60 is the new 40

Population aging is a significant megatrend shaping our world, driven by declining birth rates and increased lifespans. This trend, projected to continue, raises critical questions about how societies will adapt to an aging population. In her insightful book "Stage (Not Age)", Susan Wilner Golden emphasizes the importance of recognizing the five distinct stages of adulthood. This perspective is crucial as it shifts the focus from merely extending life to enhancing the quality of life at each stage. First, let’s dig into some data:

Demographic Shifts and Aging Trends

• Global Aging Statistics: According to the United Nations, the number of people aged 60 years or older is projected to double by 2050, reaching nearly 2.1 billion globally. In countries like Japan, Italy, and Germany, the percentage of the elderly population is already above 20%.

• Declining Birth Rates: The World Bank data indicates a steady decline in global fertility rates, from an average of 4.7 births per woman in 1970 to about 2.4 in 2019. This decline contributes to an aging population, as fewer young people are available to support and care for the elderly.

• Increased Lifespan: Advances in healthcare have led to increased life expectancy. The global average life expectancy has risen from around 52 years in 1960 to over 72 years in recent years, as reported by the World Health Organization.

Understanding the Five Stages of Adulthood

Golden's book introduces a novel framework for understanding adulthood, dividing it into five distinct stages. These stages recognize the different needs, abilities, and aspirations of adults as they age. The stages are:

1. Early Adulthood (20s-30s): Focus on education, career establishment, and family formation.

2. Midlife (40s-50s): Career advancement, family responsibilities, and initial signs of aging.

3. Second Middle Age (60s-70s): Transition into retirement, increased leisure time, and potential health concerns.

4. Young-Old (80s): Reduced physical capabilities, increased need for healthcare, but often still independent.

5. Old-Old (90s and beyond): Significant healthcare needs, dependency, and end-of-life considerations.

The Need for Age-Specific Products and Services

• Technology and Innovation: Products like wearable health monitors and smart home devices can enhance the independence and safety of the elderly. For example, fall detection technology has become a critical feature in devices for the older population.

• Healthcare Services: Tailored healthcare services that focus on preventative care and chronic disease management are vital. Telemedicine has become increasingly important for providing accessible healthcare to the elderly.

• Retirement and Financial Planning: Financial products that cater to longer lifespans are essential. This includes retirement plans that account for extended retirement periods and potential long-term care needs.

• Lifelong Learning and Employment: Opportunities for continued education and flexible employment options can help older adults stay engaged and contribute to society.

• Social and Recreational Activities: Programs that encourage social interaction and physical activity can significantly improve the quality of life for the elderly.

The first three buckets have received a lot of attention from entrepreneurs and investors while the last two have been mostly ignored. While all 5 are important, we have to acknowledge that individuals have a lot of productive years ahead of them post-retirement. 

Recognizing the different stages of adulthood and developing products and services tailored to these stages is crucial for supporting a healthy, active, and engaged aging population. This approach not only addresses the challenges of an aging society but also leverages the potential of this demographic shift.

Sources:

• Our world is growing older: UN DESA releases new report on ageing

• World Health Organization

• Fertility: Our World in Data

Electrification and Microgrids

My business partner and I have been researching a number of major industries to better understand opportunities to accelerate transformation, specifically in healthcare and energy. 

Energy has been fascinating to dig into and includes components that are often overlooked by the casual consumer. No one disputes the importance of creating better energy options for our country. The path there is a little less obvious. For example, when was the last time you thought about our power grid?

Turns out, most of the renewable technology is already developed however the cost and existing infrastructure (ie. the grid) are two major bottlenecks; the former dropping each year and the latter moving at a snail's pace. (This is in addition to government bureaucracy). 

The infrastructure has to improve in order for renewables to truly blossom. More specifically, the electrification of the energy value chain and modernization of the existing grid. 

In her book "The Grid," Gretchen Bakke provides a comprehensive look at the history, current state, and future of the electrical grid, emphasizing its complexity and centrality to modern life​​. The grid, as it stands, is an aging infrastructure, primarily built in the 1960s and 1970s, now under strain from increased demand and the need to incorporate renewable energy sources​​.

Electrification of the grid is essential because it provides the backbone for incorporating renewable energy sources such as wind and solar. Bakke points out the importance of transitioning to smarter grid systems that can manage energy flows more efficiently, optimize resource use, and quickly recover from outages​​.

One innovation in particular, microgrids, will play a significant role in this transition. They are localized grids that can operate autonomously and disconnect from the main grid when needed. Historically, they were mainly deployed by the military and universities. 

This feature is particularly useful during natural disasters or other disruptions, ensuring a continuous power supply. 

