#83- How stunning founders operate
Notes from the fantastic Colossus podcast with Dan Rose - Chairman of Coatue Ventures
I have a lukewarm relationship with podcasts, but the Colossus podcast just hits it out of the park. I love listening to the ‘Invest with the Best’ series and am hooked.
This week I listened to Dan Rose, the Chairman of Coatue Ventures. Prior to Coatue, Dan spent 20 years in leadership roles at both Amazon and Facebook. Dan was at Amazon from 1999-2006, where he managed retail divisions and helped incubate the Kindle. As a VP at Facebook from 2006-2019, Dan helped grow the company from 130 employees to 35,000 and was responsible for early monetization strategy, business development, M&A and community operations. He has also made more than 100 angel investments including Gusto, TripActions, OpenDoor, Flexport, Airtable and Figma.
This is a good one!
The Stunning Founders’ Playbook
Jeff Bezos & the Birth of Kindle
..our job was to build the Kindle, and my job specifically was to get the book publishers on board with producing more books in a digital format. At the time, there were about 20,000 e-books in the world. And Jeff gave us a goal of launching the Kindle with 100,000 books in a digital format. He knew that one of the important things to this platform is going to be selection.
Find why products fail and create solutions
There had been e-book devices before the Kindle that had failed. And there were a couple of reasons he believed that they had failed. One was that there just wasn't enough selection that when you take your device out, if you can't find the book you're looking for, you're not going to pull it out again. And two was the screen wasn't really designed for reading a book.
LED screens are not great on your eyes, and most people read books in the sun when they're on the beach or in bed at night, and he just thought we can come up with a better technology for this. And so that set us down the path of developing this new platform and really internalizing the innovator's dilemma, I think, in a perfect way that shows that you can think about that idea intellectually, but to actually do it takes a lot more courage.
Classic Jeff Bezos as was, he wanted it to feel magical. And magical meant that you clicked a button and the book showed up on your device. And that at the time, iPods, you plugged them into your computer to download songs. He wanted it to happen over the air. He didn't want you to have to plug in your Kindle.
And so we said, “Okay, we can figure that out, and we had a great technology team that built that”. But then he said, “No, that's not good enough because if you're not in a Wi-Fi zone, then you can't get your book. And what if I'm on the plane and I'm just getting ready to take off and I forgot to download a book, and I want to download it? I want to be able to get that book”. And we said, “But that doesn't work because to do cellular downloads is going to cost maybe $20 a month”.
“And if we charge $20 a month, then nobody is going to buy the device”. And he said, "Well, let's just pay the carriers for the cellular coverage, but give it away for free to the customer”. And we said, "Well, we can't make the math work. There's not enough margin on the books and the device to do that”. And he said, "Well, why don't you go back and make the math work”. And we came back 15 times.
And we just couldn't make it work because we said, “Okay, we'll charge more for the device”. And he goes, "No, nobody is going to buy it. We have to charge less”. Well, we'll charge more for the books, and he said, "No, then they're not going to buy the books”. So finally, we modelled together to barely make the math work. And it turned out that he was completely right. I think the combination of those things is what made the Kindle such a successful product and why everybody who owns one feels like it truly is a magical product.
Constraints breed creativity
There's something about a founder CEO that they have the right to ask for completely unrealistic things of their team and to be stubborn about those things and wait until they get to the answer that they like rather than accepting the compromise that the team insists is necessary in order to deliver the end result. And I saw Jeff do that over and over again.
He was just incredibly stubborn about his vision for what he believed was necessary for something to be successful. There's been lots written about Alexa, which I wasn't there for, I left before that product got started, but there's just great stories about him insisting on things that the team also insisted were impossible. And then ultimately, when you put that goal in front of people, they find a way through.
It takes longer sometimes. You have to be super creative, but you get there. We certainly did that with the Kindle. And I saw Mark Zuckerberg do it at Facebook as well. And it was one of the things that I really just admired Mark for his stubbornness and his willingness to stick to his vision in the face of resistance from executives who, in his case, were usually much older than him and had a lot more experience.
