Great Product vs Great ROI

Last night I had the pleasure of watching on YouTube a one-hour chat with Fred Wilson, co-founder and managing partner of New York-based venture capital firm Union Square Ventures.

If you do not know him, Fred Wilson is one of the top venture capitalists ever, having invested in phenomenal companies such as Twitter, Kickstarter, Foursquare, Soundcloud, [very long list]. He has also been an active blogger for a decade, posting on a daily basis on AVC. An engaged community has gathered around the blog, and discusses and contributes to his insightful thoughts. For instance, the term “freemium”, now used and abused all over the media to describe the well-known business model, was invented in the comments of his blog (here is the original post from 2006).

I would highly recommend watching the video. The conversation ranges from some stories on his most notable investments, to the rise of New York as a flourishing hub for start-ups, to the status of the 4 big tech giants (side note: a new acronym, the horrible GAFA, was recently created in France to describe the elite of the elite in technology), and many other themes.

There was a passage in particular, at 8:38, which got me thinking. Fred answers a question about what makes a great venture capitalist in his mind. Here is what he says.

I think that great VCs care more about the company than they do about their investments. You can be interested in the financial investment you made: I paid $1 and I’m going to get out $10. Or you can care about: is this company becoming GREAT? Those two things are often not the same thing. I think that great VC care about the latter. They believe that the former will take care of itself. They are not focused on money, how much of the company they own, the financial metrics so much. They are focused on strategy, product, management team, building a world-class organization.

If you consider the topic in more abstract terms, I believe that these words reflects different attitudes towards life, that I have witnessed since I started working. If you replace “VC” with “individual”, “company/product” with “knowledge/skills” and “investment” with “career” (“money” stays the same!), the passage above is a great lesson that I wholeheartedly agree with.

I know several people in their mid-career who are merely interested in getting a pay rise and/or a better title in their organization. Or, if entrepreneurs, creating a company with the sole prospect of a good profit when selling it. Vice versa, I know several other people that are constantly interested in improving themselves through new experiences, new knowledge, new ways of thinking. If they are working for an organization, the focus is on what they are learning and the passion they have for the industry, rather than their pay roll. If they are building a company, the focus is creating a product that they believe can have an impact on society, rather than exit opportunities.

Guess what, I believe that the latter approach leads to a much bigger long-term success. Where “success” is not defined as the money in your bank account, but the sense of fulfillment that you might feel looking back at what you have accomplished. Don’t get me wrong, money can be important to achieve that goal, and the bank account can become big in the end. But money is a means to an end, it’s not the end game per se.

I feel I have always applied this approach in my career, and I aspire to keep moving on this track. When I was 23, I left after a few months my first job at one of the top Investment Banks worldwide (getting in had not been easy, obviously). I traded the prospect of a significant bonus for life quality. The idea of money in itself did not entice me, as I felt that I was not passionate enough about what I was doing for financial compensation to be a reward. So I decided to join an industry in decline and with low salaries like music, for the simple reason that music had always meant so much in my life. I felt that I would learn with joy how to work in a global organization, and that even the smallest impact of my actions would give me a much bigger sense of accomplishment.

Six years later, I can tell than my intuition was right. Now I have decided to leave the record industry, despite the prospect of an imminent great promotion. Again, the reason is knowledge and passion. I have reached a natural threshold in my day-to-day learning, and that I need to find a new professional path to keep growing as an individual and a professional. I don’t know where this path, which goes through Stanford, will lead. I don’t know whether I will get out $10 of my $1 investment (in terms of money and effort). But I do know that I want to constantly keep learning and enhancing my skill set, which is my own “product”.  I am confident that the ROI side of things will take care of itself.

3 thoughts on “Great Product vs Great ROI

  1. You bring up some great points here, something very close to my heart so be warned, there’s a long comment ahead!

    I’ve never heard of Fred Wilson before, but inadvertently, I realize that I’m a complete believer of his principles as well. I’m definitely going to watch that YouTube chat very soon, I’m not sure how I haven’t before.

    Anyhow, I think if you go back and look at the major developments in technology, most of them came to fruition not because someone wanted to become rich but because someone truly believed in whatever he/she was creating. What Peter Thiel said in his brilliant book Zero to One really summarises it for me – “the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.”

    You can make the big bucks by iterating over things that already exist. But if you want to go from 0 to 1 and really create something that has potential to change the way we live – that’s a great product and the rewards will just follow.

    I made a similar decision when I graduated from college 2 years ago. I had an offer from one of the Big 4 consulting firms that I declined and everyone thought I was crazy. I joined a young product development startup instead and that’s where I’ve been for the past 2 years. I couldn’t be happier. I’m involved in the creation of things that didn’t exist before. Admittedly, they’re not the pinnacles of invention but for now I will take what I can get. Money was at the bottom of my list of considerations. My decision is not completely without regret though, as I wonder if my choice then would have made it easier for me to get into a school of my dreams now. A Big 4 sounds more impressive than an unknown startup right? I’m not sure. I’m just trying to show how fulfilling the work is and how much I’ve been able to learn in such a short period of time. We’ll see how that goes.

    But seeing how beautifully things worked out for you gives me hope! You turned your love for music into an actual career and that’s hardly something many people can say. Kudos to you!

    Like

  2. Thanks so much for your thoughtful comment. Glad you liked the post. You might not have known Fred Wilson, but in turn I haven’t read “Zero to One” so I will make sure to include it in my summer reading list (two months off before heading to Stanford). I completely agree with what you posted. All the most remarkable successes, in business, art, science, etc. are driven by passion.

    Re: your concern about how Consulting Big 4 vs Startup might affect your chances of admission. (I am not an MBA Consultant, so this is purely based on my experience). I genuinely think it might work in your favour! 1) You were selected by one of the 4 companies, and this witnesses that you would have been good enough to do a junior level job. 2) The fact that you chose something else out of passion, despite anyone else thinking you were “crazy” sets you apart from a pool of other qualified candidates, who run the risk of looking like one another. I assume this was at the core of your essays. 3) If you can articulate clearly how this choice and your experience so far links with what you want to get out of the MBA, your application can be powerful (pending GMAT, GPA, etc. obviously).

    Best of luck!

    Like

    • Oh yes, I’d definitely recommend it. It’s one of the best books I’ve read in a while! Thanks for your thoughts on my chances for admission. I did actually leverage it that way, although it wasn’t necessarily the focus of my essays. I explained the reasoning behind my choices and how it led me to this point but I’m not sure how effective I was! Please continue to post about topics like this one. It’s a refreshing breath of fresh air in the middle of all the MBA madness.

      Like

Any thoughts?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s