The integration of microgrids into the larger grid system facilitates the use of renewable energy by providing flexibility and resilience at a local level. Microgrids can help:

• improve electric reliability

• Microgrids proved their worth during Superstorm Sandy in 2012, maintaining power for certain facilities while millions faced outages, some lasting weeks. They enhance electric reliability by operating independently from the main grid during failures, using their own generators and batteries to supply power to local customers until the central grid recovers.

• enhance resilience/recovery

• Energy resilience, closely tied to electric reliability, refers to the capacity to prevent or swiftly recover from power outages. This benefit of microgrids, highlighted since Superstorm Sandy, ensures crucial services remain operational during disruptions, with some systems designed to prioritize essential functions.

• lower energy costs for consumers and businesses

• Microgrids offer financial advantages by managing energy efficiently to reduce costs and by selling excess energy and ancillary services back to the grid, turning consumers into proactive energy 'prosumers'. They capitalize on fluctuating energy prices for economic benefit, contributing to both immediate savings and long-term cost planning.

• improve the environment and promotes clean energy

• Microgrids help businesses and communities reach clean energy targets by integrating various green technologies like solar, wind, fuel cells, and CHP plants. They manage the variability of renewables, ensuring a stable energy supply by automatically switching to different power sources as needed.

• strengthen the central grid

• A microgrid not only provides power to its users but also supports the wider electric grid. It enhances grid operations through demand response participation and ancillary services, alleviates grid stress during peak demand, and reduces line loss by generating power closer to where it's used. This efficiency reduces the need for new power plants and transmission infrastructure.

• bolster cybersecurity

• The 2017 global ransomware attack underscored the importance of cybersecurity. While the US power grid has yet to suffer a cyber-induced outage, the threat has prompted actions such as the adoption of microgrids for enhanced security. Microgrids, with their distributed design, offer resilience against cyber threats, allowing for continued operation even if one power source is compromised.

• bring economic value to society

• Microgrids bring economic benefits by preventing losses from power outages, drawing high-quality employers to areas with reliable power, and creating local jobs through their construction and operation. They ensure businesses continue operating during outages, saving costs that can range from $25 to $70 billion annually in the U.S. Microgrids also enhance local economies by keeping energy jobs within the community. Hence, they are increasingly included in regional economic strategies.

• improve community well-being

• Microgrids are increasingly used by communities to maintain power for essential services during outages, transforming areas into safe havens with access to necessities. They support critical infrastructure like hospitals and emergency services, and offer security for vulnerable populations. Examples include rural electrification in Africa and India, Princeton University's resilience during Superstorm Sandy, and Seton Healthcare's combination of reliability with sustainability through a CHP plant microgrid.

Remote Work's Reality: Loss of Community, Culture, and Growth

Remote work isn’t functioning optimally, especially for the earliest-stage companies. If you are operating remotely, you are likely growing much slower than competitors who work in an office setting.

I’m increasingly hearing from employees and founders who wish more than anything that they could be back in an office surrounded by other humans, creative ideas, and an actual company culture.

For decades, the workplace served as one of the last remaining communities. This was shattered over the past three years, leaving people detached, burnt out, and aimless.

According to "The Belonging Barometer," a study on detachment, a majority of Americans report a sense of non-belonging in the workplace (64%), the nation (68%), and their local community (74%)."

Public policy scholar and veteran Theodore R. Johnson highlights that even those people, "who have long been offered as the fullest approximation of Americanism—feel that even they don’t belong." This is not a positive development.

Companies can and should fill this void for many Americans. This isn’t to suggest that companies should completely bail on the concept of remote work, but the reality is that, despite the improved tooling, humans still crave the company of other humans.

If you’re starting a company, you have a significant competitive advantage by being in the same room with your co-founders. More investors are hesitant to invest in remote companies due to the creation of elongated feedback loops.

Make it a priority; there are a number of benefits:

• Direct Communication: Face-to-face interactions can enhance clarity, reduce misunderstandings, and foster more immediate and dynamic communication compared to virtual means.

• Team Cohesion: Physical presence can strengthen team bonds, as shared experiences and casual interactions build relationships and a sense of camaraderie.

• Structured Routine: Working from an office provides a consistent structure to the workday, which can help in maintaining work-life balance and establishing a clear separation between professional and personal life.

• Collaboration and Creativity: Spontaneous conversations and brainstorming sessions are more easily facilitated in person, which can lead to innovation and creative problem-solving.

• Company Culture: Physical presence in a workplace helps employees to immerse themselves in the company culture, understand its values, and contribute to a shared identity.

• Sense of Belonging: Being part of a physical workspace can enhance the feeling of belonging to an organization and being part of a collective mission.