When I joined Facebook, he was 21 years old. Yet he had this in his DNA, and I saw this, I pattern matched it with Bezos, and I thought, gosh, at 21, if this guy has this level of conviction about what he believes is going to work and is willing to push through to get to the outcome even if it's really hard and is going to create a lot of brain damage along the way. But he knows that if we get there, it's going to be magical and transformational.
I think great founders are able to do that. They trust themselves enough, and they believe in their conviction. And as a founder, you have the right to do that. You can tell people, look, we're not going to ship until we get it right.
Traits of credible founders
You have to do two things to get over that line to emerge into the category of credible founder who is going to be able to attract the best people around them and really build something substantial. And the first thing you have to do is you have to articulate why it is that you're so insistent on this thing that you believe is so important.
And that articulation has to resonate with the people who are going to go build it, and it has to resonate with people who are smart and thoughtful and are ultimately credible enough to make that happen.
The second thing you have to do as a founder to emerge in that category of credible is you have to be right over and over and over again. And that just takes time. You just have to prove that your insistence and stubbornness were actually the right answer and not just being stubborn for the sake of being stubborn.
As an example, when Jeff got up in front of the company and explained why we were going to go do AWS, that was very non-consensus at the time. This is a retail company that a lot of people didn't even think of as a technology company, and we're going to go build this cloud technology platform that didn't exist in the world, what gave us the right to do that?
But what he did is, and I actually still have the video of this, all-hands talk that he gave because it was so eye-opening. He described all of the things that had to be in place for Amazon to exist. There needed to be a global fulfilment network. There needed to be a credit card system. There needed to be the Internet. All these different foundation layer technologies had to exist in order for Amazon to be built in the first place in 1994 when he started the company.
And then he went through all the foundational layers that existed in 2004 that he believed made it possible for the cloud to finally be built, and he made the analogy to the early days of electricity. He said, “It used to be the case that in order to own a store, you had to have an electric grid built behind your store”. And that's the equivalent today of launching a website. You have to build your own electric grid, which we call data centres in order to launch a website.
And you can’t imagine that being the case today 100 years later because the electric grid exists. We're going to build the electric grid for computing. Everybody just opened their eyes to this idea that actually this does need to exist, and why not Amazon, why not take this incredible infrastructure that we built, our own data centres, and pivot them into something that can be a service to other companies.
We would sit in product meetings with him (Zuckerberg). He spent five days a week sitting through product reviews. And he would ask questions about the tiniest little details. Why does this pixel over here belong there instead of over here and challenge the team on those things, to be a great product leader, you have to care about those details.
Micromanagement as a founder
But I think if you are a product founder, you really have to micromanage the product. You have to care enough about it, that you're going to get into the weeds. And I have this conversation with the founders that I advise and sit on the board all the time because they're asking me, “Hey, you know, I hired a really good product leader, and they're asking me to give them some space so they can run”.
And my feedback is always, yes, of course, you have to empower them. If you demoralize them, they're not going to stay. But you also have to explain to them that you're the CEO, the product is the strategy, and at the end of the day, this is something that you have to be hands-on with, that's your job. But at the same time, you can't do that and do everything else.
You can't micromanage the whole company. And so you have to hire great people around you who are good at the things that you're not going to spend as much of your time on. Mark famously hired Sheryl and let her run a big part of the business, and she was very good at it, and that was a great partnership for a long time. So I wouldn't say being a great CEO means being a great micromanager.
I would just say it means knowing where to dig in on the things that you're especially capable of helping and actually matter the most to the company, hopefully, those things are aligned, and being willing to empower people to do the other things and not waste your time on those things where other people are actually going to be able to do better at that than you are, and it frees you up to spend your time on the stuff that matters.
Product-led or Sales-led conundrum
And by the way, even companies that start out more product-led eventually figure out that they have to sell too. Dave just has them eating from his hand when he starts talking about how to build the sales organization and how to build sales DNA into your company. And it's hard because, again, in technology companies, usually the product org is the driver. A product org drives the strategy, the CEO tends to be more product-driven.
