, but the people that get involved that are going to be actually interested in doing the work that ends up with the success. And you’re going to eliminate a bunch of people that are ultimately noise, but you may actually get some people involved who otherwise wouldn’t be, who are singlas.
I think a really good example of this is Hacker News. They’ve created this massive news source and it self selects people that want to learn more about this subject of start-ups, and they have the community curate, so it’s also like what you’re seeing as the top news is the curated community of the people in that– that actually did that. Giving more voting benefits to people that went through the program, that’s very smart. It’s kind of letting you see what it’s actually like day-to-day, and what these are writing about and what they would prefer to read. But at the same time, it’s creating a massive demand of the next generation who wants to get into it and they think Hacker News, i.e., Y Combinator is the way to do it. I really admire how they have done it in building the community. But at the same time, you have to say from another investor, you probably get better rates because the demand of working with that investor is lower. Because they have created this news source with the demand and working for them has this intangible value beyond the rate of the investment, which is true but how much– intangible is not the right word. You do have to quantify how much going into this program is worth beyond the rates, because you want every investor to bring more than the money they’re bringing on.
Sure. So are we saying here then that Y Combinator, potentially with Hacker News has developed a more honest accounting of life with a start-up than what you would see on Tech Crunch? And as a result, they are sensibly seeing a higher throughput performance-wise of potential entrepreneurs coming through their platform, because they are focused on the inputs with that sort of content as opposed to just the outputs?
I would agree with that. I mean, there’s other things that it’s doing, like bringing back your rate of investment from them will probably be lower. But the intangible probably makes up for it. I don’t know which one I visit more, because with Tech Crunch, basically I like them on Facebook and I get some of their news through my news feed. And Hacker News, they’re not as active on social networks and if you want more, you have to visit the destination. So, I probably end up seeing Tech Crunch headlines more, but in terms of quality of content, I would agree Hacker News is definitely higher.
Yeah. All right. Well, this has been fun.
Yeah. Did you hear Noah’s had their 25th birthday yesterday? They were selling 25 cent bagels.
No, I didn’t hear that. I wish I had.
Any last words?
No, just a lot of fun to walk with you. I’ll see you soon.
Cool. Good walk.