Show me the incentives

In the midst of this wild weekend reading about OpenAI, I was once again reminded of Charlie Munger’s famous quote:

“Show me the incentive, I’ll show you the outcome.”

This implies that if you want to predict someone's actions, you need to understand what motivates them. Incentives are the primary factor in shaping decision-making and behavior.

In companies, it's more often than not the board of directors (BOD) driving the behavior of the organization. Startup founders should never lose sight of this fact, even if they don’t currently have a BOD.

Investor Chamath Palihapitiya had a great thread on what led OpenAI to this point and the importance of corporate structure in aligning motivations and incentives across the organization.

While the details of Altman’s removal are still unfolding, it is becoming increasingly clear that OpenAI’s convoluted corporate structure led to conflicting motivations and incentives within the company. There is a key lesson here. Whether you are a for-profit or non-profit entity, there are tried-and-true corporate structures to help you achieve your stated goals. Because just doing that is hard enough as it is. But once you decide what the goal is, you should work as hard as possible to achieve it; you should never compound unnecessary risk into this journey, like iterating on corporate structure. While it can make heroes out of lawyers, it is one of those unnecessary risks that’s only blindingly obvious in hindsight.

It’s a reminder that even the best and smartest people in the world can forget about basic human behavior. Think about incentives, and then think about them even more. You’ll be better off for it.

What are the incentives for your board, your employees, etc.?

The Non-Linear Thinker

People really need to reframe how they think about software entering this next phase of innovation. You can’t only think linearly and expect to succeed. You won’t survive.

The rate of change is increasing, which compresses technology cycles and creates consistent opportunities for disruption. This is an opportunity for the non-linear thinker, with quality insights and data, to excel in magnificent ways. 

This shift is primarily driven by:

• Tighter feedback loops

• Cheaper capital, although getting more expensive

• Lower barriers to entry

• Global collaboration

• Intense competition

Looking at patent analysis, you can get a sense of technology improvement rates. While most technologies improve slowly at less than 25% per year, software and algorithms can have improvement rates as high as 216% per year. This is bonkers. 

Charles Darwin’s quote on survival is more prescient than ever:

"It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change."

If you’re someone who struggles to think more non-linearly, I’d encourage you to be more deliberate in practicing the skill.

Embrace diversity of thoughts, encourage creativity on your teams, question assumptions, practice lateral thinking, study systems and analogical thinking, and most importantly, STAY CURIOUS!

A Delighted Customer = Hospitality + Service

I recently finished restaurateur Danny Meyer's memoir, Setting the Table (a Billy Gurley favorite). The book is an absolute banger on entrepreneurship, innovation, and hospitality. 

Meyer is the CEO of Union Square Hospitality Group (USHG), an owner and operator of several of New York's best restaraunts. He’s also the founder of Shake Shack, a successful fast-casual restaurant chain. To say he's a titan in the industry is an understatement. 

Throughout his career Meyer has stressed the importance of hospitality above everything. And it's worked.

In the context of service businesses, this makes sense. Human connection is at the center of the dining experience. Delivering hospitable service is the pinnacle for any business but its a daunting task. 

"Service is the technical delivery of a product. Hospitality is how the delivery of that product makes its recipient feel. Service is a monologue--we decide how we want to do things and set our own standards for service. Hospitality, on the other hand, is a dialogue. To be on a guest's side requires listening to that person with every sense, and following up with a thoughtful, gracious, appropirate response. It takes both great service and great hospitality to raise to the top."

In a company managing 10's of thousands of customers and millions of activities (ie. tickets, messages, bugs, etc.) delivering both is an Everest-like mission. Service for a technology or eCommerce company is transactional, delivered through software tools. Hospitality could destroy margins. 

"In hospitality, one size fits one!"

Generative AI can change this in a variety of ways that I'm super excited about and will ultimately allow companies to create more hospitable experiences for their communities:

1. Understanding Sentiment and Context: Generative AI can analyze customer inquiries and detect the sentiment behind them, allowing it to respond in a manner that is sensitive to the customer's emotional state. This can make the interaction feel more empathetic and personalized.

2. Personalized Responses: AI can access a customer's history with the company to tailor responses based on past interactions, preferences, and behavior. This means the AI can reference past issues, suggest relevant solutions, or anticipate needs based on individual customer profiles.

3. Natural Language Processing: Advances in natural language processing (NLP) allow AI to understand and generate human-like text. This can make conversations with AI feel more natural and less robotic, which is crucial for emotional connection.

4. 24/7 Availability: Generative AI can provide instant responses at any time, reducing wait times and frustration for customers, which in turn can make a brand seem more caring and attentive.