Sometimes enterprise sales companies, they can be more driven by sales. You think about a guy like John Chambers at Cisco, but for the most part, the sales org oftentimes feels like second-class citizens. And so you need to have a sales leader like Dave or David Fisher who at Facebook did this really well, Sheryl and David together, that really understands how to empower the sales team and make them feel like their jobs are important while also recognizing that they may not be driving the bus. Sometimes the company is going to go in a direction that makes their job harder, but that's okay. That might be the right decision for the company, and the sales team needs to figure out how to support it.
Facebook had a visible product-market fit, you probably do not
When I joined the company (Facebook), we had 7,000 new users a day, and we had 30,000 people a day who were trying to sign up for Facebook who were being told that they couldn't use the service. Have you ever heard of a business that's turning away four, five times as many people as they're accepting in the door as customers?
And the day we flipped the switch on open registration (including non .edu domains as well), all of a sudden, we had 37,000 new users a day. But very quickly, within a month, we had 70,000 new users a day because of those network effects. And within six months, we had hundreds of thousands of new users a day, and it just continued to grow like that exponentially. It was definitely better for the product, and the people on the service loved it.
The art of people-management
This was the most important moment in my career and the make-or-break moment in my career was right when Sheryl joined Facebook. I had already been at the company for 1.5 years. And before that, I had spent six years at Amazon. And in that entire time, that was the totality of my professional career working for big companies, I had never really had a performance review.
Amazon had sort of a version of it, but it wasn't that organized. The company was just trying to survive. And certainly, in the early days of Facebook, we didn't have that. And Sheryl was there for about a month, and she brought me in, and she said, “I've now met everyone at the company (there were 400 people when she joined) and all the senior team, and I really think you're super talented, and I want to give you more responsibility”, which was to me that was the thing I had been waiting my whole career to hear from somebody that they really believed in me and that they wanted to promote me.
And so I was so excited, and she said, “Before I do that, I want to make sure that I'm seeing the same thing that everyone else is seeing, so I'm going to do a 360-performance review”. And I thought, wow, that's great. I'm excited because I'm awesome. And I can't wait to hear about other people telling me how awesome I am. So she sends out requests to everyone who worked for me and all the people that I worked with as peers at the time, the senior leadership team of the company.
And she brought me into her office a week later, and she said, “Dan, we have a huge problem here. This is not only a bad review. This is one of the worst reviews I've ever seen in my career”. And it literally felt like somebody had kicked me in the gut. I mean I was almost out of wind, out of breath when I heard her say that. And what she said was, “Look, what I'm seeing is that people really believe and respect your ability as a negotiator, as a business development person”.
“You're extremely highly skilled in that area, but they don't trust you. And they think you're political, and they think that you are primarily focused on yourself and not on others. And that's a real problem”. And she said, “Not only can I not promote you, but if you don't fix this, I can't have you at Facebook. I can't have somebody in a senior leadership at Facebook with this kind of reputation”.
And so it was obviously devastating. I had spent a couple of days going deep into how do I rectify this, and ultimately, I realized that the thing I needed to do is go sit down with everybody and ask them to give me that feedback directly and to help me not just in that meeting, but in the moment, when I was doing those things, point them out to me so that I could start to change the behavior.
And it did two things. It showed some vulnerability with them that I was willing to acknowledge this and that I wanted to change. But also more importantly, it actually got people to start to give me feedback, which allowed me to see the bad behavior that I was doing. But the reason I tell that story is because think about what it took for Sheryl to do that.
She was religious about her weekly one-on-ones with every single person on our team in the midst of all the chaos and how fast we were moving and how busy everyone was. She never missed a one-on-one with any single person on her team. And if she was in town, we were sitting down in her office every single week for a half hour to talk about things, which allowed us to stay completely synced up. She did the same with Mark. She was always getting synced up with him.
And so she just threw her exceptional people management skills. She kept the company organized, which is to say she just kept everyone aligned. She was the bridge between the product and the business organization. She was the bridge between Mark and the rest of the company. She was the bridge between the senior leadership, vision and direction and the actual operational execution of that.
And she did that by building relationships and being disciplined about how to manage those relationships in a scalable way. She by the way went on after that experience with me to implement a 360-review process for the entire company, which they still do to this day. And every single employee has the opportunity to get that feedback and to grow from that.