5. Consistent Tone and Brand Voice: AI can be programmed to maintain a consistent tone and brand voice that aligns with the company’s values and image, which helps in building a consistent emotional connection with customers.

6. Predictive Assistance: By analyzing data and identifying patterns, AI can predict customer needs and provide information or support proactively, potentially resolving issues before the customer is even aware of them.

7. Emotionally Intelligent Bots: Future developments in AI could include emotionally intelligent bots that can understand and mimic human emotions more effectively, providing a more genuine emotional interaction.

Complementarity > Compatibility

One mistake many co-founders and employees make when starting or joining a company is optimizing for compatibility over complementarity. As acclaimed social scientist Arthur C. Brooks points out, humans have a tendency to do this in relationships, including with romantic partners.

“Looking for someone who has a lot in common with you is called homophily. As egotistical creatures, we tend to rate those who are similar to us as more appealing (socially and romantically).”

However, the reality is that you should complement one another more than anything else. You'll achieve much more satisfaction and success over the long term.

In the context of joining a company or co-founding a business, you really want to avoid situations where you and another person overlap too much.

Some considerations:

• Co-founding a business as the CTO? Make sure the CEO isn’t also driving product and engineering.

• Joining a company as the VP of Marketing or Sales? Consider what is unique about what you’re adding to the equation. Ask yourself, "Does the CEO already have a ton of marketing and sales expertise?"

Companies are like puzzles. Avoid situations where you’re duplicating the pieces.

Risks of Democratizing Data

Data is being democratized across organizations using data mesh and data fabric techniques. Data lacks a clear owner, leading to challenges in utilizing it across functional groups and third-party products. 

Additionally, data is often stored redundantly in isolated and expensive environments, hindering quick access and integration for users within an organization, like data scientists seeking data for analytics models.

According to Database Trends and Applications this poses 3 primary risks:

• Security: increases the risk of data breaches due to greater data access, potentially exposing sensitive information to attackers or accidental employee mishandling. Mitigation strategies include strict governance, security protocols, access controls, user authentication, and employee training to protect data.

• Privacy: requires addressing privacy concerns and complying with data use regulations, such as GDPR and HIPAA. Training employees in handling personally identifiable information (PII) and implementing measures like data anonymization, encryption, and access restrictions are crucial to prevent unauthorized disclosure and unethical data use.

• Ethical: automation through AI and ML introduces the risk of biased decision-making in data analysis. Companies should establish clear guidelines for data use and ensure employees understand and adhere to ethical standards to prevent AI-driven decisions that conflict with company values.

Historically security and privacy were viewed as siloed compliance issues, “driven by nascent regulatory data-protection mandates and consumers beginning to realize how much of their information is collected and used”. This disconnected approach during a period of democratization, where data siloes get created, has led to insufficient or monolithic, rather than tailored and user-specific, data security and privacy protections.

A recent 2023 survey of more than 1,000 IT risk, compliance, and security professionals found a correlation between data silos and breaches: namely, that companies operating with their risk management and compliance operations data in silos experienced a higher frequency of breaches.

In fact, one in two companies managing risk ad hoc or in siloed departments experienced a breach in 2022. Parsing this number further, we saw that 61% of companies that characterized their risk management approach as "ad hoc" experienced a breach, and 46% of those managing risk in siloed departments experienced a breach.

Compliance will have to continue moving closer to the people managing and interfacing with the data including engineering, marketing, and analytics teams.

WASM’s Existential Moment

I’ve been following WebAssembly’s progress (WASM) and its growing number of use cases. For context Web.Dev defines WASM as “a low-level assembly-like language with a compact binary format that runs with near-native performance and provides languages such as C/C++ and Rust, and many more with a compilation target so that they run on the web.”

WASM makes it possible to deliver near-native performance and with more and more programs being built in the cloud, this type of performance is critical to making viable products. Within the community there has been a lot of debate over certain standardizations, specifically their component model. This is a bit of an existential moment for the community as it will provide a lot of clarity to its developer community and should open the doors to a ton of new applications.

It served as a good reminder of how remarkable successful open source communities are at coordination, in an almost exclusively asynchronous manner. Collectively these communities have built some of the most important technologies in the world, used across all sorts of infrastructure and applications that we use today.

In open source ecosystems, all participants can contribute to software enhancement by identifying necessary features and adding code, providing everyone with the chance to make an impact. Without great coordination, progress stalls.

“The strategic marketing paradigm of Open Source is a massively-parallel drunkard's walk filtered by a Darwinistic process.” – Bruce Perens

My hope for their community is that they can continue to coordinate, provide clarity and guidance, and ultimately deliver the component model to unleash the developers. 

How will AI disrupt business models?

Something I’ve been thinking about is whether AI is a platform shift and what new business models might get created. 

My former colleague Steve Frank pointed me to an article by Matt Rickard (great blog that I recommend subscribing to) called "Is AI a Platform Shift?". In it Matt outlines 3 important requirements for a platform shift:

• “Changes where distribution aggregates. The mobile shift made smartphones the main software interface, prompting companies like Google to pay Apple heavily to maintain their distribution.

• “Changes the business model (possibly in a disruptive way).” The cloud revolutionized business models by moving from on-premises deployment to subscription-based or usage-driven software-as-a-service, utilizing the Internet's low distribution costs and replacing capital-heavy data center investments with scalable operational expenses.

• “Changes what’s possible.” New platforms like mobile technology unlock unique applications and workflows, such as Uber and Instagram, through advanced APIs, while the Internet enables global digital marketplaces like eBay.

Of these three, the impact on business models is maybe the least obvious with Matt arguing:

Changes the business model? Probably not. It could shift software to follow more usage-based pricing (vs. subscription), but it would still likely be delivered as SaaS. Maybe smaller models will go on device, and that could shift us from a Software > Hardware cycle (commoditize the software, sell the hardware).

I agree that smaller models could go on device at some point however I’m not sure the pricing models won’t get orders of magnitude better and while the “business model” might not look dissimilar to cloud computing, the economic inflection for a market transformation is significant enough to totally disrupt existing business models and their pricing strategies.

In his presentation, “The Economic Case for Generative AI”, a16z investor Martin Casado uses the example of hiring a lawyer for a legal doc inquiry. In this new model, it’s almost 500,000x cheaper and 3,600x faster.

https://www.youtube.com/watch?v=5yC4w4x5DSQ&ab_channel=a16z

This is a complete paradigm shift and will require everyone to think differently about almost everything including current business models and their underlying pricing strategies. 

Pricing models that I’m keeping an eye on:

• Value-Based → can businesses better align pricing with value. This might take the form of dynamic pricing models.

• Consumption → this is an extension of what we’re already seeing with cloud computing. This gets more accurate and easier to evaluate for the customer.

• Outcome-Based → similar to value but emphasizing the expected ROI. If X increases by Y, you pay us Z. 

• Subscription → these might get way more personalized to a specific user’s needs and experience.

• Supply and demand → pricing fluctuates in near real-time based on the levels of interest in the product. 

AI will enable businesses to be more flexible and innovative with their pricing strategies, even tailoring them to the precise value they provide to customers, leading to more competitive and customer-centric offerings.

Using AI to Compete Against an Incumbent

I was recently re-listening to Patrick O’Shaughnessy’s interview with Des Traynor on Invest Like the Best which is a must listen for anyone interested in applying emerging technologies like AI to their product(s). 

In the episode Patrick asks whether incumbents or startups have the advantage. Des uses a really good framework to illustrate whether a startup has an opportunity to compete with an incumbent. 

Des argues that speed is mostly what matters and as an entrepreneur you should be asking yourself two questions:

1. How long will it take us to build the AI features vs. the incumbent?

2. How long will it take for us to build all of the incumbent’s other valuable features?

For example, if you’re building a Mailchimp competitor and you estimate that it will take you 3 months to build all of the AI features and Mailchimp 30 months that means you have 27 months to get to feature parity with Mailchimp on everything. 

Some key considerations when estimating the time it will take the incumbent:

• Does the incumbent have a product and engineering-centric culture?

• When was the incumbent’s product architected? How big of a lift would it be to re-architect?

• Does the incumbent have a lot of turnover in engineering?

• Is the incumbent historically in front of relevant technology trends?

• Can you get a sense of the rate of code and feature releases?

As you’re thinking about competing with an incumbent, I would evaluate opportunities through the above lens to determine the level of difficulty. 

Thoughts on Operating Principles + Values

The following is a framework for operating a company, with an emphasis on company culture and values. These are subject to change as I learn more from first-hand experiences and other organizations. 

Culture

Values

Values are a reflection of the organization. They should be the behaviors and skills that are valued in fellow employees. These values get surfaced, first and foremost, by people who get rewarded, promoted, or let go. They then permeate customers, partners, investors, and eventually the general public. They are the guiding principles for every decision that gets made – hiring, promotions, firing, etc.

After extensive reading, research, and first-hand experience, my belief is that the following characteristics are extremely important to a successful organization:

• Adaptability

• “My many years of advising companies and making value-driven equity bets has made it crystal clear to me that the ascent of great companies is not linear but more a step function. There are critical moments when decisions are made that inexorably shape the company’s future trajectory. To get these crux moves right, you must flexibly adapt your strategy to emerging circumstances.” (7 Powers)

• “There are no permanent solutions in a dynamic system.” (The Almanack of Naval Ravikant)

• Innovative + Courageous

• “Courage. The foundation of risk-taking is courage, and in ever-changing, disrupted businesses, risk-taking is essential, innovation is vital, and true innovation occurs only when people have courage.” (Ride of a Lifetime)

• “Mimicking the herd invites regression to the mean (merely average performance).” (Charlie Munger: The Complete Investor)

• Humility

• Trust goes up when people see that we are self‐aware about our own shortcomings and areas for improvement.

• “There’s a strong correlation between knowledge and humility.” Humility is at the core of concepts like the circle of competence and always searching for evidence that disproves what you or others may assert.” (Charlie Munger: The Complete Investor

• “Ego clouds and disrupts everything: the planning process, the ability to take good advice, and the ability to accept constructive criticism. It can even stifle someone’s sense of self-preservation. Often, the most difficult ego to deal with is your own.” (Extreme Ownership)

• Curiosity

• “Truthseeking, the desire to know the truth regardless of whether the truth aligns with the beliefs we currently hold, is not naturally supported by the way we process information. We might think of ourselves as open-minded and capable of updating our beliefs based on new information, but the research conclusively shows otherwise. Instead of altering our beliefs to fit new information, we do the opposite, altering our interpretation of that information to fit our beliefs.” (Thinking In Bets)

• Ownership

• When you have the right people in place, you need to give them the space to execute. They’re the owners of their domain. 

• “Things designed by people without skin in the game tend to grow in complication (before their final collapse).” (Skin in the Game)

• Empowering

• Customers, partners, and employees should feel empowered, even elevated. People need to feel like they have the power to push the boundaries of what’s possible regardless of role, title, income, or experience. The only way to achieve this is through a deep understanding of their needs, wants, and goals.

• “The most valuable businesses of the coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete.” (Zero to One)

Mission

None of this happens unless we’re a mission driven organization. The mission is:

• Big

• we should massively exceed in scale and scope what any company has tried to do in the space

• Clear

• the more defined, the easier it will be for everyone to focus on it. 

• A clear and compelling sense of mission is a key to CONSISTENT success. A great mission helps prevent distractions that dilute everyone's focus. Distractions lead to stasis, often becoming a major source of self‐defeating behavior.

• Not about the money

• milestones are important (ie. revenue, etc.) but they’re not the thing that ensures sustained success. 

The mission should be refined, but ideally not alter the purpose of our company.

“A change in purpose changes a system profoundly, even if every element and interconnection remains the same.” (Thinking In Systems)

People

Great companies are a product of their people. Talent density is paramount. Only when a company truly has the best talent can it blossom, therefore building a system for attracting and retaining the very best is critical to the short, medium, and long-term success of a company. 

Hiring

Companies over-index on an interview, cases, and not enough on actual work. For this reason, the company should invest heavily in references. What did the person actually do and how were they as a colleague?

Overall, leaders should be spending 20%+ of their time recruiting. We want to avoid leveraging external recruiters as much as humanly possible. They’re expensive and their incentives aren’t aligned with the company. 

Leaning into building a world-class internal recruiting organization is much more scalable over a longer time horizon. 

“In picking people for long-term relationships, values are most important, abilities come next, and skills are the least important. Yet most people make the mistake of choosing skills and abilities first and overlooking values. We value people most who have what I call the three C’s: character, common sense, and creativity.” (Principles)

Compensation

Really great pay limits the stress that someone experiences, fostering more creativity within the workplace and creativity is a staple of any great company. 

At Netflix, they believe, if you’re not paying top-of-market, you’re likely decreasing the talent density by encouraging the highest quality people to find a job elsewhere. In general I agree with this but I also recognize that an early stage startup doesn’t have as much flexibility with cash and therefore needs to rely on equity.

This puts a ton of pressure on constructing a mission that people are excited about AND developing a world class hiring process to ensure only the highest performers are receiving equity in the company. 

Ideally, compensation (cash + equity) is top of market or very close to it. This only works with a leaner, 10x team which means there is no space for underperformers. Keep in mind at a startup equity value > cash. 

“Money’s not about money. Compensating people well demonstrates love and respect and ties them strongly to the goals of the company.” (Trillion Dollar Coach)

Performance

As Andy Grove stated in High Output Management, “A team will perform well only if peak performance is elicited from the individuals in it.” The reality is, B-players will be a drag on A-players. Those A-players will grow frustrated and eventually seek employment elsewhere. 

Underperformers should be dealt with immediately. First through a very candid feedback session and if they continue to miss the mark, they should be relieved of their duties. This sets the tone for the organization. Prioritize building an environment that A-players want to work within. 

“concentrating on the stars is a high-leverage activity: if they get better, the impact on group output is very great indeed.” (High Output Management)

KPIs + MBOs – In general, I’m not an advocate of longer term KPIs because things change very rapidly within an organization. If necessary, managers should use them as a tool to measure progress but I’m not sure they should exceed a quarterly timeline. 

“If you need MBO to get people to do their job, you may have the wrong people, the wrong managers, or both.” (Amp It Up)

Severance

Companies take entirely too long to fire people. It’s not comfortable but it's an important muscle to build if you want to cultivate a high performing environment. If someone isn’t performing, they need to be removed as quickly as possible. Should that person align deeply with the company values, demonstrate high character, AND show signs of upside, coaching should be provided for a period of time. If they continue to falter, they should be removed and provided a generous severance.

Severance should give a former employee ample time to find new employment, ideally 4-8 weeks depending on their tenure and experience. These individuals are a reflection of the organization when they leave and should be treated with respect. 

“If an individual on the team is not performing at the level required for the team to succeed, the leader must train and mentor that underperformer. But if the underperformer continually fails to meet standards, then a leader who exercises Extreme Ownership must be loyal to the team and the mission above any individual. If underperformers cannot improve, the leader must make the tough call to terminate them and hire others who can get the job done. It is all on the leader.” (Extreme Ownership)

Bonuses

Bonuses should be avoided in companies where adaptability is mission-critical. Bonuses are based largely on the premise that you can reliably predict the future, and that you can set an objective at any given moment that will continue to be important down the road. This limits our ability to adapt and innovate based on the feedback we’re receiving from our employees, customers, and the broader market.

Founder Level

Board of Directors

“A board of three is ideal. Your board should never exceed five people, unless your company is publicly held.” (Zero to One)

Founder Equity Distribution

More equity equals more motivation for the founding team who should expect to be building a company for 7-10 years. Depending on the founding relationship, effort, personal investment, etc. I think founders should aim for as close to equal distribution of equity as possible. 

In general, I agree with YC’s view on equity splits:

“equal equity splits among co-founders. [1] These are the people you are going to war with. You will spend more time with these people than you will with most family members. These are the people who will help you decide the most important questions in your company. Finally, these are the people you will celebrate with when you succeed.”

Business Resiliency

We need to build resilience into the product and company on day 1. Cash is always king and should be managed appropriately. We need to really understand the dials – CAC, payback, etc. – and how much we can adjust them up or down to get to the desired outcome. With smaller, high performing teams, great things are possible.  

“Systems need to be managed not only for productivity or stability, they also need to be managed for resilience—the ability to recover from perturbation, the ability to restore or repair themselves.” (Thinking In Systems)

Decision Making

The best ideas win regardless of who they come from. We should lean into solving the biggest problems first. Bring it front and center and attack. Indecisiveness kills companies. You can still succeed if you make the wrong decision as long as you know you’re wrong quickly. Create shorter feedback loops wherever possible.

Some view from others that do a better job of summarizing my thoughts:

• “most companies don’t die because they are wrong; most die because they don’t commit themselves.” (Only the Paranoid Survive)

• “What makes a decision great is not that it has a great outcome. A great decision is the result of a good process, and that process must include an attempt to accurately represent our own state of knowledge. That state of knowledge, in turn, is some variation of “I’m not sure.” (Thinking In Bets)

• “slow down and critically examine situations and problems before settling on an explanation, never mind a solution.” (Amp It Up)

• “a decision about an uncertain future. The implications of treating decisions as bets made it possible for me to find learning opportunities in uncertain environments. Treating decisions as bets, I discovered, helped me avoid common decision traps, learn from results in a more rational way, and keep emotions out of the process as much as possible.” (Thinking In Bets)

• “Every really good, really experienced CEO I know shares one important characteristic: They tend to opt for the hard answer to organizational issues.” (Hard Thing About Hard Things)

Employee Equity

The goal of equity is to:

1. Help you hire top talent

2. Hang on to your top performers

3. Develop an ownership mentality

4. Keep money in the bank

We should be re-upping the very best performers whenever we can. This is sustainable with a leaner team so hiring the very best and firing underperformers quickly is important. 

Transparency

Companies with high levels of trust create transparency wherever they can. You cannot be selective about transparency at a ‘transparent’ company. It starts at the top and it threads everything from retrospectives, to candid (but respectful) debates, and reporting. Progress starts with the truth and the most efficient way to arrive at the truth is by providing everyone with all of the information they need to execute.  Companies should make any and all information about the business available – P&L, funding, employee dismissals, retrospectives, etc. 

“You can only make progress when you’re starting with the truth.” (The Almanack of Naval Ravikant)

“Trust goes up when people see that we are self‐aware about our own shortcomings and areas for improvement.” (Amp It Up)

Philanthropy + Politics

In a deeply divided political world, it’s really important to keep politics out of the workplace. If it’s not aligned with the company mission, it’s not relevant within the context and space of work. I do believe that we can be a safe space for people who want to focus on their work without worrying about everything going on in the world, if only for a portion of their day. Brian Armstrong from Coinbase had a great memo on this topic. If a candidate isn’t onboard with this, they’re not a fit for the company. 

Appendix

Some companies that inspired my thinking:

Netflix

• Judgement

• Selflessness

• Courage

• Communication

• Inclusion

• Integrity

• Passion

• Innovation

• Curiosity

Snowflake

• Put Customers First

• Integrity Always

• Think Big

• Be Excellent

• Get It Done

• Own It

• Make Each Other the Best

• Embrace Each Other's Differences

Ramp

• We feel for our customers

• We are all owners

• Win the marathon, sprint by sprint

• Put the team first

• Think big

• Grow without fear

Coinbase

• Clear communication

• Act like an owner

• Top talent

• Customer focus

• Efficient execution

• Continuous learning

• Championship team

• Repeatable innovation

• Positive energy

• Mission first

Amazon

• Customer obsession

• Ownership

• Invent and simplify

• Are right, A lot

• Learn and be curious

• Hire and develop the best

• Insist on the highest standards

• Think big

• Frugality

• Earn trust

• Dive deep

• Have a backbone

• Deliver results

• Strive to be earth’s best employer

• Success and scale bring broad responsibility

Data Privacy Legislation is Driving Compliance

An increasingly robust set of data-privacy laws backed by active regulators is driving governments and private-sector groups alike to invest significantly in data protection or face financial penalties, business disruption, and public censure.

The chief concern for compliance and security teams is changing regulations across various geographies – cities, states, and countries. If multi-state and country businesses thought at the start of 2023 complying with a patchwork of U.S. state privacy laws was going to be a lot of work, now they’re overwhelmed.

In 2023 alone, the number of US states with comprehensive privacy laws went from five to eleven. And Delaware is awaiting their governor’s signature to become the twelfth. Despite the business community’s interest in an all-encompassing federal data privacy law, such a development remains elusive. 

Understanding the evolving regulatory landscape and their applications in a more dynamic way such that it’s not disruptive to engineering is nearly impossible. Many of the CISOs I’ve spoken with dedicate 1-2 hours per day getting up-to-speed on these changes by talking to their lawyers, reading compliance blogs, and engaging other CISOs.

As an example of the random additions in key jurisdictions, California recently drafted risk assessment regulations that would force companies to determine risk before collecting any personal data and show how they would mitigate any significant risks. 

The cost of non-compliance is now 3x higher than the cost of compliance through implementing governance and compliance frameworks and solutions. 

According to Soumendra Mohanty, chief innovation officer and chief strategy officer of data analytics company, Tredence, “The cost of non-compliance is massive from both a financial and reputational perspective. It can cost companies up to nearly $31 million to maintain compliance, depending on the industry, yet non-compliance can quickly double those numbers,”.

Infrastructure Opportunities in AI

Increasingly customers are looking to optimize for speed, shifting workloads from more serial CPUs to parallel processing GPUs creating a bottleneck on the availability of GPUs. This has created 3 opportunities:

• Optimization: Companies are worried about cost and usage optimization of their GPUs. How do I get more out of my existing assets? 

• Procurement: finding additional AI assets is becoming incredibly difficult and competitive. Companies want GPUs but can't find them.

• Portability: the shortage of GPUs opens the door to NVIDIA competitors. As more products come to market, portability from one GPU to another is paramount.

Infrastructure management continues to evolve, not replicating but certainly rhyming with previous cycles. Going back to mainframes, there is always a need to do cost and usage optimization. The ability to monitor, manage, and govern assets across the enterprise is mission critical. This remains true in the age of data, specifically artificial intelligence where workloads are massive and cost prohibitive for most organizations.

Procurement is part real estate, part chip provider problem. Portability is most likely something that gets solved by emerging chip providers looking to capture market share from NVIDIA.

Related Concepts

For those interested in learning about older infrastructure management concepts, take a look at the following:

• Infrastructure Management

• IT Asset Management

• Application Resource Management

• Observability

Within the above segments, there are a number of legacy players that were architected 5-10 years ago and aren't 1) injecting AI into their offerings and 2) providing more comprehensive AI management solutions.

Infrastructure management is no longer just about about data aggregation and insights, it should also include more complete automation of the asset management.